SUMMER TRAINING PROJECT REPORT ON

SMALL TAXPAYERS PERCEPTION ABOUT INCOME TAX LAWS IN INDIA

A Report Submitted to Ishan Institute of Management & Technology, Greater Noida as a part fulfillment to full time Post Graduate Diploma in Finance Management.

Submitted To:
DR. D K GARG (CHAIRMAN) IIMT, GR. NOIDA

Submitted By:
ALISHA KANDOI ENR NO. - FMR 3016 PGDFM (15th batch)

ISHAN INSTITUTE OF MANAGEMENT & TECHNOLOGY 1A, Knowledge Park-1, Greater Noida, Dist.-G.B.Nagar (U.P.) Website- www.ishanfamily.com E-mail- Ishan_coporate@yahoo.co

PREFACE

All students learn theoretical subjects in their classroom, but as we are the management students, apart from theoretical studies we need to get a deeper insight into the practical aspects of those theories by working as a part of organization during our summer training. Training is a period in which a student can apply his theoretical knowledge in practical field. Basically practical knowledge and theoretical knowledge have a very broad difference. So this training has high importance as to know how both the aspects are applied together. So being a student of finance I opt for training under a Charted Account firm. The training session helps to get details about the working process in the organization. It has helped me to know about the organizational management and discipline, which has its own importance. The training is going to be a lifelong experience. This Project Report has been completed in Partial fulfillment of my management Program, Post Graduate Diploma in Finance Management (PGDFM) in the Chartered Accountant Firm. The objective of my project was to know about Perception of Small Taxpayers about the Income Tax Laws. Tax in an amount payable as a result of charging provision. It is compulsory extraction of money by a public authority for public purpose, the payment of which is endorsed by law. Kalidasa, the ancient Indian poet mentioned in one of his epics that the king collects taxes for the good of his subjects just as sun draws moisture from the earth to give it back a thousand fold. . This project provides a broader knowledge about the income tax rules and provisions. By doing a practical work one can only know the real application of Income tax rules. In this study, a sincere attempt has been made to know all the heads of income to know about the gross total income. This study has been divided into many topics. The topic covers introduction, summary, conclusions and suggestions. It also covers many topics such as income, assessee, sources of income, deductions, appeals & penalties etc.

CERTIFICATE

This is to certify that the project work done on Small Taxpayers perception about Income Tax Laws In India submitted to Ishan institute of Management and Technology, Greater Noida by Alisha Kandoi in partial fulfillment of the requirement for the award of degree of PG Diploma in Finance Management is a bonafide work carried out by her under my supervision and guidance. This project report is the original one and has not been submitted anywhere else for any other degree/diploma. The original work was carried during 5th May 2010 to 30th June 2010 in Rajesh Sajjan & Associates Charted Accountant Firm.

Date:

Seal/Stamp of the Guide

Name of the Guide Rajesh Goyal Address of the Guide Madhav Kunj

ACKNOWLEDGEMENT

I feel contentment to acknowledge a sense of deep gratitude to my guide CA. RAJESH GOYAL, who has given me a prospect for the summer training in their organization. I also acknowledge my cordial gratitude to him for his guidance and invaluable advice for the completion of my project report. I would like to thank him for his lend a hand, timely feedback, and showing me the right direction for accomplishment of project. I take an opportunity to acknowledge our indebted to Honorable Chairman Sir Dr. D.K.GARG (IIMT), and the entire respected Faculty for making available all facilities in fulfilling the requirement for the reasonable work. I am highly obliged to the staff of RAJESH SAJJAN AND ASSOCIATES; who provided the guidance and assistance in spite of their busy schedule.
Last but not the least, I would like to thank my parents for their continuous encouragement and moral & financial support during this project and for their sacrifices which they made to make me a perfect person.

I wish to thanks one and all that have contributed their services, love and encouragement and inspired me as they have directly or indirectly supported me with their knowledge.

Date :-

ALISHA KANDOI ENR: FMR 3016 PGDFM (15TH BATCH) IIMT, Greater Noida

DECLARATION

I, ALISHA KANDOI, daughter of PAWAN KUMAR KANDOI do hereby declare that: 1) I have completed the above Summer Training on time. 2) I have worked full time with the above organization. 3) I will submit report latest by ________________. 4) I have undertaken Summer Training 5) My Summer Training Project shall be an original piece of my work. 6) I have followed all Summer Project guidelines. 7) In case of anything is found wrong or false, my training or project can be cancelled.

Date _______________

ALISHA KANDOI ENR: FMR 3016 PGDFM (15TH BATCH) IIMT, G.NOIDA

EXECUTIVE SUMMARY
This report has been prepared as part of the eight week summer internship programme which is an integral part of Post Graduate Diploma in Finance Management (PGDFM) at Ishan Institute of Management and Technology. The project entitled Small taxpayers perception about Income Tax Laws in India with regards to Rajesh Sajjan and Associates which is a Chartered Accountants firm is done as a part of the partial fulfillment of my PGDFM curriculum. In this project a sincere attempt is done to present the rules and act of income tax department as simply as I can make it easily understandable by each reader. As Income tax is the most relevant topic I have given utmost care to provide data as latest as possible. To execute the assigned task, I had to do consider all the aspect of assessment from the very beginning. I had to analyze different sources of Income, ascertain the income which is to be taxable and to ascertain the tax liability. I had to ascertain which Income tax Return Form is applicable for assessee. I had also to go through the penalties & prosecution in Income tax department. I learned the case studies on judgment given by the Supreme Court. As far as my practical work I had done the work of TDS. TDS is paid quarterly. Time period for quarterly TDS is 15 days. But for the last quarter time period is two and half month. Compu_tds is the software which is used for TDS. I had given the salary information and form 16 of a particular firm and I had to just fill those items in the compu-tds.Compu_tds also checks whether all information are accurate or not. If there is some problem, then it shows some error through which we can easily know about that and we can easily solve our problem also.

LITERATURE PREVIEW

Tax is an amount which is payable as a result of charging provision. Taxes are of two typesdirect and indirect taxes. Direct taxes are those which the taxpayers pays directly from his income/wealth etc.(Income Tax/Wealth Tax etc.).Indirect tax incidence of tax and impact of tax falls on the same person. Indirect tax is a tax on product or service, the incidence of which is borne by the consumers who ultimately consumes the product or service. The major source of indirect taxes is excise duty, custom duty, sales tax, service tax, etc. Income tax plays an important role in the Indian Revenue System. It is helpful in bringing economic equality by reducing economic disparities. Power to levy Income Tax vests with the Central Government. Kalidasa as, the ancient Indian poet, mentioned in one of his epics that the king collects taxes for the good of his subjects just as sun draws moisture from the earth to give it back a thousand fold. Income tax is treated both as a duty and as a burden. It depends upon person to person. In ancient time, most of the people treated it as a huge burden but now situation is changing. Now most of the people treat it as a duty. The entire Income tax act is to be followed before filling any return, so as in reality it is done. Before filling any return all the precaution are taken in respect of tax so as there should not be any case of future scrutiny. If an assessee is not satisfied with the order or assessment of the Assessing Officer, he may file an appeal against the such order or assessment. Alternatively he can apply the commission of Income Tax for revision of the order of the assessing officer. The first appeal against the order of the assessing officer shall lie with the commissioner(appeal). Either the assessee or the Assessing officer is not satisfied with the order passed by the commissioner (appeal), they can appeal against the order to Appellate Tribunal. Against an order passed by Appellate Tribunal can be appealed to High Court and similarly, appeal against the order of High Court can be filed to Supreme Court. During summer training in Rajesh Sajjan and Associates I felt there are some differences and some similarities in theoretical and practical aspect which is presented in the part of this report. As we all know that auditor is strictly provided that he should not disclose any fact relating to any client to any person. And the same thing I find in my summer training. We are not allowed to disclose any data of any client that is also the reason that I have not attached any detail about the clients. A Charted Accountant always tries to reduce the tax liabilities of the client by tax planning. The act also speaks that if a person is not aware of the act then also he is liable to pay taxes otherwise penalties can be charged on him. Penalties imposes a huge burden on an ordinarily person. For the same the income tax department speaks that we should take help of Charted Accountants but it is not possible for every person, as person having less income cant

pay fees. In the other hand why the professional person provides assistance without any benefit so there is a need of creation of an easy way which will enable every person to pay taxes. As I have done my project on Small taxpayers perception about Income Tax Laws in India , I came to know about another important point is that general people dont pay taxes and dont disclose their business activity because of the heavy pressure of maintenance of books of account and other legal aspects. They have a view that showing their business concern in government eyes will put them in many difficulties. So instead of making business transaction at lower possible rate they like to do business illegally (means without any TIN or SRIN numbers) and pay more for the same commodity. So income tax rules should be in the favour of the general public so that every person will pay their tax.

TABLE OF CONTENT

Chapter No. 1) 2) 3) 4) 5) 6) 7) a) b) c) d) e) 8) 9) 10) 11) 12) 13) a) b) c)

Name of the Topic Basic introduction of topic Firms Profile Important Definitions Residential Status Incidence of Tax Assessment procedure and Appeals Heads of Income Income from Salary Income from House property Income from Profit and Gains of Business or Profession Income from Capital Gains Income from other sources Exempt Income Deductions from Income Set off and carry forward of lossess Tax deduction at source(TDS) Penalty Other details My Experience Suggestions Bibliography

Page No.

CHAPTER-1
BASIC INTRODUCTION OF TOPIC
Tax is an amount payable as a result of charging provision. It is compulsory extraction of money by a public authority for public purpose, the payment of which is endorsed by law. TAXES ARE BROADLY CLASSIFIED INTO TWO CAREGORIES

DIRECT

TAXES
INDIRECT

Direct taxes
Direct taxes are those which the taxpayers pays directly from his income/wealth etc.(Income Tax/Wealth Tax etc.).Indirect tax incidence of tax and impact of tax falls on the same person.

Indirect taxes
It is a tax on product or service, the incidence of which is borne by the consumers who ultimately consumes the product or service. The major source of indirect taxes is excise duty, custom duty, sales tax, service tax, etc

HISTORY OF INCOME TAX

In India, the income tax was first levied by Sir James Wilson in 1860.The tax was levied to compensate the economic losses occurred to the British Government due to the revolution of 1857.In 1886,a detailed enactment was passed in relation to income tax. In the said enactment amendments were made from time to time. In 1918, a new enactment was passed in which income earned in the year was taxed in the same year. This enactment remained in force only for 4 years and in the year 1922, this enactment was replaced by the Income tax Act, 1922.In this Act there was a provision of enacting Finance Act every year. In this Act, the income earned in the previous year was made taxable in the current year. The said Act was amended from time to time but the original structure was lost and to remove the difficulties in the said enactment a

committee was formed. On the recommendations of the committee Income Tax Act, 1961 was passed in September 1961 which came into force with effect from 1st April, 1962. Income tax plays an important role in the Indian Revenue System. It is helpful in bringing economic equality by reducing economic disparities. Power to levy Income Tax vests with the Central Government.

PERCEPTION RELATED TO INCOME TAX AMONG THE PEOPLE

Kalidasa as, the ancient Indian poet, mentioned in one of his epics that the king collects taxes for the good of his subjects just as sun draws moisture from the earth to give it back a thousand fold. Income tax is treated both as a duty and as a burden. It depends upon person to person. In ancient time, most of the people treated it as a huge burden but now situation is changing. Now most of the people treat it as a duty. 1) Fear In ancient times, people feared with the name of the Income tax. It was so because they had to pay huge tax on their small earnings. They always thought why they are earning if the government will take more than half of their money. Earlier tax rate was also 60%.In ancient times; exemption limit was also low as compared to modern time. Even in the year 1991to 1995, the exemption limit raised from 22000 to 40000 which now reached to 150000.In ancient times people were less educated and filing income tax took so many formalities, So they feared about it. But now they are coming out of it. Now people are more educated and they know that income tax is benefit for their own or for the development of their future. But still some poor people take it as a burden. 2) Harassments in taxation In ancient times, people felt harrashned while filing Income Tax because of so many formalities which they had to fill. People were less educated in ancient times so they didnt know how to fill the income tax forms. Earlier auditing was compulsory and they didnt want to indulge themselves in such type of activities. Auditing of income tax charged some cost so they thought nothing is left in their hands .Through this, they earned very less. They tried to far away from their work. Their opinion was No earning No tax No burden/fear

But now situation has changed. .Income tax is treated as a duty. There is no need for every person to audit their accounts. If any company and any person having income more than 40,00000 and 60,00000 respectively, then they have to audit their account otherwise it is not compulsory.

3) Higher taxation Slabs Earlier taxation slab was as much higher as compared to present time. Even in the year 1991 to 1995,the exemption limit was raised from 22000 to 40000 which now reached to 150000.In ancient times people were given less exemption as compared to present time. The maximum marginal rate of personal Income Tax has been reduced from 56 percent to 30 percent. It was a huge change in the tax rate within 15 years. 4) Lack of knowledge Earlier people were less educated and they didnt know about the rules and regulations relating to the Income Tax. They always treated it as a cleverness of the government .They thought that work is done by themselves and money is shared by themselves and government both. But now they are coming out of this perception, Now most of the people are educated and they know it is better for the development of their country. It is helpful in bringing economic equality by reducing economic disparities.

CHAPTER-2
FIRMS PROFILE

RAJESH SAJJAN & ASSOCIATES CHARTERED ACCOUNTANTS

Contents: I. Preliminary Information:

a) Entity Status

b) Registration Number

c) Location of Head-Office and Branch-Office

d) Strength of firm

e) Name & Qualification of Proprietor

II.

Brief Introduction of the firm

III.

Infrastructure available with the firm

IV.

Scope of services rendered by the firm

V.

List of Clients

(I) PRELIMINARY INFORMATION

a) Status

: Proprietary Concern

b) (i) ICAI Reg. No. : 011694C (ii)PANo. : ABVPG0357J

c) Location of Head-Office and Branch-Office : Head Office : Madhav-Kunj, 252-253, Nai Mandi, Hanumangarh Town 335 513 (Rajasthan) Phone No.: 01552-222655, 226655 Mobile : 94143-28335 Fax : 91-1552-231726 Email : rajeshsajjan@rediffmail.com

d) Strength of firm : Proprietor is an FCA along-with DISA

e) Name of Proprietor: Sh.Rajesh Goyal, FCA, DISA (Mem.No. 093763)

(II)BASIC INTRODUCTION OF FIRM Rajesh Sajjan & Associates, Chartered Accountants was constituted as a proprietory concern of Sh.Rajesh Goyal. The firm has since grown since then. Starting with an office at Hanumangarh (Rajasthan), as the firm grew, it made its presence felt in various professional fields.. Now it is a leading law consultancy and audit-firm with a team of well-experienced professionals and highly-motivated staff, which is providing comprehensive professional services to a large number of companies and multinationals etc. In today technology-driven market, the firm is engaged in providing various IT related services in the field of Taxation, Accounting, Audit etc. The firm is already managing 2 TIN Facilitation Centres in Rajasthan. Proprietor of the firmSh.Rajesh Goyal (FCA, DISA) has a very strong background and possess vast experience in profession. He is an ISA (Information System Audit) qualified auditor from ICAI. Sh.Rajesh Goyal was earlier associated with M/s Sushil Jeetpuria & Company, Chartered Accountants for three years at a stretch in a senior capacity. M/s Sushil Jeetpuria & Co. is the leading Chartered Accountants firm in India in the area of Social Security & Retiral Benefits Schemes. The experience involved in numerous professional capacity in vast variety of clients. Sh.Rajesh Goyal was articled with M/s Prakash K.Prakash, Chartered Accountants, New Delhi. After qualification, he set-up his independent practice in Delhi and lateron got associated with M/s Sushil Jeetpuria & Company as Head-Taxation, Audit & Payroll Division. Sh.Rajesh Goyal gained rich experience during his relationship with M/s Sushil Jeetpuria & Co. The firm has focused on numerous professional specialisations and amongst its area of specialisations includes the practice of law including comprehensive handling of Income-tax matters, Audit assignments and Provident Fund matters. The firm is keen to maintain the process of growth and development and look forward to embrace emerging challenges.

(III) INFRASTRUCTURE AVAILABLE WITH THE FIRM

Rajesh Sajjan & Associates, Chartered Accountants is a leading consultancy firm in the field of Taxation, Auditing, Social Security and Retiral Benefits schemes and is handling Payroll processing of various clients with a team of highly experienced professionals and staff which is providing comprehensive professional services to a large number of clients from all spheres of industry. Infrastructure The Company is fully equipped in terms of infrastructure for handling big audit assignments, Payroll processing and maintenance of Provident Fund Trusts accounts etc. Details of Infrastructure available with the Company are as under: a)Manpower : The Company has a staff strength of over 14 persons (including 10 articles) having vast experience in handling taxation, audit assignments, payroll processing, maintenance of PF Trusts accounts, legal matters, and investment of trust-money in accordance with the prescribed pattern of investment. b) Hardware : The Company has over 8 Computer Systems and a laptop with experienced computer operators supervised by a senior qualified engineer. c) Location : The Company has its head-office in Hanumangarh Town to cater to the needs of his clients. The Head-office is situated at 252-253, Nai Mandi, Hanumangarh Town. d) Experience : The firm and its proprietor has rich experience in Income-tax and Audit related works. The firm and its partners has already done a very large number of audits under the various provisions of the Income-tax Act, The Company is having tax audits of around 60 business firms. The details of nature and scope of works, which can be handled by us are also enclosed.

e) Panel of Experts : Alongwith its partners, the firm has a penal of highly experienced advocates in taxation matters, who provide their consultancy, expertise and services on retainership basis. The penal includes experienced advocates named--Sh.Sajjan Kumar Goyal, Sh.Narender Goyal &

Sh.Jagdish Gupta.

(IV) SCOPE OF SERVICES RENDERED BY THE FIRM

The firm renders comprehensive services in audit, taxation, IT and social security segments. In the audit segment, the professional services extend to : i) ii) Corporate Statutory Audits under the Companies Act, 1956. Statutory Audits under other legislative provisions like Tax Audits and Internal Audits etc. Various audits such as Revenue, ISA Audit, Concurrent and other types of audits of bank branches.

iii)

The audit services are available to corporate clients, co-operative societies, trusts, partnership-firms and individuals etc.

Other than the audits, following other services are also rendered : a) b) c) d) e) f) g) h) i) j) k) l) m) IT related services in the field of Taxation, Accounting, Audit etc. Tax consultancy, filing of returns, representation before tax authorities. Handling payroll outsourcing eFiling of TDS & Service-tax Returns Formation of Provident Fund/Superannuation Fund/Group Gratuity Fund Trusts Maintenance of accounts of various provident fund trusts. Investigative assignments. Maintenance of Statutory Records like Fixed Assets Registers, Minute Book etc. Consultancy on mergers, de-mergers, acquisitions, due diligence appraisals. Inventory audits and related advisory functions. Entity formulation supports i.e. incorporation of campanies, trusts, societies etc. Financial & Management consultancy Various kinds of Certification jobs.

(V) LIST OF CLIENTS 1) TAX AUDITS ASSIGNMENTS Trendz Synthetics Corporation Sun Agro Enterprises, Sangaria group Ganga Rice & General Mills, HMH group Rajasthan Gypsum Udhyog group Qureshi & Brothers, Suratgarh group Shree Industries, HMH Ram Chander Banarsi Dass Mundewala HMO group Rameshwar Lal Om Prakash, HMO group Sahi Ram Ram Chander, HMO group Nola Ram Pawan Kumar, Sangaria group

2) PRIVATE SECTOR COMPANIES/MNCs Helpline Securities Pvt.Ltd., New Delhi G.D. Laboratories India Pvt.Ltd., New Delhi Westfalia Separator India Pvt.Ltd. Officers Superannuation Fund Bently Nevada (Sales & Services) Pvt.Ltd. Group Gratuity Scheme FE Engg.& Consultancy Gratuity & Superannuation Trusts Earth Movers India Pvt.Ltd., New Delhi Azure Fuels India Pvt.Ltd., Sangaria

3) BANKING SECTOR The Bank of Rajasthan Ltd. State Bank of Bikaner & Jaipur UCO Bank State Bank of Patiala

4) STATE GOVT. ORGANISATION

CHAPTER-3

IMPORTANT DEFINATIONS

(A) PERSON(SECTION 2(31)) (B) ASSESSE(SECTION 2(7)) (C) ASSESSMENT YEAR(SECTION 2(9)) (D) PREVIOUS YEAR(SECTION 2(34)) (E) INCOME(SECTION 2(24))

A) PERSON(SECTION 2(31)) According to section 2(31) of the Income Tax Act 1961, the term person includes the following 7 categories: 1. Individual: Natural persons are covered under Individual. It includes women, man, idiot, lunatics, minor for example, Sh. Pawan Kandoi. 2. Hindu Undivided Family: This word has not been explained in the Act.However,according to Hindu law it means a family which consists of all persons lineally descended from a commom ancestor and includes their wives and unmarried daughters.For example,a joint family of Shri Pawan Kumar,Smt.Pawan kumar and their sons Sunil,RadhaMohan,Manoj,Manish,Sunils wife Archana and unmarried daughter Mittu. 3. Company: For example,Suraj Diamond Limited. 4. Partnership Firm: For example, Nalanda Prakashan which has Sourabh and Ankit as Partners. 5. Association of Persons or a Body of Individuals, whether incorporated or not-e.g. Cooperative Society,club,etc.For example,friends club.

6. Local Authority: e.g.Municipality,Municipal Corporation,Port Trust,Panchayat,District Board and Contonment Board etc;for example,Bombay Municipal Corporation. 7. Any Artificial juridical person,not falling within any of the above categories.For example,Shri Govind Devji,Shrinathji,Bar Counsil,etc.

Note: An association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person,whether or not they are formed with the object of deriving income,profits or gains.

B) ASSESSEE(SECTION 2(7)): According to section 2(7) of the Income Tax Act, 1961,assessee means any person by whom any tax or any other sum of money is payable under this Act. Assessee includes (i) Every person in respect of whom any proceeding has been taken for the assessment: His income or income of any other person. Loss sustained by him or other person. Amount of refund due to him or such other person. (ii) Every person deemed to be an assessee under the Act. (iii) Every person deemed to be an assessee in default under the Act. (iv) Every person in respect of who any proceeding under the Act has been taken for assessment benefits. The above definition divides various types of assessees into three categories: (a) Ordinary assessee- It includes (i) Any person against whom some proceeding under this Act are going on. It immaterial whether any tax or other amount is payable by him or not; (ii) Any person who has sustained loss and has filed return of loss u/s 139(3); (iii) Any person by whom some amount of interest, tax or penalties is payable under this Act; or (iv) Any person who is entitled to refund of tax under this Act. (b) Representative assessee or deemed assessee- A person may not be liable only for his own income but also on the income or the income or loss of other person that is guardian of minor or lunatic, agent of a non-resident etc. in such case the person responsible for the assessment of income of such person are called representative assessees. Such person is deemed to be an assessee.

DEEMED ASSESSEE 1. In case of a person who dies after writing his will the executor of the property of deceased are deemed to as assessees. 2. In case a person dies intestate (without writing his will) his eldest son or other legal heirs are deemed as assessee. 3. In case of a minor, lunatic or idiot having income taxable under Income-tax Act, their guardian is deemed as assessee. 4. In case of a non-resident having income in India, any person acting on his behalf is deemed as assesses. (c) Assessee-in-default. A person is deemed to be assessee-in-default if he fails to fulfill his statutory obligation. In case of an employer paying salary or a person who is paying interest it is their duty to deduct tax at source and deposit the amount of tax so collected in government treasury. If he fails to deduct at source or deducts tax but does not deposit it in the treasury, he is known as assessee-in-default.

C)ASSESSEMENT YEAR(SECTION 2(9)): Assessment year means the period of 12 months starting from 1st April of every year and ending on March, 31 of the next year. Our assessment year will be 20102011.

D) PREVIOUS YEAR (SECTION 2(34)): The Financial year immediately preceding the assessment year is known as previous year. For assessment year 2010-2011, the previous year will be 2009-2010.The income earned in previous year 2009-10 will be taxable in assessment year 2010-11. Previous year in case of newly set up business or professionIn the case of newly set up business or profession or a source of income newly coming into existence,the first previous year will be the period commencing from the date of setting up of business or profession or,as the case may be,the date on which the source of income newly comes into existence and ending immediately following March 31. The income of the previous year is taxable in the following year called as the assessment year.However there are certain exemptions to this rule(a) Shipping business of non-residents- In this case,7.5% of the amount of freight,fare,etc. is deemed as income of the non-resident tax payer and tax is payable at the rate

(b)

(c)

(d)

(e)

applicable to a foreign company.Income is thus taxable in the same year in which freight,fare,etc is collected and not in the immediately following assessment year. In case of a person leaving India with an intention of not returning back- The total income of such individual upto the probable date of his departure from India shall be chargeable to tax in that year itself according to the rates applicable to that assessment year. Assessment of AOP or BOI or artificial juridical person formed for some special purpose or event-If it appears to the assessing officer that the AOP or BOI or the artificial juridical person which is formed or established or incorporated for a particular event or purpose is likely to be dissolved in the assessment year,the same can be chargeable to tax in the assessment year itself . Alienation of assets with a view to avoid tax- If it appears to the Assessing officer that a person is likely to charge,sell or transfer or dispose of any of his asset with a view to avoiding payment of any liability under the Income Tax Act,the total income of such person from the first day of the assessment year to the date when the proceeding is started,is taxable in the assessment year itself. Discontinued business or profession- In case a business or profession is discontinued in any assessment year,its income from April 1st till the date of discontinuation may be taxable either in the previous year in which the business is discontinued or it can be charged in the normal manner in the assessment year.This choice is at the discretion of the Assessing officer (section 176).

