This wiki is managed by www.edeskonline.com - an online operating system. Click here to know more.

Income tax in India

From EDeskWiki

Jump to: navigation, search

Contents

Overview of the articles

Income tax

Income tax is payable upon the income of individuals, companies and firms. The types of income are ...

Income Exempt from Tax

The following are 17 important items of income, which are fully exempt from income tax and which a resident individual Indian assessee can use for the purpose of tax planning.

  • Agricultural income

Under the provisions of Section 10(1) of the Income Tax Act, agricultural income is fully exempt from income tax.

However, for individuals or HUFs when agricultural income is in excess of Rs 5,000, it is aggregated with the total income for the purposes of computing tax on the total income in a manner which results into "no" tax on agricultural income but an increased income tax on the other income.

Agricultural income which fulfils the above conditions is completely exempt from tax. The manner of calculating tax on total income and agricultural income, is explained in the following illustration:

Illustration

For FY 2008-09 (assessment year 2009-10), a male individual has a total income from trading in textiles amounting to Rs 1,52,000; besides, he has earned Rs 40,000 as income from agriculture.

The income tax payable by him will be computed as under:

On the first Rs 150,000 of the taxable non-agricultural income: Nil On the next Rs 40,000 of agricultural income (falling under 10% slab): Nil On the next Rs 2,000 of taxable non-agricultural income @ 10 per cent: Rs 200 Income tax on aggregated income of Rs 152,000 + Rs 40,000 = Rs 192,000: Rs 200


  • Receipts from Hindu Undivided Family (HUF)

Any sum received by an individual as a member of a Hindu Undivided Family, where the said sum has been paid out of the income of the family, or, in the case of an impartible estate, where such sum has been paid out of the income of the estate belonging to the family, is completely exempt from income tax in the hands of an individual member of the family under Section 10(2).

3. Share from a partnership firm

Under the provisions of Section 10(2A), in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm is completely exempt from income tax since AY 1993-94.

For this purpose, the share of a partner in the total income of a firm separately assessed as such would be an amount which bears to the total income of the firm the same share as the amount of the share in the profits of the firm in accordance with the partnership deed bears to such profits.

  • Allowance for foreign service

Any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India, rendering service outside India, are completely exempt from tax under Section 10(7). This provision can be taken advantage of by the citizens of India who are in government service so that they can accumulate tax-free perquisites and allowances received outside India.

  • Gratuities

Under the provisions of Section 10(10) of the IT Act, any death-cum-retirement gratuity of a government servant is completely exempt from income tax. However, in respect of private sector employees gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by his widow, children or dependants on his death is exempt subject to certain conditions.

The maximum amount of exemption is Rs. 3,50,000;. Of course, this is further subject to certain other limits like the one half-month's salary for each year of completed service, calculated on the basis of average salary for the 10 months immediately preceding the year in which the gratuity is paid or 20 months' salary as calculated. Thus, the least of these items is exempt from income tax under Section 10(10).

  • Commutation of pension

The entire amount of any payment in commutation of pension by a government servant or any payment in commutation of pension from LIC [Get Quote] pension fund is exempt from income tax under Section 10(10A) of IT Act.

However, in respect of private sector employees, only the following amount of commuted pension is exempt, namely: (a) Where the employee received any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive; and (b) In any other case, the commuted value of half of such pension.

It may be noted here that the monthly pension receivable by a pensioner is liable to full income tax like any other item of salary or income and no standard deduction is now available in respect of pension received by a tax payer.

  • Leave salary of central government employees

Under Section 10(10AA) the maximum amount receivable by the employees of central government as cash equivalent to the leave salary in respect of earned leave at their credit upto 10 months' leave at the time of their retirement, whether on superannuation or otherwise, would be Rs. 3,00,000.

  • Voluntary retirement or separation payment

Under the provisions of Section 10(10C), any amount received by an employee of a public sector company or of any other company or of a local authority or a statutory authority or a cooperative society or university or IIT or IIM at the time of his voluntary retirement (VR) or voluntary separation in accordance with any scheme or schemes of VR as per Rule 2BA, is completely exempt from tax. The maximum amount of money received at such VR which is so exempt is Rs. 500,000.

