Income tax in India

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Income Tax in India





Circle frame.svg

Central Revenue collections in 2007-08 (Source: Compiled from reports of Comptroller and Auditor General of India for relevant years)

  Personal income tax (direct) (17.43%)
  Corporate tax (direct) (32.76%)
  Other Taxes (direct) (2.83%)
  Excise duty (indirect) (20.84%)
  Customs duty (indirect) (17.46%)
  Other taxes (indirect) (8.68%)

The Central Government has been empowered by Entry 82 of the Union List of Schedule VII of the Constitution of India to levy tax on all income other than agricultural income (subject to Section 10(1)).[1] The Income Tax Law comprises The Income Tax Act 1961, Income Tax Rules 1962, Notifications and Circulars issued by Central Board of Direct Taxes (CBDT), Annual Finance Acts and Judicial pronouncements by Supreme Court and High Courts.

The government of India imposes an income tax on taxable income of all persons including individuals, Hindu Undivided Families (HUFs), companies, firms, association of persons, body of individuals, local authority and any other artificial judicial person. Levy of tax is separate on each of the persons. The levy is governed by the Indian Income Tax Act, 1961. The Indian Income Tax Department is governed by CBDT and is part of the Department of Revenue under the Ministry of Finance, Govt. of India. Income tax is a key source of funds that the government uses to fund its activities and serve the public.

The Income Tax Department is the biggest revenue mobilizer for the Government. The total tax revenues of the Central Government increased from 1392.26 billion in 1997-98 to ₹5889.09 billion in 2007-08.[2]

History[edit]

Income tax was introduced in 1860, abolished in 1873 and reintroduced in 1886. Income tax levels in India were very high during 1950-1980, in 1970-71 there were 11 tax slabs with highest tax rate being 93.5% including surcharges. In 1973-74 highest rate was 97.75%. But to reduce tax evasion tax rates were reduced later on, by 1992-93 maximum tax rates were reduced to 40%. [3][4]

Residential status, Scope of taxable income & Charge[edit]

Charge to income-tax[edit]

Whose income exceeds the maximum amount, which is not chargeable to the income tax, is an assessee, and shall be chargeable to the income tax at the rate or rates prescribed under the finance act for the relevant assessment year, shall be determined on basis of his residential status.

Income tax is a tax payable, at enacted by the Union Budget (Finance Act) for every Assessment Year, on the Total Income earned in the Previous Year by every Person.

The chargeability is based on nature of income, i.e., whether it is revenue or capital. The rates of taxation of income are-:

Income Tax Rates/Slabs Rate (%) (applicable for assessment year 2015-16)

Net income range (Individual resident (Age below 60 Yrs.) or any NRI / HUF / AOP / BOI / AJP) Net income range (For resident senior citizen1) Net income range (For super senior citizen2) Net income range (For any other person excluding companies and co-operative societies) Income Tax rates3
Up to ₹250,000 Up to ₹300,000 Up to ₹500,000 Up to ₹200,000 NIL
₹250,001–500,000 ₹300,001–500,000 - ₹250,001–500,000 10%
₹500,001–1,000,000 ₹500,001–1,000,000 ₹500,001–1,000,000 ₹500,001–1,000,000 20%
Above ₹1,000,000 Above ₹1,000,000 Above ₹1,000,000 Above ₹1,000,000 30%

^1 Senior citizen is one who is 60 years or more at any time during the previous year but not more than 80 years on the last day of the previous year.
^2 Super senior citizen is one who is 80 years or more at any time during the previous year.
^3 These slab-rates aren't applicable for the incomes which are to be taxed at special rates under section 111A, 112, 115, 161, 164 and 167. For instance, long-term capital gains (except the one mentioned in section 10(38))for all assessees is taxable at 20%. For individual assessees whose total income does not exceed ₹500,000 after providing for [5] any deduction under Chapter VI A are eligible for a rebate of up to ₹2,000 under section 87A (applicable from assessment year 2014-15 onwards). A surcharge of 10% on income tax payable is applicable for every non-corporate assesseee, whose total income exceeds ₹10 million (applicable for assessment year 2014-15).