E) INCOME(SECTION 2(24)):

The term income is very important as the income tax is levied on income.Under the Income Tax Act, 1961 the income has been defined in an inclusive manner.Accordingly, following are included in the income:a) b) c) d) Profits or gains of business or profession Dividend Voluntary contribution received by a charitable or religious trust or institution. The value of perquisite or profit in lieu of salary taxable U/S 17 and special allowance or benefit specially granted either to meet personal expenses or for the performance of duties of an office or an employment of profit. e) Export incentives, like Duty Drawback, Cash Compensatory Support, Sale of licenses etc. f) Interest, salary, bonus, commission or remuneration earned by a partner of a firm from such firm g) Capital Gains chargeable U/S 45.

h) Winning from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever. i) Deemed income U/S 41 or 59. j) Sums received by an assessee from his employees towards welfare fund contributions such as provident fund, superannuation fund etc. k) Amount received under Keyman Insurance Policy including bonus thereon. l) Amount received under agreement for i) Not carrying out activity in relation to any business or ii) Not sharing any know-how, patent, copyright etc. m) Benefit or perquisite received from a Company, by a Director or a person holding substantial interest or a relative of the Director or such person. n) Any sum received by an Individual of HUF by way of gifts,exceeding Rs 50000. COMPUTATION OF TOTAL INCOME Income-tax is charged on the Total Income of a Previous Year at the rates prescribed for the Assessment Year. BASIS OF CHARGE Section 4 The total income of the previous year. Of every person shall be charged to income tax At the rates prescribed in the annual Finance Act. As applicable to the relevant assessment year. The income shall be so charged in accordance with and Subject to the provisions of Income Tax Act. A 'resident' tax payer is charged to income-tax on his global income, subject to a double taxation relief in respect of foreign incomes taxed abroad. In the case of a 'nonresident', income-tax is charged only on incomes received, accruing or arising in India or which are deemed to be received, accrued or arisen in India. For the purpose of computing total income and charging tax thereon, income from various sources is classified under the following heads: A. Salaries. B. Income from House Property. C. Profits and Gains of business or profession. D. Capital Gains. E. Income from Other Sources. These five heads of income are mutually exclusive. If any income falls under one head, it cannot be considered under any other head. Income under each head has to be computed as per the

provisions under that head. Then, subject to provisions of set off of losses between the heads of income, the income under various heads has to be added to arrive at a gross total income. From this gross total income, deductions under Chapter VIA are to be allowed to arrive at the total income. On this total income tax is calculated at the rates specified in the relevant Finance Act or the rates given in the Income Tax Act itself. The above procedure is summarized below:

GROSS TOTAL INCOME TOTAL INCOME TOTAL TAX PAYABLE

A+B+C+D+E GROSS TOTAL INCOME DEDUCTIONS UNDER CHAPTER VIA TAX ON TOTAL INCOME

COMPUTATION OF TOTAL INCOME:A] Income from Salaries Salary / Bonus / Commission, etc Taxable Allowance Value of Taxable Perquisites Gross Salary Less: Deduction under Section 16(ii) & (iii) Net taxable income from Salary B] Income from House Property Gross Annual Value Less: Municipal Tax paid by Owner Net Annual Value Less: Municipal Tax paid by Owner Income from House Property C]Profits and Gains of Business and Profession Net Profit as per P&L Account Less: Allowable expenditure & income not chargeable to tax under this head Add: Inadmissible expenditure Net Profit & Gains of Business & Profession D] Capital Gains Capital Gain as computed

xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx

xxxxx xxxxx xxxxx xxxxx xxxxx

xxxxx xxxxx xxxxx xxxxx

xxxxx

Less: Exemptions Income from Capital Gains E] Income from other sources Gross Income Less: Deductions Net Income from other sources COMPUTATION OF TOTAL INCOME Gross Total Income Less: Deduction available under Chapter VIA Total Income

xxxxx xxxxx

xxxxx xxxxx xxxxx

xxxxx xxxxx xxxxx

RATE OF INCOME TAX FOR ASSESSMENT YEAR 2010-11. (I) For Individuals, Hindu Undivided Family, Association of Persons, Body of Individuals INCOME SLAB Upto Rs.1,60,000 Rs.1,60,001 to Rs.3,00,000 Rs.3,00,001 to Rs.5,00,000 Rs.5,00,001 & above RATES OF INCOME TAX Nil 10% of amount by which total income exceeds Rs.1,60,000 Rs.14,000+20% of amount by which total income exceeds Rs.3,00,000 Rs.54,000+30% of amount by which total income exceeds Rs.5,00,000

(II)

For women resident in India and below the age of 65 years RATES OF INCOME TAX Nil 10% of amount by which total income exceeds Rs.1,90,000 Rs.11,000+20% of amount by which total income exceeds Rs.3,00,000 Rs.51,000+30% of amount by which total income exceeds Rs.5,00,000

INCOME SLAB Upto Rs.1,90,000 Rs.1,90,001 to Rs.3,00,000 Rs.3,00,001 to Rs.5,00,000 Rs.5,00,001 & above

(III)

For Senior Citizen RATES OF INCOME TAX Nil 10% of amount by which total income exceeds Rs.2,40,000 Rs.6000+20% of amount by which total income exceeds Rs.3,00,000 Rs.46000+30% of amount by which total income exceeds Rs.5,00,000

INCOME SLAB Upto Rs.2,40,000 Rs.2,40,001 to Rs.3,00,000 Rs.3,00,001 to Rs.5,00,000 Rs.5,00,001 & above

Notes1) Surcharge-Nil 2) Education cess- It is 2% of Income Tax. 3) Secondary and higher education cess- It is 1% of Income Tax.

CHAPTER-4 RESIDENTIAL STATUS

An individual or Hindu Undivided Family can be either (1) Resident and ordinarily resident in India, or (2) Resident but not ordinarily resident in India, or (3) Non-resident in India. All other assesses can be either (1) Resident in India or (2) Non-resident in India.

Before discussing anything, first of all we have to know what are the basic conditions and what are the additional conditionsBASIC CONDITIONS 1) An individual is in India in the previous year for 182 days or more:or 2) He is in India for a period of 60 days or more during the previous yesr and 365 days or more during the 4 years preceding the previous year. ADDITIONAL CONDITIONS 1) He must be a resident in India in 2 out of the 10 previous year preceding that year:and 2) He must be present in India during the 7 years preceding that year for an aggregate period of 730 days or more Exceptions: Under the following circumstances,the period of 60 days as mentioned above will be extended to 182 days: a) An Indian citizen who leaves India during the previous year for the purpose of employment outside India. b) An Indian citizen who leaves India during the previous year as a member of the crew of an Indian Ship. c) An Indian citizen or a person of Indian origin (who is abroad) who comes to India on a visit during the previous year. Meaning of person of Indian origin: A person is said to be of an Indian origin if he or his parents or his grandparents were born in undivided India.

PROVISIONS FOLLOWS:

FOR

THE

DETERMINING RESIDENTIAL

STATUS

ARE

AS

Assessee Condition for determining residential status i. Individual [Sec. 6(1) and 6(6)(a)] 1.Non-resident An individual who does not satisfy any of the basic conditions will be treated as a non-resident. For him, the additional conditions are not required to be considered. 2.Resident but An individual who satisfies atleast one of the basic conditions and only one not ordinarily or none of the additional conditions. resident 3.Resident and An individual who satisfies any one or both of the basic conditions and both

Ordinary resident

of the additional conditions.

ii. Hindu Undivided Family [sec.6(2)] 1.Non-resident If the control and management1 of its affairs is wholly situated outside India. 2.resident but If the control and management1 of its affairs is wholly or partly situated not ordinarily outside India and Karta or manager of family is not able to satisfy either both resident or one of the additional conditions2. 3.Resident and If the control and management1 of its affairs is wholly or partly situated in Ordinary India and Karta or manager of family is able to satisfy both of the additional resident conditions2. iii. Firm or Association of Person [sec.6(2)] 1.Non-resident If the control and management1 of its affairs is wholly situated outside India. 2.Resident If the control and management1 of its affairs is wholly or partly situated in India. iv. Any company [sec.6(3)] 1.Non-resident If the control and management of its affairs is wholly or partly situated outside India. 2.Resident (1)An Indian company or (2) A company other than an Indian company whose control and management is wholly situated in India. v. Any other person [sec.6(4)] 1.Non-resident If the control and management of its affairs is wholly situated outside India. 2.Resident If the control and management of its affairs is wholly or partly situated outside India. Meaning of Control and ManagementControl and management is situated at that place where the policies are framed for the business and directions are issued for carrying out the business. Generally the right to control and manage vests with the Karta of the family.In case the control and management of the affairs is carried out at many places,then atleast one of the place must be situated in India.

CHAPTER-5 INCIDENCE OF TAX

According to Section 5 of the Income Tax Act, 1961, the tax incidence of an assessee depends on his residential status. The following provisions have been made in this respect:-

1) Scope of Total Income of Resident: The following incomes shall be included in the total income of a resident assessee: a) Income which is received or is deemed to be received in India in the previous year by him or on his behalf;or b) Income which accrues or arises or is deemed to accrue or arise to him in India during the previous year;or c) Income which accrues or arises to him outside India during the relevant previous year.

2) Scope of Total Income of Not Ordinarily Resident: The following incomes shall be included in the total income of a Resident but not ordinarily resident assessee: a) Income which is received or is deemed to be received in India in the previous year by him or on his behalf;or b) Income which accrues or arises or is deemed to accrue or arise to him in India during the previous year;or c) Income which accrues or arises to him outside India from a business controlled from India or a profession set-up in India.

3) Scope of Total Income of Non-resident: The following incomes shall be included in the total income of a Non-resident assessee: a) Income which is received or is deemed to be received in India in the relevant previous year by or on behalf of such person;or b) Income which accrues or arises or is deemed to accrue or arise to him in India during the relevant previous year.

TABLE SHOWING THE SCOPE OF TOTAL INCOME

INCIDENCE OF TAX

Particulars

Resident and Ordinarily Resident

Resident but not Ordinarily resident

Nonresident

Income received in India whether accrued in India or outside India by him or on his behalf

Taxable

Taxable

Taxable

Income deemed to be received in India whether accrued in India or outside India by him or on his behalf Income accruing or arising in India whether received in India or outside India

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Income deemed to accrue or arise in India whether received in India or outside India

Taxable

Taxable

Taxable

Income received and accrued outside India from a business controlled in or a profession set-up in India Income received and accrued outside India from a business controlled from outside India or a profession set-up outside India

Taxable

Taxable

Taxable

Foreign Income of Past years brought in

India during previous years

NoteExempted Income shows - sign.

Following are the definitions of certain terms used in determining the scope of total income of the assessee:

1) INCOME RECEIVED IN INDIA: The income earned in India is taxable in all the circumstances whether it is received in India or outside India. Following are the some important points in this respect: a) Income is treated as received on the first occasion: The receipt of income refers to the first occasion when the recipient gets the money under his control. The receipt of income on the first occasion determines the year and place of receipt.If any income is received for the first time outside India and later on the same is remitted to India ,then the same shall not be treated as income received in India. b) Transferred income is no income: If any income is earned and received outside India but later on the same is transferred to India, then such transferred income shall not be treated as income in India.

c) Deemed receipt is treated as actual receipt: If any representative of the assessee receives any income on behalf of the assessee outside India, such income shall be deemed to be earned outside India. It is important for a non-resident assessee to know whether the income is received outside India or in India because in case of non-residents, only those incomes which are received in India is taxable. d) Same income cannot be taxed twice: During any previous year if any income has been earned outside India and the assessee has already paid tax on it and subsequently the same income is received in India for the first time,it shall not be taxable again because there cannot be double taxation in respect of same income.

2) INCOME DEEMED TO BE RECEIVED IN INDIA: According to section 7 of the Income tax Act,1961 the following incomes shall be deemed to be received in India: a) Employers contribution to Provident Fund: Employers contribution in excess of 12% in a recognized provident fund is taxable. Though the employee receives this income on his retirement or on his leaving the service, but it will be deemed to be the income of the previous year when such excess contribution is made and it is deposited in the provident fund. b) Interest credited to Recognised Provident Fund: Interest credited in excess of 8.5% on the aggregate contribution of the employer and the employee shall be taxable in the year in which it is credited to the account. c) Tax deduction at source in hands of payee: The Income Tax Act,1961 provides for tax deduction at source in certain cases.The person who receives the net income(after tax deduction) is required to gross such income. The tax deduction is deemed to be the income of the assessee. d) Contribution by Govt. to 80 CCD pension fund: The contribution made by the Central Government in the previous year to the account of an employee under a pension scheme referred to in section 80 CCD shall be deemed to be received in India.

3) INCOME ACCRUED OR AROSE IN INDIA: Income is said to accrue or arise in India when there is a right to receive the income becomes vested .in the assessee, though he may actually not receive it. The Income Tax Act,1961 has not differentiated between the terms accrue and arise. The methed of accounting followed by the assessee determines the taxability of accrued income. If the assessee follows mercantile system of accounting, then such income is taxable when it is accrued or arose. However if the assessee follows cash system of accounting, then the income accrued or arose shall not be taxable unless the same has been received. 4) INCOME DEEMED TO ACCRUE OR ARISE IN INDIA: According to section 9 of the Income Tax Act,1961 following are certain incomes which are deemed to be income accrued or arose in India: a) Income from business connection in India: Business connection means the business relations between the resident assessee and a non-resident assessee whereby

the resident assessee earns profit and the non-resident assessee receives such profit. Following are some of the examples of such business connections: (i) Maintaining a branch office in India for the purchase or sale of goods or transacting other business. (ii) Erecting a factory in India where the raw produce purchased locally is worked into a form suitable for export. (iii) Forming a local subsidiary company to sell the products of the non-resident company. (iv) Having financial association between a resdent and a non-resident assesseee. (v) Income of Business Process Outsuurcing(BPO) Unit of foreign companies from permanent established in India. In case all the operations are not carried out in India, then only that portion of profits which are attributable to operations carried out in India shall be deemed to accrue or arise in India. b) Income from property or any other source of income in India: The term property refers to movable and immovable property. For example- if a non-resident assessee purchases a house property in India and lets it out on rent and he receives such rental income outside India, such income shall be deemed to accrue in India as the property is situated in India. 5) SALARY EARNED IN INDIA: Salary payable for services rendered in India, whether paid outside India shall be deemed to accrue or arise in India.Salary payable for rest periods or leave periods which may precede or succeed the services rendered , provided, such rest or leave periods form part of the service contract of employment shall be deemed to accrue or arise in India. 6) SALARY RECEIVED FROM THE GOVERNMENT: Salary income payable by the Government to a citizen of India for service outside India shall be deemed to accrue or arise in India.

7) DIVIDEND: Dividend paid by an Indian Company outside India is deemed to accrue or arise in India. 8) INTEREST INCOME FROM THE FOLLOWING: (a) The Government (b) A resident person(except the situation when interest is payable on loan received for business run outside India or income earned from other sources.

(c) A non-resident, where the interest is payable in respect of the debt incurred, or money borrowed and used, for the purpose of a business or profession carried on by such person in India.

Note:- The above mentioned provisions apply to non-residents only, as the resident assessee is taxed on all his income whether received in India or outside India. Therefore, these provisions have significance only in case of non-residents.

CHAPTER-6 ASSESSMENT PROCEDURE AND APPEALS ( SEC-139 TO 154 AND 246 TO 254)

(A) ASSESSMENT PROCEDURE

Assessment means computation of total income and tax payable on such income. Income tax is imposed every year, hence, assessment of tax is made every year of an assessee. The procedure of assessment begins with the filing of return of income and remains continue till computation of tax payable and issue of demand notice. The entire procedure of assessment can be divided into the following heads: 1) Return of income, 2) Types of assessment: A. Self-assessment, B. Regular assessment, C. Best judgement assessment, D. Re-assessment 3) Rectification of mistakes, 4) Notice of demand, 5) Intimation of loss,

RETURN OF INCOME

1. Submission of return of income (Section 139(1)): Every person being a company and being a person other than company whose total income exceeds the maximum amount which is not chargeable to income tax, shall furnish a return of income in prescribed form and procedures on or before due dates. It is mandatory for a company to file income tax return whether loss occurred in the previous year. For the assessment year 2008-2009,income not exceeding Rs. 1,10,000 in case of an individual and H.U.F. is not chargeable to tax. The women assessee having age less than 65 years is entitled to enjoy exemption limit of Rs. 1,45,000 and in case of senior citizen (both men and woman) the income upto Rs.1,95,000 is exempt from tax. Any person other than partnership firm and company will have to file his return only if total income after allowing deductions under chapter U/A or section 10A, 10B, exceeds the exemption limit. There person are: An Individual, AOP/BOI, Hindu undivided family, Artificial Judicial person.

Under the new law a person as stated above having income not exceeding the exemption limit may file his return. 2. Due date for submitting return of income: The following are the due dates for submitting of return of income for various types of assesse.

S.No. 1. 2.

Assessee Company Assessee Non-Company Assessee whose books of accounts are necessarily required to get audited. Working Partner of a firm of which books of account are necessarily required to get audited. Other assessee whose books of account are not required to get audited

Due Date

30th Sept. of assessment year

3.

4.

31st July of assessment Year

Note(i) (ii)

If there is a holiday on the due date of return then return can be submitted on the next day. If return is submitted after the due date, then simple interest @1% per month or part of month for delayed period u/s 234A will be charged.

3. Prescribed form for return of Income: The return of income should be submitted in prescribed form given under Income Tax new rule 12. This rule classifies the assessee as follows: S.No. 1. Category Of Assessee For Individual having income from salary and interest or family pension under the head income from other sources. For Individuals(who is not covered under S.No.1)and HUFs not having business or professional income. Individual or HUF who is partner in partnership firm and having on income under the head business or profession,interest, salary, bonus. For Individuals and HUF having income from a proprietary business or profession. For firms, AOPs and BOIs. For companies other than companies claiming exemption under section 11. For persons including companies required to furnish return under section 139(4A)/(4B)/(4C)/(4D). For person who is not required to furnish return of income but is required to furnish the return of fringe benefits. Form No.

ITR-1

2.

ITR-2

3.

ITR-3

4.

ITR-4

5. 6.

ITR-5

ITR-6

7.

ITR-7

8.

ITR-8

9.

Where the data of the return of income/fringe benefits in Forms-ITR-1 to ITR-8 transmitted electronically without digital signature.

ITR-V

4. Bulk filing of returns of employees by employer(Section 139(1A)): An assessee having Income from salaries may deliver his income to his employer and employer shall submit such return and income as per prescribed rules by the CBDT on or before due date. The return of income shall be submitted in prescribed format. The prescribed format contains floppy diskette, Magnetic Cartridge tape, CD-ROM or other means read by computer also. Where the employer employs minimum 50 employees whose total income exceeds the maximum exemption limit returns of employees may be filed. 5. Submission of return of loss(Section 139(3)): If an assessee incurres losses under the head business or profession or Capital Gains and he wants to carry forward the losses, then he shall have to submit the return of loss u/s 139(1) also. If the return of loss is not submitted with in the prescribed time, then such losses cannot be carried forward and set off. 6. Late filing of return of income or belated return(Section 139(4)): If return is not furnished within the time allowed under section 139(1) or within the time allowed under notice issued under section 142(1), the person may, before the assessment is made,furnish the return of any previous year at any time before the end of one year from the end of relevant previous year at any time before the end of one year from the end of relevant previous year.Losses cannot be carried forward if rerurn is submitted late. 7. Submission of revised return of income u/s 139(5): If an assessee after submission of return u/s 139(1) or u/s 142(1) discovers any omission or any mis-statement in the return already submitted, he may furnish a revised return u/s 139(5). This return of income can be filled with in one year before the expiry of end of the relevant assessment year or before the completion of assessment whichever is earlier. Belated return of income u/s 139(4) cannot be submitted as revised return of income u/s 139(5).Revised return is the replacement of original return.

8. Defective return of income u/s 139(9): If an assessing officer finds that the return of income submitted by the assessee in defective, then he shall intimate the assessee by giving the period of 15 days for rectifying the mistakes. If the mistakes are not rectified within the prescribed time,then the return of income shall be deemed to be invalid and it shall be assumed that no return of income has been filed by the assessee. If the assessee rectifies the defective return after the completion of time prescribed but before assessment, then Assessing Officer may condone the delay and treat the return as a valid return. 9. Signature on Return(Section 140): The return u/s 139 shall be signed and verified as under: (i) In case of an individual: Generally an individual signs himself, where he is absent from India, then the person duly authorized by him can sign. If the person is mentally incapacitated from attending to his affairs, by his guardian or any other person competent to act on his behalf shall sign. (ii) In case of HUF: Only by Karta and in case of the Karta is absent from India or the Karta is mentally incapacitated from attending to his affairs, the return can be signed by any other adult member of the family. (iii) In case of a Company: By the managing Director where for any unavoidable reason such Managing Director in case of the company being wound up, it can be signed by the liquidator of the Company. (iv) In case of the firm: By the Manging Partner or by the any adult partner. If managing partner is not able to sign and verify the return for unavoidable reason. (v) In the case of local authority: By the principal officer thereof. (vi) In case of any other person: By any competent or duly authorised person on his behalf. 10. Permanent Account Number(PAN)(Section 139A): Permanent Account Number is a number which is allotted by the Assessing Officer for recognition of the person. PAN has 10 alphanumeric characters contained by a laminated card. The person who has been allotted PAN, shall disclose such number necessarily while corresponding with Income Tax department. It wil also be quoted on submitting return of Income, Challan and other documents. Note: If any person who has not been allotted a Permanent Account Number or who does not have GIR number shall make a declaration in form no. 60, if he enters in any of the above transactions requiring PAN. Any person having agriculture income shall make declaration in form no. 61.It is not applicable to non-resident.

TYPES OF ASSESSMENT
A) SELF-ASSESSMENT(SECTION 140A): Self-assessement refers a system under which an assesse computer taxable income himself as well as tax on it while submitting return of income. In this situation the amount of tax shall be paid before submitting return of income. TDS and advance tax are deductible to compute the amount of tax payable. If the return of income has been submitted belated or advance tax has not been paid completely or timely, then interest payable u/s 234A, 234B and 234C shall also be computed by himself and the submitted alongwith return of income. If the amount deposited by the assesse is less than the amount of tax payable and interest, then the amount so deposited would also be adjusted for interest very and remaining would be adjusted for tax payable. B) REGULAR ASSESSEMENT (SECTION 143): An assessement u/s 143 is considered as regular asessement. There are two of regular assessement: (1) Summary assesement on the basis of return of income. (2) Scrutiny assessement on the basis of evidence.

Following provisions should be considered before description of regular assessment:a) Issue of Notice to assessee(section 142(1)): The Assessing Officer can give notice to the assessee for the following act; (i) If the assessee has not submitted his return of income u/s 139(1) within the time prescribed; (ii) If the assessee has not submitted return of income and necessary books of accounts and documente are required to be produce before assessing officer. The Assessing officer cannot give notice to get the assessee produced books of accounts relating to 3 years ago immediate before previous year. (iii) The notice can be given to produce necessary information in writing and in prescribed manner duly attested.If the assessing officer requires the particulars of assets and liabilities of assessee, then he shall have to obtain prior approval from DeputyCommissioner of Income Tax.

(b) Audit of Accounts(section 142(2A to 2D)): If the assessing officer considers that the nature and complexity of the books of accounts can be the cause of revenue loss,then he can give the notice to tha assessee having prior approval from Chief Commissioner or Commissioner of Income Tax that books of accounts should get be audited from notified accountant by the Commissioner and audit report of such accountant within maximum of 180 days and in prescribed form No. 6B should produced before assessing officer duly signed and attested. If the books of accounts of assessee are already audited, then assessing officer can also issue an order for re-audit of books of accounts. The Commissioner shall fix the Auditors, remuneration and audit expenses which shall be payable by the assessee. If the assessee does not pay the same, then these shall be recovered same as recovery of Income Tax. (c) Opportunity of Hearing: If the assessing officer wants to use collected facts and materials and information by way of audit for the purpose of assessment, then he shall give an opportunity to the assessee of being heard.

Estimate by Valuation Officer in certain cases(Section 142A) (i) If, for the purposes of making an assessment or re-assessment, the Assessing Officer requires an estimate of the value of any investment/assets referred to in Section 69 or 69A or69B,then he can appoint a Valuation Officer to make an estimate of such value and report tha same to him.The valuation officer so appointed will have all the powers given u/s 38A of Wealth Tax Act, 1957. (ii) The Assessing officer may take into account such report in making such assessment or re-assessment. However, before taking into account such report, he will have to give the assessee and opportunity of being here. (iii) This section will apply to the assessments made after 30th September, 2004.

TYPES OF REGULAR ASSESSMENT:

1) Summary assessment on the basis of return of income(Sec.-143): If an assessee has produced return of income in response of notice u/s 139 and 142(1),then the assessing officer can make assessment on the basis of such particulars of income without calling the assesse, it is known as summary assessment. An intimation shall also be given to the assessee, if any amount of interest arises on the basis of return of income but such intimation can not be sent after expiry of one year from the year in respect of which return of income has been submitted. If on the basis of income any refund of amount towards the assessee shall be refunded. If none of the amount is payable or refundable, then acknowledgement of return of income shall be treated as assessment u/s 143(1).

2) Scrutiny assessment on the basis of evidence(Section 143(2)): Under this section the assessment has been classified into the following categories: a) Limited cases scrutiny u/s 143(2)(i):w.e.f. June 1, 2002 the scheme has been in force. This scheme shall be applied only if the return of income u/s 139 and 142(1) has been submitted and the assessing officer has sufficient reasons to be believed that any specific loss, rebate, deduction or relief are not allowable. In this situation the assessing officer can issue notice to the assessee after the end of one year. In this situation no refund. Of tax can also be provided. b) Comprehensive scrutiny u/s 143(2)(ii):If the assessing officer considers to verify the return of income produced by the assessee to determine that the taxable income shown by the assessee is not less than actual income or tax paid by the assessee is not less than the actual tax payable by him, then he shall give the notice under this section to present himself in the office of income- tax with sufficient evidence in favour of return of income submitted by him. The notice u/s 143(2)(ii) can not be served after expiry of one year from the month in which the return has been submitted. c) Special procedure for assessment in the case of scientific research association, news agency, notified trust etc.(section 143(3)):This

special procedure is applicable to those assessee, who are required to submit return of income u/s 139(4C). 1) Scientific research association mentioned u/s 10(21). 2) Newas agencies mentioned u/s 10(22B). 3) Any association or institution mentioned u/s 10(23A). 4)Any institution mentioned u/s 10(23B). 5) Any trust or institution Or University or Hospital mentioned u/s 10(23C).

