Person [Section 2(31)] : Definition under Income Tax

Person includes :
an Individual;
a Hindu Undivided Family (HUF) ;
a Company;
a Firm
an association of persons or a body of individuals, whether incorporated or not;
a local authority; and
every artificial juridical person not falling within any of the preceding sub-clauses.

Association of Persons or Body of Individuals or a Local authority or Artificial Juridical Persons

shall be deemed to be a person whether or not, such persons are formed or established or
incorporated with the object of deriving profits or gains or income.

The word person is a very wide term and embraces in itself the following :

1 Individual​. It refers to a natural human being whether male or female, minor or major.

2 Hindu Undivided Family​. It is a relationship created due to operation of Hindu Law. The
manager of HUF is called “Karta” and its members are called ‘Coparceners’.

3 ​Company​. It is an artificial person registered under Indian Companies Act 1956 or any other
law.

4 Firm​. It is an entity which comes into existence as a result of partnership agreement between
persons to share profits of the business carried on by all or any one of them. Though, a
partnership firm does not have a separate legal entity, yet it has been regarded as a separate entity
under Income Tax Act. Under Income Tax Act, 1961, a partnership firm can be of the following
two types:

● a firm which fulfil the conditions prescribed u/s 184

● A firm which does not fulfil the conditions prescribed u/s 184.

It is important to note that for Income Tax purposes, a limited liability partnership (LLP)
constituted under the LLP Act, 2008 is also treated as a firm.

5. Association of Persons or Body of Individuals.:​ Co-operative societies, MARKFED,

NAFED etc. are the examples of such persons. When persons combine togather to carry on a
joint enterprise and they do not constitute partnership under the ambit of law, they are assessable
as an association of persons. Receiving income jointly is not the only feature of an association of
persons. There must be common purpose, and common action to achieve common purpose i.e. to
earn income. An AOP. can have firms, companies, associations and individuals as its members.
A body of individuals (BOl) cannot have non-individuals as its members. Only natural human
beings can be members of a body of individuals. Whether a particular group is AOP. or BOl. is a
question of fact to be decided in each case separately.

6. Local Authority​. Municipality, Panchayat, Cantonment Board, Port Trust etc. are called local
authorities.

7. Artificial Juridical Person.​ A public corporation established under special Act of legislature
and a body having juristic personality of its own are known to be Artificial Juridical Persons.
Universities are an important example of this category.

Example :
Determine the status of following persons :
Reliance Industries Limited. [ company. ]
Punjab National Bank. [ company. ]
Madras University. [ Artificial Juridical person]
Calcutta Municipal Corporation. [ Local Authority]
A partnership firm with A, B and C partners. [ Firm]
A Brahmin Parivar consisting of Mr. A, his brother B, Mrs. A and B. [ H.U.F.]
Kalyani Publishers Ltd. [ Company]
Reserve Bank of India. [ Artifitial Judicial Person]
Life Insurance Corporation of India. [ Company]
Mr. Narendra Modi, Prime Minister of India. [ Individual]
A Village Panchyat. [ Local Authority]
Markfed, Housefed. [ Association of Person - AOP ]

Computation Of Total Income & Tax Liability of an Individual

[Assessment of Individual]

Step 1: Compute the income of an individual under 5 heads of income on the basis of his
residential status.

Step 2: Income of any other person, if includible u/ss 60 to 64, will be included under
respective heads.

Step 3: Set off of the losses if permissible, while aggregating the income under 5 heads of
income.

Step 4: Carry forward and set off of the losses of past years, if permissible, from such
income.

Step 5: The income computed under Steps 1 to 4 is known as Gross Total Income from
which deductions under sections 80C to 80U (Chapter VIA) will be allowed. However, no
deduction under these sections will be allowed from short-term capital gain covered under
section 111A, any long-term capital gain and winning of lotteries etc., though these incomes are
part of gross total income.

Step 6: The balance income after allowing the deductions is known as total income which
will be rounded off to the nearest Rs. 10.

Step 7: Compute tax on such Total Income at the prescribed rates of tax.

Step 8: Allow rebate of maximum Rs. 2,500 under section 87A in case of resident individual
having total income upto Rs. 3,50,000. For details see below.

Step 9: Add surcharge @ 10% on total income exceeding Rs. 50,00,000 and upto Rs. 1 crore
and 15% of such income tax in case of an individual having a total income exceeding Rs. 1 crore.

Step 10: Add education cess @ 2% and SHEC @ 1% on the tax (including surcharge if
applicable).

Step 11: Allow relief under section 89, if any.

Step 12: Deduct the TDS, advance tax paid for the relevant assessment year and double
taxation relief under section 90, 90A or 91. The balance is the net tax payable which will be
rounded of nearest ten rupees and must be paid as self-assessment tax before submitting the
return of income. Rebate of maximum Rs. 2,500 for resident individuals having total income up
to Rs. 3,50,000 [Section 87A]

With a view to provide tax relief to the individual tax payers who are in lower income bracket,
the Act has provided rebate from the tax payable by an assessee, if the following condition and
satisfied:
The assessee is an individual
He is resident in India,
His total income does not exceed Rs. 3,50,000.

Quantum of Rebate:

The rebate shall be equal to: the amount of income-tax payable on the total income for any
assessment year, or Rs. 2,500,

An Insight Into Tax Planning

As a tax payer, you should be aware of the tax planning strategies to minimize the tax payout.
Tax planning is a way by which you take the full advantage of deductions, exemptions, reliefs
and rebates while strictly following the law.
With proper tax planning, you can reduce your tax liability and pay lesser tax.
It is important that you focus on the sections in which you can save the most.
For long, insurance has been a front-runner among instruments which are considered for tax
saving.
For young earners who lie in the age bracket of 23 to 30, it is a good idea to get life insurance
and health insurance cover.
As it is the starting phase of their career, it is the right time to start saving for the future.
For tax planning, it is best to get in touch with a tax consultant.
Tax consultants also known as tax advisers have an understanding of the regulations regarding
individual and businesses taxes.

Tax Planning without the help of a Consultant

The prime objective of tax planning should be to reduce tax liability.

It is every taxpayer’s wish that he has the ability to retain maximum part of his earnings.
It would totally be in the interest of the assessee to plan his taxes well in advance, avail the
exemptions and deductions.
If you do the tax planning you, it can be both challenging and rewarding.
You have the advantage of choosing a tax saving instrument which best suits your needs.
At the same time it is challenging, as a wrong decision would mean that you are stuck with an
unsuitable investment for 3 to 5 years, if not more.

Avoid Tax Evasion

One of the key problems in India is the painfully low numbers of tax payers which indicates that
tax evasion takes place at a large scale. Tax evasion is termed as an illegal activity which
includes not filing the income tax returns or misrepresenting the tax amount which needs to be
paid. If the Income tax authorities scrutinize and discover that you have deliberately tried to
reduce the tax liability, you will be penalized. The penalty can go up to almost three times the
amount which has been concealed. Hence, it is best to exercise precaution when filing the
income tax return, because if a return is scrutinized for an anomaly, it will have serious financial
implications.

Tax Evasion: ​Tax Evasion is an illegal way to minimize tax liability through fraudulent
techniques like deliberate under-statement of taxable income or inflating expenses. It is an
unlawful attempt to reduce one’s tax burden. Tax Evasion is done with a motive of showing
fewer profits in order to avoid tax burden. It involves illegal practices such as making false
statements, hiding relevant documents, not maintaining complete records of the transactions,
concealment of income, overstatement of tax credit or presenting personal expenses as business
expenses. Tax evasion is a crime for which the assesse could be punished under the law.