  • Life insurance receipts

Under Section 10(10D), any sum received under a Life Insurance Policy (LIP), including the sum allocated by way of bonus on such policy, other than u/s 80DDA or under a Keyman Insurance Policy, or under an insurance policy issued on or after 1.4.2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20 per cent of the actual capital sum assured, is fully exempt from tax.

However, all moneys received on death of the insured are fully exempt from tax Thus, generally moneys received from life insurance policies whether from the Life Insurance Corporation or any other private insurance company would be exempt from income tax.

  • Payment received from provident funds

Under the provisions of Sections 10(11), (12) and (13) any payment from a government or recognised provident fund (PF) or approved superannuation fund, or PPF is exempt from income tax.

  • Certain types of interest payment

There are certain types of interest payments which are fully exempt from income tax u/s 10 (15). These are described below:

(i) Income by way of interest, premium on redemption or other payment on such securities, bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as the Central Government may, by notification in the Official Gazette, specify in this behalf. (iia) In the case of an individual or a Hindu Undivided Family, interest on such capital investment bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e. 7 Capital Investment Bonds); (iib) In the case of an individual or a Hindu Undivided Family, interest on such Relief Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e., 9 per cent or 8.5 per cent or 8 per cent or 7 per cent Relief Bonds); (iid) Interest on NRI bonds; (iiia) Interest on securities held by the issue department of the Central Bank of Ceylon constituted under the Ceylon Monetary Law Act, 1949; (iiib) Interest payable to any bank incorporated in a country outside India and authorised to perform central banking functions in that country on any deposits made by it, with the approval of the Reserve Bank of India [Get Quote] or with any scheduled bank; (iv) Certain interest payable by Government or a local authority on moneys borrowed by it, including hedging charges on currency fluctuation (from the AY 2000-2001), etc.; (v) Interest on Gold Deposit Bonds; (vi) Interest on certain deposits are: Bhopal Gas victims; (vii) Interest on bonds of local authorities as notified, (viii) Interest on 6.5 per cent Savings Bonds [Exempt] issued by the RBI, and (ix) Stipulated new tax free bonds to be notified from time to time.

  • Scholarship and awards, etc

Any kind of scholarship granted to meet the cost of education is exempt from tax under Section 10(16). Similarly, certain awards and rewards, etc. are completely exempt from tax under Section 10(17A), for example, Lakhotia Puraskar of Rs 100,000 awarded to the best Rajasthani author, every year under Notification No. 199/28/95-IT (A-I) dated 22-4-1996.

Any daily allowance received by a Member of Parliament or by an MLA or any member of any Committee of Parliament or State legislature is also exempt from tax under Section 10(17).

  • Gallantry awards, etc. -- Section 10(18)

The Finance Act, 1999 has, with effect from AY 2000-2001, provided for complete exemption for the pension and family pension of Gallantry Award Winners like Paramvir Chakra, Mahavir Chakra, and Vir Chakra and also other Gallantry Award winners notified by the Central Government.

  • Dividends on shares and units -- Section 10(34) & (35)

With effect from the Assessment Year 2004-05, the dividend income and income of units of mutual funds received by the assessee completely exempt from income tax.

  • Long-term capital gains of transfer of securities -- Section 10(38)

With effect from FY 2004-05, any income arising to a taxpayer on account of sale of long-term capital asset being securities is completely outside the purview of tax liability especially when the transaction has been subjected to Securities Transaction Tax (STT).

Thus, if the shares of any company listed in the stock exchange are sold after holding it for a minimum period of one year then there will be no liability to payment of capital gains. This provision would even apply for the old shares which are held by an assessee and are sold after the Finance (No.2) Act, 2004 came into force.

  • Amount received by way of gift, etc -- Section 10(39)

As per the Finance (No. 2) Act, 2004, gift, etc. received after 1-9-2004 by an individual or an HUF whether in cash or by way of credit, etc. is being subjected to tax if the same is not received from a stipulated relative. Section 10(39) provides that the amount received to the extent of Rs 50,000 will, however, be exempt from the purview of tax payment.