C) BEST JUDGMENT ASSESSMENT (1) If any person (a) Fails to make the return required under sub-section (1) of section 139 and has not made a return or a revised return under sub-section (4) or sub-section (5) of that section, or (b) Fails to comply with all the terms of a notice issued under sub-section (1) of section 142 or fails to comply with a direction issued under sub-section (2A) of that section for getting the account audited, or (c) Having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of section 143, the Assessing Officer], after taking into account all relevant material which the Assessing Officer has gathered, shall, after giving the assessee an opportunity of being heard, make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment:

Appeal against best judgement assessment: If the assessee is not satisfied by the assessment done by assessing officer then he can appeal before the commissinor (appeal). If he is not satisfied by the decision given by the commissioner (appeals), then he can appeal to appellate tribunal. If any leagel point involves in the matter, then appeal can be made to high court. Discretionary best judgement Assessment(section 145(3)):If the assessing officer is not satisfied from the accuracy of books of account or assessee does not have any regular system to keep the books of account, then the assessing officer, best of his mind can assess the income. Books of accounts cannot be rejected on the basis of their complicacy. An appeal can be made before commissioner (appeal) against the assessment under this section.

Protective assessment:-In case of any dispute of ownership of income under the provision of clubbing of income, the assessing officer will include such income in the income of both the assesses till the final settlement. After final settlement one asessee will have to pay tax on such income and income already included in the income already included in the income of other assesser will automatically cancelled. D) REASSESSMENT If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings section 147, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year). The proceeding of re-assessment can not be done after expiry of 4 years from related assessment year. But under following circumstances re-assessment can be made even after expiry of 4 years: a) An income has escaped assessment on income of not submitting return of Income by the assessee u/s 139;or b) Income escaping on account of not submitting return of income in reference of notice u/s 142(1) and 142(8);or c) Income escaping on account of non-disclosure of complete and correct informations. The following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:(a) Where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) Where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (c) Where an assessment has been made, but (i) Income chargeable to tax has been under assessed; or (ii) Such income has been assessed at too low a rate; or (iii) Such income has been made the subject of excessive relief under this Act; or (iv) Excessive loss or depreciation allowance or any other allowance under this Act has been computed.

ISSUE OF NOTICE WHERE INCOME HAS ESCAPED ASSESSMENT(Section 148): (1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139. (2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so. TIME LIMIT FOR NOTICE(Section 149): The notice u/s 148 shall not be issued after expiry of the following period: 1) If an income escaping assessment of the related assessment year is less then Rs. 1 lakh and 4 years have already elapsed after such assessment year. 2) If income escaping assessment is Rs. 1 lakh or more and 4 years after related assessment year have elapsed but within 6 years. 3) If the person to whom notice has been issued to an agent of non-resident, then 2 years has alredy elapsed. Exceptions: According to section 150,the time limit as stated above shall not apply under the following circumstances: 1) When re-assessment is to be made under an appeal or revision or an order or proceedings by the court. 2) If the time period of re-assessment has been determined at the time if giving direction for re-assessment under appeal or revision, then the assessing officer shall make reassessment within the time limit so prescribed. PERMISSION FOR ISSUING NOTICE(Section 151): If the assessment of an assessee has been done u/s 143(3) and 147, then notice for reassessment cannot be served by the assessing officer below the rank assistant commissioner and deputy commissioner but the joint commissioner of Income-Tax satisfies by the reason given by assessing officer regarding re-assessment, then he can order for a notice to be issued. TIME LIMIT FOR COMPLETION ASSESSMENT(SECTION 153): OF ASSESSMENT AND RE-

1) An order for assessment u/s 143 and 144 cannot be served after expiry of 2 years from related assessment year. 2) Reassessment or assessment procedure u/s 147 must be completed within a period of 1 year from end of such financial year in which notice u/s 148 is obtained. Under the following circumstances the time limit for assessment,reassessment and re-computation cannot be applied: (i) Assessment u/s 250,254,263 and 264 in reference to comply under an appeal. (ii) Re-assessment of a partner on account or re-assessment of a firm u/s 147. (iii) In case of rectification of mistakes.

RECTIFICATION OF MISTAKES(SECTION 154):

It may be possible that an Income-Tax authority may commit a mistake while passing the order of assessment,appeal, revision, etc. with a view to rectifying any mistake, apparent from the record, the income-tax authority empowered as under: 1) An order issued by himself under this Act may be revised. 2) Issue of Notice u/s 143(1) can be revised or an amount of refund accepted can be increased or reduced. 3) This type of mistake can be rectified by the related officers with in the 4 years from end of such financial year in which an order for revision is revised. 4) This revision can be made by the officer on finding such mistakes or when an application is given by the assesseein this respect. Any mistake relating to an order of Commissioner(Appeals) shown by an assessing officer can be revised. 5) The period of 4 years shall be computed from the date of an order in which rectification is to be made, not from the date of issue of original order.

NOTICE OF DEMAND(SECTION 156):

When any tax, interest, penalty, fine or any other sum is payable in consequences of any order passed under the Income-Tax Act, the Assessing Officer shall serve upon the assessee a notice of demand in Form No. 7 specifying the sum so payable. Further as per section 220(1) the amount specified in the notice of demand should be paid within 30 days of the service of notice at the place and to the person mentioned in the notice. However, the Assessing officer in some cases, with prior approval of Joint Commissioner can ask the assessee to deposit the amount in less than 30 days.

INTIMATION OF LOSS:
Where in the course of the assessment of total income of any assessee,it is established that loss has taken place which the assessment is entitled to have carry forward and set off under

the provisions of section 72(1) or section 73(2) or section 74(1) & (3) , then the assessing officer shall notify the assessee by an order in writing, u/s 157 the amount of such loss computed by him.

(B) APPEALS
If an assessee is not satisfied with the order or assessment of the Assessing Officer, he may file an appeal against the such order or assessment. Alternatively he can apply the commission of Income Tax for revision of the order of the assessing officer. The first appeal against the order of the assessing officer shall lie with the commissioner(appeal). Either the assessee or the Assessing officer is not satisfied with the order passed by the commissioner (appeal), they can appeal against the order to Appellate Tribunal. Against an order passed by Appellate Tribunal can be appealed to High Court and similarly, appeal against the order of High Court can be filed to Supreme Court.

Following is the procedure when one makes appeal: A- APPEALS TO THE DEPUTY COMMISSOINER (APPEALS) AND COMMISSIONER (APPEALS) {Sec.246-251} B- APPEAL TO THE APPELLATE TRIBUNAL {Sec.252-255} C- APPEALS TO HIGH COURT {Sec.260A- 260B} C-APPEALS TO THE SUPREME COURT {Sec.261-262} D- REVISION BY THE COMMISSIONER {Sec.263-264}

APPEALS TO THE DEPUTY COMMISSOINER (APPEALS) AND COMMISSIONER

Section 246A APPEALABLE ORDERS BEFORE COMMISSIONER (APPEALS)

Any assessee aggrieved by any of the following orders (whether made before or after the appointed day) may appeal to the Commissioner (Appeals) against1) An order against the assessee where the assessee denies his liability to be assessed under this Act or an intimation under sub-section (1) or sub-section (1B) of section 143, where the assessee objects to the making of adjustments, or any order of assessment under sub-section (3) of section 143 or section 144, to the income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed; 2) An order of assessment, reassessment or recomputation under section 147 or section 150; 3) An order made under section 154 or section 155 having the effect of enhancing the assessment or reducing a refund or an order refusing to allow the claim made by the assessee under either of the said sections; 4) An order made under section 163 treating the assessee as the agent of a nonresident; 5) An order made under sub-section (2) or sub-section (3) of section 170; 6) An order made under section 171; 7) An order u/s 201 under which the assessee has been deemed to be an assessee in default for failure to deduct TDS or to get depsited TDS. 8) An order made under section 237 relating to refunds. 9) An order imposing a penalty under a) Section 221; or b)Section 271,section 271A, section 271F, section 271AA or section 272BB; 10) An order of assessment made by an Assessing Officer under clause (c) of section 158BC, in respect of search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A on or after the 1st day of January, 1997; 11) An order made by a Deputy Commissioner imposing a penalty under section 271C, section 271C or section 271D or section 271F 12) An order for assessment or re-assessment u/s 153A Explanation: For the purposes of this sub-section, where on or after the 1st day of October, 1998, the post of Deputy Commissioner has been re-designated as Joint Commissioner and the post of Deputy Director has been re-designated as Joint Director, the references in this sub-section for "Deputy Commissioner" and "Deputy Director" shall be substituted by Joint Commissioner" and "Joint Director" respectively. APPEAL BY PERSON DENYING LIABILITY TO DEDUCT TAX(U/S 248):

Any person having in accordance with the provisions of sections 195 and 200 deducted and paid tax in respect of any sum chargeable under this Act, other than interest, who denies his liability to make such deduction, may appeal to the Commissioner (Appeals) to be declared not liable to make such deduction. PROCEDURE FOR FILING APPEAL(SECTION 249 AND RULES 45 & 46): 1) The appeal should be filed in form no. 35 and it should also be verified in the prescribed manner. 2) The appeal shall be presented within thirty days of the following date, that is to say, (a) Where the appeal relates to any tax deducted under sub-section (1) of section 195, the date of payment of the tax, or (b) Where the appeal relates to any assessment or penalty, the date of service of the notice of demand relating to the assessment or penalty: Provided that, where an application has been made under section 146 for reopening an assessment, the period from the date on which the application is made to the date on which the order passed on the application is served on the assessee shall be excluded, or (c) In any other case, the date on which intimation of the order sought to be appealed against is served. 3) The Commissioner (Appeals) may admit an appeal after the expiration of the said period if he is satisfied that the appellant had sufficient cause for not presenting it within that period. 4) No appeal under this Chapter shall be admitted unless at the time of filing of the appeal, (a) Where a return has been filed by the assessee, the assessee has paid the tax due on the income returned by him; or (b) Where no return has been filed by the assessee, the assessee has paid an amount equal to the amount of advance tax which was payable by him: Provided that in a case falling under clause (b) and on an application made by the appellant in this behalf, the Commissioner (Appeals) may, for any good and sufficient reason to be recorded in writing, exempt him from the operation of the provisions of that clause. 5) An appeal is required to be made in duplicate. The first copy of the appeal shall be accompanied by a fee of court by way of stamps. The memorandum of appeal, statement of facts and the grounds of appeal should be accompanied by a copy of the otder appealed against and the notice of demand in original. 6) The payment of fees on filing the appeal shall be made as follows: Situations Where assessed income in a case which appeal relates is Rs. 100000 or less. Where assessed income in a Amount of fees(Rs.) 250

1)

2)

3)

4)

case to which appeal relates exceeds Rs. 100000 but does not exceed Rs. 200000 Where assessed income in a case to which appeal relates exceeds Rs. 200000 Where the subject matter of appeal relates to any matter other than specified in clause (a),(b),(c) stated above

500

1000

250

Section 250 PROCEDURE IN APPEAL (1) The Commissioner (Appeals) shall fix a day and place for the hearing of the appeal, and shall give notice of the same to the appellant and to the Assessing Officer against whose order the appeal is preferred. (2) The following shall have the right to be heard at the hearing of the appeal (a) The appellant, either in person or by an authorized representative; (b) The Assessing Officer, either in person or by a representative. (3) The Commissioner (Appeals) shall have the power to adjourn the hearing of the appeal from time to time. (4) The Commissioner (Appeals) may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the Assessing Officer to make further inquiry and report the result of the same to the Commissioner (Appeals). (5) The Commissioner (Appeals) may, at the hearing of an appeal, allow the appellant to go into any ground of appeal not specified in the grounds of appeal, if the Commissioner (Appeals) is satisfied that the omission of that ground from the form of appeal was not willful or unreasonable. (6) The order of the Commissioner (Appeals) disposing of the appeal shall be in writing and shall state points for determination, the decision thereon and the reason for the decision. (6A) In every appeal, the Commissioner (Appeals), where it is possible, may hear and decide such appeal within a period of one year from the end of the financial year in which such appeal is filed before him under sub-section (1) of section 246A.

(7) On the disposal of the appeal, the Commissioner (Appeals) shall communicate the order passed by him to the assessee and to the Chief Commissioner or Commissioner.

SECTION 251 POWER OF COMMISSIONER(APPEALS) (1) In disposing of an appeal, the Commissioner (Appeals) shall have the following powers (a) In an appeal against an order of assessment he may confirm, reduce, enhance or annul the assessment, or he may set aside the assessment and refer the case back to the Assessing Officer for making a fresh assessment in accordance with the directions given by the Commissioner (Appeals) and after making such further inquiry as may be necessary, and the Assessing Officer shall thereupon proceed to make such fresh assessment and determine, where necessary, the amount of tax payable on the basis of such fresh assessment; (b) In an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty; (c) In any other case, he may pass such orders in the appeal as he thinks fit. (2) The Commissioner (Appeals) shall enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. Explanation: In disposing of an appeal, the Commissioner (Appeals) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the Commissioner (Appeals) by the appellant

Section 252
APPELLATE TRIBUNAL It is constituted by Central Government.The Central Government shall constitute an Appellate Tribunal consisting of as many judicial and accountant members as it thinks fit to exercise the powers and discharge the functions conferred on the Appellate Tribunal by this Act. Generally, any of the Judicial members is appointed as President of the Tribunal and one or more than one members may be appointed as Vice President of the tribunal by Central Government. The members are classified in various benches by the President. The main function of these benches is to hear various appeal matters. These benches are scattered in many cities of the country.

Entire proceedings of Appellate Tribunal are deemed to be the judicial proceedings. The Income Tax authorities have all the judicial powers in this respect u/s 131. It is the highest body of Income Tax authority in regard to judicial system. The decision of the Appellate Tribunal is final but in case of arising of any question of law, then it may be challenged to High Court.

Section 253 APPEALS TO THE APPELLATE TRIBUNAL Th assessee and the Assessing Officer both are entitled to file an appeal before Appelate Tribunal. (A) Appeal by the assessee: An assessee may file appeal before Appelate Tribunal against the following orders: 1) An order passed by the commissioner(appeals). - On the appeal filed before him under section 250 - Regarding rectification of mistakes. - Regarding imposition of penalty u/s 271, 271A or 272A. 2) An order passed by the Commissioner of Income tax u/s 263, 272A or 12AA. 3) An order passed by the Chief Commissioner, Director General or Director for imposing penalty. 4) An order passed by Assessing Officer u/s 115VZC(1). (B) Appeal by the Assessing Officer: If the commissioner of Income Tax has any objection in respect of order passed by the Commissioner(Appeals) u/s 154 or u/s 250, he may direct the Assessing Officer to file before Appelate Tribunal against such order of commissioner(Appeals). Note: An order passed by the Commissioner of Income-Tax under section 264 is a final order. Therefore, no appeal can be made against the order before Appellate Tribunal. PROCEDURE OF APPEAL TO APPELLATE TRIBUNAL: 1) The appeal to the Appellate Tribunal should be made in form no. 36 duly verified in prescribed form. 2) The appeal and the memorandum etc. are to be filed in triplicate and shall be accompanied by two copies(atleast one copy must be certified) of the ordered appealed against and two copies of the order of the Assssing Officer. Two copies of the grounds of appeal and statement of facts before the first appellate authority are also to be filed. 3) The appeal to the Appellate Tribunal should be filed within 60 days from the date on which order is communicated. But in the case of an order u/s 158BC, the appeal against such order should be filled within 30 days from the date on which order is communicated. 4) The appeal should be accompanied by fees as follows:

S.No. 1) 2) 3)

4)

5)

Situations Fees(Rs.) When Assessed income is less than or equal to Rs. 100000 500 When Assessed income is more than Rs. 100000 but not more than 200000 1500 When Assessed income is more than Rs. 1% of the assessed income 200000 (subject to a maximum of Rs. 10000) When the subject matter of Appal is not related under S.N.(1) or (2) or (3) as stated 500 above When there is an application for stay of demand 500

5) The another party other than the aggrieved party may file across objection within 30 days from receipts of notice in form no. 36A in triplicate copies. 6) The Appellate Tribunal may admit an appeal or permit the filing of a memorandum of cross-objections after the expiry of 60 days or 30 days respectively subject to the satisfaction of Appellate Tribunal on the ground that there was sufficient cause for not presenting it within the specified period.

ORDER OF APPELLAT TRIBUNAL(section 254): (1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. (2) The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1) and shall make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer: Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this subsection unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard: Provided further that any application filed by the assessee in this sub-section on or after the 1st day of October, 1998, shall be accompanied by a fee of fifty rupees

(2A) In every appeal, the Appellate Tribunal, where it is possible, may hear and decide such appeal within a period of four years from the end of the financial year in which such appeal is filed under sub- section (1) of section 253. (2B) The cost of any appeal to the Appellate Tribunal shall be at the discretion of that Tribunal. (3) The Appellate Tribunal shall send a copy of any orders passed under this section to the assessee and to the Commissioner.

APPEAL TO HIGH COURT(SECTION 260A): Any question of Law arising out of the order of the Appellate Tribunal can be referred to the High Court. Such appeal may be filed by the assessee or the commissioner. The Commissioner may appeal only if the effect of tax arises exceeding Rs. 200000. If the High Court is satisfied on the ground that the decision of the Tribunal involves the question of law,it shall hear the appeal on such a ground. The appeal can be filed to High Court within 120 days from receipt of the order of Tribunal. It shall be clearly mentioned in the appeal that which substantial question of law is involved. The High Court shall hear the appeal in reference to such substantial question of law and shall decide the case. The appeal shall be heard by the bench of atleast two judges. The High Court may also hear that question of law which has not been decided by the Appellate Tribunal or wring decisions have been made.

Section 260B CASE BEFORE HIGH COURT TO BE HEARD BY NOT LESS THAN TWO JUDGES (1) When an appeal has been filed before the High Court under section 260A, it shall be heard by a bench of not less than two Judges of the High Court, and shall be decided in accordance with the opinion of such Judges or of the majority, if nay, of such Judges. (2) Where there is no such majority, the Judges shall state the point of law upon which they differ and the case shall then be heard upon that point only by one or more of the other Judges of the High Court and such point shall be decided according to the opinion of the majority of the Judges who have heard the case including those who first heard it.

APPEAL TO SUPREME COURT(SECTION 261):

The appeal can be filed to Supreme Court against the decision of High Court. Such appeal can be filed only if the High Court certifies it to be a fit case of appeal to the Supreme Court. If the High Court refuses to grant such a certificate, the assessee can file a special leave petition(SLP) before the Supreme Court under Article 136 of the constitution. The Commissioner and the Assessee both are entitled to appeal before the Supreme Court but the Commissioner can file the appeal only if the effect of the tax liability lies exceeding Rs. 500000. The Supreme Court upon hearing any such case shall decide the question of law raised therein and shall deliver its judgement thereon containing the grounds on which such decision is based. If the judgement of the High Court is reversed by the Supreme Court, then the Appellate Tribunal shall pass an order which is necessary to dispose of the matter according to the judgement of the Supreme Court.

REVISION BY THE COMMISSIONER:

The Commissioner may use his power for revision under the following circumstances: 1) Revision of orders pre-judicial to Revenue(section 263): The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. The Commissioner can not revise the order of Assessing Officer after expiry of 2 years from the end of financial year in which such order is passed. An order which is the subject matter of the appeal cannot be revised. 2) Revision in favour of Assessee: The assessee may file appeal against the order of the Assessing Officer to the Commissioner(Appeals). Alternatively, he may apply to the commissioner for revision of the order passed by the Assessing Officer. All those matters which cannot be appealed, may also sent to the Commissioner for revision. Revision of orders not covered by Section 263, can be made by the commissioner either on his own motion or an application made by the Assessee, provided orders have been passed by an authority subordinate to him. The Commissioner may call for the records of any proceedings under this Act on the basis of which such order has been passed and may cause such inquiry to be made. The following orders cannot be revised bt the Commissioner:

(i) Where an appeal against the order may be filed to Commissioner(Appeals) or Appellate Tribunal but neither the appeal has been filed by the Assessee nor the time has expired for filing appeal. (ii) Where an appeal lies to the Commissioner(Appeals) or to the Appellate Tribunal under consideration, then no revision can be made under this section and no revision can also be made even after disposing of appeal by the Commissioner. (iii) Where an appeal lies to Deputy Commissioner(Appeal) for his consideration, then no revision can be made under this section until the appeal is under consideration. The revision can be made under this section only after disposing of the Appeal. (iv) No revision can be made after 1 year of expiry of an order. The Commissioner shall have to pass his order within a 1 year of such financial year in which the assessee has made an application. If the commissioner does not pass any order within the prescribed time i.e. 1 year then it shall be deemed that an applicant made by the assesse has been accepted and necessary modification shall be made by the Commissioner in the order of the Assessing officer.

CHAPTER = 7 (A) INCOME FROM SALARIES

There are five heads of income under Income Tax Act. SALARIES is the first head of income. Definition of salary: The Income Tax Act does not give a specific definition of salary, but salary is defined under section 17(1) in inclusive manner.
Accordingly, Salary includes:

1. 2. 3. 4. 5. 6. 7.

8. 9.

Wages; Any annuity or pension; Any gratuity; Any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages; Any advance of salary; Leave encashment; The annual accretion to the RPF to the extent of the following: (a) Employers contribution in excess of 12% of salary; (b) Interest on the balance in the PF account credited in excess of 8.5%. The accumulated transferred balance from URPF account to a RPF account to the extent it is chargeable. The contribution made by the central government in the previous year to the account of an employee under a pension scheme referred to in Section 80 CCD.

IMPORTANT RULES RELATING TO SALARY 1) Employer and Employee relationship: Income is chargeable to tax under the head Salaries, if there exists employer-employee relationship. Difference between employer- employee vis--vis principal agent: An employee works under the direct control and supervision of his employer. He not only receives instruction from his employer but is subject to the right of the employer but is subject to the right of the employer to control the manner in which he should carry out the instruction. On the other hand, an agent is generally free to carry out his principals instructions according to his own discretion. He is not under the direct control and supervision of the principal. Instances where employer-employee relationship does not exist: (a) Where a teacher receives remuneration for setting question paper for examination or works as an invigilator, then the remuneration received by him will not be taxable

under the head salaries but will be taxable under the head Income from other sources. (b) Remuneration received by a partner of the firm will be taxable under the head Profits and Gains of business or profession as there is no employer-employee relationship between the firm and the partner. (c) Salary received by the members of parliaments or Members of legislative assemblies will not be taxable under the head Salary as they are not government employee. Salary received by them will be taxable under the head Income from other sources. (d) A director of the company, where he acts as an agent of the company and receives the remuneration, such remuneration will not be taxable under the head Salaries. 2. Employment and profession: 1. If the services rendered by the professional are merely incidental to the practicing of the profession and the professional is completed free to render services to others, his income cannot be said to be the salary income as the same arises out of the practicing of the profession. 2. When a professional occupies a post or office he is said to be in employment. Example: If an advocate practices independently the remuneration received from practice will be taxable as his professional income. However, if he is employed in a company as a legal consultant, his income will be taxable under the head Salaries. 3. Salary from more than one sources: If salary is received from more than one employer during the same previous year, salary from each sources is taxable under the head Salaries. Example: Ram is employee is X Co. He regins after 7 months. He joins Y Co. Salary from both the employer will be chareable to tax under this head. 4. Part time and full time employment: If once the employer-employee relationship is established the income earned shall be taxable under the head Salaries irrespective of whether the employee is in full time employment or part time employment. Services rendered by Shyam under the terms of employer & employee relationship is an important fact it is immaterial whether full time & part time. 5. Salary may be received of any time period basis: Salary can be received weekly , monthly, fortnightly, quarterly or yearly. Tax free (net)salary -------Add: Tax paid by employer -------_________ Gross Salary -------_________

6. Tax free salary: The employer may either on his own or as per the terns of agreement pay the tax due on the salary of the employee. This is known as tax free salary. However, the amount of tax paid will be included in the salary of the employee. In other words, to arrive at the gross salary, the amount of tax paid shall be added to the net salary received from the employer. 7. Voluntary surrender of salary : According to section 15, salary is taxable on due basis even if it ts not received. Hence , even if an employee surrenders his salary voluntarily, it shall be taxable because once the salary is earned by the employee, the subsequent surrender of the same does not free him from his liability to pay tax on the same. Exception: If an employee surrenders his salary to the Central Government under section 2 of the Voluntary surrender of salaries (exemption from taxation) Act, 1961, the salary so surrendered would be excluded while computing his taxable income. Gross salary -------Less: Voluntary surrender Of salaries under Act of 1961 -------Taxable salary -------8. Loan taken from the employer : Any loan taken from the employer shall not be included in the salary income. There is a distinction between the salary earned and loan taken from the employer. While the loan is to be repaid according to the terms of agreement, the salary is payment received for services rendered. 9. Deductions made by the employer: Certain amounts are deducted by the employer from the salary of the employee according to the agreement or the law, on account of recovery of loan, payment of income tax and life insurance premium, subscription for provident fund, membership fees of club etc. These deductions are treated as application of income by the employee, therefore the deductions so made by the employer will be added back to the salary actually received by the employee for the purpose of income tax . The salary due is taxed and not the salary actually received. Net salary Add: Deductions ...... Contribution of P.F. by employee ... Life Insurance premium of employee ... Recovery of loan to employee Tax paid by employer ________________ Gross salary ________________

10. Voluntary payments by the employer : In case any voluntary payment are made by the employer, the same will be taxable. However, any personal gifts given by the employer to the employee shall not be chargeable to tax. 11. Remuneration from other than the employer : Remuneration receives from other than the employer will be taxable under the head income from other sources not under the head Salaries. Example: Tips to waiter by customer is not covered under the head salaries since relationship of employer and employee does not exist between waiter and customer. 12. Family pensions : Pension received by the person in succession of deceased employee i.e. his widow or other will not be coangeable to tax under the head salaries . it will be taxable under the head income from other sources. 13. Remuneration for assignment other than serviced terms: It will not be included under the head salaries. 14. Salary from UNO is exempt from tax. 15. Allowance and perquisites provides to a government employee being an Indian citizen, outside India are exempt from tax.