Tax Planning:​ Tax planning is process of analyzing one’s financial situation in the most
efficient manner. Through tax planning one can reduce one’s tax liability. It involves planning
one’s income in a legal manner to avail various exemptions and deductions. Under Section 80C,
one can avail tax deduction if specific investments are made for a specific period up to a limit of
Rs 1, 50,000. The most popular ways of saving tax are investing in PPF accounts, National
Saving Certificate, Fixed Deposit, Mutual Funds and Provident Funds. Tax planning involves
 applying various advantageous provisions which are legal and entitles the assesse to avail the
benefit of deductions, credits, concessions, rebates and exemptions. Or we can say that Tax
planning is an art in which there is a logical planning of one’s financial affairs in such a manner
that benefits the assesse with all the eligible provisions of the taxation law. Tax planning is an
honest approach of applying the provisions which comes within the framework of taxation law.

Tax Avoidance: ​Tax avoidance is an act of using legal methods to minimize tax liability. In
other words, it is an act of using tax regime in a single territory for one’s personal benefits to
decrease one’s tax burden. Although Tax avoidance is a legal method, it is not advisable as it
could be used for one’s own advantage to reduce the amount of tax that is payable. Tax
avoidance is an activity of taking unfair advantage of the shortcomings in the tax rules by finding
new ways to avoid the payment of taxes that are within the limits of the law. Tax avoidance can
be done by adjusting the accounts in such a manner that there will be no violation of tax rules.
Tax avoidance is lawful but in some cases it could come in the category of crime.

Features and differences between Tax evasion, Tax avoidance and Tax Planning:

1.​ ​Nature:​ Tax planning and Tax avoidance is legal whereas Tax evasion is illegal

2. Attributes: ​Tax planning is moral. Tax avoidance is immoral. Tax evasion is illegal and
objectionable.

3. Motive: ​ Tax planning is the method of saving tax .However tax avoidance is dodging of tax.
Tax evasion is an act of concealing tax.

4. Consequences​: Tax avoidance leads to the deferment of tax liability. Tax evasion leads to
penalty or imprisonment.

5. Objective: ​The objective of Tax avoidance is to reduce tax liability by applying the script of
law whereas Tax evasion is done to reduce tax liability by exercising unfair means. Tax planning
is done to reduce the liability of tax by applying the provision and moral of law.

6. Permissible: ​Tax planning and Tax avoidance are permissible whereas Tax evasion is not
permissible.

● Tax planning is an umbrella term which not only covers the various aspects of tax-filling but
focuses deeper on the need of reducing one’s tax liability
● Tax liability of an individual can be reduced through 3 different methods- Tax Planning, Tax
avoidance and Tax evasion.
● Tax planning and Tax avoidance are the legal ways to reduce tax liabilities but Tax avoidance is
not advisable as it manipulates the law for one’s own benefit. Whereas tax planning is an ideal
method.

In order to file your income tax return (ITR), you first need to collect all the information required
to file it. The next important step is to compute your total taxable income. After this, final tax
payable or refundable is calculated by applying the applicable tax rates in force and then
deducting taxes already paid by way of TDS/TCS or Advance tax from the tax due amount
arrived at.

Here's a step by step guide on how to calculate one's total taxable income:

As per the income tax laws, a person can have a total of 5 sources of income which are: Income
from salary, Income from House Property, Income from Business or Profession, Income from
Capital Gains, Income from Other sources. All income of a tax-assessee has to be categorized as
one of the above.

Income from Salary

You can compute income from your salary using the TDS certificate in Form 16 issued by your
employer. This is to be done as follows:

* Collect your salary slips and Form 16 for the financial year. - Now add all your emoluments
like (Basic salary, DA, TA, DA on TA, HRA, all other allowances, and reimbursements) which
will be mentioned in your salary slips and Form 16 (Part B).

Add the Bonus (TVP- Ex gratia) received in the FY for which income is being computed.

* The total will be termed as your gross salary.

*​ ​ Deduct the following from your gross salary

Exempted portion of HRA, - Transport Allowance (maximum exemption can be upto Rs19200
per annum) - All reimbursements subject to the furnishing of actual bills i.r.o expenditure
incurred (Medical reimbursement can be maximum upto Rs 15000)

* The result will be your net income from salary.

Note: From FY 18-19, deduction in respect of transport allowance of Rs19,200 per annum and
medical reimbursement of Rs 15,000 per year have been withdrawn. Further, a standard
deduction of Rs 40,000 a year will be allowed from your gross salary.

Income from House Property (HP)

Income from house property mainly consists of rental income received by the assessee from the
house that he has let out. In case, assessee has only one house and that too is self occupied by
him, then also he will be required to compute his income from house property.( which will be nil
or a negative value in most cases)
The assessee must consider following points while computing his income from House Property. -
Compute the Gross Annual Value (GAV) of your let out HP as follows:

* Compute the Fair Market Value (expected rent from similar property) and Municipal Valuation
(valuation as per municipal authorities). Take the higher value of the two. This higher value is
termed as Expected rent.

* Compare the Actual rent received/Receivable for the year with the expected rent and the higher
value will be the GAV of the House.

Note: If property is covered under Rent Control Act, then Expected rent cannot exceed the
Standard rent.

Calculate the Net Annual Value (NAV) by deducting municipal taxes actually paid during the
year from GAV. Deduct the following from the NAV to compute the income/loss from House
Property

* 30% of NAV - Annual interest cost paid on the amount of loan taken, if any, to purchase the
said House.

Note: In case of self occupied property, the GAV would be taken as nil and maximum deduction
of interest paid would be limited to Rs 200000.

Income from Capital Gains

Computing income from capital gains involves some effort depending on the number and
complexity of transactions. You might need an expert to calculate the same depending upon the
nature and number of transactions. Broadly, income from capital gains is computed as follows:

* Compute your Long term capital gains (LTCG) from sale of all capital assets. - Compute your
Short term capital gains (STCG) from sale of all capital Assets. - Claim the deductions u/s 54,
54G, 54EC etc. if any.

Income from Business/Profession

Calculating the taxable income arising from gains from Business/ Profession might be a
challenging task. In case, the business or professional set up is not on a big scale and does not
involve complex transactions, then income from Business/Profession can be computed by the
assessee himself/herself but in most cases, it is beneficial to take the advice of an expert( like a
chartered accountant) to do this. . There several provisions under the Income Tax Act which deal
with the allowance/disallowances of various expenditures and incomes. Other concepts like
AMT, Book Profits, and Presumptive incomes are also applicable while computing gains from a
Business/Profession.
For a simple business, the assessee can compute his taxable business income in the following
manner:

*Take the Net Profit mentioned in the Books of Accounts as the base value.

* Add back all the deductions that are disallowed under the income tax act (Refer Section 37, 14)
which you have already availed in the P&L account maintained as a part of books of accounts.

* Subtract the expenditures that are allowed as per the provisions of income tax laws (Refer
section 32, 35, 36).