Similarly, amount received on the occasion of marriage from non-relatives, etc. would also be exempted. It may be noted that the gift from relatives, as specified in the section can be received without any upper limit.

  • Tax exemption regarding reverse mortgage scheme -- sections 2(47) and 47(x)

Any transfer of a capital asset in a transaction of reverse mortgage for senior citizens under a scheme made and notified by the Central Government would not be regarded as a transfer and therefore would not attract capital gains tax. The loan amount would also be exempt from tax. These amendments by the Finance Bill, 2008 apply from FY 2007-08 onwards.

Deductions Allowable Under Chapter VIA

The Income Tax Act provides that on determination of the gross total income of an assessee after considering income from all the heads, certain deductions therefrom may be allowed. These deductions detailed in chapter VIA of the Income Tax Act must be distinguished from the exemptions provides in Section 10 of the Act. While the former are to be reduced from the gross total income, the latter do not form part of the income at all.

SECTION and the NATURE OF DEDUCTION REMARKS

80CCC Payment of premium for annunity plan of LIC or any other insurer Deduction is available upto a maximum of Rs. 10,000/- 

The premium must be deposited to keep in force a contract for an annuity plan of the LIC or any other insurer for receiving pension from the fund.

80D Payment of medical insurance premium. Deduction is available upto Rs. 10,000/ The premium is to be paid by cheque and the insurance scheme should be framed by the General Insurance Corporation of India & approved by the Central Govt. or any other insurer and approved by the insurance Regulatory & Development authority. The premium should be paid in respect of health insurance of the assessee or his family members.

80DD Deduction of Rs.40,000/- in respect of (a) expenditure incurred on medical treatment,(including nursing),training and rehabilitation of handicapped dependant relative.(b) Payment or deposit to specified scheme for maintenance of dependant handicapped relative.

W.e.f. 01.04.2004 the deduction under this section has been enhanced to Rs.50,000/-. Further, if the dependant is a person with severe disability a deduction of Rs.75,000/- shall be available under this section. 

The handicapped dependent should be a dependent relative suffering a permanent disability(including blindness) or mentally retarded, as certified by a specified physician or psychiatrist.

Note: A person with "Severe disability" means a person with 80% or more of one or more disabilities as outlined in S.56(4) of the Persons with Disabilities(Equal opportunities, Protection of Rights or Full participation) Act 1995.

80DDB Deduction of Rs. 40,000 in respect of medical expenditure incurred. W.e.f. 01.04.2004, deduction under this section shall be available to ht extent of Rs.40,000/- or the amount actually paid, whichever is less. The deduction enhanced to 60,000/- in respect of senior citizens. 

Expenditure must be actually incurred by resident assessee on himself or dependent relative for medical treatment of specified disease or ailment. The diseases have been specified in Rule 11DD. A certificate in form 10 I is to be furnished by the assessee from any Registered Doctor.

80E Deduction in respect of repayment of loan taken for higher studies upto Rs.40,000 per year. This provision has been introduced to provided relief to students taking loans for higher studies. The repayment of the principal amount of loan and interest thereon will be allowed as deduction upto Rs. 3.2 lakhs over a period of 8 year.

80G Donation of certain funds, charitable institutions etc. The various donations specified in Sec. 80G are eligible for deduction upto either 100% of 50% with of without restriction as provided in Sec. 80G

80GG Deduction available is the least of (i) Rent paid less 10% of total income(ii)Rs.2000 per month (iii)25% of total income 

(1)Assessee or his spouse or minor child should not own residential accommodation at the place of employment.

(2)He should not be in receipt of house rent allowance. (3)He should not have a self occupied residential premises in any other place.

80L Interest/Dividend/Income from (a) any Govt. Security(Central or State)

(b)NSC,VI,VII &VIII issues.

(c)Notified debentures of public sector undertakings, cooperative societies/land mortgage bank or land development bank.

(d)Notified National Deposit Scheme.

(e)Any other deposit Scheme frame by Central Govt. and notified.

(f)Deposit under Post Office Monthly Income Account rules, 1987.