About 1% of the national population, called the upper class, fall under the 30% slab. It grew 22% annually on average during 2000-10 to 0.58 million income taxpayers. The middle class, who fall under the 10% and 20% slabs, grew 7% annually on average to 2.78 million income taxpayers.[6]

Residential status[edit]

The residential status of the assessee is useful in determining the scope or chargeability of the income for the assessee, i.e., whether taxable or not. For an individual person, to be a resident, any one of the following basic conditions must be satisfied:-

Presence of at least 182 days in India during the previous year. Presence of at least 60 days in India during the previous year and 365 days during 4 years immediately preceding the relevant previous year. However, in case the individual is an Indian citizen who leaves India during the previous year for the purpose of employment (or as a member of a crew of an Indian ship) or in case the individual is a person of Indian origin who comes on a visit to India during the previous year, then only the first of the above basic condition is applicable. India origin means those person which are born in India before partition of India. To determine whether the resident individual is ordinarily resident the following both additional conditions are to be satisfied:-

Resident in India in at least 2 out of 10 years immediately preceding the relevant previous year. Presence of at least 730 days in India during 7 years immediately preceding the relevant previous year. If the individual resident satisfies only one or none of the additional conditions, then he is not ordinarily resident. (In case the person is not an individual or an HUF, then the residential status can only be either resident or non-resident).

Residential status of a person other than an individual[edit] Type of person Control & management of affairs of the taxpayer is wholly in India Control & management of affairs of the taxpayer is wholly outside India Control & management of affairs of the taxpayer is partly in India partly outside India HUF1 Resident Non-resident Resident Firm Resident Non-resident Resident Association of persons Resident Non-resident Resident Indian company2 Resident Resident Resident Foreign company3 Resident Non-resident Non-resident Any other person except an individual Resident Non-resident Resident

Residential status of a person other than an individual[edit]

Type of person Control & management of affairs of the taxpayer is wholly in India Control & management of affairs of the taxpayer is wholly outside India Control & management of affairs of the taxpayer is partly in India partly outside India
HUF1 Resident Non-resident Resident
Firm Resident Non-resident Resident
Association of persons Resident Non-resident Resident
Indian company2 Resident Resident Resident
Foreign company3 Resident Non-resident Non-resident
Any other person except an individual Resident Non-resident Resident
HUF is resident or non-resident, the additional conditions (as laid down for an individual) should be checked for the karta to determine whether the HUF is ordinary or not-ordinary resident. 

^2 An Indian company is the one which satisfies the conditions as laid down under section 2(26) of the Act.
^3 Foreign company is the one which satisfies the conditions as laid down under section 2(23A) of the Act.

Scope of total income[edit]

Indian income1 is always taxable in India notwithstanding residential status of the taxpayer.
Foreign income1 is not taxable in the hands of a non-resident in India. For resident (in case of firm, association of persons, company and every other person) or resident & ordinarily resident (in case of an individual or an HUF), foreign income is always taxable. For resident but not ordinarily resident foreign income is taxable only if it is business income and business is controlled wholly or partly in India or it is a professional income and profession is set up in India.

^1 Foreign income is the one which satisfies both the following conditions:-

  • Income is not received (or not deemed to be received under section 7) in India, and
  • Income doesn't accrue (or doesn't deemed to be accrued under section 9) in India.

If such an income satisfies one or none the above conditions then it is an Indian income.

Heads of income[edit]

The total income of a person is segregated into five heads:-

  • Income from salaries
  • Income from house property
  • Profits and gains of business or profession
  • Capital gains and
  • Income from other sources

Income from salaries[edit]

All income received as salary under employer-employee relationship is taxed under this head, on due or receipt basis, whichever arises earlier. Employers must withhold tax compulsorily (subject to Section 192), if income exceeds minimum exemption limit, as Tax Deducted at Source (TDS), and provide their employees with a Form 16 which shows the tax deductions and net paid income. The Act contains exemptions including (the list isn't exhaustive):-

Particulars Relevant section for computing exemption
Leave travel concession 10(5)
Death-cum-Retirement Gratuity 10(10)
Commuted value of Pension (not taxable for specified Government employees) 10(10A)
Leave encashment 10(10AA)
Retrenchment Compensation 10(10B)
Compensation received at time of Voluntary Retirement 10(10C)
Tax on perquisite paid by employer 10(10CC)
Amount received from Superannuation Fund to legal heirs of employee 10(13)
House Rent Allowance 10(13A)
Some Special Allowances 10(14)

The Act contains list of perquisites which are always taxable in all cases and a list of perquisites which are exempt in all cases (List I). All other perquisites are to be calculated according to specified provision and rules for each. Only two deductions are allowed under Section 16, viz. Professional Tax and Entertainment Allowance (the latter only available for specified government employees).