It is always better to take the help of a chartered accountant, as the calculations tend to change
with each case. Income from Other Sources

* All the incomes that cannot be classified in the heads of income mentioned above will be
considered as income from other sources. It generally consists of Interest Income, Dividend
income, Gifts (where taxable) etc. These figures are to be collected by categorizing all the credit
entries in your savings account passbook/statements. In case of accrued income such as interest
earned on cumulative fixed deposits which will not reflect in your savings account as credit
entries, you can​ ​obtain interest certificates from the institution where you have placed the FD.
You will need interest certificates only in case tax has not been deducted at source from the
accrued income because in case of TDS a TDS certificate will be issued to you.

* Saving account credit entries (except inter-account transfers) are to be categorized under the
above mentioned five heads of income. In this manner, compute your annual income from other
sources like Interest income, Dividend income, family pension, Lottery income, income from
race horses etc.

Interest income typically includes interest from fixed deposits, recurring deposits, savings
accounts, bonds, debentures etc. Dividend income typically comes from mutual fund schemes
where you have opted for the dividend option and equity shares. Most people would have only
these two kinds of income from other sources.

*Subtract the deductions available under Income Tax act for which you are eligible.

Set Off of Current year losses and set off of brought forward losses. After computing income
under each head of income, you might see losses reflecting under some heads of income. The
income tax laws allow the assessee to set off the losses under one head of income from income
under the same head or other heads of income too.

However, there are certain restrictions on set off of losses such as:

* The loss from business can't be set off from income from salary.
* Long term capital losses can't be set off against any other head of income.

(However, LTCL for FY 18-19 and onwards can be set off against LTCG)

* Short term capital losses can be set off against any other short term capital gains as well as
long term capital gains, but not against any other head of income

* Losses from owning and maintaining race horses can't be set off against any other head of
income

Even if there are no losses under any head in the current year, then also any losses which could
not be set off in earlier years and have been brought forward by the assessee can be set off from
the current year income of the same head in which the loss was incurred. Any unsettled loss can
be carried forward to the next year. There are multiple conditions attached to carry forward and
set off of losses so it is advisable to consult an expert in this matter.

Gross Total Income

It is the sum of income from all 5 heads after setting off the losses under the relevant heads of
income. It is worth noting that Gross total income is to be categorized in 2 parts i.e. one which is
to be taxed at normal slab rates (NORMAL INCOME) and other which is subject to tax at
specific rates.

For this purpose, following are not considered as normal income:

* Short Term capital Gains on which Securities Transaction Tax has been paid (taxed at 15
percent)

* Long term capital gains except for those exempted under section 10(38) (Taxed at 20 percent)

(From FY 18-19, no capital gains are exempt under section 10(38) and will be taxed at 10
percent.)

* Casual income like lottery income, income from horse racing (taxed at 30 percent)

Deductions under chapter VI-A

We all are aware of the popular deductions like deductions under ​80C​ (upto Rs 150000), but
there are many more deductions that can be claimed by the assessee. Make sure you claim all the
relevant deductions from your Gross total income which are given under sections 80C to 80U.
In case the amount of deductions exceeds the Gross total income (GTI), then the amount of
deduction shall be restricted to the amount of GTI.

Further, deduction under chapter VI-A can only be claimed from NORMAL INCOME computed
above.

Some of the investments/expenditures which can be claimed as deductions include: Investment

in NSC, PPF, ULIPs, ELSS, NPS, VPF, Tution fee, Mediclaim policy, Life insurance policy,
donations given to certain approved institutions, royalty income received by the author of books,
rent paid (subject to conditions).

* Subtract the Deductions under Chapter VI-A from your Gross Total Income. The result will be
your total taxable income. After calculating your total taxable income, apply the tax rates
relevant for the financial year for which the income has been calculated to compute your tax
liability.

Residential Status under Income-tax Act

It is important to determine the residential status of a person since the taxability of income of a
person depends on his residential status during that financial year. For example, a person resident
in India is liable to pay tax in India on his global income.

As per section 6 of the Income-tax Act, 1961, all the assessees are divided in the following
categories for the purpose of determining their residential status:
I. Individual,
II. Hindu undivided family,
III. Company, and
IV. Every other person

Types of Residential Status:

An assessee can be categorized into following residential status during the previous year:
A) Resident in India
B) Non-Resident in India

A resident individual and HUF are further sub-categorized in to following status:

A) Resident and Ordinarily Resident
B) Resident but Not-ordinarily Resident

I. Individual:
The residential status of individual for the purpose of taxation is determined on the basis of his
physical presence in India during the previous year (April 1 to March 31) and preceding previous
years. An individual is said to be a resident of India if he is:
1) Physically present in India for a period of 182 days or more in the previous year, or
2) Physically present in India for a period of 60 days or more during the relevant previous year
and 365 days or more in aggregate in four preceding previous years.
If a person doesn’t meet any of the above two conditions then he is said to be a non-resident in
India for the purpose of taxation in India.
A resident individual is further classified into ‘Resident but not Ordinarily Resident’ if:
1) His stay in India is of 729 days or less in previous 7 years; and
2) He was considered as ‘non-resident’ in 9 out of previous 10 years.

II. HUF:
An HUF is said to be resident in India if the control and management of HUF is in India. A
resident HUF is further classified into ‘Resident but not Ordinarily Resident’ if:
a) Stay of Karta in India is 729 days or less in previous 7 years; and
b) Karta was considered as ‘non-resident’ in 9 out of previous 10 years.
If control and management of HUF is situated wholly outside India then HUF shall be treated as
non-resident.

III. Company:
An Indian Co. is always treated as resident in India. However, in the case of a Foreign Co., it
shall be treated as resident in India if the Place of Effective Management (POEM) of Foreign Co.
is in India. If POEM of Foreign Co. is outside India then it shall be treated as non-resident in
India.

IV. Every other person:

In case of every other person, i.e., Firm/BOI/AOP, they will be treated as resident in India if
control and management of person is situated in India. If it is situated outside India then status
will be non-resident.

It must be noted that if a person is resident in India in a previous year in respect of any source of
income, he is deemed to be resident in India in respect of all other sources of income. An
assessee is not allowed to claim different residential status for his different sources of income.
So, before calculating income during the year, it is most important to calculate the residential
status of the assessee during the previous year.

Taxability of income in case of ordinary resident person:

A resident assessee shall be liable to pay tax in India on the following incomes:
1. Income received or is deemed to be received by him in India in the previous year.
2. Income accrues or arises or is deemed to accrue or arise to him in India during such year.
3. Income accrues or arises to him outside India during such year.

Taxability of income in case of non-ordinary resident person:

A resident but not ordinarily resident individual and HUF shall be liable to pay tax in India on
the following incomes:
1. Income received or is deemed to be received by him in India in the previous year.
2. Income accrues or arises or is deemed to accrue or arise to him in India during such year.
3. Income accrues or arises to him outside India during such year if it is derived from a business
controlled from India or from a profession setup in India.
Taxability of income in case of non-resident person:
In case of a non-resident assessee, being an individual, HUF, partnership firm, company or other
person, following incomes shall be taxable in India:
1. Income received or is deemed to be received in India by such person in the previous year.
2. Income accrues or arises or is deemed to accrue or arise to such person in India during such
year.

Income Tax Surcharge Rate & Marginal Relief

Do you come under one of the higher income tax brackets i.e. 30%? – If yes, you are liable to
pay an additional surcharge on your Income Tax liability. To simplify, a surcharge on income tax
is an extra tax to be paid by the taxpayers earning a higher income i.e., beyond a certain limit.