BASIS OF CHARGE OF SALARY INCOME

The income under the head salaries is chargeable to tax in accordance with section 15 of the Income tax Act, 1961. Salary is taxable on due basis or receipt basis whichever is earlier. Following receipts are taxable under the Head Salaries under Section 15. 1) Salary which is due in the previous year: Any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not, shall be chargeable to tax. 2) Advance Salary received during the previous year: 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 will be taxable in the year in which it is received. 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. 3) Arrears of Past years salary received or allowed in previous year: 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.

Thus, arrears of salary are taxable in the year in which it is paid if the same has not been taxed on due basis.

BASIC SALARY Basic salary is the fixed amount received by the employee every month. Basic salary does not include bonus, allowances and monetary value of the perquisites. Example: If in the previous year 2008-09 an individual was in employment from 1st May, 2008 at Rs.10,000 per month, then the basic salary shall be, Rs.10,000 per month x 11 months =Rs. 1,10,000.

ALLOWANCES Allowances are fixed monetary sums given to the employee in addition to salary for the purpose of some particular purpose connected with salary. For computing income from salaries, allowances are divided into following categories: I) Fully taxable allowances II)Fully exempted allowances III)Allowances which are exempted to the extent of actual amount spent. IV)Allowances which are exempted on fulfillment of certain conditions. I) Fully taxable allowance : 1. Dearness allowance 2. City compensatory allowance 3. overtime allowance 4. medical allowance 5. servant allowance 6. deputation allowance 7. proctor allowance 8. rural allowance 9. interim relief 10. lunch allowance 11. project allowance 12. warden allowance 13. tiffin allowance 14. marriage allowance Fully exempted allowances:

II)

1. Overseas allowance : In case any Indian citizen being a central and state government employee renders services outside India and receives any allowance any allowance on account of such services, such allowance will be fully exempt from tax. 2. Allowance received by the judges of high court and supreme court are fully exempt from tax. 3. Allowance received by the employee of UNO are fully exempt from tax. III) Allowance which are exempt to the extent of actual amount spent: The following allowances are exempted under section 10(14) to the extent of the amount utilized for which the allowance is given. They are as under: (i) Travelling allowance : Allowance granted to meet the cost of travel or tour alongwith any sum paid on account of packing and transportation of personal effects is known as travelling allowance. (ii) Daily allowance: Any allowance whether granted on tour or for the period of journey in connection with transfer or tour for meeting the daily charges incurred by the employee on account of absence from normal place of duty. (iii) Conveyance allowance: Conveyance allowance is granted to meet the expenditure on account of performance of duties of an office. (iv) Helper allowance: Helper allowance is granted to meet the expenditure on helper engaged for performance of official duties. (v) Education and research allowance: Any allowance granted for encouraging the academic research and other professional pursuits. (vi) Uniforms allowance: Any allowance to meet the expenditure on purchase and maintenance of uniform for wear during the performance of duties of office. Allowance which are exempted on fulfillment of certain conditions: Such type of allowance are exempt on fulfillment of conditions and to the extent specified in the rules and the balance amount is taxable in hands of the employees. They are as follows: (i) Children Education Allowance :This allowance is exempt in the hands of the employee to the extent of Rs. 100 per child per month to the maximum of two children. (ii) Hostel allowance: This allowance is exempt to the employee to extent of Rs. 300 per month per child to the maximum of two children. (iii) Allowances to employees of transport undertaking: This allowance is granted to employees of transport undertaking who are engaged in running such transport from one place. This allowance is given to meet their personal expenditure. 70% of the amount of allowance or Rs. 6000 per month whichever is less is exempt in hands of the employee.

IV)

(iv) (v)

Transport allowance: Exempt upto Rs. 800 per month. Transport allowance to blind or physically handicapped: Exempt to the extent of Rs. 1600 per month. (vi) Tribal area allowance: Exempt to the extent of Rs. 200 per month in 9 states. (vii) Underground allowance: Exemption is limited to Rs. 800 per month. (viii) House Rent allowance: Exempt to the extent of least of the following: (a) HRA actually received. (b) 50% of salary in case of Mumbai, Kolkata, Delhi and Chennai and of salary in case of Mumbai, Kolkata, Delhi and Chennai and 40% of salary in any other case. (c) Rent paid- 10% of salary for relevant period. (ix) Entertainment allowance: This deduction is allowed only to Government employees, which is least of the following: (a) Actual amount received. (b) 20% of basic pay. (c) Rs. 5000

ENCASHMENT OF EARNED LEAVE SALARY: (a) If received during the period of employment, it is taxable in case of all employees. (b) When received on retirement, it is exempt in case of government employees and for nonGovernment employees least of following is exempt: (i) Amount of earned leave actually received (ii) 10 months average salary (iii) Amount specified by the Central Government Rs. 300000 (iv) Cash equivalent of the leave salary in respect of the period of earned leave standing to the credit of the employee at the time of retirement. GRATUITY: (a) Exempt for Government employees (b) In case the Gratuity Act, 1972 is applicable, least of following is exempt 15 days: (i) 15 days salary based on salary last drawn for every completed year of service(to be rounded off). (ii) Rs. 3,50,000 per month (iii) Gratuity actually received (c) In case of any other employee, least of following shall be exempt: (i) Rs. 3,50,000

(ii) (iii)

Halfs month average salary for each completed year of service (not to be rounded off). Gratuity actually received.

PENSION: (a) Uncommuted pension is taxable for all employees. (b) Commuted pension: It is exempt in case of Government employees. For non-government employees, (i) In case the employees receives gratuity, the commuted value of one-third of the pension which he is normally entitled to receive shall be emempt from tax. (ii) In case he does not receive gratuity, the commuted value of one-third of such pension is exempted from tax.

PERQUISITES: (A) Perquisites exempt in case of all employees: 1) Computers/Laptop given to an employee for official and personal use. 2) Loan upto Rs. 20,000 provided interest free or at concessional rate. 3) Free education facility to children of employee in educational institution maintained by the employer provided then cost of education does not exceed Rs. 1000 per month per child. 4) Credit card facility 5) Transport facility to employee of transport undertaking 6) Club facility 7) Accommodation provided in a hotel for not exceeding 15 days in aggregate on account of transfer of employees. 8) Expenses incurred on training of employees 9) Goods sold by the employer at concessional rate to the employee provided such goods are manufactured in the emplyers factory 10) Issue of shares free of cost or at concessional rate under employees stock option scheme of the company 11) Labour welfare expenses exempt statutory liabilities 12) Foreign travel facility 13) Employers contribution in group bonus scheme for employees 14) Expenses on telephone or mobile phones 15) Annual premium paid by the employer for personal accident policy of the employee. (B) Perquisites taxable in case of all employees:

1) Valuation of Rent free accommodation provided by the employer to the employee: (a) Government employees: Licence fee as determined by Union or State government. (b) In case of other employees: When the accomdation is owned by the employer in cities have population not exceeding 10 lacs- 7.5 % of salary. In case population exceeds 10 lacs but does not exceeds 25 lacs- 10% salary. In case population exceeds 25 lacs 15% of salary. If the employer has taken the house on rent and then provided to the employee, then 15% of salary or rent paid whichever is less. In case of furnished accommodation, 10% of cost of furniture or rent paid for furniture will be added. 2) Valuation of accommodation provided at concessional rate: Value of Rent free accommodation- Rent payable by the employee. 3) Obligation of employees met by the employer: Amount actually paid. 4) Payment of insurance on life of employee by the employer: Actual amount so paid. 5) Value of other perquisites and benefits: This includes: (a) Interest free loans or loans at concessional rate: Interest free loans will be taxable on the basis of the rate of SBI prevalent as on 1st April 2008 is taxable. Loan for the treatment of specified diseases is not taxable. Interest on loan upto Rs. 20000 is exempt. (b) Use of movable assets: 10% of the cost. (c) In case of transfer of movable assets: Written down value of benefit arising from the transfer. The written down value will be calculated after providing depreciation as computer 50% of reducing balance method Motor car 20% reducing balance other assets- 10% of actual cost. (C) Perquisites taxable in case of specified employees only: (i) Domestic servants, watchman etc: Amount actually expended. (ii) Gas, electricity and water facility: Amount actually expended (iii) Education facilty: Rs. 1000 per month per child is exempt. Leave travel concession exempt in respect of any two journeys in a block of two years: Amount exceeding the air conditioned first class rail fare by the shortest route to the place is taxable. (D) Certain perquisites taxable only when employer not available to PBT: Certain perquisites, which are liable for FBT in the hands of the employer, are not liable to the taked in the hands of the employee. However, in case the employer is not liable to FBT, these perquisites will be taxable in the hands of employer employed by such employer.

MEDICAL BENEFITS: If medical facility is provided in the hospital of the employer, or in approved hospitals, it shall be exempt. In case provided in a private hospital, Rs 15000 is exempt.

RETRENCHMENT COMPENSATION: Least of the following is exempt: (a) Completed years of service(to be rounded off) * 15 * daily average salary; or (b) Rs. 500000: or (c) Amount actually received

DEDUCTIONS: (a) Entertainment allowance: As mentioned before. (b) Professional/Employment tax: Actual amount paid by the employee.

Taxable amount of Provident Fund: (a) Recognised Provident Fund: (i) Employers contribution: Contribution in excess 12% of salary is taxable (ii) Interest: In excess of 8.5% per month (iii) Lump-sum payment: If the accumulated balance is received after rendering service of continuous 5 years, then it is exempt. (b) Unrecognised Provident Fund: Out of the lump-sum payment, amount to the extent of Employers contribution and interest on the same is taxable under the head salary. Interest on own contribution shall be taxable under the head Income from other sources and own contribution to the fund shall be exempt.

MEANING OF SALARY FOR VARIOUS PURPOSES: PURPOSE MEANING OF SALARY In case the Gratuity Act,1961 is Basic pay + Dearness allowance(always) + applicable commission on fixed percentage of salary. Entertainment allowance Basic pay + commission on fixed

1.

2.

percentage of salary. 3. Gas, electricity and water facility Basic pay + Dearness allowance if terms of employment so provide + commission on fixed percentage of salary.

4.

House Rent Allowance

5.

Basic pay + dearness allowance if included for retirement benefits + commissionon fixed percentage of salary. Gratuity, where the Gratuity Act, Basic pay + Dearness allowance if terms of 1972 is not applicable employment so provide + commission on fixed percentage of salary. Provident fund Basic pay + Dearness allowance if terms of employment so provide + commission on fixed percentage of salary. Basic pay + Dearness allowance if terms of employment so provide + commission on fixed percentage of salary.

6.

7.

Leave encashment

8.

Rent free or concessional rent Basic pay + Dearness allowance if terms of accomdation employment so provide + commission on fixed percentage of salary + bonus + fees + all other taxable allowances (excluding exempt portion) + any other monetary payments.\ But following shall be excluded: 1) Dearness allowance or dearness pay if the same does not form part of the salary according to terms of employment. 2) Arrears salary and advance salary 3) All retirement benefits 4) Employers contribution to PF. 5) Allowances exempt from tax 6) Value of perquisites

9.

Retrenchment compensation

Means all remuneration capable of being

10.

Checking for specified employees

expressed in terms of money, other than bonus, any contribution to retirement benefit scheme and gratuity. All monetary receipts less deductions under section 16.

(B) INCOME FROM HOUSE PROPERTY

Income from House property is the second head of income. Under the Income Tax Act, 1961 General rules for inclusion of income under this head According to section 22 of the Act, any income will be taxable under this head when it satisfies the following conditions: 1) The property must consist of buildings and lands appurtenant thereto. 2) The assessee must be the owner of such House Property. 3) The property may be used for any purpose, but it should not be used by the owner for the purpose of any business or profession carried on by him, the profit of which are chargeable to tax.

1) Building and land attached to that building: The term building is very wide. It includes flats, bungalows, shops, offices, godown and factory building etc. But it includes completely built houses. Land attached to the house includes that land which is attached to that house and is used for other purposes which is necessary for the house such as garden, car porch, play garden, backyard, etc.. In case the land is not attached to the building and is let out, then the income derived from such land will be taxable under Profits and Gains of Business or Profession or income from other sources. 2) Income from subletting is not taxable under this head: If the assessee is not the owner of the house and he sublets the same house to another person, then the income from such subletting will be taxable under the head income from other sources. 3) House should not be used by the owner for the purpose of any business or profession carried on by him: If the assessee occupies the house property for the purpose of his own business and profession the income of which is taxable under the head Profits and Gains of Business or Profession, then the income will not be taxable under this head.

DEEMED OWNER

According to section 27 of the Income Tax Act, 1961 the following persons are deemed to be the owners of the House Property: 1) Transfer of House Property to spouse: If an individual transfers his House Property to his or her spouse without adequate consideration and not in an agreement to live apart, then such individual will be treated as deemed owner in respect of such House Property. 2) Transfer of House Property to minor child: If an individual transfers any house property to his minor child(other than married daughter) without adequate consideration, then the transferor is deemed to be the owner of the property. 3) Impartible estate: Impartible estate means that property of the HUF which cannot be divided amongst the members. It is given to the member of the HUF as a property of HUF. The holder of impartible estate is treated as deemed owner of the House property. 4) Allotment of House Property in the house building scheme of the society: In case any house property is allotted by a co-operative society, company or association of persons under a house building scheme of the society to a member, then the member will be treated as deemed owner of the property. 5) House acquired but not registered: A person allowed to take or retain the possession of any building or part thereof in part performance of the contract of the nature referred to under section 53A of the Transfer of Property Act shall be deemed to be the owner of that House Property even though the House property is not registered in his name. 6) House Property acquired on lease for a period or 12 years or more: In case any person acquires any right in a property for a period exceeding 12 years by virtue of any transaction as is referred in section 269UA(f), he shall be deemed to be the owner. 7) House property constructed on leasehold land: In case any person acquires any land on lease and then builds house on it, he will be treated as deemed owner of the house.

SPECIAL PROVISIONS RELATING TO TAXATION OF INCOME FROM HOUSE PROPERTY:

1) House property situated outside India: In case any house property is situated outside India, then the income will be taxable under this head but the assessee must be resident in India. In case the assessee is not ordinarily resident or non-resident, the income will not be taxable until the rent is received in India.

2) Disputed Ownership: Even if the ownership of the House property is in dispute, it shall be taxable in the hands of the person occupying the property and is in receipt of the income. 3) Business of letting out of the properties: Even if the property is held by the assessee as a stock in trade, or is engaged in the business of letting out of property on Rent, or the assessee is a company incorporated for the purpose of owning House Property, the income falls under the head Income from House Property. 4) Property held by co-owners(section 26): Where property consisting of buildings or buildings and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons, but the share of each such person in the income from the property as computed in accordance with section 22 to 25 and shall be included in their total income. If their respective shares are not definite and ascertainable their income from House property shall be computed as association of persons and shall be assessed as such. 5) Taxability of Composite Rent: If assessee receives rent for other facilities like lift, electricity, water, watchman, etc alongwith rent of House property, then rent received is called composite rent. Composite Rent is to be split up and the sum that is attributable to the use of the property is to be assessed under section 22 in the form of the Annual Value under Income from House Property. While the income by way of rendering of services is chargeable under Profits and gains of Business or Profession or Income from other Sources. If both facilities cannot be split up, then Rent received shall be taxable under the head Profits and Gains of Business or Profession or Income from other sources. 6) Letting out of buiding alongwith plant and machinery: If the letting of property is separable from letting of other assets, then rent is taxable under Income from house property .If it is inseparable, then entire income is taxable under the head profits and gains of business or profession or Income from other sources as the case may be.

CHARGEABLE TO TAX WHERE FROM HOUSE PROPERTY IS NOT

Incomes from certain house properties is exempt from tax. This income is not included in the computation of gross total income of the assessee. Such incomes are as follow: 1. Income from farm house which is used by the cultivator on account of his connection with land as a dwelling house, or as a store house, or other out-building. 2. Annual value of any one palace of ex-ruler. 3. Property income of a local authority. 4. Property income of an authority constituted for the purpose of planning, development or improvement of cities, towns and villages. 5. Property income of an approved scientific research association

6. Property income of a games association 7. Property income of approved educational institutions 8. Property income of a trade union 9. Property income of approved hospital and medical institutions 10. Property income of a person resident of Ladakh 11. Any income derived from letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities by an authority constituted under any law for the time being in force for the marketing of commodities. 12. House property held for charitable purposes 13. Property income of a political party 14. Property used for own business or profession 15. One self-occupied property

DETERMINATION OF ANNUAL VALUE:

In order to determine the Annual Value of the House Property, the house property can be divided into following categories: A) House property let out through out the previous year B) Let out property that remains vacant during the previous year C) Self-occupied house property D) Part of the house self occupied and part of the house let out or used for the business. A) HOUSE PROPERTY LET OUT THROUGH OUT THE PREVIOUS YEAR The Net Annual value of such property is computed by way of following 2 steps: (i) In the first step the gross annual value of the property is determined (ii) In the second step the municipal taxes are deducted from the Gross Annual Value to arrive at the net Annual value To determine the Gross Annual Value of the let out property , it has been divided into follwong two categories: (a) The House Property which is let out through out the previous year and the entire rental income has been received: The Annual value of such property is determined in accordance with the provisions of section 23(1)(a) and section 23(1)(b) of the Income Tax Act, 1961. According to section 23(1)(a) of the Income Tax Act, 1961 the Annual Value of the property means the amount that a let out property is expected to fetch Annually by way of rent. The expected rent is determined taking into consideration the following: 1) Municipal value 2) Fair Rent

3) Standard Rent 1) Municipal Value: Municipal value of a property refers to that value which the municipal authorities have fixed in order to collect the municipal taxes or any other property tax. If the municipal authorities fix the net municipal value , such value is grossed upto arrive at the gross municipal value. Eg- if the net Municipal value of the House property is Rs. 90000 and the municipal taxes deducted therefrom was 10%, then the gross municipal value shall be: G.M.V. = 90000*100/90 = Rs 100000 2) Fair Rent: Fair rent means the rent fetched by a similar property in the same or similar locality. 3) Standard rent: The maximum rent determined by the Rent Contr ol Act is called as the standard rent. The landlord cannot expect to receive expected Rent higher than the standard rent fixed by the Rent Control Act. Expected Rent: Expected rent is the higher of the Municipal value or the Fair rent but it cannot exceed the Standard rent. Actual Rent received or receivable: According to section 23(1)(b) if the rent actually received or receivable (after excluding the unrealized rent) is higher than the expected rent, then the rent actually received or recerivable shall be taken as the Gross Annual Value of the property. However, if the rent actually received or receivable(excluding the unrealized rent) is lower than the expected Rent, then the expected Rent is taken as the Gross Annual Value of the Property. Thus, we can say that in this case Expected Rent or Actual Rent received whichever is higher will be the gross annual value. Computation of Rent received or receivable: Rent receivable means that rent which is expected to be received from the tenant in the previous year though it may not have been received. In certain circumstances the actual rent varies from the Rent received or receivable. These circumstances are as follows: 1) Where the Rent received or receivable includes the Rent of other facilities: If the rent received or receivable includes the rent of other facilities like that of electricity, water, lift, watchman, etc; then in order to arrive at the actual rent, the rent of such facilities shall be deducted from the Rent received or receivable.

2) Payment of any obligation of the tenant by the landlord: If the landlord makes any payment towards the obligation of the tenant, then amount so paid shall be deducted from the Rent received or receivable to arrive at the actual rent. 3) Payment of any obligation of the landlord by the tenant: If the tenant makes any payment towards any obligation of the landlord, then the amount so paid shall be added to the Rent received or receivable to arrive at the actual rent. However in following circumstances no such adjustment shall be made: 1) Payment of municipal taxes by the tenant: Payment of municipal taxes is the liability of the tenant. Therefore if the tenant has made payment towards such liability, the same shall not be deducted from the rent received or receivable. 2) Payment of repairs by the tenant: If the tenant makes payment towards the cost of repairs in accordance with the agreement entered into with the the landlord, and he therefore bears any cost of repairs, the same shall not be deducted from the rent received or receivable.

Determination of Gross Annual value for which the entire rental income has been received:
Step1: Municipal Valuation or Fair Rent,whichever is higher subject to Standard Rent. It will be called Expected Rent. Step2: Annual Rent received or receivable will be compared with the Expected Rent and whichever is higher will be the Gross Annual Value of House Property.

EXAMPLEShri Chandu Lal owns following assets. On the basis of information given below calculate Gross Annual Value for the Assessment year 2009-2010 in each case? A Rs. 50,000 B Rs. 50,000 C Rs. 50,000 D Rs. 70,000

Municipal Value

Fair Rent Standard Rent Actual rent received/receivable

40,000 80,000

60,000 70,000 80,000

70,000 90,000 65,000

65,000 40,000 32,000

SOLUTION: Step1: Computation of Expected Rent A Rs. 50,000 40,000 50,000 B Rs. 50,000 60,000 70,000 60,000 C Rs. 50,000 70,000 90,000 70,000 D Rs. 70,000 65,000 40,000 40,000

Municipal Value Fair Rent Standard Rent Expected Rent (Municipal value or Fair rent whichever is higher subject to maximum of standard rent)

Step 2: Comparison of Expected rent with Actual Rent received or receivable and higher amongst the two will be the Gross Annual Value A Rs. 50,000 80,000 80,000 B Rs. 60,000 80,000 80,000 C Rs. 70,000 65,000 70,000 D Rs. 40,000 32,000 40,000

Expected Rent as per step 1 Actual rent received/receivable Gross Annual Value

(b) The House property which is let out through out the previous year but the rental income for certain period has not been received: The Gross Annual value of these properties shall be determined as under; Step 1: Expected Rent shall be the Municipal Value or Fair rent whichever is higher but the same shall not exceed the Standard Rent. Step 2: The Actual rent received or receivable is compared with the Expected rent as determined above and the higher of the two shall be taken as the Gross Annual Value of the property

The unrealized rent shall be excluded while determining the Actual Rent received or receivable. (B) LET OUT PROPERTY THAT REMAINS VACANT DURING THE PREVIOUS YEAR In order to determine the Gross Annual Value of such property , it can be divided into 2 categories: (i) The House Property is let out only for a part of the year and the Rental income for the period it has been let out has been received: Step1: Expected Rent shall be the Municipal Value or Fair rent whichever is higher but the same shall not exceed the Standard Rent. This isb determined for the whole year Step2: Expected rent so determined above shall be proportionately reduced for the period the property has been let out. The amount so arrived will be called Converted Expected Rent(CER) and it shall be compared with the Actual Rent received or receivable. Here the following two situations may arise: (a) If the actual rent received or receivable is higher than the CER as determined above,then actual rent received or receivable shall be the Gross Annual Value of the property. (b) If the Actual Rent received or receivable is less than the CER so computed above, then the expected rent(for the whole year) shall be the Gross Annual Value of the property. The House Property is let out only for a part of the year and the Rental income for certain period when it has been let out has not been received: In such circumstances the gross Annual Value will be determined as follows: Step1: Expected Rent shall be the Municipal Value or Fair rent whichever is higher but the same shall not exceed the Standard Rent. This is determined for the whole year Step2: Determine the Actual rent received or receivable. While determining the Actual rent received or receivable the unrealized rent shall be excluded. Step3: Expected rent so determined above shall be proportionately reduced for the period the property has been let out. The amount so arrived at will be called CER and it shall be compared with the Actual rent received or receivable. Here the following two situations may arise: (a) If the Actual rent received or receivable is higher than the converted expected rent as determined above, then actual received or receivable shall be the Gross Annual Value of the property. (b) If the Actual rent received or receivable is less than the converted expected rent as computed above, then the expected rent(for the whole year) shall be the Gross Annual value of the property. Determination of Annual Value or Net Annual Value: On deducting the taxes payable by the landlord to the local authority from the Gross Annual Value, the resultant figure is the Net Annual Value (ii)

Explanation: 1) The municipal taxes shall be deducted only when the same has already been paid by the assessee. If the municipal taxes are due and not yet paid, they shall not be deductible from the Gross Annual Value. The payment of municipal taxes may relate to any year. 2) If the tenant pays any part of the municipal taxes, the same shall not be deducted from the Gross Annual Value. 3) The deduction of municipal taxes paid by the assessee shall be allowed even if the Housen property remains vacant throughout the year. EXAMPLE: Shri Manish is owner of following four properties. From the information given below. Calculate Gross Annual Value in each case for the Assessment year 2009-2010 A Rs. 60,000 65,000 58,000 80,000 10,000 2 months B Rs. 60,000 66,000 72,000 90,000 40,000 3 months C Rs. 61,000 78,000 72,000 50,000 30,000 7 months D Rs. 1,40,000 1,50,000 1,20,000 1,20,000 24,000 2 months

Municipal Value Fair Rent Standard Rent Actual rent receivable for let out period Unrealised Rent Vacancy period SOLUTION:

Step1: Computation of Expected Rent A Rs 60,000 65,000 58,000 B Rs. 60,000 66,000 72,000 C Rs. 61,000 78,000 72,000 D Rs. 1,40,000 1,50,000 1,20,000

Municipal Value Fair Rent Standard Rent Expected Rent(Municipal Value or Fair rent whichever is higher. Less: subject to maximum of standard Rent)

58,000

66,000

72,000

1,20,000

Step2: Computation of Annual Rent A Rs. Let out months) period(in 10 80,000 96,000 10,000 86,000 9 90,000 1,20,000 40,000 80,000 5 50,000 1,20,000 30,000 90,000 10 1,20,000 1,44,000 24,000 1,20,000 B Rs. C Rs. D Rs.