(g)deposits with banking companies, banking co-op. societies, land mortgage or land development bank. (h)Deposits with banks established under any law made by Parliament.

(i)Deposits with financial corporations approved by Central Government.

(j)Deposits with any authority constituted in India under any law for planning, development or improvement of cities, towns and villages etc.

(k)Deposits with co-operative societies.

(l)Deposits with any public companies providing long term finance for construction or purchase of houses. 

Rs. 9000 plus an additional deduction of Rs. 3000 allowed in respect of interest on any Central/ State Govt. Securities.

W.e.f. 01.04.2004, no deduction u/s 80L shall be available in respect of dividends from an Indian company, income received is respect of units from the UTI and income received is respect of units of a Mutual Fund u/s 10(23D).












80U Deduction of Rs.40,000/- to an individual who suffers from a physical disability(including blindness) or mental retardation.

W.e.f. 01.04.2004 deduction of Rs.50,000/- shall be available under this section. Further, if the individual is a person with severe disability, deduction of Rs.75,000/- shall be available u/s 80U. 

Certificate should be obtained from a Govt. Doctor. The relevant rule is Rule 11D



80R Deduction on remuneration received from any foreign university, educational institution or any association set up outside India of an amount equal to 75% of such remuneration brought to India in convertible foreign exchange within 6 months from the end of the previous year or within the extended time allowed by the Chief Commissioner or Commissioner of Income-tax. From assessment year 2001-2002 the above deduction will be available as:

(i)Deduction of 60% of such remuneration for assessment year 2001-2002.(ii)Deduction of 45% of such remuneration for assessment year 2002-2003.(iii)Deduction of 30% of such remuneration for assessment year 2003-2004.(iv) Deduction of 15% of such remuneration for assessment year 2004-2005. 

Available to professors, teachers or research workers. Certificate in Form 10H to be furnished.







80RR Deduction in remuneration received from Government of a foreign state or any person not residing in India of an amount equal to 75% of such remuneration as is brought to India subject to conditions specified as u/s80R. From assessment year 2001-2002 the above deduction will be available as :

(i) Deduction of 60% of such remuneration for assessment year 2001-2002. (ii)Deduction of 45% of such remuneration for assessment year 2002-2003. (iii) Deduction of 30% of such remuneration for assessment year 2003-2004. (iv)Deduction of 15% of such remuneration for assessment year 2004-2005. 

Available to authors, playwrights, artists, musician, actor or sportsman. Certificate in Form 10H to be furnished.






80RRA Deduction on remuneration received from any employer ( Foreign or Indian)for services rendered outside India of an amount equal to 75% of such remuneration subject to conditions mentioned aforesaid. From assessment year 2001-2002 the above deduction will be available as:

(i)Deduction of 60% of such remuneration for assessment year 2001-2002. (ii)Deduction of 45% of such remuneration for assessment year 2002-2003. (iii)Deduction of 30% of such remuneration for assessment year 2003-2004. (iv)Deduction of 15% of such remuneration for assessment year 2004-2005. 

Certificate in Form 10H to be furnished.








80RRB Deduction in respect of any income by way of royally is respect of a patent registered on or after 01.04.2003 under the Patents Act 1970 shall be available as :-

Rs. 3 lacs or the income received, whichever is less. This section has been introduced w.e.f. 01.4.2004The assessee must be an individual resident is India who is a patentee. The assessee must furnish a certificate is the prescribed form duly signed by the prescribed authority.

80QQB Deduction in respect of royalty or copyright income received is as consideration for authoring any books of literary, artistic or scientific nature other than text book shall be available to the extent of Rs. 3 lacs or income received, whichever is less. 

This section has been introduced w.e.f. 01.4.2004The assessee must be an individual resident in India who derives such income is exercise of his profession. To avail of this deduction, the assessee must furnish a certificate in the prescribed form along with the return of income.

Tax Rates

treatment of agricultural income

To calculate tax, agricultural income is first added to gross income to get aggregate income. This is done for rate purposes. Then from this tax figure, the tax on the agricultural income is deducted to get gross income tax.