Our government ensures that with the surcharge provision, the rich contribute to the income
taxes more than the poor. It also provides a marginal relief on the surcharge for a certain class of
taxpayers.

Let’s see the related provisions in detail:

Surcharge on Income Tax

Surcharge rates for different taxpayers
Marginal relief for individuals
Marginal relief for firms
Marginal relief for companies
1. Surcharge on Income Tax
Income tax surcharge is an additional charge payable on income tax. It is an added tax on the
taxpayers having a higher income inflow during a particular financial year.

2. Surcharge rates for different taxpayers

There are different rates of surcharge applicable to different taxpayers under the Income Tax
Act, 1961.

Taxpayer Income limit Surcharge Rate

on the amount of
income tax

Individual/HUF/AOP/BOI/ Artificial Net income exceeds Rs.50 Lakhs 10%

Judicial Person but doesn’t exceed Rs. 1 Crore

Individual/HUF/AOP/BOI/ Artificial Net income exceeds Rs.1 Crore 15%

Judicial Person but doesn’t exceed Rs 2 crore
Individual/HUF/AOP/BOI/ Artificial Net income exceeds Rs.2 Crore 25%
Judicial Person but doesn’t exceed Rs 5 crore

Individual/HUF/AOP/BOI/ Artificial Net income exceeds Rs.5 Crore 37%

Judicial Person

Firm/LLP/Local Net income exceeds Rs.1 Crore 12%

authorities/Co-operative Society

Domestic Company Net income exceeds Rs.1 Crore 7%

but doesn’t exceed Rs.10 Crores

Domestic Company Net income exceeds Rs.10 Crores 12%

Foreign Company Net income exceeds Rs.1 Crore 2%

but doesn’t exceed Rs. 10 Crores

Foreign Company Net income exceeds Rs.10 Crores 5%

3. Marginal relief for individuals

Case 1: Where the total income* is more than Rs.50 Lakhs but does not exceed Rs.1 crore, the
taxpayers have to pay a surcharge at the rate of 10% on the income tax computed.

According to the Income-tax provisions, a marginal relief will be provided to certain taxpayers
up to the amount of the difference between the excess tax payable (including surcharge) on the
income above Rs.50 lakhs and the amount of income that exceeds Rs.50 Lakhs.

Suppose, an individual has a total income of Rs.51 Lakhs in an FY, he will have to pay taxes
inclusive of a surcharge of 10% on the tax computed i.e., total tax payable will be Rs. 14,76, 750.
But, if he would have earned only Rs.50 lakhs, then the tax liability would have been
Rs.13,12,500 only.

Isn’t it unfair for the individual? For earning an extra Rs.1,00,000, he will end up paying income
tax of Rs.1,64,250. The individual’s tax liability should be reduced to avoid any such excess tax
payable.
The individual will get a marginal relief of the difference amount between the excess tax payable
on higher income i.e (Rs.14,76, 750 minus Rs.13,12,500 = Rs.1,64,250 ) and the amount of
income that exceeds Rs. 50 Lakhs i.e. (Rs.51,00,000 minus Rs.50,00,000 = Rs.1,00,000). The
marginal relief will be Rs.64,250 (Rs.1,64,250 minus Rs.1,00,000).

Case 2: Where the total income is more than Rs.1 crore but less than Rs. 2 crore, a surcharge of
15% will be levied on the income tax payable.

A marginal relief will be provided to the taxpayer up to the amount of difference between the
excess tax payable (including surcharge) on income above Rs.1 crore and the amount of income
that exceeds Rs.1 crore.

Suppose, if the total income of an individual is Rs.1.01 crore in any FY, he will have to pay tax
inclusive of a surcharge of 15% on the tax computed i.e., total tax payable will be Rs.32,68,875.
But, if he would have earned only Rs.1 crore, then the tax payable would have been
Rs.30,93,750 only.

For earning an extra Rs.1,00,000, he will end up paying income tax of Rs.1,75,125.

Hence, the individual will get a marginal relief of the difference amount between the excess tax
payable on higher income i.e (Rs.1,75,125 ) and the amount of income that exceeds Rs.1 crore
i.e. (Rs. 1,00,000, in this case). The marginal relief will be Rs.75,125 (Rs.1,75,125 minus
Rs.1,00,000).

4. Marginal relief for firms

Where the total income is more than Rs.1 crore, a surcharge of 12% will be levied on the income
tax payable.

A marginal relief will be provided to such taxpayers having a total income of more than Rs.1
crore i.e., the income tax payable (including surcharge) on the higher income should not exceed
the income tax payable on Rs.1 Crore by more than the amount of income that exceeds Rs.1
crore.

To simplify, if the total income of a firm is Rs.1.01 crores, it will have to pay an income tax
inclusive of a surcharge of 12% on the tax computed i.e., total tax payable will be Rs.32,24,000.
But, if the total income would have been only Rs. 1 crore, then the tax payable would have been
Rs.31,20,000 only.

For earning an extra Rs.1,00,000, it will end up paying income tax of Rs.1,04,000.

Hence, the firm will get a marginal relief of the difference amount between the excess tax
payable on higher income i.e (Rs.1,04,000) and the amount of income that exceeds Rs.1 crore i.e.
(Rs.1,00,000, in this case). The marginal relief will be Rs.4,000 (Rs.1,04,000 minus
Rs.1,00,000).
5. Marginal relief for companies
Case​ 1: Where the total income of a domestic company is more than Rs.1 crore but does not
exceed Rs.10 crore, a surcharge of 7% will be levied on the income tax payable.
Similarly, for foreign companies having total income more than Rs.1 crore but less than Rs. 10
crores, a surcharge of 2% will be levied on the income tax payable.

Marginal relief will only be provided to such companies having a total income of more than Rs.1
crore but less than Rs.10 crores i.e., the income tax payable (including surcharge) on the higher
income should not exceed the income tax payable on Rs.1 Crore by more than the amount of
income that exceeds Rs.1 crore.

Case 2​: Where the total income of a domestic company is more than Rs.10 crores, a surcharge of
12% will be levied on the income tax payable.

Similarly, for foreign companies having total income more than Rs.10 crores, a surcharge of 5%
will be levied on the income tax payable.

Marginal relief will only be provided to such domestic companies having a total income of more
than Rs.10 crores i.e., the income tax payable (including surcharge) on the higher income should
not exceed the income tax payable on Rs.10 crores by more than the amount of income that
exceeds Rs.10 crores.

Deduction Under Section 80C

Tax deductions provide a means for individuals to reduce their tax burden. Among the various
tax-saving options, most individuals prefer to claim tax deduction under Section 80C of the
Income Tax Act, 1961. Section 80C allows individuals and HUFs to claim tax deduction of up to
Rs. 1,50,000 from their gross total income for certain investments and payments.

Eligible Deductions Under Section 80C

The following investments and payments are eligible for deduction under Section 80C of the
Income Tax Act, 1961:

Life Insurance : Premiums paid toward all life insurance policies are eligible for tax benefits
under Section 80C. This deduction can be claimed for premiums paid towards insuring self,
spouse, dependent children and any member of Hindu Undivided Family. An important point to
be noted is that if the policy is issued on or prior to March 31, 2012, annual premium up to a
maximum of 20% of the sum assured becomes tax deductible. For insurance policies issued on or
after April 1, 2012, annual premium up to a maximum of 10% of the sum assured is tax
deductible.