Actual rent receivable for let out period Actual rent receivable for the whole year Less: unrealized rent

Step3: Computation of Gross Annual Value A Rs. 58,000 86,000 B Rs. 66,000 80,000 C Rs. 72,000 90,000 D Rs. 1,20,000 1,20,000

Expected Rent Actual rent for 12 months Expected rent or actual rent whichever is higher Less: Rent of vacancy period Gross Annual Value

86,000 16,000 70,000

80,000 30,000 50,000

90,000 70,000 20,000

1,20,000 24,000 96,000

DEDUCTIONS
From the net annual value of the house property, the deductions under section 24 are allowable and the resultant value so arrived at is the Income from house property. The deductions under section 24 of the income tax act, 1961 are as follows: 1. Standard deduction: 30% of the net annual value is deductible irrespective of the amount of expenditure incurred by the assessee. 2. Interest on borrowed capital: In case any capital is borrowed for purchase or construction of the house property or for its repairs, renovations or reconstruction, the interest payable on such borrowed capital is allowable as deduction from the net annual value of the property.

Explanation : 1. The deduction is allowed on accrual basis and therefore, it is deductible even if the same has not been paid during the previous year. 2. Interest on unpaid interest is not deductible. In other words, any interest levied on the unpaid interest shall not be allowed as deduction 3. Interest on fresh loan taken to repay the original loan taken for the aforesaid purpose is also allowable as deduction. Interest relating to pre-construction period : The pre-construction period means the period commencing from the date of borrowing and ending on march 31 immediately prior to the date of construction or date of acquisition or the date of repayment of the loan, whichever is earlier. Example: If the assessee has taken a loan of Rs.1,00,000 on 1st April, 2009 at 12% per annum and the construction of the houses property is completed on 15 may, 2008 then the pre-construction period is from 1st April, 2005 to 31st March, 2008. In the above example if the loan is repaid on 22nd March, 2008, then the preconstruction period shall be from 1st April, 2005 to 22nd March, 2008. Deduction available in 5 equal instalments: The deduction on account of interest of the pre-construction period is available in 5 equal annual instalments, commencing from the previous year in which the house is acquired or constructed. In the above example deduction will commence from the year 2008-09. 4. Self- occupied House property : If the house is self-occupied, then the allowable deduction for interest on borrowed capital shall be Rs.30,000. The loan has been taken on or after 1st April, 1999 and the purchase of the house or construction of the house completes within 3 years from the end of the financial year in which capital was borrowed, then the allowable interest deduction shall be Rs.1,50,000. There is no maximum limit of interest for let out houses.

(C)PROFIT AND GAINS OF BUSINESS OR PROFESSION

It is the third and very important head of income in which the assessee has to pay tax on profits and gains from business or profession. The term business and profession has been defined under section 2(13) abd 2(36) of the Income Tax Act respectively, which are as under: 1) Business: According to section 2(13) business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. From the definition it is evident that the term business is very wide. The meanings of certain terms used in the definition is as under: (a) Trade: Trade means exchange of goods for goods or goods for money. (b) Commerce: Trade repeated on large scale is commerce. It includes bank, insurance, communication transportation facilities also. (c) Manufacture: Manufacture means bringing a new commodity into existence from raw material having separate name character and use by applying labour or force. (d) Adventure: Adventure includes all business activities. Even an isolated transaction outside the assessees line of business can constitute an adventure in the nature of trade and business. Neither repeatition nor continuity of similar transactions is necessary to constitute an adventure in the nature of trade or commerce. 2) Profession: As per Section 2(36) of the Income Tax Act profession includes vocation. Profession involves occupation requiring purely intellectual or manual skill which is

based on learning and experience. For e.g: Lawyers, Engineers, Doctors, Surgeons, Charted Accountants, Tax consultants, etc. 3) Vocation : Vocation implies natural ability of a person for some particular work to earn his living like singing, dancing etc . The income earned from the above mentioned three sources is taxable under this head.

BASIC OF CHARGE [SECTION 28]:

The following are the income which are chargeable to income-tax under the head Profits and gains of business or profession (i) The profits and gains of any business or profession which was carried on by the assessee at any time during the previous year; (ii) Any compensation or other payment due to or received by, (a) Any person, by whatever name called, managing the whole or substantially the whole of the affairs of an Indian company, at or in connection with the termination of his management or the modification of the terms and conditions relating thereto; (b) Any person, by whatever name called, managing the whole or substantially the whole of the affairs in India of any other company, at or in connection with the termination of his office or the modification of the terms and conditions relating thereto; (c) Any person, by whatever name called, holding an agency in India for any part of the activities relating to the business of any other person, at or in connection with the termination of the agency or the modification of the terms and conditions relating thereto; (d) Any person, for or in connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of any property or business; (iii) Income derived by a trade, professional or similar association from specific services performed for its members; (iv) The value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; (v) Export incentives available to exporters which includes cash compensatory support, duty drawback and profit on sale of import licences. (vi) Any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm: (vii) Any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.

Explanation: For the purposes of this clause, the expression "Keyman insurance policy" shall have the meaning assigned to it in clause (10D) of section 10. Explanation 1: Where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as "speculation business") shall be deemed to be distinct and separate from any other business.

GENERAL PRINCIPLES OF TAXING PROFITS AND GAINS OF BUSINESS AND PROFESSION:

1) The business or profession should be carried on by the assessee: The income of an individual carrying on the business or profession is chargeable to tax under this head, irrespective of whether he is the owner of such business or not. The assessee can get the business should have the complete management and control of the business or profession. 2) Tax incidence arises in respect of all businesses or profession: If the assessee carries on more than one business, then the income is computed of each business separately and then all such incomes are aggregated to compute the taxable income under the head Profits and Gains from Business or Profession. 3) Business or profession should be carried on in the previous year: Income under this head is chargeable to tax only when the business or profession has been carried on during the previous year. It is not necessary to carry on the business or profession through out the previous year. If the business is carried on for a single day, the same shall be taxable. However, there are some exemptions to this rule: In the following cases the receipts are taxable even if no business or profession has been carried on by the assessee during the previous year: (a) Recovery or excess recovery against a deduction. (b) Sale of an asset used for scientific research (c) Recovery or excess recovery against bad-debts (d) Amount withdrawn from special reserve. (e) Any sum received after discontinuance of a business or profession. 4) Profits from speculation business: Where speculative transaction carried on by an assessee are of such a nature as to constitute a business, it shall be chargeable to tax under this head only. However, the speculation business shall be deemed to be distinct and separated from any other business. Any loss from speculation business can be set off from the gains of speculation business only. 5) Profits and gains of illegal business: Profits and gains of illegal business is also chargeable to tax under this head. Taxability of income does not depend on its legality.

The taxable income of the illegal business is computed in the same manner as that of legal business. 6) Generally accepted principles of accounting: The profits and gains from Business or Profession are to be computed on the basis of generally accepted principles of accounting. 7) Legal ownership v/s Beneficial ownership: Under section 28, it is not only the legal ownership but also the beneficial ownership that has to be considered. The courts can go into the question of beneficial ownership and decide who should be held liable for the tax after taking into account the question as to who is in receipt of the income that is to be taxed. 8) Real profits v/s Anticipated profits: Income tax is charged on the real profits. Anticipated profits which may occur in the future are not considered for arriving at taxable income of a previous year. However, in case of stock-in-trade, it is valued at cost or market price whichever is lower. 9) Notional Profits: The profits that are taxed in section 28 are the real profits and not notional profits. For example, no person can make profit by trading with himself in another capacity.

EXPENSES EXPRESSLY ALLOWED:

1) RENT, RATES, TAXES, REPAIRS AND INSURANCE FOR BUILDINGS [SECTION 30] In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or profession, the following deductions shall be allowed(a) Where the premises are occupied by the assessee (i) As a tenant, the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs; (ii) Otherwise than as a tenant, the amount paid by him on account of current repairs to the premises; (b) Any sums paid on account of land revenue, local rates or municipal taxes; (c) The amount of any premium paid in respect of insurance against risk of damage or destruction of the premises.

2) REPAIRS AND INSURANCE OF MACHINERY, PLANT AND FURNITURE [SECTION 31] In respect of repairs and insurance of machinery, plant or furniture used for the purposes of the business or profession, the following deductions shall be allowed (i) The amount paid on account of current repairs thereto; (ii) The amount of any premium paid in respect of insurance against risk of damage or destruction thereof. 3) DEPRECIATION [SECTION 32] (1) In respect of depreciation of (A) Buildings, machinery, plant or furniture, being tangible assets; (B) Know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed (i) In the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed; (ii) In the case of any block of assets, such percentage on the written down value thereof as may be prescribed in 440, 439]: Provided that no deduction shall be allowed under this clause in respect of (a) Any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975, unless it is used (i) In a business of running it on hire for tourists; or (ii) Outside India in his business or profession in another country; and (b) Any machinery or plant if the actual cost thereof is allowed as a deduction in one or more years under an agreement entered into by the Central Government under section 42: 443 ] Provided further that where an asset referred to in clause (i) or clause (ii), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (i) or clause (ii), as the case may be: Provided also that where an asset being commercial vehicle is acquired by the assessee on or after the 1st day of October, 1998 but before the 1st day of April, 1999 and is put to use before the 1st day of April, 1999 for the purposes of business or profession, the deduction in respect of such asses shall be allowed on such percentage on the written down value thereof as may be prescribed.

(C) In the case of any building, machinery, plant or furniture in respect of which depreciation is claimed under clause (i) and which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), the amount by which the moneys payable in respect of such building, machinery, plant or furniture, together with the amount of scrap value, if any, fall short of the written down value thereof: Provided that such deficiency is actually written off in the books of the assessee Explanation: For the purposes of this clause, (1) "Moneys payable" in respect of any building, machinery, plant or furniture includes (a) Any insurance, salvage or compensation moneys payable in respect thereof; (b) Where the building, machinery, plant or furniture is sold, the price for which it is sold, so, however, that where the actual cost of a motor car is, in accordance with the proviso to clause (1) of section 43, taken to be twenty-five thousand rupees, the moneys payable in respect of such motor car shall be taken to be a sum which bears to the amount for which the motor car is sold or, as the case may be, the amount of any insurance, salvage or compensation moneys payable in respect thereof (including the amount of scrap value, if any) the same proportion as the amount of twenty-five thousand rupees bears to the actual cost of the motor car to the assessee as it would have been computed before applying the said proviso; (2) "Sold" includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is an Indian company.

4) INVESTMENT ALLOWANCE [SECTION 32A] (1)In respect of a ship or an aircraft or machinery or plant specified in sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twenty-five per cent. of the actual cost of the ship, aircraft, machinery or plant to the assessee: Provided that in respect of a ship or an aircraft or machinery or plant specified in subsection (8B), this sub-section shall have effect as if for the words "twenty-five per cent", the words "twenty per cent" had been substituted: Provided further that no deduction shall be allowed under this section in respect of (a) Any machinery or plant installed in any office premises or any residential accommodation, including any accommodation in the nature of a guest-house;

(b) Any office appliances or road transport vehicles; (c) Any ship, machinery or plant in respect of which the deduction by way of development rebate is allowable under section 33; and (d) Any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year. Explanation: For the purposes of this sub-section, "actual cost" means the actual cost of the ship, aircraft, machinery or plant to the assessee as reduced by that part of such cost which has been met out of the amount released to the assessee under sub-section (6) of section 32AB. (2) The ship or aircraft or machinery or plant referred to in sub-section (1) shall be the following, namely:(a) A new ship or new aircraft acquired after the 31st day of March, 1976, by an assessee engaged in the business of operation of ships or aircraft; (b) Any new machinery or plant installed after the 31st day of March, 1976 (i) For the purposes of business of generation or distribution of electricity or any other form of power; or (ii) 454 in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing; or (iii) In any other industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule: Provided that nothing contained in clauses (a) and (b) shall apply in relation to, - (i) A new ship or new aircraft acquired, or (ii) Any new machinery or plant installed, after the 31st day of March, 1987 but before the 1st day of April, 1988, unless such ship or aircraft is acquired or such machinery or plant is installed in the circumstances specified in clause (a) of sub-section (8B) and the assessee furnishes evidence to the satisfaction of the Assessing Officer as specified in that clause; (c) Any new machinery or plant installed after the 31st day of March, 1983, but before the 1st day of April, 1987, for the purposes of business of repairs to ocean-going vessels or other powered craft if the business is carried on by an Indian company and the business so carried on is for the time being approved for the purposes of this clause by the Central Government. (3) Where the total income of the assessee assessable for the assessment year relevant to the previous year in which the ship or aircraft was acquired or the machinery or plant was installed,

or, as the case may be, the immediately succeeding previous year [the total income for this purpose being computed after deduction of the allowance under section 33 and section 33A, but without making any deduction under sub-section (1) of this section or any deduction under Chapter VI-A is nil or is less than the full amount of the investment allowance, (i) The sum to be allowed by way of investment allowance for that assessment year under sub-sec.(1) shall be only such amount as is sufficient to reduce the said total income to nil; and (ii) The amount of the investment allowance, to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following assessment year, and the investment allowance to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year, computed in the manner aforesaid, to nil, and the balance of the investment allowance, if any, still outstanding shall be carried forward to the following assessment year and so on, so, however, that no portion of the investment allowance shall be carried forward for more than eight assessment years immediately succeeding the assessment year relevant to the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, as the case may be, the immediately succeeding previous year. (4) The deduction under sub-section (1) shall be allowed only if the following conditions are fulfilled, namely:(i) The particulars prescribed 468 in this behalf have been furnished by the assessee in respect of the ship or aircraft or machinery or plant; (ii) An amount equal to seventy-five per cent of the investment allowance to be actually allowed is debited to the profit and loss account of any previous year in respect of which the deduction is to be allowed under sub-section (3) or any earlier previous year [being a previous year not earlier than the year in which the ship or aircraft was acquired or the machinery or plant was installed or the ship, aircraft, machinery or plant was first put to use] and credited to a reserve account (to be called the "Investment Allowance Reserve Account") to be utilized (a) For the purposes of acquiring, before the expiry of a period of ten years next following the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, a new ship or a new aircraft or new machinery or plant [other than machinery or plant of the nature referred to in clauses (a), (b) and (d) of the second proviso to subsection (1)] for the purposes of the business of the undertaking; and (b) Until the acquisition of a new ship or a new aircraft or new machinery or plant as aforesaid, for the purposes of the business of the undertaking other than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India: Provided that this clause shall have effect in respect of a ship as if for the word "seventyfive", the word "fifty" had been substituted.

Explanation: Where the amount debited to the profit and loss account and credited to the Investment Allowance Reserve Account under this sub-section is not less than the amount required to be so credited on the basis of the amount of deduction in respect of investment allowance claimed in the return made by the assessee under section 139, but a higher deduction in respect of the investment allowance is admissible on the basis of the total income as proposed to be computed by the Assessing Officer under section 143, the Assessing Officer shall, by notice in writing in this behalf, allow the assessee an opportunity to credit within the time specified in the notice or within such further time as the Assessing Officer may allow, a further amount to the Investment Allowance Reserve Account out of the profits and gains of the previous year in which such notice is served on the assessee or of the immediately preceding previous year, if the accounts for that year have not been made up; and, if the assessee credits any further amount to such account within the time aforesaid, the amount so credited shall be deemed to have been credited to the Investment Allowance Reserve Account of the previous year in which the deduction is admissible and such amount shall not be taken into account in determining the adequacy of the reserve required to be credited by the assessee in respect of the previous year in which such further credit is made: Provided that such opportunity shall not be allowed by the Assessing Officer in a case where the difference in the total income as proposed to be computed by him and the total income as returned by the assessee arises out of the application of the proviso to subsection (1) of section 145 or sub-section (2) of that section or the omission by the assessee to disclose his income fully and truly. (5) Any allowance made under this section in respect of any ship, aircraft, machinery or plant shall be deemed to have been wrongly made for the purposes of this Act (a) If the ship, aircraft, machinery or plant is sold or otherwise transferred by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired or installed; or (b) If at any time before the expiry of ten years from the end of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, the assessee does not utilise the amount credited to the reserve account under sub-section (4) for the purposes of acquiring a new ship or a new aircraft or new machinery or plant [other than machinery or plant of the nature referred to in clauses (a), (b) and (d) of the second proviso to sub-section (1)] for the purposes of the business of the undertaking; or (c) If at any time before the expiry of the ten years aforesaid, the assessee utilises the amount credited to the reserve account under sub-section (4) for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India or for any other purpose which is not a purpose of the business of the undertaking, and the provisions of sub-section (4A) of section 155 shall apply accordingly: Provided that nothing in clause (a) shall apply -

(i) Where the ship, aircraft, machinery or plant is sold or otherwise transferred by the assessee to the Government, a local authority, a corporation established by a Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 or (1 of 1956); or (ii) Where the sale or transfer of the ship, aircraft, machinery or plant is made in connection with the amalgamation or succession, referred to in sub-section (6) or subsection (7). (6) The Central Government, if it considers necessary or expedient so to do, may, by notification in the Official Gazette, direct that the deduction allowable under this section shall not be allowed in respect of any ship or aircraft acquired or any machinery or plant installed after such date as may be specified 475 therein. (6A) The Central Government, if it considers necessary or expedient so to do, may, by notification in the Official Gazette, omit any article or thing from the list of articles or things specified in the Eleventh Schedule. (6B) Not withstanding anything contained in sub-section (8) or the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. G.S.R. 870(E), dated the 12th June, 1986, issued thereunder, the provisions of this section shall apply in respect of, (i) A new ship or new aircraft acquired after the 31st day of March, 1987 but before the 1st day of April, 1988, if the assessee furnishes evidence to the satisfaction of the Assessing Officer that he had, before the 12th day of June, 1986, entered into a contract for the purchase of such ship or aircraft with the builder or manufacturer or owner thereof, as the case may be; (ii) Any new machinery or plant installed after the 31st day of March, 1987 but before the 1st day of April, 1988, if the assessee furnishes evidence to the satisfaction of the Assessing Officer that before the 12th day of June, 1986, he had purchased such machinery or plant or had entered into a contract for the purchase of such machinery or plant with the manufacturer or owner of, or a dealer in, such machinery or plant, or had, where such machinery or plant has been manufactured in an undertaking owned by the assessee, taken steps for the manufacture of such machinery or plant: Provided that nothing contained in sub-section (1) shall entitle the assessee to claim deduction in respect of a ship or aircraft or machinery or plant referred to in this clause in any previous year except the previous year relevant to the assessment year commencing on the 1st day of April, 1989; (6C) Subject to the provisions of clause (ii) of sub-section (3), where a deduction has been allowed to an assessee under sub-section (1) in any assessment year, no deduction shall be allowed to the assessee under section 32AB in the said assessment year (hereinafter referred to as

the initial assessment year) and a block of further period of four years beginning with the assessment year immediately succeeding the initial assessment year

5) EXPENDITURE ON ACQUISITION OF PATENT RIGHTS OR COPYRIGHTS [SEC. 35A] (1) In respect of any expenditure of a capital nature incurred after the 28th day of February, 1966 but before the 1st day of April, 1998, on the acquisition of patent rights or copyrights (hereafter, in this section, referred to as rights) used for the purposes of the business, there shall, subject to and in accordance with the provisions of this section, be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expenditure. (2) Where the rights come to an end without being subsequently revived or where the whole or any part of the rights is sold and the proceeds of the sale (so far as they consist of capital sums) are not less than the cost of acquisition thereof remaining unallowed, no deduction under subsection (1) shall be allowed in respect of the previous year in which the rights come to an end or, as the case may be, the whole or any part of the rights is sold or in respect of any subsequent previous year. (3) Where the rights either come to an end without being subsequently revived or are sold in their entirety and the proceeds of the sale (so far as they consist of capital sums) are less than the cost of acquisition thereof remaining unallowed, a deduction equal to such cost remaining unallowed or, as the case may be, such cost remaining unallowed as reduced by the proceeds of the sale, shall be allowed in respect of the previous year in which the rights come to an end, or, as the case may be, are sold. (4) Where the whole or any part of the rights is sold and the proceeds of the sale (so far as they consist of capital sums) exceed the amount of the cost of acquisition thereof remaining unallowed, so much of the excess as does not exceed the difference between the cost of acquisition of the rights and the amount of such cost remaining unallowed shall be chargeable to income-tax as income of the business of the previous year in which the whole or any part of the rights is sold. (5) Where a part of the rights is sold and sub-section (4) does not apply, the amount of the deduction to be allowed under sub-section (1) shall be arrived at by (a) Subtracting the proceeds of the sale (so far as they consist of capital sums) from the amount of the cost of acquisition of the rights remaining unallowed; and (b) Dividing the remainder by the number of relevant previous years which have not expired at the beginning of the previous year during which the rights are sold.

6) EXPENDITURE FOR OBTAINING LICENCE TO OPERATE TELECOMMUNICATION SERVICES [SECTION 35ABB] (1) In respect of any expenditure, being in the nature of capital expenditure, incurred for acquiring any right to operate telecommunication services either before the commencement of the business to operate telecommunication services or thereafter at any time during any previous year 554e ] and for which payment has actually been made to obtain a licence, there shall, subject to and in accordance with the provisions of this section, be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expenditure. (2) Where the licence is transferred and the proceeds of the transfer (so far as they consist of capital sums) are less than the expenditure incurred remaining unallowed, a deduction equal to such expenditure remaining unallowed, as reduced by the proceeds of the transfer, shall be allowed in respect of the previous year in which the licence is transferred. (3) Where the whole or any part of the licence is transferred and the proceeds of the transfer (so far as they consist of capital sums) exceed the amount of the expenditure incurred remaining unallowed, so much of the excess as does not exceed the difference between the expenditure incurred to obtain the licence and the amount of such expenditure remaining unallowed shall be chargeable to income-tax as profits and gains of the business in the previous year in which the licence has been transferred. (4) Where the whole or any part of the licence is transferred and the proceeds of the transfer (so far as they consist of capital sums) are not less than the amount of expenditure incurred remaining unallowed, no deduction for such expenditure shall be allowed under sub-section (1) in respect of the previous year in which the licence is transferred or in respect of any subsequent previous year or years. (5) Where a part of the licence is transferred in a previous year and sub-section (3) does not apply, the deduction to be allowed under sub-section (1) for expenditure incurred remaining unallowed shall be arrived at by (a) Subtracting the proceeds of transfer (so far as they consist of capital sums) from the expenditure remaining unallowed; and (b) Dividing the remainder by the number of relevant previous years which have not expired at the beginning of the previous year during which the licence is transferred. (8) Where a deduction for any previous year under sub-section (1) is claimed and allowed in respect of any expenditure referred to in that sub-section, no deduction shall be allowed under sub-section (1) of section 32 for the same previous year or any subsequent previous year.

7) EXPENDITURE ON ELIGIBLE PROJECTS OR SCHEMES [SECTION 35AC] (1) Where an assessee incurs any expenditure by way of payment of any sum to a public sector company or a local authority or to an association or institution approved by the National Committee for carrying out any eligible project or scheme, the assessee shall, subject to the provisions of this section, be allowed a deduction of the amount of such expenditure incurred during the previous year: Provided that a company may, for claiming the deduction under this sub-section, incur expenditure either by way of payment of any sum as aforesaid or directly on the eligible project or scheme. (2) The deduction under sub-section (1) shall not be allowed unless the assessee furnishes along with his return of income a certificate 554aa (a) Where the payment is to a public sector company or a local authority or an association or institution referred to in sub-section (1), from such public sector company or local authority or, as the case may be, association or institution; (b) In any other case, from an accountant, as defined in the Explanation below sub-section (2) of section 288, in such form, manner and containing such particulars (including particulars relating to the progress in the work relating to the eligible project or scheme during the previous year) as may be prescribed. (3) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year. (4) Where an association or institution is approved by the National Committee under sub-section (1), and subsequently that Committee is satisfied that the project or the scheme is not being carried on in accordance with all or any of the conditions subject to which approval was granted, it may, at any time, after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned association or institution, withdraw the approval. (5) Where any project or scheme has been notified as an eligible project or scheme under clause (b) of the Explanation and subsequently the National Committee is satisfied that the project or the scheme is not being carried out in accordance with all or any of the conditions subject to which such project or scheme was notified, such notification may be withdrawn in the same manner in which it was issued: Provided that a reasonable opportunity of showing cause against the proposed withdrawal shall be given by the National Committee to the concerned association, institution, public sector company or the local authority, as the case may be. Explanation: For the purposes of this section, -

(a) "National Committee" means the Committee constituted by the 554b Central Government, from amongst persons of eminence in public life, in accordance with the rules made under this Act; (b) "Eligible project or scheme" means such project or scheme for promoting the social and economic welfare of, or the uplift of, the public as the Central Government may, by notification in the Official Gazette, specify in this behalf on the recommendations of the National Committee.

8) EXPENDITURE BY WAY OF PAYMENT TO ASSOCIATIONS AND INSTITUTIONS FOR CARRYING OUT RURAL DEVELOPMENT PROGRAMMES [SECTION 35CCA] (1) Where an assessee incurs any expenditure by way of payment of any sum (a) To an association or institution, which has as its object the undertaking of any programme of rural development, to be used for carrying out any programme of rural development approved by the prescribed authority 560 ; or (b) To an association or institution which has as its object the training of persons for implementing programmes of rural development (c) To a rural development fund set up and notified 563 by the Central Government in this behalf; (d) To the National Urban Poverty Eradication Fund set up and notified by the Central Government in this behalf, the assessee shall, subject to the provisions of sub-section (2) be allowed a deduction of the amount of such expenditure incurred during the previous year. (2) The deduction under clause (a) of sub-section (1) shall not be allowed in respect of expenditure by way of payment of any sum to any association or institution referred to in the said clause unless the assessee furnishes a certificate from such association or institution to the effect that (a) The programme of rural development had been approved by the prescribed authority before the 1st day of March, 1983; and (b) Where such payment is made after the 28th day of February, 1983, such programme involves work by way of construction of any building or other structure (whether for use as a dispensary, school, training or welfare centre, workshop or for any other purpose) or the laying of any road or the construction or boring of a well or tube-well or the installation of any plant or machinery, and such work has commenced before the 1st day of March, 1983. (2A) The deduction under clause (b) of sub-section (1) shall not be allowed in respect of expenditure by way of payment of any sum to any association or institution unless the assessee furnishes a certificate from such association or institution to the effect that -

(a) The prescribed authority had approved the association or institution before the 1st day of March, 1983; and (b) The training of persons for implementing any programme of rural development had been started by the association or institution before the 1st day of March, 1983. (2B) No certificate of the nature referred to in sub-section (2) or sub-section (2A) shall be issued by any association or institution unless such association or institution has obtained from the prescribed authority authorization in writing to issue certificates of such nature. Explanation: For the purposes of this section, "programme of rural development" shall have the meaning assigned to it in the Explanation to sub-section (1) of section 35CC 565a. (3) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under section 35C or section 35CC or section 80G or any other provision of this Act for the same or any other assessment year.