DEDUCTION under the head salary sec (16)(i)= ENTERTAINMENT ALLOWANCE   &   16 (ii)=PROFESSIONAL TAX

Income from house property[edit]

Income under this head is taxable if the assessee is the owner of a property consisting of building or land appurtenant thereto and is not used by him for his business or professional purpose. An individual or an Hindu Undivided Family (HUF) is eligible to claim any one property as Self-occupied if it is used for own or family's residential purpose. In that case, the Net Annual Value (as explained below) will be nil. Such a benefit can only be claimed for one house property. However, the individual (or HUF) will still be entitled to claim Interest on borrowed capital as deduction under section 24, subject to some conditions. In the case of a self occupied house deduction on account of interest on borrowed capital is subject to a maximum limit of ₹150,000 (if loan is taken on or after 1 April 1999 and construction is completed within 3 years) and ₹30,000 (if the loan is taken before 1 April 1999). For let-out property, all interest is deductible, with no upper limits. The balance is added to taxable income.

The computation of income from let-out property is as under:-

Gross annual value (GAV)1 xxxx
Less:Municipal Taxes paid (xxx)
Net Annual value (NAV) xxxx
Less:Deductions under section 242 (xxx)
Income from House property xxxx

^1 The GAV is higher of Annual Letting Value (ALV) and Actual rent received/receivable during the year. The ALV is higher of fair rent and municipal value, but restricted to standard rent fixed by Rent Control Act.
^2 Only two deductions are allowed under this head by virtue of section 24, viz.,

  • 30% of Net annual value as Standard deduction
  • Interest on capital borrowed for the purpose of acquisition, construction, repairs, renewals or reconstruction of property (subject to certain provisions).

Profits and Gains of business or profession[edit]

The income referred to in section 28, i.e., the incomes chargeable as "Income from Business or Profession" shall be computed in accordance with the provisions contained in sections 30 to 43D. However, there are few more sections under this Chapter, viz., Sections 44 to 44DA (except sections 44AA, 44AB & 44C), which contain the computation completely within itself. Section 44C is a disallowance provision in the case non-residents. Section 44AA deals with maintenance of books and section 44AB deals with audit of accounts.

In summary, the sections relating to computation of business income can be grouped as under: -

Specific deductions Sections 30 to 37 cover expenses which are expressly allowed as deduction while computing business income.
Specific disallowance Sections 40, 40A and 43B cover inadmissible expenses.
Deemed Incomes Sections 33AB, 33ABA, 33AC, 35A, 35ABB, 41.
Special provisions Sections 42, 43C, 43D, 44, 44A, 44B, 44BB, 44BBA, 44BBB, 44DA, 44DB.
Presumptive Income Sections 44AD, 44AE 55.

The computation of income under the head "Profits and Gains of Business or Profession" depends on the particulars and information available.[7]

If regular books of accounts are not maintained, then the computation would be as under: -

Income (including deemed income) chargeable as income under this head xxx
Less: Expenses deductible (net of disallowances) under this head (xx)

However, if regular books of accounts have been maintained and profit and loss account has been prepared, then the computation would be as under: -

Net Profit as per profit and loss account xxx
Add : Inadmissible expenses debited to profit and loss account xx
Add: Deemed incomes not credited to profit and loss account xx
Less: Deductible expenses not debited to profit and loss account (xx)
Less: Incomes chargeable under other heads credited to Profit & Loss A/c (xx)

Income from capital gains[edit]

Transfer of capital assets results in capital gains. A Capital asset is defined under section 2(14) of the I.T. Act, 1961 as property of any kind held by an assessee such as real estate, equity shares, bonds, jewellery, paintings, art etc. but does not include some items like any stock-in-trade for businesses and personal effects. Transfer has been defined under section 2(47) to include sale, exchange, relinquishment of asset extinguishment of rights in an asset, etc. Certain transactions are not regarded as 'Transfer' under section 47.
Computation of Capital Gains:-

Full value of consideration1 xxx
Less:Cost of acquisition2 (xx)
Less:Cost of improvement2 (xx)
Less:Expenditure pertaining to transfer incurred by the transferor (xx)

^1 In case of transfer of land or building, if sale consideration is less than the stamp duty valuation, then such stamp duty value shall be taken as full value of consideration by virtue of Section 50C. The transferor is entitled to challenge the stamp duty valuation before the Assessing Officer.
^2 Cost of acquisition & cost of improvement shall be indexed in case the capital asset is long term.