Sukanya Samriddhi Yojana : Investments made in Sukanya Samriddhi Yojana, which is a saving
scheme for the girl child, are eligible for tax deduction under Section 80C of the Income Tax
Act, 1961. A parent or legal guardian of a girl child, who has not reached the age of 10 years, can
open this account. Sukanya Samriddhi Yojana account can be opened for two girl children (one
account per girl child) and can be extended to a third if twins are involved.

Public Provident Fund : Public Provident Fund (PPF) contributions are eligible for tax
deductions under Section 80C. PPF accounts have a maximum deposit limit of Rs. 1,50,000 per
year, therefore, all deposits made to your PPF account can be claimed as deductions under
Section 80C. The money that you put into a PPF account will be locked-in for a period of 15
years. Partial withdrawals are permitted after 7 years.

Equity Linked Saving Scheme : Investments in equity linked savings scheme qualify for tax
deduction under section 80C of the Income Tax Act. Now, an essential point to be noted about
equity linked savings scheme is that they have a mandatory lock-in period of three years from the
date of investment. If you are considering investing in this scheme, make sure to invest for
longer periods like five to seven years as they are equity schemes. Equity schemes are an ideal
option for wealth creation over a long period.

Five Year Bank Deposit : Most banking institutions offer tax saving fixed deposits where
deductions can be claimed under Section 80C of the Income Tax Act. The condition associated
with tax saver fixed deposits is that they come with a lock-in period of 5 years. Premature
withdrawal is not allowed under this investment. Interest earned on tax saver fixed deposits,
however, are taxable and will be deducted at source.

Stamp Duty and Registration Charges : While buying a property, one of the largest expenses you
will have to bear is the stamp duty and registration charges. To give taxpayers some relief, the
government has included these expenses under Section 80C of the Income Tax Act, 1961. The
deduction can only be claimed once the property construction is complete and you have legal
possession of the house.

Senior Citizens Savings Scheme : Investments in Senior Citizens Saving Scheme, which as the
name would suggest is suitable for senior citizens, qualify for deduction under Section 80C of
the Income Tax Act. This scheme has a tenure of 5 years. To participate in the Senior Citizens
Saving Scheme, an individual has to be at least 60 years of age. Those who have taken VRS
(voluntary retirement scheme) can opt for it after the age of 55.

National Savings Certificate : To encourage taxpayers to park their money in National Savings
Certificate scheme, the government has allowed tax deductions to be claimed under Section 80C
on the investments made in it. Interest earned on National Savings Certificates are liable to tax.
However, if this interest is reinvested, it will be eligible for deduction under Section 80C. The
interest rate on this scheme is similar to that of tax savings fixed deposits, PPF and other fixed
income earning instruments.\

Home Loan Principal Repayment : The amount that goes into repaying the principal on a home
loan is eligible for deduction under Section 80C. To claim this tax benefit, construction of the
property should be complete. If you transfer the property before the end of 5 years from the year
you had taken its possession, no tax benefits will be awarded. Additionally, the amount claimed
as deduction in the earlier years shall become taxable in the year that the property is transferred.

Subsections of Section 80C

Section 80C of the Income Tax Act has certain sub sections. They are:

TAX SAVING TAX

INVESTMENTS ELIGIBLE
SECTIONS DEDUCTION

Payments made toward pension plans or annuity plans of

Section 80CCC Rs. 1,50,000
insurance companies.

Contributions made to the Pension Scheme of Central

Section 80CCD Rs. 1,50,000 Government. (This deduction is available only to individuals
and not HUFs).

Investments made toward long-term government-approved

Section 80CCF Rs. 20,000
infrastructure bonds.

Investments made under a government-approved equity

Section 80CCG Rs. 25,000
savings scheme.

Income which are exempt from Tax under Income Tax, 196​1 and covers Income
Exempt under Section 10(1) to Section 10(49). Article is been prepared keeping in view the
amendments made by Finance (No. 2) Act, 2019 and applicable for A.Y. 2020-21 and onwards.

According to Section 10 of the Income Tax Act 1961, the salaried employees are entitled to
enjoy the tax exemption. The objective of section 10 of the Income Tax Act is to reduce the
burden of the different structure of the tax such as rent allowance, allowance for children
education, travel allowance, gratuity and so on. This article will help you understand all the tax
exemptions that will ultimately broaden the ways of appreciation on tax.
There are various types of incomes that are entitled to exemptions under section 10 of the
Income Tax Act.

Exemption of Special Allowance under the section of 10(14)

There are certain kinds of allowances that are considered special allowances under this section of
the Income Tax Act, 1961.
These special allowances are mentioned below for further understanding:
The special allowances have been granted under this section of the income tax act to high court
judges.
UNO employees are entitled to receive this allowance.
The judges of Supreme Court and High Court are entitled to receive the sumptuary allowance.
Those who are Indian citizens working as government employees outside India are considered
the beneficiary of this allowance

Exemption of Agriculture Income under section 10(1)

There are several advantages under this section. Let check out the allowances that are given to
the beneficiary
According to section 10(1), those who are taxpayers and earn the income from agriculture are
entitled to get the exemption from tax.
Those citizens who enjoy the income relating to the farmhouse, can get the exemption from tax
based on certain condition.