9) EXPENDITURE BY WAY OF PAYMENT TO ASSOCIATIONS AND INSTITUTIONS FOR CARRYING OUT PROGRAMMES OF CONSERVATION OF NATURAL RESOURCES [SECTION 35CCB] (1) Where an assessee incurs any expenditure by way of payment of any sum (a) To an association or institution, which has as its object the undertaking of any programme of conservation of natural resources or of afforestation, to be used for carrying out any programme of conservation of natural resources or afforestation approved by the prescribed authority; or (b) To such fund for afforestation as may be notified by the Central Government, the assessee shall, subject to the provisions of sub-section (2), be allowed a deduction of the amount of such expenditure incurred during the previous year. (2) The deduction under clause (a) of sub-section (1) shall not be allowed with respect to expenditure by way of payment of any sum to any association or institution, unless such association or institution is for the time being approved in this behalf by the prescribed authority. (3) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year. 10) AMORTISATION OF CERTAIN PRELIMINARY EXPENSES [SECTION 35D]

(1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in subsection (2), (i) Before the commencement of his business, or (ii) After the commencement of his business in connection with the extension of his industrial undertaking or in connection with his setting up a new industrial unit, the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the industrial undertaking is completed or the new industrial unit commences production or operation. Provided that where an assessee incurs after the 31st day of March, 1998, any expenditure specified in sub-section (2), the provisions of this sub-section shall have effect as if for the words "an amount equal to one-tenth of such expenditure for each of the ten successive previous years", the words "an amount equal to one-fifth of such expenditure for each of the five successive previous years" had been substituted. (2) The expenditure referred to in sub-section (1) shall be the expenditure specified in any one or more of the following clauses, namely:(a) Expenditure in connection with (i) Preparation of feasibility report; (ii) Preparation of project report; (iii) Conducting market survey or any other survey necessary for the business of the assessee; (iv) Engineering services relating to the business of the assessee. (b) Legal charges for drafting any agreement between the assessee and any other person for any purpose relating to the setting up or conduct of the business of the assessee; (d) Such other items of expenditure (not being expenditure eligible for any allowance or deduction under any other provision of this Act) as may be prescribed. (3) Where the aggregate amount of the expenditure referred to in sub-section (2) exceeds an amount calculated at two and one-half per cent of the cost of the project, (4) Where the assessee is a person other than a company or a co-operative society, no deduction shall be admissible under sub-section (1) unless the accounts of the assessee for the year or years in which the expenditure specified in sub-section (2) is incurred have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288, and the assessee furnishes, along with his return of income for the first year in which the deduction under this section is claimed, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed 570 .

(6) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure specified in sub-section (2), the expenditure in respect of which deduction is so allowed shall not qualify for deduction under any other provision of this Act for the same or any other assessment year.

11) DEDUCTION FOR EXPENDITURE ON PROSPECTING, ETC., FOR CERTAIN MINERALS [SECTION 35E] (1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, is engaged in any operations relating to prospecting for, or extraction or production of, any mineral and incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2), the assessee shall, in accordance with and subject to the provisions of this section, be allowed for each one of the relevant previous years a deduction of an amount equal to one-tenth of the amount of such expenditure. (2) The expenditure referred to in sub-section (1) is that incurred by the assessee after the date specified in that sub-section at any time during the year of commercial production and any one or more of the four years immediately preceding that year, wholly and exclusively on any operations relating to prospecting for any mineral or group of associated minerals specified in Part A or Part B, respectively, of the Seventh Schedule or on the development of a mine or other natural deposit of any such mineral or group of associated minerals: Provided that there shall be excluded from such expenditure any portion thereof which is met directly or indirectly by any other person or authority and any sale, salvage, compensation or insurance moneys realized by the assessee in respect of any property or rights brought into existence as a result of the expenditure. (3) Any expenditure (i) On the acquisition of the site of the source of any mineral or group of associated minerals referred to in sub-section (2) or of any rights in or over such site; (ii) On the acquisition of the deposits of such mineral or group of associated minerals or of any rights in or over such deposits; or (iii) Of a capital nature in respect of any building, machinery, plant or furniture for which allowance by way of depreciation is admissible under section 32, shall not be deemed to be expenditure incurred by the assessee for any of the purposes specified in sub-section (2). (4) The deduction to be allowed under sub-section (1) for any relevant previous year shall be (a) An amount equal to one-tenth of the expenditure specified in sub-section (2) (such onetenth being hereafter in this sub-section referred to as the installment); or

(b) Such amount as is sufficient to reduce to nil the income (as computed before making the deduction under this section) of that previous year arising from the commercial exploitation [whether or not such commercial exploitation is as a result of the operations or development referred to in sub-section (2)] of any mine or other natural deposit of the mineral or any one or more of the minerals in a group of associated minerals as aforesaid in respect of which the expenditure was incurred, whichever amount is less: Provided that the amount of the installment relating to any relevant previous year, to the extent to which it remains unallowed, shall be carried forward and added to the installment relating to the previous year next following and deemed to be part of that installment, and so on, for succeeding previous years, so, however, that no part of any installment shall be carried forward beyond the tenth previous year as reckoned from the year of commercial production.

(5) For the purposes of this section, (a) "Operation relating to prospecting" means any operation undertaken for the purpose of exploring, locating or proving deposits of any mineral, and includes any such operation which proves to be in fructuous or abortive; (b) "Year of commercial production" means the previous year in which as a result of any operation relating to prospecting, commercial production of any mineral or any one or more of the minerals in a group of associated minerals specified in Part A or Part B, respectively, of the Seventh Schedule, commences; (c) "Relevant previous years" means the ten previous years beginning with the year of commercial production. (6) Where the assessee is a person other than a company or a co-operative society, no deduction shall be admissible under sub-section (1) unless the accounts of the assessee for the year or years in which the expenditure specified in sub-section (2) is incurred have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288, and the assessee furnishes, along with his return of income for the first year in which the deduction under this section is claimed, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. (7) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure specified in sub-section (2), the expenditure in respect of which is so allowed shall not qualify for deduction under any other provision of this Act for the same or any other assessment year. 12) OTHER DEDUCTIONS [SECTION 36]

a) Insurance premium of stocks: The amount of any premium paid in respect of insurance against risk of damage or destruction of stocks or stores used for the purposes of the business or profession; b) Insurance premium paid by a federal milk co-operative society: The amount of any premium paid by cheque by the assessee as an employer to effect or to keep in force an insurance on the health of his employees under a scheme framed in this behalf by the General Insurance Corporation of India formed under section 9 of the General Insurance Business (Nationalization) Act, 1972 (57 of 1972), and approved by the Central Government; c) Bonus or commission to employees: Any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission; d) Interest paid on capital borrowed: The amount of the interest paid in respect of capital borrowed for the purposes of the business or profession. e) Employers contribution to Provident fund or Super Annuation fund: Any sum paid by the assessee as an employer by way of contribution towards a recognized provident fund or an approved superannuation fund, subject to such limits as may be prescribed 579 for the purpose of recognizing the provident fund or approving the superannuation fund, as the case may be; and subject to such conditions 580 as the Board may think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head "Salaries" or to the contributions or to the numbers of members of the fund; f) Employers contribution to an approved gratuity fund: Any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust; g) Loss in respect of animals: In respect of animals which have been used for the purposes of the business or profession otherwise than as stock-in-trade and have died or become permanently useless for such purposes, the difference between the actual cost to the assessee of the animals and the amount, if any, realized in respect of the carcasses or animals; h) Bad-debts: Subject to the provisions of sub-section (2), the amount of any bad debt or part thereof is written off as irrecoverable in the accounts of the assessee for the previous year, is allowable as deduction subject to the following conditions laid down is section 36(2): (i) Such debt has been taken into account in computing the income of the assessee for any

of the previous year in which the amounts of such debt is written off or for an earlier previous year. (ii)It represents money lent in the ordinary course of business of banking or money lending which is carried on by the assessee. (iii)It has been written off in the accounts of the assessee for that previous year in which deduction is claimed.

EXPENSES OR PAYMENTS NOT CIRCUMSTANCES [SECTION 40A]

DEDUCTIBLE

IN

CERTAIN

1) Payments to relatives or related enterprises: (a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him there from, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction; (b) The persons referred to in clause (a) are the following, namely:(i) Where the assessee is an any relative of the assessee; individual (ii) Where the assessee is a any director of the company, company, firm, association partner of the firm, or member of persons or Hindu undivided the association or family, or any family relative of such director, partner or member; (iii) Any individual who has a substantial interest in the business or profession of the assessee, or any relative of such individual; (iv) A company, firm, association of persons or Hindu undivided family having substantial interest in the business or profession of the assessee or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member; (v) A company, firm, association of persons or Hindu undivided family of which a director, partner or member, as the case may be, has a substantial interest in the business or profession of the assessee; or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member; (vi) Any person who carries on a business or profession, (A) Where the assessee being an individual, or any relative of such assessee, has a substantial interest in the business or profession of that person; or (B) Where the assessee being a company, firm, association of persons or Hindu undivided family, or any director of such company, partner of such firm or member of the

association or family, or any relative of such director, partner, or member, has a substantial interest in the business or profession of that person. 2) Cash payment in excess of Rs. 20000: As per section 40A(3) of Income Tax Act, when any payment is made in a day in respect of any expenditure of a sum exceeding Rs. 20000 otherwise than by way of a crossed cheque account payee cheque drawn on bank or account payee draft, then 100% of such payment shall be disallowed. (A) Conditions to be satisfied for disallowance under this section: (a) Assessee incurs an expenditure in a day in excess of Rs. 20000 (b) Such expenditure is allowable under Section 30 to 31 and is claimed as deduction (c) Payment thereof is made otherwise than by way on an account payee cheque drawn on a bank or decount payee bank draft (B) Disallowance=whole of such expenditure (C) Subsequent Payment: of any expenditure has been claimed as deduction on arrival basis in any previous year and subsequently in any previous year payment thereof is made otherwise than by way of account payee cheque drawn on a bank or account payee bank draft in a day in excess of Rs. 20000, then the payment so made shall be deemed to be the profits and gains of business or profession and accordingly thoughable to income tax as income of the year in such payment is made. If assessee has not paid expenses during the previous year but claims it as outstanding expenses at the time of assessment then it is necessary for the assessee to pay such expenses bt way of crossed cheque or crossed bank draft. If he pays expenses in any other way, then assessment of last year will be reopened and such expenses will be disallowed. Exceptions: No disallowance shall be made where any payment in a day in a sum exceeding Rs. 20000, is made otherwise than by a way of an account payee cheque drawn on a bank or account payee bank draft , in the cases and circumstances specified here under, namely: (i) Where the payment is made to banking and notified institutions. (ii) Where the payment is made to Central and State Government and, under the rules framed by it, such payment is required to be made in cash. For example: Excise duty, Custom duty, etc. (iii) Where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee; (iv) Where the payment for the products of horticulture, dairy or agriculture, to the cultivator, grower or producer of such articles produce or products; (v) Where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products;

(vi)

Where the payment is made by a book adjustment from any account in a bank to any other account in that or any other bank; (vii) Where the payment is made in a village or town, which on the date of such payment is not served by and bankl, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town; (viii) Where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person. (ix) Where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike; 3) Provision for payment of gratuity: Provision for payment of gratuity payable to employees is not deductible. The gratuity is deductible only in the following cases: - Where gratuity is paid during the previous year or where gratuity has become payable during the previous year (if no deduction was claimed on the basis of provision earlier). - Where any provision is made for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund. 4) Restrictions on contributions by employers to non-statutory funds: Any sum paid by the assessee as an employer by way of contribution towards recognized provident fund, or approved superannuation fund, or an approved gratuity fund, to the extent as laid down by the law is allowed otherwise on deduction will be given. If the following conditions are satisfied, then such payments will not be deductible; (i) Payment is made by the assessee as an employer (ii) It is paid towards setting up (or formation) of any trust, company, AOP, BOI, society or it is paid by way of contribution to any fund. 5) Certain expenses allowed on actual payment(section 43B): The following expenses are allowed as deduction on actual payment basis: (i) Any cess, duty, tax or fees, by whatever named called, paid to the government or to any other authority under any other law. (ii) Bonus and commission to employees for service rendered. (iii) Any sum paid by employer by way of contributions towards the provident fund, approved superannuation fund, gratuity fund for the benefit of the employees. (iv) Sum payable as per the terms, as interest on loan or borrowing made from a public financial institution, a state financial corporation, or a state industrial investment corporation. (v) Sum payable as interest on term loans or advances from a scheduled bank or co-operative bank. No deduction for interest converted into loan or

(vi)

borrowing: deduction of any sum luing interest payable shall be allowed if such interest was been actually paid and any such interest which has been converted into a loan or borrowing shall not be deemed to have been actually paid. Sum payable by employer to employee as encashment of earned leave. The above mentioned expenditure will be allowed only when these are paid during the previous year or on or before the due date of furnishing the return of income under section139(1). The proof of payment should also be attached with return of income. In case the payment is made after the due date then it will be allowed as deduction in the year in which payment is made.

DEEMED PROFITS AND TAXABILITY PROVISIONS:

1) Recovery against any deduction (section 41(1)): Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year, (a) The first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) The successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the firstmentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year.

2) Sale of assests used for scientific research: Where an asset representing expenditure of a capital nature on scientific research within the meaning of clause (iv) of sub-section (1), or clause (c) of sub-section (2B), of section 35 read with clause (4) of section 43, is sold, without having been used for other purposes, and the proceeds of the sale together with the total amount of the deductions made under clause (i) or, as the case may be, the

amount of the deductions under clause (ia) of sub-section (2), or clause (c) of sub-section (2B), of section 35 exceed the amount of the capital expenditure, the excess or the amount of the deductions so made, whichever is the less, shall be chargeable to incometax as income of the business or profession of the previous year in which the sale took place. 3) Recovery of bad-debts: Where a deduction has been allowed in respect of a bad debt or part of debt under the provisions of clause (vii) of sub-section (1) of section 36, then, if the amount subsequently recovered on any such debt or part is greater than the difference between the debt or part of debt and the amount so allowed, the excess shall be deemed to be profits and gains of business or profession, and accordingly chargeable to income-tax as the income of the previous year in which it is recovered, whether the business or profession in respect of which the deduction has been allowed is in existence in that year or not. 4) Adjustment of loss(Section 41(5)): Where the business or profession referred to in this section is no longer in existence and there is income chargeable to tax under sub-section (1), sub-section (3) sub-section (4) or sub-section (4A) in respect of that business or profession, any loss, not being a loss sustained in speculation business which arose in that business or profession during the previous year in which it ceased to exist and which could not be set off against any other income of that previous year shall, so far as may be, be set off against the income chargeable to tax under the sub-sections aforesaid.

PRESUMPTIVE INCOME:
Income of persons engaged in the following businesses shall be estimated on following basis: (a) In case of Civil Construction business: 8% of gross receipts and the gross receipts in the previous year in respect of such business does not exceed Rs. 40 lakhs. (b) Retail trade: 5% of gross receipts and the gross receipts in the previous year in respect of such business does not exceed Rs. 40 lakhs. (c) Operating or leasing of Trucks: In case of heavy goods carriages- the deduction is Rs. 3500 per monthper carriage and in case of other carriage- Rs. 3150 per month per carriage . Assessee should not own more than 10 vehicles as at any time during the previous year.

(D) CAPITAL GAINS

According to section 45(1) any profits or gains arising from the transfer of a capital asset is capital gain. Capital gains shall be deemed to be the income of the previous year in which the transfer of the capital asset took place. Chargeability under section 45: According to section 45, capital gains arise if the following conditions are fulfilled: 1) The asset should be a capital asset 2) There should be transfer of capital asset 3) Transfer should be effected in the previous year 4) Profits has arisen by virtue of such transfer

Capital asset: According to section 2(14) of the Income Tax Act, 1961, capital asset means
any property held by an assessee, whether connected or not connected with his business or profession. However, the following are expressly excluded from the definition of capital asset. 1) Stock-in trade and raw materials : Stock-in-trade, raw materials and consumable stores held for the purposes of business or profession. 2) Movable assets for personal use: Personal effects i.e. movable property which includes wearing apparel,furniture, utensils, vehicles held for the purpose of personal use by the assessee or his family members who are dependent on him, but the following are not included in personal effects: a) Ornaments made of silver,gold,platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stones and whether or not worked or sewn into any wearing apparel; b) Precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel; c) Archaeological collection d) Drawings e) Paintings f) Sculptures g) Any work of art Thus, jewellary, archaeological collections, drawings, paintings, sculpture and any work of art are capital asset. 3) Agricultural land situated in rural area: Agricultural land in India which is not situated in any area.

Within the jurisdiction of a municipality or a cantonment board having a population of 10,000 or more within 8 kilometers from municipal limits. (ii) Gold Bonds issued by Government of India including the Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999. 4) Gold Bonds issued by Government of India including the Gold Deposit Bonds issued under the Gold Depost Scheme, 1999 5) Special Bearer Bonds, 1991 6) Gold Deposit Bonds issued under the Gold Deposit Scheme of 1991.

(i)

TYPES OF CAPITAL ASSET 1) Short term capital assets : That was held by the assessee prior to its transfer for not more than 36 months. However,in case of shares, listed securities, units of UTI and Mutual Fund, they shall be treated as short-term capital asset if they are held for a period not more than 12 months. 2) Long term capital assets: Assets that are not short term capital assets.In other words, it means those capital assets which are held by an assessee for more than 36 months immediately preceding the date of its transfer. In the case of shares in a company, securities listed in recognized stock exchange or units of UTI or units of Mutual Fund, they shall be termed as long term capital assets when they are held for a period exceeding 12 months. Long term capital gain means capital gain arising from the transfer of a long term capital asset. Transfer: Sale,exchange or relinquishment of a capital asset; or compulsory acquisition of a capital asset under any law; or extinguishments of any rights therein; or conversion of capital asset into stock in trade or compensation received on damage or destruction of capital asset or transfer of capital asset by a partner to a firm or transfer of capital asset by a firm to a partner is included in transfer. However, property given under gift or will shall not constitute transfer.

Computation of Capital Gains in special circumstances:

1) Conversion of capital asset into stock-in-trade: The fair market value on the date of transfer shall be the full value of consideration. 2) Distribution of the assets by the firm to its partners: The fair market value on the date of transfer shall be the full value of consideration. 3) Transfer of capital asset by a partner to the firm: The amount recorded in the books shall be treated as the full value of consideration

4) Compulsory acquisition of the asset: The compensation received shall be deemed to be the full value of consideration. In case of enhanced compensation, the cost of acquisition and expenses of transfer shall be taken as Nil. 5) The cost of self-generated assets shall be Nil. 6) Transfer of Bonus Shares: The cost of acquisition of bonus shares acquired before 1st Arpil, 1981 shall be the fair market value of such shares as on 1st April 1981. Cost of acquisition of bonus shares acquired after 1st April 1981 shall be Nil. 7) Transfer of right shares: To the original shareholder the cost of acquisition of the rights entitlement shall be NIL and the cost of right shares shall be the amount paid to the company. 8) Distribution of assets by the company to its shareholders on liquidation: It shall be taxable in the hands of the shareholder. From the amount received on distribution the value of deemed dividend is deducted to arrive at the capital gains. 9) Sale of securities by the Depository on FIFO basis shall be taxable in the hands of the beneficial owner 10) The conversion of debentures into shares shall be treated as transfer and the actual cost of the debentures shall be the cost of acquisition of the shares. 11) For computing the capital gains arising on slump sale of any undertaking or division, benefit of indexation is not available and the net worth shall be the cost of the acquisition 12) From assessment year 2003-04, in case of computation of Capital gains on immovable property, the value assessed by the Stamp Valuation authorities shall be considered as full value of consideration on transfer of the property. 13) The compensation received by the insurance company shall be treated as the full value of consideration on transfer 14) Where the capital gains arises from the transfer of specified security/stock options or sweat equity shares. Cost of acquisition of such security or shares = Fair market value which has been taken into account while computing the value of fringe benefits.

EXEMPTED CAPITAL GAINS:

A) Long term Capital Gains arising from transfer of residential house property(section 54): If the amount invested in purchase or construction of a new residential house property or amount deposited in Capital Gains, the Capital Gains shall be exempted. The exemption is withdrawn, if the new house property is transferred within 3 years from the date of purchase or construction.

(1) Subject to the provisions of sub-section (2), where in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say, (i) If the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii) If the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain. (2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139 786 , shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139 in an account in any such bank or institution as may be specified in, and utilized in accordance with, any scheme 787 which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilized by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset: Provided that if the amount deposited under this sub-section is not utilized wholly or partly for the purchase or construction of the new asset within the period specified in subsection (1), then, (i) The amount not so utilized shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) The assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.

B) Capital Gain arising from transfer of agricultural land (section 54B): The exemption shall be granted if the assessee purchases a new agricultural land within 2 years from the date of transfer. If the cost of new land is less than the Capital Gains, the entire Capital Gains shall be exempted. The new agricultural land should not be transferred before the expiry of 3 years from the date of purchase. (1) Subject to the provisions of sub-section (2), where the capital gain arises from the transfer of a capital asset being land which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee or a parent of his for agricultural purposes hereinafter referred to as the original asset, and the assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say, (i) If the amount of the capital gain is greater than the cost of the land so purchased (hereinafter referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be nil; or (ii) If the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be reduced by the amount of the capital gain. (2) The amount of the capital gain which is not utilized by the assessee for the purchase of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139 in an account in any such bank or institution as may be specified in, and utilized in accordance with, any scheme 794 which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilized by the assessee for the purchase of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset. C) Capital Gains arising from compulsory acquisition of land and building of Industrial Undertaking(Section 54D): The exemption is granted if a new land or building is purchased or constructed within a period of 3 years from the transfer. If the

cost of new land or building is less than the Capital Gains, the entire Capital Gains land or building is transferred within 3 years from the date of purchase or construction. (1) Subject to the provisions of sub-section (2), where the capital gain arises from the transfer by way of compulsory acquisition under any law of a capital asset, being land or building or any right in land or building, forming part of an industrial undertaking belonging to the assessee which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee for the purposes of the business of the said undertaking hereafter in this section referred to as the original asset) and the assessee has within a period of three years after that date purchased any other land or building or any right in any other land or building or constructed any other building for the purposes of shifting or re-establishing the said undertaking or setting up another industrial undertaking, then, instead of the capital gain being charged to incometax as the income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say, (i) If the amount of the capital gain is greater than the cost of the land, building or right so purchased or the building so constructed (such land, building or right being hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii) If the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain. (2) The amount of the capital gain which is not utilized by the assessee for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilized in accordance with, any scheme 801 which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilized by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset:

Provided that if the amount deposited under this sub-section is not utilized wholly or partly for the purchase or construction of the new asset within the period specified in subsection (1), then, (i) The amount not so utilized shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) The assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid. D) Capital gains to be exempt in case of investment in specified assets(Section 54EC): The exemption is granted on investment in specified securities. In this case maximum exemption limit shall be Rs. 50 lakh. E) Long term Capital gains arising from transfer of capital assets other than residential house property not to be charged in certain cases(Section 54F): The exemption on capital gains arising on transfer of long term capital assets other than residential house property shall be available on construction of a house property within 1 year before and 2 years after the date of transfer or purchase of house property within 3 years from the date of transfer. The exemption is proportionately available as follows: Exemption = long term capital gain * amount invested in the new house/ Net sale consideration The exemption is withdrawn if the new house property is transferred before the expiry of 3 years from the date of purchase or construction. (1) Subject to the provisions of sub-section (4), where in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed 842a , a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say, (a) If the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45; (b) If the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45:

(2) Where the assessee purchases, within the period of two years after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head "Income from house property", other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such residential house is purchased or constructed. (3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such new asset is transferred. (4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilized in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilized by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset: F) Capital gains arising from shifting of industrial undertaking from urban area not to be charged in certain cases(Section 54G): The capital gains arising on shifting of an industrial undertaking from an urban area to a non-urban area from shall be exempt, if the amount is invested in acquiring the new machinery or plant, land or building or it is deposited in the Capital Gains scheme in the specified bank. The exemption shall be withdrawn if the industrial undertaking shifted or newly set up in the non-urban area is transferred within a 3 years. G) Extension of time for acquiring new asset or depositing or investing amount of capital gain [Section 54H]

Notwithstanding anything contained in sections 54, 54B, 54D, 54EA, 54EB and 54F, where the transfer of the original asset is by way of compulsory acquisition under any law and the amount of compensation awarded for such acquisition is not received by the assessee on the date of such transfer, the period for acquiring the new asset by the assessee referred to in those sections or, as the case may be, the period available to the assessee under those sections for depositing or investing the amount of capital gain in relation to such compensation as is not received on the date of the transfer, shall be reckoned from the date of receipt of such compensation: Provided that where the compensation in respect of transfer of the original asset by way of compulsory acquisition under any law is received before the 1st day of April, 1991, the aforesaid period or periods, if expired, shall extend upto the 31st day of December, 1991.