For tax purposes, there are two types of capital assets: Long term and short term. Transfer of long term assets gives rise to long term capital gains. The benefit of indexation is available only for long term capital assets. If the period of holding is more than 36 months, the capital asset is long term, otherwise it is short term. However, in the below mentioned cases, the capital asset held for more than 12 months will be treated as long term:-

Also, in certain cases, indexation benefit is not be available even though the capital asset is long term. Such cases include depreciable asset (Section 50), Slump Sale (Section 50B), Bonds/debentures (other than capital indexed bonds) and certain other express provisions in the Act. There are different scheme of taxation of long term capital gains. These are:

  1. As per Section 10(38) of Income Tax Act, 1961 long term capital gains on shares or securities or mutual funds on which Securities Transaction Tax (STT) has been deducted and paid, no tax is payable. STT has been applied on all stock market transactions since October 2004 but does not apply to off-market transactions and company buybacks; therefore, the higher capital gains taxes will apply to such transactions where STT is not paid.
  2. In case of other shares and securities, person has an option to either index costs to inflation and pay 20% of indexed gains, or pay 10% of non indexed gains. The cost inflation index rates are released by the I-T department each year.
  3. In case of all other long term capital gains, indexation benefit is available and tax rate is 20%.

All capital gains that are not long term are short term capital gains, which are taxed as such:

  • Under section 111A, for shares or mutual funds where STT is paid, tax rate is 10% from Assessment Year (AY) 2005-06 as per Finance Act 2004. With effect from AY 2009-10 the tax rate is 15%.
  • In all other cases, it is part of gross total income and normal tax rate is applicable.

For companies abroad, the tax liability is 20% of such gains suitably indexed (since STT is not paid).
Besides exemptions under section 10(33), 10(37) & 10(38) certain specific exemptions are available under section 54, 54B, 54D, 54EC, 54F, 54G & 54GA.

Section 54 Section 54B Section 54D Section 54EC Section 54F Section 54G Section 54GA Section 54GB
Who is eligible to claim exemption Individual/HUF Individual Any person Any person Individual/HUF Any person Any person Individual/HUF
Which asset is eligible for exemption A residential house property or land appurtenant thereto (long term) Agricultural land (if used by individual or his parents for agricultural purpose during at least 2 years immediately prior to transfer) Land/building forming part of an industrial undertaking which is compulsorily acquired by the Government & which is used during 2 years for industrial purposes prior to acquisition Any long term capital asset Any long term capital asset (other than house property) provided that on the date of transfer the assessee does not own more than one residential house property Land/building/plant/machinery in order to shift an industrial undertaking from urban area to rural area Land/building/plant/machinery in order to shift an industrial undertaking from urban area to any Special Economic Zone Long-term residential property if transfer takes place between if transfer takes place during 1 April 2012 and 31 March 2017
Which asset should be acquired to claim exemption Residential house property Agricultural land in rural or urban area Land/building for industrial purpose Bonds of National Highways Authority of India or Rural Electrification Corporation Limited; Maximum exemption in one financial year is ₹ 5 million A residential house property Land/building/plant/machinery in order to shift undertaking to rural area Land/building/plant/machinery in order to shift undertaking to any SEZ Equity shares in eligible company
What is the time limit for acquiring the new asset Purchase: 1-year backward or 2 years forward;Construction:3 years forward 2 years forward 3 years forward 6 months forward Purchase: 1-year backward or 2 years forward;Construction:3 years forward 1-year backward or 3 years forward 1-year backward or 3 years forward Equity shares in an eligible company to be acquired on or before due date of filing return of income as under section 139(1). The eligible company should utilize this amount for the purchase of a new asset within one year from the date of subscription in equity shares
How much is exempt Investment in the new asset or capital gain, whichever is lower (The new asset should not be transferred within 3 years of its acquisition) Investment in the new asset or capital gain, whichever is lower (The new asset should not be transferred within 3 years of its acquisition) Investment in the new asset or capital gain, whichever is lower (The new asset should not be transferred within 3 years of its acquisition) Investment in the new asset or capital gain, whichever is lower (The new asset should not be transferred within 3 years of its acquisition); The new asset should not be converted into money or any loan/advance should not be taken on the security of the new asset within 3 years from the date of its acquisition Investment in the new asset÷Net sale consideration×Capital gain; The assessee should not complete construction of another residential house property within 3 years from the date of transfer of original asset nor should he purchase within 2 years from the date of transfer of original asset another house property Investment in the new asset or capital gain, whichever is lower (The new asset should not be transferred within 3 years of its acquisition) Investment in the new asset or capital gain, whichever is lower (The new asset should not be transferred within 3 years of its acquisition) Investment in the new asset × capital gain ÷ net sale consideration. (The exemption is revoked if equity shares are sold/transferred within 5 years from acquisition or the new asset is sold/transferred by the company within 5 years from acquisition)