Section 10(2), exemption on the income of the HUF

According to the section of 10(2), those who earn the income of HUF are entitled to get tax
exemption. Please go through the
given illustration for better understanding:
Example: Suppose Rs.100, 000 is earned by a HUF member during the previous session of
2017-18 and he is not entitled to
give the tax. Now, Mr X is the co-partner of the HUF member who has earned Rs.20, 000 which
will be considered as his
individual income. In addition to that, Mr X has also received Rs.40, 000 from HUF.
Here, in this case, Mr.X will pay tax on his individual earning but is not entitled to pay tax on the
income which is earned by him
on the amount given to him by the HUF member.
Section 10(2a), profit sharing from partnership farm.
​There are several benefits that are enjoyed by the partner of a firm. Let’s go through the benefits
offered under this section
According to section 10(2), the profit which is earned by a co-owner is exempted from tax in the
other co-owners
In addition to, the profit which is earned by the partner of LLP will be exempted from the tax.
Such exemption is limited to the share of profit by the partners of LLP/firm.
Section 10(4) of the income tax act----certain types of interest to NRI
Those who are non-resident Indian are entitled to enjoy the exemption on tax on the certain
condition such as earnings on bonds or account of NRE in the individual taxpayer’s hands.
​This exemption is not available for earning any interest on or after 1-04-2005.
​Section 10(5) Travel Concession
According to the 10(5) section, an employee can receive the exemption on his leave travel
Under this section of the Income Tax Act, all the employees (including Indian and foreign
citizens) are entitled to enjoy the particular benefit.
The employees are entitled to get travel concession in respect to any amount from his employer
on a leave across India.
Section 10(6), Remuneration to Indian citizens who are working outside India
According to Section 10(6), this is a special package for those individuals who are working
outside India and representing India in that country. There are such individuals i.e, High
Commissioners, top-rated officials of the Embassy, trade commissioners and the other officers
that are entitled to enjoy the benefits of this section.
The employees of the foreign companies are too, entitled to enjoy the tax benefit under this act,
subject to following limitations:
The foreign company should not be engaged in any business or trade in India.
Living tenure of the employees should not be more than 90 days in India.
Under this act, the remuneration of the employer is not entitled to be deducted.
Section 10(7), Government pay the allowances and perquisites​ to the employees who are
serving outside India
All the allowances and the perquisites that are provided by the government of India to its
employees for furnishing its services outside India are exempted from tax.
The Indian citizens who are government employee have entitled to avail this benefit.
Section 10(10CC) Employers pay the taxes on Perquisites
Section 10(10d) Exemption on tax of LIC
If any money is received by the policyholder when a member of the family or the policyholder is
suffering from any dangerous disease under the subsection of 3 of section 80DDA.
If any sum is received under the policy of key man insurance.
If any money is received from the insurance company of a handicapped member under the
subsection of 3 of section 80DD.
Section 10(11) of the income tax act---payment of statutory provident fund
Section 10(10BC) of the income tax act
Section 10(13A) of the income tax act
Sometimes, the employers pay taxes for the perquisites of non-monetary on behalf of their
employees. In that case, the paying of the tax by the employer will be treated as the exemption
from tax in employees’ hands.
Whatever, the citizen of India earns on the sum of the LIC policy will be entitled to enjoy the tax
benefits under this section of the Income Tax Act. There are some criteria to receive the benefit
of the sum of the insurance.
Any sum is received of the statutory provident fund relating to the contribution, amount and
interest on his termination from the company or firm will be exempted.
The employee is entitled to enjoy the exemption on tax over receiving the compensation for
natural disaster from central government.
The salaried employees are entitled to receive the allowance on rent of the house which is
exempted from tax.
The exemption of the special allowance under the 10(14) can be classified into 2 parts.
​Section 10(14)(i)
Travel allowance
Daily allowance
Uniform allowance
Academic/Research allowance
Section 10(14)(ii)
Climate allowance
1. Those who are working in the hilly regions of HP, J&K, and North East would get the
allowance of Rs. 800
2. Those who are working in the regions of Siachen would get Rs.7000 per month.
The tribal or scheduled areas allowances
The remote areas allowances
Allowance for the education of children
The allowance is given to the Armed forces
Allowance for serving in underground mines
Transport allowance for those who are physically disabled serving for the government
Island allowance to the armed forces
Section 10(15) the income earned from interest exempt from the tax
Under the section of 10(14), the exemption should be granted on the expenditure of government
employee for a special purpose.
The allowance of travel is given to the government employee for transferring him or her to the
new location within the country on duty. While the employee on tour, the allowance is exempted
from tax under this section of the income tax act.
The employees can receive the daily allowance to meet the charges which take place on daily
basis. Such type of allowance is given when the employee is not in his actual place of duty.
Those employees who need to maintain its uniform while on duty can receive the uniform
allowance.
The allowance granted for aiming the encouragement for research, vocational training is
considered the research or academic allowance.
For most of the cases, the employees are not liable to submit the necessary documentation
relating to the exemption of the tax on the allowance.
The allowance is granted under this section of this income tax act, to the employees who are
serving under the several sets of conditions on duty. Let’s check out the kinds of allowances that
are exempted from tax. (those who are working in hilly regions of the country):
Those who are working in the tribal parts of West Bengal, Karnataka, MP, Odisha, Tamil Nadu,
UP, Bihar and Tripura, would receive Rs.200 as allowance.
Those who are working in the remote areas or the disturbed areas of the country would be
entitled to receive the allowance ranging between Rs.200 to Rs.1300. This allowance is
exempted under the rule of 2BB.
The allowance of Rs.100 per month is given to the government employee for the education of
each child. This allowance is given to those who have a maximum of 2 children.
Army members who are serving the nation at the height of ranging between 9000-15000ft should
get the allowance of Rs.1060 per month and those who posted on the height of above 15000ft
should get Rs.1600 per month.
Those who are working for the central government project in underground mines is entitled to
receive Rs. 800 per month.
Under this section of the Income tax act, those who are working for the government is entitled to
enjoy the allowance of Rs. 1600 per month while on duty and need to travel for the government
assignment. Those who are working as an armed force in Lakshadweep and Andaman & Nicobar
Island are entitled to receive the allowance of 3250 per month.
Those who earn the income from interest are exempted as per the rules of section 10(15). The
below-mentioned table will show the exact details which come under the sheds of this section of
the Income tax act.
TDS stands for 'Tax Deducted at Source'​. TDS stands for tax deducted at source. As
per the Income Tax Act, any company or person making a payment is required to deduct tax at
source if the payment exceeds certain threshold limits. TDS has to be deducted at the rates
prescribed by the tax department.

The company or person that makes the payment after deducting TDS is called a deductor and the
company or person receiving the payment is called the deductee. It is the deductor’s
responsibility to deduct TDS before making the payment and deposit the same with the
government. TDS is deducted irrespective of the mode of payment–cash, cheque or credit–and is
linked to the PAN of the deductor and deducted.

TDS is deducted on the following types of payments:

Salaries
Interest payments by banks
Commission payments
Rent payments
Consultation fees
Professional fees
However, individuals are not required to deduct TDS when they make rent payments or pay fees
to professionals like lawyers and doctors.

TDS is one kind of advance tax. It is tax that is to be deposited with the government periodically
and the onus of the doing the same on time lies with the deductor. For the deductee, the deducted
TDS can be claimed in the form of a tax refund after they file their ITR.

Rates prescribed for different types of payments

There are different rates for TDS described in the different sections of the Act, depending on the
nature of the payments. Some of the incomes subject to TDS are as follows:
TDS only applicable above a threshold level
One must remember that TDS on specified transactions is deducted only when the value of payment is above the
specified threshold level. No TDS will be deducted if the value does not cross the specified level.

Different threshold levels are specified by the Income Tax department for different payments such as salaries,
interest received etc. For example, there will be no TDS on the total interest received on FD/FDs from a single bank if
it is less than Rs 10,000 in a year from that bank.

How to avoid TDS

If a person expects that his total income in a financial year will be below the exemption limit, he can ask the payer not
to deduct TDS by submitting Form 15G/15H.

While receiving payment which is subject to TDS, deductee is required to provide his PAN details to avoid tax
deduction at the higher rates.
Finance Act
The Finance Act is an important Act in India. The Central Government, through this Act, gives
effect to financial proposals at the beginning of every Financial Year. The Act applies to all the
States and Union Territories of India unless specified otherwise. Finance Act thus making this
Act one that renews itself each year. All the Governmental financial policies are included in this
Act. The existing policies, new policies, as well as changes made to existing policies are all
included here. Every Finance Act is assented by the President of India.
The Finance Act for a particular financial year also includes the amendments that have been
made with respect to Direct Taxes.
The Amendments made under various sections are noted down in this section of the Finance Act
and each amendment of every section is noted down separately.
Also included in the Finance Act is the details of the insertion of new sections, if any.
The Finance Minister of India presents a Finance Bill every year that proposes amendments to
the direct and indirect taxes. When both the houses of the Parliament passes the bill, it receives
consent from the President of India and becomes the Finance Act. Such amendments will
become a part of the Income Tax Act and will be implemented from the first day of the next
financial year usually.

In addition, the Finance Act consists of four parts:

Part I: It specifies the rate at which income tax is levied for various income categories during a
financial year.

Part II: It specifies the rate at which tax must be deducted at source during the financial year.

Part III: It states the changes in income tax rates in specific cases, i.e. the rate for income
chargeable under salary head and rate for computing advance tax for a financial year.

Part IV: It explains the rules for calculating agricultural income in this part.