No income tax upto / (Income per Year) From 110,001 to 150,000 From 150,001 to 250,000 Above 250,000
Men Rs. 110,000 10% of amount greater than Rs. 110,000 20% of amount greater than Rs. 150,000 + Rs. 4,000 30% of amount greater than Rs. 250,000 + Rs. 24,000
Women Rs. 145,000 N/A till Income reaches Rs. 145,001 Rs. 500 Rs. 20,500
Senior Citizens Rs. 195,000 N/A till Income is Rs. 195,000 N/A till Income is Rs. 195,000 Rs. 11,000

Surcharge

A 10% surcharge (tax on tax) is applicable for incomes above Rs. 10 lakh (Rs. 1 million). Deductions and rebates are provided for housing purchases, rent, long term savings and insurance.

Set off

Chapter VI deals with the Aggregation of income and set off or carry forward of loss

from dev

  • Loss from any other head of income cannot be set-off against salary
  • Business Loss can be set-off against Other Income, house property income and capital gains.
  • Speculative Business Loss can be set-off against Speculative Business Income only.
  • Loss from house property can be set-off against Other Income, business income and capital gains.
  • Loss from Other Income can be set-off against Business Income, House Property income and capital gains.
  • Short Term Capital Loss (whether STT paid or not) can be set-off against Short Term Capital Gains only.
  • Long Term Capital Loss (whether STT paid or not) can be set-off against Business Income, House Property income and Other Income.
  • Is Loss from Salary possible under any circumstances?


From ss

  1. Speculative loss cannot be set-off against business income
  2. A short-term capital loss can be set off against any capital gain
  3. Set off and Carry forward of Capital Losses

The Act lays down following guidelines which have to be strictly adhered :

1. Losses under the head “Capital gains” cannot be set off against income under other heads of income.

2. Short-term capital loss can be set off against any capital gain (whether long-term or short-term)

3. Long-term capital loss can be set off only against long-term capital gain.

4. A long-term capital loss for a case where the long-term capital gain is exempt from tax will have no value. For example, if a share is held for a year or more and then sold at a loss, there will be no tax benefit. So this loss cannot be set off against any other income.

5. If the capital loss cannot be set off against the capital gain of that particular year then it can be carried forward for the next eight years.

6. Such loss can be carried forward only when the return is filed within time.


Illustration 1: 

                      Situation A Situation B

Short-term Capital gain 50,000 10,000

Short-term Capital loss 40,000 50,000

Long-term Capital gain - 40,000

Long-term Capital loss 20,000 20,000

Taxable:

Short-term Capital gain 10,000 -

Long-term Capital gain - -

Carried-forward:

Short-term Capital loss - 20,000

Long-term Capital loss 20,000 -


Illustration 2:

During the previous year 2006-07, X has long-term capital gains of Rs. 1,00,000. He has brought forward capital loss – short-term: Rs. 10,000 and long-term: Rs. 50,000. In this case, both short-term capital loss of Rs. 10,000 and long-term capital loss of Rs. 50,000 can be set off against the long-term capital gain of Rs. 1,00,000.


  1. Set-off & carry forward of losses


Business losses incurred in a tax year can be set off against any other income earned during that year, except capital gains. In the absence of adequate profits unabsorbed depreciation can be carried forward and set off against profits of the next assessment year, without any time limit. Unabsorbed business losses can be carried forward and set off against business profits of subsequent years for a period of eight years; the unabsorbed depreciation element in the loss can however, be carried forward idefinitely. However, this carry forward benefit is not available to closely-held (private) companies in which there has been no continuity of business or shareholding pattern. Also, any change in beneficial interest in the shares of the company exceeding 51 per cent disqualifies the private company from the carry forward benefit.

Advance Tax

  • No Advance Tax need to be paid, if total tax payable for the year is less than Rs. 5,000.
  • When employer deducts tax from Salary, employee need not pay Advance Tax.
  • Non-payment or short payment of Advance Tax will attract penal interest.

eFiling

Indian Government is now moving towards a complete online filing scenario. eDeskOnline intends to be fully compliant with eFiling.

See Also

Retrieved from "http://wiki.edeskonline.com/Income_tax_in_India"
Personal tools