Income from other sources[edit]

This is a residual head, underthis head income which does not meet criteria to go to other heads is taxed. There are also some specific incomes which are to be always taxed under this head.

  1. Income by way of Dividends.
  2. Income from horse races/lotteries.
  3. Employees' contribution towards staff welfare scheme/ provident fund/ superannuation fund or any fund set up under the provisions of ESIC Act, received from the employees by the employer.
  4. Interest on securities (debentures, Government securities and bonds).
  5. Any amount received from keyman insurance policy including the sum allocated by way of bonus on such policy.
  6. Gifts (subject to certain conditions and exemptions).
  7. Interest on compensation/enhanced compensation.
  8. Income from renting of other than house property.
  9. Family pension received by family members after the death of the pensioner.
  10. Income by way of interest on other than securities.

Agricultural income[edit]

Agricultural income is exempt from tax by virtue of section 10(1). Section 2(1A) defines agricultural income as  :-

  • Any rent or revenue derived from land, which is situated in India and is used for agricultural purposes.
  • Any income derived from such land by agricultural operations including processing of agricultural produce, raised or received as rent-in-kind so as to render it fit for the market or sale of such produce.
  • Income attributable to a farm house (subject to some conditions).
  • Income derived from saplings or seedlings grown in a nursery.

Income partly agricultural and partly business[edit]

Income in respect of the below mentioned activities is initially computed as if it is business income and after considering permissible deductions. Thereafter, 40,35 or 25 percent of the income as the case may be, is treated as business income, and the rest is treated as agricultural income.

Incomea Business income Agricultural income
Growing & manufacturing tea in India 40% 60%
Sale of latex or cenex or latex based crepes or brown crepes manufactured from field latex or coalgum obtained from rubber plants grown by a seller in India 35% 65%
Sale of coffee grown & cured by seller in India 25% 75%
Sale of coffee grown, cured, roasted & grounded by seller in India 40% 60%

^a For apportionment of a composite business-cum-agricultural income, other than the above-mentioned, the market value of any agricultural produce, raised by the assessee or received by him as rent-in-kind and utilized as raw material in his business, should be deducted. No further deduction is permissible in respect of any expenditure incurred by the assessee as a cultivator or receiver of rent-in-kind.

.

Permissible deductions from Gross Total Income[edit]

Deductions allowed under Chapter VI-A i.e., sections 80C to 80U, cannot exceed gross total income of an assessee excluding short term capital gains under section 111A and any long term capital gains. Some deductions under sections 80C to 80DDB are listed below.

Section 80C deductions[edit]

Deduction under this section is available only to an individual or an HUF.

Section 80C of the Income Tax Act allows certain investments and expenditure to be deducted from total income up to the maximum of Rs 150,000

Section 80CCC(pension)[edit]

Payments made to LIC or to any other approved insurer under an approved pension plan is admissible for deduction under this section. Then pension plan policy should be for individual himself out of his taxable income. The deduction is least of the amount paid or ₹ 1,00,000

Section 80CCD[edit]

Contribution made by the assessee and by employer to New Pension Scheme is admissible for deduction under this section. The assessee should be an individual who is employed on or after 1 January 2004. The deduction shall be equal to the amount contributed by the assessee and/or by the employer, not exceeding 10% of his salary (basic+dearness allowance). Even a self-employed person can claim this deduction which will be restricted to 10% of gross total income.