Important Elements of Finance Act

All the elements included in the Finance Act associated with a particular Financial Year are of
course important. Even so, there are particular elements that take precedence over the others.

The most important element is the rules laid down in the Act with respect to Income Tax Rates.
Every year, the Act lays down in detail all the associated provisions related to Income Tax in the
country. Since this applies to a large number of taxpayers, it is considered one of the most
important elements.

The Finance Act is responsible for laying down the tax slabs that applies to taxpayers. The Act
includes various details related to
Income through Salary
Agricultural Income
Tax slabs for Senior Citizens
Tax slabs for Very Senior Citizens
Income Tax Surcharges
Taxes chargeable to companies
Advance tax
These are a few important elements included and elaborated upon in detail in the Finance Act for
a particular year.

The Schedule in any Finance Act is a systematic depiction of all the rules and regulations laid
down by the Act for that Financial Year.
The Schedule gives details on:
Rates of Income Tax
Surcharge on Income Tax
Rates for Deduction of Tax at Source
Details of Advance Tax
Details for computation of Net Agricultural Income among other details.

Revenue Income and Capital Income

Capital income
The income arises from non-recurring Transactions by certain or a certain event is called capital
income.
Capital income includes:
1. Price received on investments in small saving schemes.
2. The premium on letting out shops or houses.
3. Bonus shares on investment.
4. Hidden treasures found on the dismantling of the old house.

Revenue income
Income arose from Recurring transactions in the ordinary course of business is called revenue
income.
Revenue income includes:
1. Commission received.
2. discount received.
3. interest from debtors.
4. fees and room rent from patients.
5. donations and charities received by the charitable institution.
6. Fright received by transport companies.
7. interest dividend and bonus shares received by the investment company.

Dearness Allowance
Dearness Allowance is paid by the government to its employees as well as a pensioner to offset
the impact of inflation. The effective salary of government employees requires constant
enhancement to help them cope up with the increasing prices.
Despite several measures by the government to control the rate of inflation, only partial success
has been achieved because the prices move according to the market. It, therefore, becomes
essential for the government to shield its employees from the adverse effects of inflation.

As the impact of inflation varies according to the location of the employee, dearness allowance is
calculated accordingly. Thus, DA varies from employee to employee based on their presence in
the urban, semi-urban or rural sector.
As per the latest updates, DA is fully taxable for salaried employees. If the employee has been
provided with an unfurnished rent-free accommodation, it becomes that part of the salary up to
which it forms the retirement benefit salary of the employee, provided that all other
pre-conditions are met.
The Income Tax rules in India require the dearness allowance component to be mentioned
separately in the returns that have been filed.

Dearness Allowance must not be confused with the HRA as they are two separate components
and are treated differently for income tax. One significant difference is that HRA applies to both
private and public sector employees, while only public sector employees are entitled to DA.
Additionally, there are certain Tax exemptions applicable to HRA which are not available for the
DA.

HRA – House Rent Allowance

House Rent Allowance, or commonly known as HRA, is an amount which is paid by employers
to employees as a part of their salaries. This is basically done as it helps provide employees with
tax benefits towards the payment for accommodations every year. The decision of how much
HRA needs to be paid to the employee is made by the employer on the basis of a number of
different criteria such as the salary and the city of residence.

Regulated by the provisions of Section 10(13A) of the IT Act, the house rent allowance serves to
be quite beneficial to salaried employees in India.

As per law, only salaried employees can claim HRA and self-employed individuals are exempt
from doing the same. HRA, as an exemption is provided, only if the employee is living in rented
accommodations. However, also in case the employee lives in his or her own house and does not
pay any rent, he or she cannot claim HRA to save on taxes.

Basis on which HRA is decided

Primarily, HRA is decided based on the salary. However, there are some other factors that also
affect HRA, such as the city in which the employee resides. In case the individual resides in a
metro city, then he/she is entitled to an HRA equal to 50% of the salary. For cities other than a
metro, the entitlement is 40% of the salary.
In order to calculate the HRA, the salary is defined as the sum of the basic salary, dearness
allowances and any other commissions. If an employee does not receive a commission or a
dearness allowance, then the HRA will be around 40% - 50% of his/her basic salary.

The actual HRA offered, in all probability, will be the lowest of the following three provisions:
The deduction available is the least of the following amounts:
a. Actual HRA received;
b. 50% of [basic salary + DA] for those living in metro cities (40% for non-metros); or
c. Actual rent paid less 10% of basic salary + DA

Illustration:

Mr. Anwar, employed in Delhi, has taken up an accommodation on rent for which he pays a
monthly rent of Rs 15,000 during the Financial Year (FY) 2019-20. He receives a Basic Salary
of Rs 25,000 monthly along with DA of Rs 2000, which forms a part of the salary. He also
receives a HRA of Rs 1 lakh from his employer during the year.
Let us understand the HRA component that would be exempt from income tax during the FY
2019-20.

SI Particulars Amount (in Amount (in

No Rs) Rs.)

1 Actual HRA received 1,00,000

2 Rent paid (15000 p.m. * 12 months) 1,80,000 1,47,600

minus(-)
10% of {(250 00p.m.*12) + (2000p.m.*12)} i.e.10% of
Basic + DA 32,400

3 50% of {(25000p.m.*12) + (2000p.m.*12)} 1,62,000

(50% is considered as the accomodation is in Delhi)

4 Exempt HRA = lowest of 1,2,& 3 1,00,000

Therefore, in the above example, the entire HRA received from the employer is exempt from
income tax.

Gross total income and total income:

‘Gross total income’ and ‘total income’. These are most common terms and, yet, people confuse
between the two. Most taxpayers use these terms interchangeably, but are these the same? No,
they are not. Let us understand how the two differ from each other.

What is gross total income?

The ‘gross total income’ (GTI) is the total income you earn by adding all heads of income.
Income from salary, property, other sources, business or profession, and capital gains earned in a
financial year are all added to arrive at the GTI.

What is total income?

The ‘total income’ (TI) is derived after subtracting the various deductions under Section 80 from
the GTI. So, you first calculate the GTI and then subtract the deductions to arrive at the TI.

Difference between Gross Total Income & Total Income

To understand their difference in simple terms, look at the following formulae:

TI = GTI – deductions under Section 80

Or

GTI = TI + deductions under Section 80

So, GTI is the total of all the heads of income while TI is GTI minus the deductions.

To calculate GTI, you add the following:

Income from salary: This includes the earning from employment.

Income from house property: This includes any rent you earn by letting out a house.
Income from business or profession: This includes the income earned by a businessman or a
self-employed professional.
Capital gains/loss: This includes profits or losses you incur by selling any movable or immovable
capital property. That would include land, building, house, shares, jewellery, etc.
Income from other sources: The income not included in the above-mentioned heads features in
this. Examples would be income from interest, a lottery gain, etc.
To calculate TI, the following deductions under Section 80 of Chapter VI of the Income Tax Act
are subtracted from the GTI

80C: Allows specific investments and expenses to be deducted from the GTI up to Rs 1.5 lakh.
80CCD: NPS (National Pension System) contribution up to Rs 50,000 is allowed as deduction.
80D: Health insurance premiums, up to Rs 60,000, paid for self and for parents qualify under this
section.
80TTA: Interest earned from the savings account, up to Rs 10,000, is tax-free.
80E: Interest paid on education loan is deducted.
80GG: This includes housing rent allowance (HRA) exemption for those who do not have an
HRA component in their salary.
80DDB: Expenses incurred on specific illnesses are deducted up to Rs 40,000 or Rs 60,000,
depending on the patient’s age.
80U: This gives a fixed deduction if you have a physical disability. The deduction is Rs 75,000
or Rs 1.25 lakh, depending on the severity of the disability.
80G: Charitable donations made to recognised institutes are allowed as deduction.
To sum up, the difference between the GTI and TI must be clear to you now. Do not confuse
between the two the next time you file your returns.