(E) INCOME FROM OTHER SOURCES

INCOME FROM OTHER SOURCES [Section 56] Taxable income under this head are as follows: (1) Income of every kind 860 which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the four previous heads. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes shall be chargeable to income-tax under the head "Income from other sources", namely:(i) Dividends; (a) Income referred to in sub-clause (viii) of clause (24) of section 2; (b) Income referred to in sub-clause (ix) of clause (24) of section 2; (c) Income referred to in sub-clause (x) of clause (24) of section 2, if such income is not chargeable to income-tax under the head "Profits and gains of business or profession"; (d) Income by way of interest on securities, if the income is not chargeable to income-tax under the head "Profits and gains of business or profession"; (ii) Income from machinery, plant or furniture belonging to the assessee and let on hire, if the income is not chargeable to income-tax under the head "Profits and gains of business or profession"; (iii) Where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to incometax under the head "Profits and gains of business or profession"; (iv) Sums received by the assessee from his employees as contribution to certain funds, if not chargeable under the head Profits and gains from Business or Profession; (v) Sum received under a keyman insurance policy including bonus if not charged under the head Profits and Gains from Business or Profession or Income from Salaries. (vi) Any sum without consideration received by an individual or HUF on or after 1 september 2004 shall be income to be taxed under this head if it exceeds Rs. 50000 and is not received from relative or under will or inheritance or in contemplation of death of payer or on account of marriage of individual.

Besides this the following income will not be taxable under Income from Other sources: 1) Income from sub-letting 2) Interest on bank deposits and loans 3) Income from royalty(if not taxable as income from business or profession 4) Directors fee 5) Ground rent 6) Agricultural income received from outside India 7) Commission received by the director on giving bank guarantee for the company 8) Directors commission on underwriting shares of new company 9) Remuneration received by teacher from evaluating the answer books 10) Rent of land 11) Insurance commission 12) Royalty received from mining company 13) Casual Income 14) Annuity payable under any contract, will or trust 15) Salary received by parliament members 16) Interest on foreign Government securities 17) Income from undisclosed sources 18) Gratuity paid to director who is not the em[ployee of the company 19) Income of race establishment 20) Compensation received for use of business asset 21) Annuity received to lender of trade mark 22) Family pension received by family members of a deceased employee 23) Sum received by the employee by way of interest on his contribution to unrecognized provident fund at the time of his retirement As dividend is not taxable in the hands of shareholders, hence grossing up is not required. Tax is deducted from dividend u/s 2(227)(e) at the rate of 20% + surcharge (if applicable) + 3% education cess.

DEDUCTIONS [Section 57]

The income chargeable under the head "Income from other sources" shall be computed after making the following deductions, namely:(i) In the case of dividends or interest on securities, any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of realizing such dividend or interest on behalf of the assessee; (a) In the case of income of the nature referred to in sub-clause (x) of clause (24) of section 2 which is chargeable to income-tax under the head "Income from other sources", deductions, so far as may be, in accordance with the provisions of clause (va) of subsection (1) of section 36;

(ii) In the case of income of the nature referred to in clauses (ii) and (iii) of sub-section (2) of section 56, deductions, so far as may be, in accordance with the provisions of subclause (ii) of clause (a) and clause (c) of section 30, section 31, and sub-sections (1), and (2) of section 32 and subject to the provisions of section 38; (a) In the case of income in the nature of family pension, a deduction of a sum equal to thirty-three and one-third per cent of such income or fifteen thousand rupees, whichever is less. Explanation: For the purposes of this clause, "family pension" means a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of his death; (iii) Any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income:

AMOUNTS NOT DEDUCTIBLE [Section 58] (1) Notwithstanding anything to the contrary contained in section 57, the following amounts shall not be deductible in computing the income chargeable under the head "Income from other sources", namely:(a) In the case of any assessee, (i) Any personal expenses of the assessee; Any expenditure of the nature referred to in sub-section (12) of section 40A; (ii) Any interest chargeable under this Act which is payable outside India (not being interest on a loan issued for public subscription before the 1st day of April, 1938), on which tax has not been paid or deducted under Chapter XVII-B (iii) Any payment which is chargeable under the head "Salaries" if it is payable outside India, unless tax has been paid thereon or deducted there from under Chapter XVII-B; The provisions of sub-clause (iia) of clause (a) of section 40 shall, so far as may be, apply in computing the income chargeable under the head "Income from other sources" as they apply in computing the income chargeable under the head "Profits and gains of business or profession". (2) The provisions of section 40A shall, so far as may be, apply in computing the income chargeable under the head "Income from other sources" as they apply in computing the income chargeable under the head "Profits and gains of business or profession". (3) In the case of an assessee, being a foreign company, the provisions of section 44D shall, so far as may be, apply in computing the income chargeable under the head "Income from other

sources" as they apply in computing the income chargeable under the head "Profits and gains of business or profession". (4) In the case of an assessee having income chargeable under the head "Income from other sources," no deduction in respect of any expenditure or allowance in connection with such income shall be allowed under any provision of this Act in computing the income by way of any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature, whatsoever: Provided that nothing contained in this sub-section shall apply in computing the income of an assessee, being the owner of horses maintained by him for running in horse races, from the activity of owning and maintaining such horses. Explanation: For the purposes of this sub-section, "horse race" means a horse race upon which wagering or betting may be lawfully made.

INTEREST ON SECURITIES:
Type of security Rate of tax deducted 1) Tax free Tax is not deducted at source Government as interest is tax free securities 2) Taxable government Tax is not deducted at source securities 3) Tax free nonA) Listed debentures of Government company,corporation securities or local authority 10% + surcharge(if any)+ 3% Education cess B) Unlisted debentures of company 20% + surcharge(if any)+ 3% Education cess Formula for grossing up Grossing up is not required Grossing up is not required A) Net interest/100rate of tax*100

B) Net interest/100rate of tax*100

No tax is deducted at source in case of central and state government securities. No tax will be deducted at source in case of any interest payable to an individual, who is resident in India, on debentures issued by a company in which the public are substantially interested , being debentures listed on a recognized stock exchange in India,if: (a) The interest is paid by the company by an account payee cheque; and

(b) The amount of such interest paid during the financial year by the company to such individual does not exceed Rs. 2500 From family pension a deduction of 1/3rd of such pension or Rs. 15000 whichever is less, will be allowed. The following deductions are allowed from incomes under this head: 1) Rent,rates,taxes,depreciation and insurance of machinery or plant or furniture let on hire. 2) Interest on borrowed capital taken for earning such income. 3) Collection charges of interest income 4) Other expenses incurred for earning such income.

CHAPTER-8 EXEMPTED INCOME

An income or part of income having no tax liability is known as exempted income. Section 10 of the Income Tax Act,1961 deals with the provisions of exempted incomes.

EXEMPTED INCOMES ARE OF TWO TYPES:

(I) (II) (I) Fully Exempted Incomes Partly Exempted Incomes Fully Exempted Incomes: The following income are fully exempted income; A) Exempted incomes for all the assessees. B) Exempted income for salaried employees C) Exempted income for non-residents D) Exempted income for non-citizens E) Exempted incomes for institiutions

A) EXEMPTED INCOMES FOR ALL THE ASSESSEES: 1) Agriculture income 2) Any sum received by a member from Hindu Undivided family 3) Share of profit from the firm 4) Remuneration received by foreign national from co-operative technical assistance programmes 5) Compensation received under Bhopal Gas leak Disaster 6) Payment teceived from life insurance policy 7) Payment received from Statutory provident fund 8) Interest on securities 9) Educational scholarship 10) Daily allowance of members of parliament 11) Awards 12) Pension of gallantry award winners 13) Family pension received by family members of armed forces 14) Annual value of one place of ex-ruler 15) Income of member of schedule tribe 16) Subsidy from tea board 17) Subsidy from coffee or rubber or spices board 18) Income of minor child 19) Capital Gains on transfer of US-64

20) Dividend income of Shares 21) Income of long term capital gains on specified securities 22) Capital gains on transfer of urban agricultural land 23) Income fom transfer of equity shares etc. 24) Income from any international sporting event 25) Grant received by subsidiary company from holding company 26) Capital gain in tha above case

B) 1) 2) 3) 4) 5)

EXEMPTED INCOME OF EMPLOYEE ASSESSEE: Leave travel concession to the employee Allowances and perquisities to government employees outside India Various incomes received by the employee from his employer Special allowances given to meet the office expenses Special allowances given to meet the personal expenses

C) EXEMPTED INCOME OF NON-RESIDENT ASSESSEE 1) Interest income of non-resident assessee 2) Salary of crew member of foreign ship 3) Royalty or fees for technical services of a foreign company 4) Tax on income of leasing aircraft 5) Income of foreign companies providing defence services to India 6) Remuneration received by foreign consultant 7) Remuneration received by employee of the consultant 8) Income of family members of the individual referred to in clause 7 and 8 9) Lease rent of aircraft business

D) EXEMPTED INCOME OF FOREIGN CITIZENS: 1) Remuneration received by foreign diplomats and nationals 2) Remuneration received by employee of foreign enterprise 3) Remuneration received as trainee

E) EXEMPTED INCOME OF INSTITUTIONS: 1) Income of local authority 2) Income of scientific research association 3) Income of news agency 4) Income of professional association

5) Income of regimental fund 6) Income of welfare fund of the employees 7) Income of LIC or any other pension fund 8) Income of institution for development of khadi or village industries 9) Income of Khadi and village industries Board 10) Income of authority constituted for the administration public religious or charitable trusts or endowments 11) Income of the European Economic Community 12) Income of SAARC fund 13) Income of ASOSAI-SECRETARIAT 14) Income of the Insurance Regulatory and Development Authority 15) Income of Central Electricity Regulatory Commossion 16) Income of national funds, educational institution or medical institution 17) Income of Mutual funds 18) Contributions received from recognized stock exchanges and the members thereof by an notified investor protection fund set up by Recognised stock exchanges in India 19) Income of the Credit Guarantee Fund 20) Contributions received from commodity exchange and the members thereof by an notified Investor Protection fund set up by commodity exchanges in India 21) Income of venture capital fund or venture capital company 22) Income of infrastructure capital fund or an infrastructure capital company 23) Income of registered trade union 24) Income of provident fund 25) Income of the employees state Insurance Fund 26) Income of a corporation for members of the scheduled castes or the scheduled tribes 27) Income of a corporation for benefit or ex-serviceman 28) Income of co-operative society 29) Income of coffee board, rubber boatrd etc.

(II)

PARTLY EXEMPTED INCOME:

Partly exempted incomes which are included in gross total income but relief is given under section 86 at average rate of tax. 1) Special provision in respect of newly established undertakings(Section 10A) 2) Special provision in respect of newly established units in Special Economic Zone(Section 10AA) 3) Special provisions in respect of newly established hundred percent export-oriented undertakings(Section 10B) 4) Deduction in respect of profits from business of Handicraft articles(Section 10BA)

CHAPTER= 9 DEDUCTIONS FROM INCOME

Chapter VI A of income tax act deals with the provisions under Section 80C to 80U. deduction in respect of payments are allowed under Section 80C to 80GGC. Deductions in respect of income are allowed under Sction 80IA to 80RRB. Under Section 80U, deduction is allowed in respect of person with disability. Rules applicable for allowing deductions under Sections 80 C to 80 U: 1) The amount of deduction cannot exceed the gross total income. 2) No deduction is available from long term capital gains income. 3) No deduction can be allowed from casual income like lottery, horse race, etc. 4) According to Section 80AB deduction will be allowed from that income which has been taken into computation. Deduction under Section 80-IA to 80-IC not to be allowed unless assessee furnishes return of his income for such assessment year on or before the due date specified in section 139(1)

DEDUCTION IN RESPECT OF CERTAIN PAYMENTS:

Section 80C Assessee Individual and HUF Description Payment of LIC premium etc. Contribution to certain pension funds Contribution to pension fund scheme Amount of deduction(Rs.) Upto Rs. 100000

80CCC

Individual

Upto Rs. 100000

80CCD

Individual Central Government Employee Individual and HUF

Upto 10 % of salary in case of employer as well as employee Upto Rs.10000(15000 for senior citizen) Rs. 50000(Actual amount spent is not considerable)

80D

Medical insurance premium Maintenance including medical treatment of dependent with disability

80DD

Individual and HUF

80DDB

Individual and HUF

Payment of interest on Rs. 40000(Rs. 60000 loan taken for higher in case of senior education citizen or actual expenses whichever is less Payment of interest on Max. Rs. 40000(for loan taken for higher max. 8 years) education Donations to certain funds, charitable institutions etc. On certain funds qualifying limit is not applicable and deduction is 100% or 50%. On certain funds the qualifying limit is applicable to extent of 10% of adjusted gross total income and deduction is 505 and 100% of such amount

80E

Individual

80G

All the assessee

80GG

Individual

In respect of rent paid Rs. 2000 per month or 25% of the adjusted gross total income or Rent paid 10% of the adjusted total income, whichever is the least. Donation in respect of Scientific research & Rural Development Donation to political party Profits of industrial undertakings or Entire amount is allowed as deduction.

80GGA

All assesses

80GGB & 80GGC

Indian company and other persons Indian company and non corporate resident

Entire amount is allowed as deduction Profits ranging from 30% to 100%

80IA

assessee

enterprises engaged in Infrastructure development facilities 25% to 100% of profits

80IB

Indian company and Profits and gains from non-corporate resident certain industrial assessee undertakings other than infrastructure development undertakings All the assesses

80IC

Deduction in respect 25% to 100% of of undertaking located profits in approval category states Collecting and processing biodegradable waste Employment of new workman Incomes of offshore Banking units 100% of such profits for 5 year

80JJA

All the assesses

80JJAA

Indian Company

30% of additional wages 100% for first 5 A.Ys 50% for next 5 A.Y

80LA

Scheduled bank owning an offshore banking unit in a SEZ Resident individual

80QQB

Royalty income, etc of authors of certain books other than textbooks Royalty on patents

100% of the income of Rs. 300000 whichever is less

80RRB

Resident individual

Royalty income or Rs. 300000 whichever is less Rs 50000 for person with disability and Rs. 75000 for person with severe disability

80U

Resident individual

Disabled person

CHAPTER = 10 Set off and carry forward of lossess

For computing the total income of the assessee the income is divided into five different heads. If there is loss under one head of income it can be adjusted from income under other head otherwise it will be carried forward. The provisions relating to set off and carry forward are contained in section 70 to 80 of the Income Tax Act, 1961.

Manner of adjusting losses and carry forward procedure

The following steps are there in adjustment of losses: Step1 Inter source adjustment Step2 Inter head adjustment Step3 Carry forward of losses Step 3 will be applicable only when losses cannot be adjusted by step 1 and step 2 Step-1 : Inter source adjustments(Section 70) : Where there is a loss in respect of any source falling under any head of income, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head. However, there are following exceptions to the said rule: 1) Loss from speculation business: Loss from speculation business can only be set off from gains of speculation business. 2) Long-term capital loss: It can be set off only from long term capital gain. 3) Loss from owning and maintaining race horses: The loss from owning and maintaining race horses can only be set off from profits of owning and maintaining horse races. 4) No deductions from winnings from lottery, crossword puzzles, horse races etc.: No deductions or allowances will be allowed from winnings of lotteries, crossword puzzles, races including horse races games or games of any other sort.

Step-2 : Inter head adjustments(section 71) : If there is a loss under one head of income for any assessment year, it can be set off from income under other head. For example- an assessee has loss of Rs. 25000 in the head Income from house property, and profit Rs. 73000 under business and profession head, then loss of Rs. 25000 can be adjusted from profit of Rs. 72000. However, above rule is subject to following exceptions: 1) Loss from speculation business can not be set off from income under other head 2) Loss under the head capital gains cannot be set off from other head

3) No loss can be set off from winnings from lotteries, crossword puzzles, races including horse races , card games or games of any other sort or gambling or betting of any form or nature what so ever. 4) Loss from owning and maintaining race horses cannot be set off from other head 5) From Assessmenr Year 2005-06, losses under the head Profits and Gains from Business or Profession can not be set off against income under the head Salaries.

Explanation: 1) Section 70 will be given priority before applying section 71 in set off of losses 2) In the act it is not provided which loss is to be set off first. Therefore, that loss must be set off first which cannot be carried forward.

Step-3: Carry forward of losses: The losses under various heads which cannot be adjusted , will be carried forward as under: 1) Carry forward and set off of loss from house property(Section 71B): Where for any assessment year the net result of computation under the head Income from house Property is a loss to the assessee and such loss cannot be or is not wholly set off against income from any other head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off shall be carried forward for 8 Assessment years succeeding the Assessment year in which the loss was first computed to be set off from income under the head house property. If the loss pertains to the Assessment year 1999-2000 or any earlier year, then it cannot be carried forward. 2) Carry forward and set off of business losses(Section 72): The business loss which cannot be set off as per provisions of section 70 and section 71 will be carried forward and set off in accordance with the provisions of the following provisions: a) Such loss can not be set off onlt from Profits and Gains from Business or Profession b) The loss can be carried forward by the same person who has incurred the loss. It can be carried forward for 8 Assessment years succeeding the Assessment year in which the loss was first computed to be set off from Profits and gains from Business and Profession. The loss will be carried forward only when the return of such loss is submitted on or before the due date of furnishing the return of income. It is not necessary to continue the business in which the loss was occurred. The brought forward business loss will be given priority over set off of unabsorbed depreciation or unabsorbed capital expenditure on scientific research.

3) Carry forward and set off of speculation business losses(Section 73): The speculation business loss which cannot be set off as per provisions of section 70 and section 71 will be carried forward and set off in accordance with the provisions of the following provisions. Such loss can be set off only from profits from specution business. It can be carried forward for 4 Assessment years succeeding the Assessment year in which the loss was first computed to be set off from speculation gains. The loss will be carried forward only when the return of such loss is submitted on or before the due date of furnishing the return of income. It is not necessary to continue the business in which the speculation loss was occurred. The brought forward speculation business loss will be given priority over set off of unabsorbed depreciation or unabsorbed capital expenditure in scientific research. 4) Losses under the Capital gains(Section 74): From Assessment year 2003-04, long term capital loss can only be adjusted against long term capital gain. Short term capital loss can be adjusted from short term capital gain or long term capital gain. If long term capital loss cannot be adjusted in accordance with above rule, then it will be carried forward and adjusted only from long term capital gain. The loss will be carried forward only when the return of such loss is submitted on or before the due date of furnishing the return of income. No loss shall be carried forward under this section for more than 8 Assessment years immediately succeeding the Assessment year for which the loss was first computed. 5) Losses from the activity of owning and maintaining race horses(Section 74A): The losses from the activity of owning and maintaining race horses which cannot be set off during the current Assessment yearwill be carried forward to be set off from profits from the activity of owning and maintaining race horses. No loss shall be carried forward under this section for more than 4 Assessment years innediately succeeding the Assessment year for which the loss was first computed. The loss will be carried forward only when the return of such loss is submitted on or before the due date of furnishing the return of income. 6) Carry forward and set off of losses in case of change in constitution of firm(Section 78): Where a change has occurred in the constitution of a firm, the firm shall not be entitled to have carried forward and set off so much of the loss proportionately to the share of a retired or deceased partner as exceeds his share of profits, if any, in the firm in respect of the Previous Year. Where any person carrying on any business or profession has been succeeded in such capacity by another person otherwise than by inheritance, such other person will

not be entitled to have the loss carried forward and set off against his income which was incurred by his predecessor. 7) Carry forward and set off losses in the case of certain companies(Section 79): In case of a company in which the public are not substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year unless: a) On the last day of the previous year the shares of the company carrying not less than 51% of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than 51% of the voting power on the last day of the year or years in which the loss was incurred. b) Provided that nothing contained in this section shall apply to a case where a change in the said voting power takes place in a previous year consequent upon the death of a shareholder or on account of transfer of shares by way of gift to any relative of the shareholder making such gift. c) Provided further that nothing contained in this section shall apply to any change in the shareholding of an Indian Company which is a subsidiary of a foreign company as result of amalgamation or demerger of a foreign company subject to the condition that 51% shareholders of the amalgamating or demerged foreign company continue to be the shareholders of the amalgamated or the resulting foreign company. 8) Carry forward & set-off accumulated loss and unabsorbed depreciation in case of Business Reorganisation of Co-operative Banks(Section 72AB): a) Amalgamation of co-operative banks: In case of amalgamation of co-operative bank in the previous year, the accumulated loss and unabsorbed depreciation of the predecessor(i.e; amalgamating) co-opeartive bank are allowed to be set-off and carry forward by the successor(i.e, amalgamated) co-operative bank as if the amalgamation had not taken place. Thus, accumulated losses can be carried forward and set off only for the remaining period out of 9 years. Conditions: This provision is applicable only if i) Predecessor (i.e, amalgamating) co-operative bank was engaged in banking business for 3 or more years; and has continuously held as on the date of the amalgamation 75% or more of the book value of fixed assets held by it 2 years prior to the date of amalgamation. ii) Successor(i.e, amalgamated)co-operative bank for at least 5 years from date of amalgamation :

1) holds 75% or more of the book value of fixed assets of predecessor(i.e, amalgamatin) co-operative bank; and 2) continues the business of predecessor (i.e; amalgamating) co-operative bank. It must fulfill other prescribed conditions as well. b) Demerger of co-operative banks: In case of demerger, as per the prescribed conditions , of co-operative bank during the previous year, the relatable portion of accumulated loss unabsorbed depreciation of demerged co-operative bank is allowed to be carried forward & set off in hands of resulting co-operative bank. Loss can be carried forward and set off only for remaining period out of 8 years. If such loss/unabsorbed depreciation is not directly relatable to undertakings transferred to resulting bank: Such loss/depreciation will be apportioned between demerged and resulting co-operative bank as under: Share of demerged bank = Such loss or depreciation/Total assets of the bank before demerger * Assets of the undertakings retained by demerged bank. Share of Resulting bank = Such loss or depreciation/Total assets of the bank before demerger * Assets of the undertakings transferred to resulting bank. c) Non-Compliance of conditions: In case the conditions for amalgamation/demerger are not complied with the set off of loss or depreciation made in the hands of the amalgamated/resulting co-operative bank shall be deemed to be the income of the amalgamated/resulting co-operative bank for the year in which such conditions are not complied with. d) Date of amalgamation/demerger created two previous years: The period from the 1st day of Previous year and ending on date immediately preceding the date of amalgamation/demerger, and the period starting from the date of such amalgamation/demerger and ending with previous year will be deemed to be two different previous year for set off and carry forward of loss/unabsorbed depreciation. e) Accumulated loss & unabsorbed depreciation: Accumulated loss means the unabsorbed business loss(other than speculation business loss) and unabsorbed depreciation means the unallowed depreciation of amalgamating/demerged cooperative bank, which could have been carried forward and set off if such amalgamation/demerger had not taken place.

Provisions to carry forward of losses are as under: Loss brought forward can be adjusted from the same head to which it relates:S.No. 1) Type of losses Time limt Other conditions Loss from house Loss shall be Return of loss is property carried forward not required to be under this section submitted. upto 8 years Loss from Profits Loss shall be Return of loss is and Gains from carried forward required to be Business and under this section submitted Profession upto 8 years Loss Speculation Business from Loss shall be Return of loss is carried forward required to be under this section submitted upto 4 years

2)

3)

4)

Loss under the head Loss shall be Return of loss is Capital Gains carried forward required to be under this section submitted upto 8 years Loss from owning Loss shall be Return of loss is and maintaining carried forward required to be race horses under this section submitted upto 4 years

5)

CHAPTER = 11 Tax deduction at source

PROVISIONS OF DEDUCTING TAX AT SOURCE FROM VARIOUS SOURCES 1)Deduction of tax at source from salaries(Section 192 ):
(1) Any person responsible for paying any income chargeable under the head "Salaries" 1676 shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made on the estimated income of the assessee under this head for that financial year. (2) 1681 Where, during the financial year, an assessee is employed simultaneously under more than one employer, or where he has held successively employment under more than one employer, he may furnish to the person responsible for making the payment referred to in subsection (1) (being one of the said employers as the assessee may, having regard to the circumstances of his case, choose), such details of the income under the head "Salaries" due or received by him from the other employer or employers, the tax deducted at source there from and such other particulars, in such form and verified in such manner as may be prescribed, and thereupon the person responsible for making the payment referred to above shall take into account the details so furnished for the purposes of making the deduction under sub-section (1). (2A) Where the assessee, being a Government servant or an employee in a company, cooperative 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 sub-section (1), such particulars, in such form and verified in such manner as may be prescribed 1683 , and thereupon the person responsible as aforesaid shall compute the relief on the basis of such particulars and take it into account in making the deduction under sub-section (1). Explanation: For the purposes of this sub-section, "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 a university for the purposes of that Act. (2B) Where an assessee who receives any income chargeable under the head "Salaries" has, in addition, any income chargeable under any other head of income (not being a loss under any such head other than the loss under the head "income from house property") for the same

financial year, he may send to the person responsible for making the payment referred to in subsection (1) or particulars of (a) Such other income and of any tax deducted thereon under any other provision of this Chapter; (b) The loss, if any, under the head "Income from house property, in such form and verified in such manner as may be prescribed, and thereupon the person responsible as aforesaid shall take (i) Such other income and tax, if any, deducted thereon; and (ii) The loss, if any, under the head "Income from house property", also into account for the purposes of making the deduction under sub-section (1): Provided that 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. (3) The person responsible for making the payment referred to in sub-section (1) or sub-section (2) or sub-section (2A) or sub-section (2B) may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year. (4) 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 subrule (1) of rule 9 of Part A of the Fourth Schedule applies, at the time an accumulated balance due to an employee is paid, make there from the deduction provided in rule 10 of Part A of the Fourth Schedule. (5) 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. (6) 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.