The total deduction available to an assessee under sections 80C, 80CCC & 80CCD is restricted to ₹ 150,000 per annum. However, employer's contribution to Notified Pension Scheme under section 80CCD is not a part of the limit of ₹ 150,000.

Sec 80D[edit]

(1) In computing the total income of an assessee, being an individual or a Hindu undivided family, there shall be deducted such sum, as specified in sub-section (2) or sub-section (3), payment of which is made by any mode 95[as specified in sub-section (2B),] in the previous year out of his income chargeable to tax.

(2) Where the assessee is an individual, the sum referred to in sub-section (1) shall be the aggregate of the following, namely:— (a) the whole of the amount paid to effect or to keep in force an insurance on the health of the assessee or his family 96[or any contribution made to the Central Government Health Scheme] 96a[or such other scheme as may be notified by the Central Government in this behalf] 97[or any payment made on account of preventive health check-up of the assessee or his family]as does not exceed in the aggregate fifteen thousand rupees; and (b) the whole of the amount paid to effect or to keep in force an insurance on the health of the parent or parents of the assessee 97[or any payment made on account of preventive health check-up of the parent or parents of the assessee]as does not exceed in the aggregate fifteen thousand rupees. Explanation.—For the purposes of clause (a), "family" means the spouse and dependant children of the assessee. 97[(2A) Where the amounts referred to in clauses (a) and (b) of sub-section (2) are paid on account of preventive health check-up, the deduction for such amounts shall be allowed to the extent it does not exceed in the aggregate five thousand rupees.

(2B) For the purposes of deduction under sub-section (1), the payment shall be made by— (i) any mode, including cash, in respect of any sum paid on account of preventive health check-up; (ii) any mode other than cash in all other cases not falling under clause (i).]

(3) Where the assessee is a Hindu undivided family, the sum referred to in sub-section (1) shall be the whole of the amount paid to effect or to keep in force an insurance on the health of any member of that Hindu undivided family as does not exceed in the aggregate fifteen thousand rupees.

(4) Where the sum specified in clause (a) or clause (b) of sub-section (2) or in sub-section (3) is paid to effect or keep in force an insurance on the health of any person specified therein, and who is a senior citizen, the provisions of this section shall have effect as if for the words "fifteen thousand rupees", the words "twenty thousand rupees" had been substituted. Explanation.—For the purposes of this sub-section, "senior citizen" means an individual resident in India who is of the age of 98[sixty years] or more at any time during the relevant previous year.

(5) The insurance referred to in this section shall be in accordance with a scheme99 made in this behalf by— (a) the General Insurance Corporation of India formed under section 9 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972) and approved by the Central Government in this behalf; or (b) any other insurer and approved by the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999).

Section 80DDB : Deduction in respect of medical treatment, etc[edit]

Deduction is allowed to resident individual or HUF(Hindu Undivided Family ) in respect of expenditure actually during the PY incurred for the medical treatment of specified disease or ailment as specified in the rules 11DD for himself or a dependent relative or a member of a HUF[8]

Section 80E : Education loan interest[edit]

Interest payment on education loan for education in India or abroad gets deduction under this section. Education loan should be for self, spouse, child or the one whose legal guardian the assessee is.[9]

Section 80TTA : Interest on Savings Account[edit]

Up to Rs 10,000 earned as interest from savings account in bank, post office or a co-operative society can be claimed for deduction under this section. This rebate is applicable for individuals and HUFs .[10]

Section 80U : Disability[edit]

Disabled persons can get a flat deduction on Income Tax on producing their disability certificate. If disability is severe Rs 1 lakh can be claimed else Rs 50,000.server here mean disability 80% or more as per this section.[11]

Section 24 : Interest on housing loans[edit]

For self occupied properties, interest paid on a housing loan up to Rs 200,000 per year is exempt from tax. This deduction is in addition to the deductions under sections 80C, 80CCF and 80D. However, this is only applicable for a residence constructed within three financial years after the loan is taken and also the loan if taken after 1 April 1999.