Tax Return:
A tax return is a form(s) filed with a taxing authority that reports income, expenses and other
pertinent tax information. Tax returns allow taxpayers to calculate their tax liability, schedule tax
payments, or request refunds for the overpayment of taxes. In most countries, tax returns must be
filed annually for an individual or business with reportable income (e.g., wages, interest,
dividends, capital gains, or other profits). For an individual [not subject to tax audit provisions
under Income-tax Act, 1961 (the Act)] the Income Tax Return (ITR) filing deadline for Financial
Year (FY) 2018-19 is July 31. 2019. ITR forms for FY 2018-19 have already been notified by
the Central Board of Direct Taxes (CBDT). Similar to the past year, this year as well there have
been substantial changes in the tax filing procedure and forms. Also, the CBDT from time to
time provides clarifications on certain aspects of the form by way of notification and keeps
updating the online utility used to file the tax return to incorporate these clarifications. Thus, it is
pertinent to choose the appropriate ITR form and fill in the correct details while filing the ITR
In this context, five key provisions which one must not miss in a tax return filing process are
discussed as under:

Verification of prepaid taxes with Form 26AS

Recently, prescribed pro-forma for issuing salary cum TDS certificate in Form 16 (Part B) was
notified by the CBDT (as against only Part A until last year). This form is to be generated
electronically and has to be provided by the employer to the employee by the extended deadline
of July 10, 2019. It is imperative that taxpayers verify their prepaid taxes, including Tax
Deducted at Source (TDS) (reflected in Form 16 for salary income/Form 16A for other income),
advance tax and self-assessment taxes with Form 26AS—an online tax credit statement which
can be retrieved from income tax e-filing portal.
Any discrepancy in the details of pre-paid taxes should be notified either to the employer (in case
of salary income) or other deductor(s) (in case of other income) or banks (for advance
tax/self-assessment tax payments) for the necessary rectification by amending their TDS
quarterly returns. Unless such discrepancies are rectified, the tax return will not be processed by
the tax department successfully and one may receive an intimation either for balance tax payable
(to the extent of shortfall in pre-paid taxes or taxing of additional income) or refund not being
processed.

Tax on Long term capital gains (LTCG) from listed securities ​Budget 2018 reintroduced tax
on LTCG earned from transfer of equity shares of a company or a unit of an equity oriented
mutual funds on which securities transaction tax has been paid at the time of acquisition.
Effective FY 2018-19, LTCG earned on such securities exceeding Rs 1 lakh is taxable at 10 per
cent (plus applicable cess and surcharge), without the indexation benefit. It is pertinent to note
that such LTCG has been grandfathered up to January 31, 2018. Accordingly, the necessary
gains should be computed to be a part of gross total income as per the method prescribed in this
regard.
Also, it should be noted that a separate column has been introduced in Capital Gain Schedule
(Schedule CG) in the new ITR forms (including line items like Fair Market Value of capital asset
as on January 31, 2018, LTCG after threshold limit of Rs 1 lakh, etc.) in line with the above
changes to enable individuals to report LTCG from such securities.

Payment of taxes ​Once the gross total income under different heads of income is determined,
deductions available under Chapter VI-A of the Act like Section 80C – for tax saving investment
and expenditure towards life insurance premium, public provident fund, etc., Section 80D – for
payment of medical insurance premium, Sec 80TTA – for interest income earned from savings
bank account, Section 80GG – for rent paid, etc. should be claimed to arrive at total taxable
income. On such taxable income, applicable slab rates of tax should be applied to compute the
total tax liability. Necessary taxes due on the tax return (depending upon nature of income(s))
post claiming credit of prepaid taxes (TDS and advance taxes paid during the FY) and foreign
tax credit for taxes paid outside India, should be discharged (including applicable interest under
Section 234B and 234C of the Act, as applicable) before filing the tax return.

Various disclosure requirements:​Appropriate disclosure of various assets and financial

investments held by an individual forms an integral part of an ITR. The prescribed disclosure
schedules/requirements applicable for FY 2018-19 are:

Asset/Liability disclosures:-​Details of all Indian bank accounts (name and IFSC code, account
number and type of account) held at any time during relevant FY. Dormant accounts can be
excluded from reporting.

Schedule of Assets and Liabilities (AL):​ Details of specified assets [such as land, building,
jewellery, financial assets, etc.] and corresponding liabilities are required to be disclosed in case
the total income of an individual exceeds Rs 50 lakh.

Schedule Foreign Assets (FA):​ Resident and Ordinarily Resident (‘ROR’) individuals are
obliged to furnish details of their assets held outside India (both as an owner and as a
beneficiary) such as foreign bank accounts, financial interest in any entity, etc. as per specified
disclosure guidelines. In the new ITR forms, such disclosure requirements have been widened to
include details of foreign depository accounts, equity or debt interest in a foreign entity, etc. A
penalty of Rs 10 lakh may be levied in case of non-disclosure of such assets in this schedule
under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act,
2015.

Some of the other disclosures

Individuals qualifying as Non-Resident (NR) are required to mention their jurisdiction of tax
residence and taxpayer identification number during the relevant FY. This may potentially create
a challenge for individuals who may not be tax residents of any country (e.g. employees working
in multiple countries during the year, etc.)
In addition, in case of an Indian citizen or Person of Indian Origin, total period of stay in India
during the relevant FY along with preceding four FYs is also required to be mentioned.
In order to keep a check on issue of shares by closely held companies and investments made by
shareholders therein, a new table has been inserted to seek details in respect of unlisted equity
shares held at any time during the relevant FY, like name and PAN of the company, opening
balance of shares, shares acquired/transferred during the year and closing balance. There is no
clarity on this disclosure requirement as to whether individuals [especially who are qualifying as
NR or Not-Ordinary Residents (NOR)] are required to report even foreign company shares under
this schedule or only Indian company shares should be reported.

Individuals who are directors in a company are now required to furnish details such as company
name, PAN of the company, whether shares of the company are listed and the Director
Identification Number (DIN). Reporting of PAN and DIN are optional in case of foreign
companies. Here again clarity is needed whether directorship in foreign company is required to
be reported for individuals qualifying as NR or NORs.

Validation of Form ITR-V ​After e-filing the ITR, an acknowledgement in Form ITR-V is
generated. It is important to validate Form ITR-V to complete the filing process. It can be
validated either online (through Aadhaar OTP, digital signatures, net banking or other modes) or
manually by placing the signature in printed Form ITR-V and sending the same to Centralised
Processing Centre in Bengaluru. Without such verification, the tax return uploaded will not be
considered as filed and hence will not be processed by the tax department.

As the deadline to file the tax return is fast approaching, it would be prudent for taxpayers to
assess their taxable income as per the provisions of the Act and take cognisance of aforesaid
provisions amongst others for filing their tax return accurately without attracting late filing fees
and penal consequences.