2)Deduction of tax at source from interest on securities(Section 193):

The person responsible for paying any income by way of interest on securities shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or

by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax at the rates in force on the amount of the interest payable: Provided that no tax shall be deducted from (i) Any interest payable on 4-1/4 percent National Defense Bonds, 1972, where the bonds are held by an individual, not being a non-resident; or (ia) Any interest payable to an individual on 4-1/4 percent National Defense Loan, 1968, or 4-3/4 percent National Defense Loan, 1972; or (ib) any interest payable on National Development Bonds; or (iia) Any interest payable on 7-Year National Savings Certificates (IV Issue); or (iib) Any interest payable on such debentures, issued by any institution or authority, or any public sector company, or any co-operative society (including a co-operative land mortgage bank or a co-operative land development bank), as the Central Government may, by notification in the Official Gazette, specify in this behalf; (iii) Any interest payable on 6-1/2 per cent Gold Bonds, 1977 or 7 per cent Gold Bonds, 1980, where the bonds are held by an individual not being a non-resident, and the holder thereof makes a declaration in writing before the person responsible for paying the interest that the total nominal value of the 6-1/2 per cent Gold Bonds, 1977, or, as the case may be, the 7 per cent Gold Bonds, 1980 held by him (including such bonds, if any, held on his behalf by any other person) did not in either case exceed Rs. 10000 at any time during the period to which the interest relates; (iv) Any interest payable on any security of the Central Government or a State Government. (v) Any interest payable to an individual, who is resident in India, on debentures issued by a company in which the public are substantially interested, being debentures listed on a recognized stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder, if (a) The interest is paid by the company by an account payee cheque; and (b) The amount of such interest or, as the case may be, the aggregate of the amounts of such interest paid or likely to be paid during the financial year by the company to such individual does not exceed Rs. 2500. Explanation: For the purposes of this section, where any income by way of interest on securities is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

3)Deduction of Tax at source from income of dividend(u/s 194):

The principal officer of an Indian company or a company which has made the prescribed arrangements for declaration and payment of dividends (including dividends on preference

shares) within India, shall, before making any payment in cash or before issuing any cheque or warrant in respect of any dividend or before making any distribution or payment to a shareholder who is resident in India, of any dividend within the meaning of sub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) or sub-clause (e) of clause (22) of section 2, deduct from the amount of such dividend, income-tax at the rates in force: Provided that no such deduction shall be made in the case of a shareholder, being an individual, of a company in which the public are substantially interested, if (a) The dividend is paid by such company by an account payee cheque; and (b) The amount of such dividend or, as the case may be, the aggregate of the amounts of such dividend distributed or paid or likely to be distributed or paid during the financial year by the company to the shareholder, does not exceed Rs. 2500. Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O

4)Deduction of tax from interest other than interest on securities(Section 194A):

(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: Explanation: For the purposes of this section, where any income by way of interest as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (3) The provisions of sub-section (1) shall not apply (i) Where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) To the account of, or to, the payee, does not exceed Rs 2500. Provided that in respect of the income credited or paid in respect of (a) Time deposits with 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 (b) Time deposits with a co-operative society engaged in carrying on the business of banking; (c) Deposits with a public company which is formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and which is for the time being

approved by the Central Government for the purpose of clause (viii) of sub-section (1) of section 36 the provisions of this clause shall have effect as if for the words "two thousand five hundred rupees", the words "ten thousand rupees" had been substituted and the aforesaid amount shall be computed with reference to the income credited or paid by a branch of the banking company or the co-operative society or the public company, as the case may be; (ii) To such income credited or paid before the 1st day of October, 1967; (iii) To such income credited or paid to (a) Any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the business of banking (including a cooperative land mortgage bank), or (b) Any financial corporation established by or under a Central, State or Provincial Act, or (c) The Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or (d) The Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or (e) Any company or co-operative society carrying on the business of insurance, or (f) Such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette; (iv) To such income credited or paid by a firm to a partner of the firm; (v) To such income credited or paid by a co-operative society to a member thereof or to any other co-operative society; (vi) To such income credited or paid in respect of deposits under any scheme framed by the Central Government and notified by it in this behalf in the Official Gazette; (vii) To such income credited or paid in respect of deposits (other than time deposits made on or after the 1st day of July, 1995) with 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); (viia) To such income credited or paid in respect of, (a) Deposits with a primary agricultural credit society or a primary credit society or a cooperative land mortgage bank or a co-operative land development bank; (b) Deposits (other than time deposits made on or after the 1st day of July, 1995) with a cooperative society, other than a co-operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking; (viii) To such income credited or paid by the Central Government under any provisions of this Act, or the Indian Income-tax Act, 1922 (11 of 1922), or the Estate Duty Act, 1953 (34 of 1953), or the Wealth-tax Act, 1957 (27 of 1957), or the Gift-tax Act, 1958 (18 of 1958), or the Super Profits Tax Act, 1963 (14 of 1963), or the Companies (Profits) Surtax Act, 1964 (7 of 1964), or the Interest-tax Act, 1974 (45 of 1974).

Explanation: For the purposes of clauses (i), (vii) and (viia), "time deposits" means deposits (excluding recurring deposits) repayable on the expiry of fixed periods. (4) The person responsible for making the payment referred to in sub-section (1) may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year.

5)Deduction of tax at source from Income of lottery or cross word puzzles or T.V.
Game show etc.(Section 194B): The person responsible for paying to any person any income by way of winnings from any lottery or crossword puzzle in an amount exceeding Rs. 5000 shall, at the time of payment thereof, deduct income-tax thereon at the rates in force: Provided that no deduction shall be made under this section from any payment made before the 1st day of June, 1972; Provided further that in a case where the winnings are wholly in kind or partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of the winnings, the person responsible for paying shall, before releasing the winnings, ensure that tax has been paid in respect of the winnings.

6)Deduction of tax at source from winning from Horse race(Section 194BB):

Any person, being a bookmaker or a person to whom a licence has been granted by the Government under any law for the time being in force for horse racing in any race course or for arranging for wagering or betting in any race course, who is responsible for paying to any person any income by way of winnings from any horse race in an amount exceeding Rs 2500 shall, at the time of payment thereof, deduct income-tax thereon at the rates in force: Provided that- no deduction shall be made under this section from any payment made before the 1st day of June, 1978

7)Deduction of tax at source from payment to contractors and sub-contractors(Section

194C): (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and (a) The Central Government or any State Government; or (b) Any local authority; or (c) Any corporation established by or under a Central, State or Provincial Act; or (d) Any company; or

(e) Any co-operative society; or (f) Any authority, constituted in India by or under any law, engaged 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; or (g) Any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or (h) Any trust; or (i) Any University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or (j) Any firm, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to (i) One per cent in case of advertising, (ii) In any other case two per cent, of such sum as Income-tax on income comprised therein. (2) Any person (being a contractor and not being an individual or a Hindu undivided family), responsible for paying any sum to any resident (hereafter in this section referred to as the subcontractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the sub-contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax on income comprised therein. Explanation 1: For the purposes of sub-section (2), the expression "contractor" shall also include a contractor who is carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the Government of a foreign State or a foreign enterprise or any association or body established outside India. Explanation 2: For the purposes of this section, where any sum referred to in sub-section (1) or sub-section (2) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. Explanation 3: For the purposes of this section, the expression "work" shall also include (a) Advertising; (b) Broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) Carriage of goods and passengers by any mode of transport other than by railways; (d) Catering.

(3) No deduction shall be made under sub-section (1) or sub-section (2) from (i) Any sum credited or paid in pursuance of any contract the consideration for which does not exceed twenty thousand rupees; or (ii) Any sum credited or paid before the 1st day of June, 1972; or (iii) Any sum credited or paid before the 1st day of June 1973, in pursuance of a contract between the contractor and a co-operative society or in pursuance of a contract between such contractor and the sub-contractor in relation to any work (including supply of labour for carrying out any work) undertaken by the contractor for the co-operative society. (4) Where the Assessing Officer is satisfied that the total income of the contractor or the subcontractor justifies the deduction of income-tax at any lower rate or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application 1742 made by the contractor or the sub-contractor in this behalf, give to him such certificate as may be appropriate. (5) Where any such certificate is given, the person responsible for paying the sum referred to in sub-section (1) or sub-section (2) shall, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be.

8)Deduction of tax at source from payment of insurance commission(Section 194D):

Any person responsible for paying to a resident any income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business (including business relating to the continuance, renewal or revival of policies of insurance) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: Provided that no deduction shall be made under this section from any such income credited or paid before the 1st day of June, 1973: Provided further that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed Rs 5000.

9)Deduction of tax at source from payment to non-resident sportsman and sports

association(Section 194E): Where any income referred to in section 115BBA is payable to a non-resident sportsman (including an athlete) who is not a citizen of India or a non-resident sports association or institution, the person responsible for making the payment shall, at the time of credit of such

income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of 10%.

10)

Deduction of tax at source from payment of commission on sale of lottery tickets(Section 194G):

(1) Any person who is responsible for paying, on or after the 1st day of October, 1991 to any person, who is or has been stocking, distributing, purchasing or selling lottery tickets, any income by way of commission, remuneration or prize (by whatever name called) on such tickets in an amount exceeding Rs. 1000, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent (2) Where the Assessing Officer is satisfied that the total income of any person who is or has been stocking, distributing, purchasing or selling lottery tickets justifies the deduction of incometax at any lower rate or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made by such person in this behalf, give to him such certificate as may be appropriate. (3) Where any such certificate is given, the person responsible for paying the income referred to in sub-section (1) shall, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be. Explanation: For the purposes of this section, where any income is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

11)

Deduction of tax brokerage(Section 194H):

at

source

from

payment

of

commission

or

(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of October, 1991 but before the 1st day of June, 1992, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent. (2) The provisions of sub-section (1) shall not apply

(a) To such persons or class or classes of persons as the Central Government may, having regard to the extent of inconvenience caused or likely to be caused to them and being satisfied that it will not be prejudicial to the interests of the revenue, by notification in the Official Gazette 1747e , specify in this behalf; (b) Where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed two thousand five hundred rupees. Explanation: For the purposes of this section, (i) "Commission or brokerage" includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing; (ii) "Professional services" means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA; (iii) Where any income is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

12)

Deduction of tax at source from payment of Rent?(Section 194-I):

Any person, not being an individual or a Hindu undivided family, who is responsible for paying to any person any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of (a) and (b) 10 % in case of rent of plant & Machinery and 20 % in case of other rent only if the receipient is other than Individual or HUF; Provided that no deduction shall be made under this section 1747gg where the amount of such income 10 % in case of rent of plant & Machinery and 15 % in case of other rent only if the receipient is an Individual or HUF;or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed Rs. 1,20,000. Explanation: For the purposes of this section, (i) "Rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building

(including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee; (ii) Where any income is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

13)

Deduction of tax at source from payment of fees for professional or technical services(Section 194J):

(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of (a) Fees for professional services, or (b) Fees for technical services, shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent of such sum as income-tax on income comprised therein: Provided that no deduction shall be made under this section (A) For any sums as aforesaid credited or paid before the 1st day of July, 1995; or (B) Where the amount of such sum or, as the case may be, the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed (i) Rs.20000 in the case of fees for professional services referred to in clause (a), or (ii) Rs.20000 in the case of fees for technical services referred to in clause (b). (2) Where the Assessing Officer is satisfied that the total income of any person in receipt of the sum referred to in sub-section (1) justifies the deduction of income-tax at any lower rate or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made by that person in this behalf, give to him such certificate as may be appropriate. (3) Where any such certificate is given, the person responsible for paying the sum referred to in sub-section (1) shall, until such certificate is cancelled by the Assessing Officer, deduct incometax at the rates specified in such certificate or deduct no tax, as the case may be. Explanation: For the purposes of this section, (a) "Professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section; (b) "Fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;

(c) Where any sum referred to in sub-section (1) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such sum, such crediting shall be deemed to be credit of such sum to the account of the payee and the provisions of this section shall apply accordingly.

14)

INCOME FROM UNITS(Section 196B):

Where any income in respect of units referred to in section 115AB or by way of long-term capital gains arising from the transfer of such units is payable to an Offshore Fund, the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent.

15)

INCOME FROM FOREIGN CURRENCY BONDS OR SHARES OF INDIAN COMPANY(Section 196C):

Where any income by way of interest or dividends in respect of bonds or shares referred to in section 115AC or by way of long-term capital gains arising from the transfer of such bonds or shares is payable to a non-resident, the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent. Provided that no such deduction shall be made in respect of any dividends referred to in section 115-O

16)

INCOME OF FOREIGN SECURITIES(Section 196D):

INSTITUTIONAL

INVESTORS

FROM

(1) Where any income in respect of securities referred to in clause (a) of sub-section (1) of section 115AD is payable to a Foreign Institutional Investor, the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of twenty per cent Provided that no such deduction shall be made in respect of any dividends referred to in section 115-O (2) No deduction of tax shall be made from any income, by way of capital gains arising from the transfer of securities referred to in section 115AD, payable to a Foreign Institutional Investor.

RATES FOR DEDUCTION OF TAX AT SOURCE:

For the financial year 2007-08(assessment year 2008-09), deduction of tax at source shall be made as follows: Note These rates have been given without surcharge S. No. Types of Payment Rates of TDS(excluding surcharge + 3% educational cess)

1)

If payment is made to non-company assessee: a) If the assessee is a resident in India: (i) Interest other than interest on securities (ii) Winning from lottery, crossword & other games (iii) Winning from horse race (iv) Insurance Commission (v) Interest on debentures of Statuary Corporation or local authority and interest on other securities (vi) Interest on listed securities (vii) Interest on unlisted securities (viii) Other income b) If the assessee is non-resident in India: (i) Income from investment (ii) Capital gain specified u/s 115E (iii) Winning from lottery, crossword, horse race, etc. (iv) Other income (v) On other income by way of long- term capital gains (vi) Short term Capital Gain u/s 111A

10% 30% 30% 10%

10% 10% 20% 20%

20% 10% 30% 30% 20% 10%

2)

If payment is made to company assessee: a) In case of a domestic company: (i) Interest other than interest on securities (ii) Income by way of lottery, crossword, puzzle,horse race, etc. (iii) Other income b) In case of non-domestic company: (i) Long term capital gain (ii) Winning from lottery, crossword, puzzle, horse race, etc. (iii) Interest on loan taken in foreign currency paid by government or any Indian institution (iv) Royalty from government or Indian institution u/s 115A(IA): a) If the agreement took place before 1st June 1997 b) If the agreement took place on or after 1st June 1997 but before 1st June 2005 c) If the agreement took place on or after 1st June 2005 (v) Royalty from government or Indian institution other than royalty specified in para(iv): a) If the agreement took place after 31st March 1961 but before 1st April 1976 b) If the agreement took place between on or after 1st April 1976 but before

20%

30% 20% 20%

30%

20%

30%

20%

10%

50%

1st June 1997 c) If the agreement took place on or after 1st June 1997 but before `1st June 2005 d) If the agreement took place on or after 1st June 2005

30%

20%

10%

CHAPTER = 12 PENALTY
When an assessee is found guilty regarding provisions of the taxing statute or he has knowingly or will fully violated any of the provisions of the income tax act, then ha shall be liable for imposing penalty. The provisions regarding imposition of penalty have been discussed in a Tabular form given below:

S. No.

Section regarding penalty

Section regarding mistake or default 140A

Nature of default

Minimum Penalty

Maximum Penalty

1)

140A(3)

Payment of tax and interest on it in case of Self Assessment

Amount imposed by the Assessing officer 20% of tax payable on excess amount Equal to the amount of tax

Equal to the amount of tax payable

2)

143A(1A)

143(1)

Income assessed exceeds Income shown in return

--

3)

158BFA

158BC(C)

Return of income not to be presented within the prescribed time in case of search Tax with interest or without interest not to be paid within the prescribed time

300% of Tax Payable

4)

221(1)

140A(3)

Amount imposed by the Assessing officer

Equal to the amount of tax

5)

271(1)(b)

142(1)

Accounts,documents Rs. 10000

Rs.

143(2) 142(2A) 115WD(2) 115WE(2) 6) 271(1)(c) 143

and evidence not to for each be submitted or default books of account get not be audited. Income or fringe benefit escaping or presentation of wrong return of income. 100% of tax unpaid or escaped

10000(fixed) for each default

300 % of tax unpaid or escaped

7)

271(4)

Furnishing inaccurate share of income in the firm by partner Failure to keep, maintain books of account, documents, etc. Failure to keep and maintain information and documents regarding international transaction Undisclosed income during the search

150% of unpaid amount of tax Rs. 25000 fixed

150% of unpaid amount of tax

8)

271A

44AA with rule 6F

Rs. 25000(fixed)

9)

271AA

92D

2% of the value of each transaction

2% of the value of

10)

271AAA

132

10% of undisclosed income

10% of undiscolised income

11)

271B

44AB

Failure to get accounts audited or furnish audit report

0.5% of total Rs. 100000 sales or gross receipts Rs. 100000

12)

271BA

92E

Failure to furnish a Rs. 100000 report from a chartered accountant

13)

271C

115-0, 192 to 196D Chapter XVII-B -

Failure to deduct tax at source

Amount equal to tax not deducted

Amount equal to tax not paid

14)

271CA

Tax not collected at source

Equal to amount of tax Amount equal to loan

Equal to amount of tax

15)

271D

269SS

Taking certain loan and deposits not by way of cheque or bank draft exceeding Rs. 20,000

Amount equal to loan

16)

271E

269T

Repayment of any Amount loan or deposit equal to loan exceeding Rs. 20000 by other than cheque and bank draft Failure to furnish return of income Default in filing Annual report within the specified time Failure to furnish return of fringe benefits Failure to furnish information and documents Rs. 5000

Amount equal to loan or deposit repaid

17)

271F

139(1)

Rs. 5000(fixed) Rs. 100 per day of default

18)

271FA

285BA(1)

Rs. 100 per day of default

19)

271FB

115WD(1)

Rs. 100 per day of default 2% of the value of international transaction

Rs. 100 per day of default

20)

271G

92D(3)

2% of the value of international transaction

21)

272A(1)(a)

Failure to answer questions

Rs. 10000 for each default Rs. 10000 for each default Rs. 10000 for each default Rs. 100 for per day of default

Rs. 10000 for each default

22)

272A 1(b)

Failure to sign statement

Rs. 10000 for each default

23)

272A 1(c)

131(1)

Failure to compliance summons Failure give notice of discontinuance of Business or Profession Failure to furnish information in respect of securities Violation of provisions of various sections of the Act

Rs. 10000 for each default

24)

272A(2)

176(3)

Rs. 100 for per day of default

25)

272A(2)

94(6)

Rs. 100 for per day of default Rs. 100 for per day of default

Rs. 100 for per day of default Rs. 100 for per day of default

26)

272A(2)

134 139(4A) 139(4C) 203 206(C) 226(2) 192(2C) 133B

27)

272AA

Failure to comply the information required Failure to comply with the provisions relating to application and allotment of PAN and quoting of PAN

Upto Rs. 1000

Upto Rs. 1000

28)

272B

139A

Upto Rs 10000

Upto Rs 10000

29)

272BB

203A

Failure to obtain tax deduction Account Number

Upto Rs. 10000

Rs. 10000(fixed)

30)

272BBB

206CA

Failure to obtain any Upto RS. apply tax collection 10000 Account Number before 1.10.04

Rs. 10000(fixed)

OTHER PROVISIONS REGARDING PENALTY: 1) If the assessee provides that there were sufficient reasons for being in default, then no penalty would be imposed under the following sections: 271 1(b), 271A, 271B, 271BB, 271C, 271D, 271E, 271F, 272A (1)(d), 272A(1)(c), 272A(2),272AA, 272BB, 272BBB, 271G, 271BA, 271AA, 221(1) and 158 BFA(2). 2) It is necessary to give the opportunity to the assessee to be heard before imposition of penalty. 3) Under the following circumstances, prior approval of the Joint Commissioner shall be required before imposition of penalty. a) If the amount of penalty imposed by the assessing officer exceeds Rs. 10000 b) If the amount of penalty imposed by the Assistant Commissioner or the Deputy Commissioner exceeds Rs. 20000 4) If the penalty is imposed by the authority other than the Assessing officer, a copy of order is to be sent to the Assessing Officer.

PRODUCING OR WAIVING PENALTY(SECTION 273A): The Commissioner of Income Tax has power to reduce or waive the penalty on an application made by the Assessee u/s 271(1)(iii). Before reducing or waiving the penalty he should be satisfied in regard to: 1) Prior to detection by the Assessing Officer, of the concealment of particulars of income or of the in accuracy of particulars furnished in respect of such income voluntarily and in good faith, made full and true disclosure of such particulars. 2) The assessee has co-operated in any enquiry relating to the assessment of his income, and 3) He has paid tax and interest or made satisfactory arrangements

Prior approval of the Chief Commissioner or the Director General shall be required where aggregate cancelled income to be considered for reducing or waiving penalty exceeds Rs. 500000 No penalty shall be imposed if the assessee reasonably proves the causing for default.

PROCEDURE FOR IMPOSING PENALTY: 1) The assessee shall be given reasonable opportunity of being heard before imposition of penalty 2) Penalty can be imposed by Income Tax upto the amount of Rs. 10,000 3) Penalty can be imposed by the Assistant Commissioner or the Deputy Commissioner upto the amount of Rs. 20000 4) If the amount of penalty exceeds Rs. 20000, prior approval of the Joint Commissioner shall be required. 5) An income tax authority on making an order under this chapter imposing a penalty, unless he is himself the Assessing Officer , shall forthwith send a copy of such order to the Assessing Officer.

BAR OF LIMITATIONS FOR IMPOSING PENALTY(SECTION 275): No penalty can be imposed after expiry of time limit as given below:

S.No. 1)

Particulars Where the relevant assessment or other order is the subject matter of revision under section 263 Where the order relates to commissioner(Appeals) u/s 246 or Appeal before tribunal u/s 253

Maximum Time Limit After end of month in which an order of revision is passed but upto expiry of 6 months

2)

On or before the expiry of the financial year in which assessment proceeding is completed;or on or before the expiry of 6 months from the end of the month in which the order of Commissioner(Appeals)is

received by the Commissioner of income tax whichever period expires later.

My EXPERIENCE
Being a finance student I have done my summer training under a Charted Accountants firm that is Rajesh Sajjan & Associates. There I got a great opportunity to do training under CA. RAJESH GOYAL. As I have never experienced any training or having any work experience the first few days were much of difficultly for me. As the days passes away I learned the boss-staff relationship, how to behave in any corporate field? How to prove the responsibility given to you? And the thing which is most important is to show that you are a need of the management. I want to mention the reason why I selected a Charted Accountants firm for summer training, the reason was that from the first day when I have opted for post graduate diploma in finance accounting there was always a doubt I can say a question use to arise i.e. in the corporate field is the CA.s are given much importance in relation to finance students? And each time the answer was the CAs are given privilege over the finance student. So I want to know what they are having more than us and in which field we are behind of them? But after completion of my training I come over of this question. The answer was easy and simple one which I want to share with all the readers who will in future go through my project. The basic difference between a CA and an MBA (finance) student is that in case of MBAs there is a freedom that they will get there degree soon or later, once they enter a B-school and now-a-days because of number of MBA institute it is not difficult to get enter into any Bschool. But in case of CA.s both the entry and exit is full of cut throat competition. One has to work hardly for all the academic period to finally reach ones destination i.e. to become a CA. and in this period there is also one more important step is there that is to take training under a CA.. As I have practical experience for 8 weeks under CA. firm I can say it is not a creamed layer to slip through it and to do training for years. So I want to suggest one thing whether you are a finance student or of any other field you have to make your basic knowledge strong this is the only thing which will help you out in any field. Now I want to share the work done by me. I was assigned the work of TDS. Compu_tds is the software to do the work of TDS. TDS is paid quarterly. Time period for submitting TDS for every quarter is 15 days but for the last quarter time period is two and half month means TDS of April to June should be submitted till 15th July and TDS of Jan to March should be submitted till 15th June. I had given the salary information and form 16 of a particular firm and I had to just fill those items in the Compu-tds.In this, first of all, I had to set default date and payment/deduction, then Challan information shluld be filled. It includes challan date, challan no, tds, book entry and in it is a private firm then instead of book entry, branch code is there.Then the third step is monthly input of tax deducted and taxable amount. In this, I had to fill 3 months salary, TDS, challan date and put the mark on deposit option. If we want to add new records in a particular firm , then it can easily be done by the employee information. At last, I had to check all these through the form 16 and through this I can easily know whether it is right or not.

I came through some of the cases which are still unsolved and it went to the ACIT, DCIT and also Income tax Appellate Tribunal. In one case, there is a problem related to the creditors and in other one, there is a difference between the actual data and the computerized data. So al last I want to say my overall experience was too good which I never forget in my life and I learned a lot related to tax and how to behave in a corporate manner.

SUGGESTIONS/RECOMMENDATION
Before giving any suggestion or recommendation I want to share one thing. I have been guided by C. A. RAJESH GOYAL who has taught me how an ordinary accountant and an auditor are different from each other. He advised me that whenever a suggestion is to be given related to tax prospective the person doing so has to thing for the point of view of general public who are the taxpayer. Tax planning is must and such changes to be done which enable a taxpayer to show his true income. And the taxpayer should not fill that he is over burdened by the Government to pay additional tax. So we have to plan a transparent income tax policy which enables every taxpayer to understand the best of it. As regular steps are taken by our government each year and changes are made on different prospective in the budget for the betterment of general public I further want to give certain suggestion. Before giving such suggestion I want to admit one thing more although I have done training for 8 weeks I am immature about all the aspect of income tax. So my suggestion may see worthless but I like to put it before all the readers who will go through this project. 1. Most of the people in India are less known about the tax policy so the income tax rules should be written in many parts which will be divided in parts like: Tax policy for An Individual A Hindu Undivided Family A Company A Firm An Association of Persons or Body of Individuals whether incorporated or not A Local Authority Artificial Judicial Person Which will every person to know which policies are related to them? 2. Tax should be paid by everyone because it is for the betterment for our country and for us.

BIBLIOGRAPHY

Books 1) INCOME TAX LAW AND ACCOUNTS By: Jaspreet Singh Mujral, C. S. Ranga Assessment year 2010-2011 Published in July, 2009 Published by: Ajmera Book Company, Jaipur 2) TAXMANNS DIRECT TAXES READY RECKONER By: Dr. V.K.SINGHANIA. Assessment year 2009-10 & 2010-11 32nd Edition, May 2009 Published by: Taxmann Publication (P) Ltd. Web sites www.incometaxindia.gov.in