If the house is not occupied due to employment, the house will be considered self occupied.

For let out properties, the entire interest paid is deductible under section 24 of the Income Tax act. However, the rent is to be shown as income from such properties. 30% of rent received and municipal taxes paid are available for deduction of tax.

P. Chidambaram while announcing his Budget 2013 speech on 28 Feb 2013 also announced that for the year 2013-14, an additional deduction of ₹ 100,000 would be allowed to be deducted for the payment of Interest on Home Loan u/s 80EE.[12] This deduction would be allowed provided that the total value of the loan is not more than ₹ 25,00,000 and the total value of the house is not more than ₹ 40,00,000 and the loan should be a fresh loan taken during the financial year 2013-14. This deduction would be over and above the ₹ 150,000 deduction

The losses from all properties shall be allowed to be adjusted against salary income at the source itself. Therefore, refund claims of T.D.S. deducted in excess, on this count, will no more be necessary.[13]

Due date of submission of return[edit]

The due date of submission of return shall be ascertained according to section 139(1) of the Act as under:-

30 September of the Assessment Year(AY) -If the assessee is a company (not having any inter-nation transaction), or
-If the assessee is any person other than a company whose books of accounts are required to be audited under any law, or
-If the assessee is a working partner in a firm whose books of accounts are required to be audited under any law.
30 November of the AY If the assessee is a company and it is required to furnish report under section 92E pertaining to international transactions.
31 July of the AY In any other case.

If the Income of a Salaried Individual is less than ₹ 500,000 and he has earned income through salary or Interest or both, such Individuals are exempted from filing their Income Tax return provided that such payment has been received after the deduction of TDS and this person has not earned interest more than ₹ 10,000 from all source combined. Such a person should not have changed jobs in the financial year.[14]

CBDT has announced that all individual/HUF taxpayers with income more than ₹ 500,000 are required to file their income tax returns online. However, digital signatures wont be mandatory for such class of taxpayers.[14]

Advance tax[edit]

Under this scheme, every assessee is required to pay tax in a particular financial year, preceding the assessment year, on an estimated basis. However, if such estimated tax liability for an individual who is not above 60 years of age at any point of time during the previous year and does not conduct any business in the previous year, and the estimated tax liability is below Rs. 10,000, advance tax will not be payable. The due dates of payment of advance tax are:-

In case of corporate assessee Otherwise
On or before 15 June of the previous year Up to 15% of advance tax payable -
On or before 15 September of the previous year Up to 45% of balance ofadvance tax payable Up to 30% of advance tax payable
On or before 15 December of the previous year Up to 75% of balance of advance tax payable Up to 60% of advance tax payable
On or before 15 March of the previous year Up to 100% of balance of advance tax payable Up to 100% of advance tax payable

Any default in payment of advance tax attracts interest under section 234B and any deferment of advance tax attracts interest under section 234C.

Tax deducted at source (TDS)[edit]

The general rule is that the total income of an assessee for the previous year is taxable in the relevant assessment year. However, income-tax is recovered from the assessee in the previous year itself by way of TDS. The relevant provisions therein are listed below. (To be used for reference only. The detailed provisions therein are not listed below.1)

Section Nature of payment Threshold limit (up to which no tax is deductible) TDS to be deducted
192 Salary to any person Exemption limit As specified for individual in Part III of I Schedule
193 2 Interest on securities to any resident Subject to detailed provisions of given section 10%
194A 2 Interest (other than interest on securities) to any resident ₹ 10000 (for Bank/cooperative bank) & ₹ 5000 otherwise 10%
194B Winning from lotteries etc. to any person ₹ 10000 30%
194BB Winning from horse races to any person ₹ 5000 30%
194C 2 Payment to resident contractors ₹ 30000 (for single contract) & ₹ 75000 (for aggregate consideration in a financial year) 2% (for companies/firms) & 1% otherwise
194D Insurance commission to resident ₹ 20000 10%
194E Payment to non-resident sportsmen or sports association Not applicable 10%
194EE Payment of deposit under National Savings Scheme to any person ₹ 2500 20%
194G Commission on sale of lottery tickets to any person ₹ 1000 10%
194H 2 Commission/brokerage to a resident ₹ 5000 10%
194-I 2 Rents paid to any resident ₹ 180000 2% (for plant,machinery,equipment) & 10% (for land,building,furniture)
194IA Payment for Purchase of Immovable Property ₹ 5000000 1%
194J 2 Fees for professional/technical services; Royalty ₹ 30000 10%
194LB Interest paid by Infrastructure Development Fund under section 10(47) to non-resident or foreign company - 5%
195 Interest or other sums (not being salary,which is covered under section 192) paid to non-residents or foreign company except under section 115O Amount as computed by the Assessing Officer on application made under section 195(2) or 195(3) As per double taxation avoidance treaty or regular provisions of Income Tax Act, which is beneficial to the recipient

^1 At what time tax has to be deducted at source and some other specifications are subject to the above sections.
^2 In most cases, these payments shall not to deducted by an individual or an HUF if books of accounts are not required to be audited under the provisions of the Income Tax Act,1961 in the immediately preceding financial year.

In most cases, the tax deducted should be deposited within 7 days from the end of the month in which tax was deducted.

Corporate income tax[edit]

Income-wise number of corporate assessee in India

For companies, income is taxed at a flat rate of 30% for Indian companies. Foreign companies pay income tax at the rate of 40%.[15] An education cess of 3% (on both the tax and the surcharge) are payable. [16] From 2005-06, electronic filing of company returns is mandatory.[17]

Surcharge 1[edit]

Non Corporate Assessee : 10% of Income Tax where taxable income exceeds 1 crore. Corporate Assessee :

Particulars Taxable Income > 1 Crore Taxable Income > 10 Crore
Domestic company 5% of income tax payable 10% of income tax payable
Foreign company 2% of income tax payable 5% of income tax payable

^1 Applicable from assessment year 2014-15 onwards.

Tax returns[edit]

There are five categories of Income Tax returns.

  1. Normal return u/s 139(1)
  2. Belated return
  3. Revised return
  4. Defective return
  5. Returns in response to notices

Normal return[edit]

Returns filed within the return filing due date, that is 31 July (for non audit assessees) or 30 September (for assessee or their firms liable for audit) of concerned assessment year.[18]

Belated return[edit]

In case of failure to file the return on or before the due date, belated return can be filed before the expiry of one year from the end of the relevant assessment year.

Revised return[edit]

In case of any omission or any wrong statement mentioned in the normal return can be revised at any time before the expiry of one year from the end of the relevant assessment year.

Defective return[edit]

Assessing Officer considers that the return is defective, he may intimate the defect. One has to rectify the defect within a period of fifteen days from the date of such intimation. If the assessee wants more time, he can file an application to the A O and a further 15 days can be granted at the instance of the A O.

Returns in response To notices[edit]

Assessing officer in the process of making assessment, may serve a notice under various sections like 142(1), 148(1), 153A(a) or 153C. Returns are required to be furnished within the date specified on the respective notices.

Annual information return and statements[edit]

Annual information return[edit]

Those who are responsible for registering, or, maintaining books of account or other documents containing a record of any specified financial transaction,[19] shall furnish an annual information return in Form No.61A.

Statements By producers[edit]

Producers of a cinematographic film during the financial year shall, prepare and deliver to the Assessing Officer a statement in the Form No.52A,

  • within 30 days from the end of such financial year or
  • within 30 days from the date of the completion of the production of the film,

whichever is earlier.

Statements by non-resident having a liaison office in India[edit]

With effect from 01,June 2011, Non-Resident having a liaison office in India shall prepare and deliver a statement in Form No. 49C to the Assessing Officer within sixty days from the end of such financial year.

Tax penalties[edit]

The major number of penalties initiated every year as a ritual by I-T Authorities is under section 271(1)(c)[20] which is for either concealment of income or for furnishing inaccurate particulars of income.

"If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person-

(b) has failed to comply with a notice under sub-section (1) of section 142 or sub-section (2) of section 143 or fails to comply with a direction issued under sub-section (2A) of section 142, or

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,

he may direct that such person shall pay by way of penalty,-

(ii) in the cases referred to in clause (b), in addition to any tax payable by him, a sum of ten thousand rupees for each such failure;

(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income.

See also[edit]

References[edit]

External links[edit]