LIST OF TABLES

NO. 1 2

TITLE TAXABILITY OF INDIVIDUALS DEDUCTIONS FROM SALARY INCOME FOR MEN FOR WOMEN FOR SENIOR CITIZEN

PG. NO

LIST OF FIGURES

1 2

TYPES OF E-FILLING E-FILLING PROSESS

CHAPTER ONE INTRODUCTION

"It was only for the good of his subjects that he collected taxes from them, just as the Sun draws moisture from the Earth to give it back a thousand fold" --Kalidas in Raghuvansh eulogizing KING DALIP. The government of India imposes an income tax on taxable income of individuals, Hindu Undivided Families (HUFs), companies, firms, co-operative societies and trusts (identified as body of individuals and association of persons) and any other artificial 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 the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue under the Ministry of Finance, Govt. of India. There were 33 million income taxpayers in 2008. It is a matter of general belief that taxes on income and wealth are of recent origin but there is enough evidence to show that taxes on income in some form or the other were levied even in primitive and ancient communities. The origin of the word "Tax" is from "Taxation" which means an estimate. These were levied either on the sale and purchase of merchandise or livestock and were collected in a haphazard manner from time to time. Nearly 2000 years ago, there went out a decree from Ceaser Augustus that all the world should be taxed. In Greece, Germany and Roman Empires, taxes were also levied sometime on the basis of turnover and sometimes on occupations. For many centuries, revenue from taxes went to the Monarch. In Northern England, taxes were levied on land and on moveable property such as the Saladin title in 1188. Later on, these were supplemented by introduction of poll taxes, and indirect taxes known as "Ancient Customs" which were duties on wool, leather and hides. These levies and taxes in various forms and on various commodities and professions were imposed to meet

the needs of the Governments to meet their military and civil expenditure and not only to ensure safety to the subjects but also to meet the common needs of the citizens like maintenance of roads, administration of justice and such other functions of the State.

HISTORY
In India, the system of direct taxation as it is known today has been in force in one form or another even from ancient times. There are references both in Manu Smriti and Arthasastra to a variety of tax measures. Manu, the ancient sage and law-giver stated that the king could levy taxes, according to Sastras. The wise sage advised that taxes should be related to the income and expenditure of the subject. He, however, cautioned the king against excessive taxation and stated that both extremes should be avoided namely either complete absence of taxes or exorbitant taxation. According to him, the king should arrange the collection of taxes in such a manner that the subjects did not feel the pinch of paying taxes. He laid down that traders and artisans should pay 1/5th of their profits in silver and gold, while the agriculturists were to pay 1/6th, 1/8th and 1/10th of their produce depending upon their circumstances. The detailed analysis given by Manu on the subject clearly shows the existence of a well-planned taxation system, even in ancient times. Not only this, taxes were also levied on various classes of people like actors, dancers, singers and even dancing girls. Taxes were paid in the shape of gold-coins, cattle, grains, raw-materials and also by rendering personal service.

The learned author K.B.Sarkar commends the system of taxation in ancient India in his book "Public Finance in Ancient India", (1978 Edition) as follows:"Most of the taxes of Ancient India were highly productive. The admixture of direct taxes with indirect Taxes secured elasticity in the tax system, although more emphasis was laid on direct tax. The tax-structure was a broad based one

and covered most people within its fold. The taxes were varied and the large variety of taxes reflected the life of a large and composite population".

However, it is Kautilyas Arthasastra, which deals with the system of taxation in a real elaborate and planned manner. This well known treatise on state crafts written sometime in 300 B.C., when the Mauryan Empire was as its glorious upwards move, is truly amazing, for its deep study of the civilization of that time and the suggestions given which should guide a king in running the State in a most efficient and fruitful manner. A major portion of Arthasastra is devoted by Kautilya to financial matters including financial administration. According to famous statesman, the Mauryan system, so far as it applied to agriculture, was a sort of state landlordism and the collection of land revenue formed an important source of revenue to the State. The State not only collected a part of the agricultural produce which was normally one sixth but also levied water rates, octroi duties, tolls and customs duties. Taxes were also collected on forest produce as well as from mining of metals etc. Salt tax was an important source of revenue and it was collected at the place of its extraction.

Kautilya described in detail, the trade and commerce carried on with foreign countries and the active interest of the Mauryan Empire to promote such trade. Goods were imported from China, Ceylon and other countries and levy known as a vartanam was collected on all foreign commodities imported in the country. There was another levy called Dvarodaya which was paid by the concerned businessman for the import of foreign goods. In addition, ferry fees of all kinds were levied to augment the tax collection.

Collection of Income-tax was well organized and it constituted a major part of the revenue of the State. A big portion was collected in the form of income-tax from dancers, musicians, actors and dancing girls, etc. This taxation was not

progressive but proportional to the fluctuating income. An excess Profits Tax was also collected. General Sales-tax was also levied on sales and the sale and the purchase of buildings was also subject to tax. Even gambling operations were centralized and tax was collected on these operations. A tax called yatravetana was levied on pilgrims. Though revenues were collected from all possible sources, the underlying philosophy was not to exploit or over-tax people but to provide them as well as to the State and the King, immunity from external and internal danger. The revenues collected in this manner were spent on social services such as laying of roads, setting up of educational institutions, setting up of new villages and such other activities beneficial to the community.

The reason why Kautilya gave so much importance to public finance and the taxation system in the Arthasastra is not far to seek. According to him, the power of the government depended upon the strength of its treasury. He states "From the treasury, comes the power of the government, and the Earth whose ornament is the treasury, is acquired by means of the Treasury and Army". However, he regarded revenue and taxes as the earning of the sovereign for the services which were to be rendered by him to the people and to afford them protection and to maintain law and order. Kautilya emphasized that the King was only a trustee of the land and his duty was to protect it and to make it more and more productive so that land revenue could be collected as a principal source of income for the State. According to him, tax was not a compulsory contribution to be made by the subject to the State but the relationship was based on Dharma and it was the Kings sacred duty to protect its citizens in view of the tax collected and if the King failed in his duty, the subject had a right to stop paying taxes, and even to demand refund of the taxes paid.

Kautilya has also described in great detail the system of tax administration in the Mauryan Empire. It is remarkable that the present day tax system is in many ways

similar to the system of taxation in vogue about 2300 years ago. According to the Arthasastra, each tax was specific and there was no scope for arbitrariness. Precision determined the schedule of each payment, and its time, manner and quantity being all pre-determined. The land revenue was fixed at 1/6 share of the produce and import and export duties were determined on advalorem basis. The import duties on foreign goods were roughly 20 per cent of their value. Similarly, tolls, road cess, ferry charges and other levies were all fixed. Kautilyas concept of taxation is more or less akin to the modern system of taxation. His overall emphasis was on equity and justice in taxation. The affluent had to pay higher taxes as compared to the not so fortunate. People who were suffering from diseases or were minor and students were exempted from tax or given suitable remissions. The revenue collectors maintained up-to-date records of collection and exemptions. The total revenue of the State was collected from a large number of sources as enumerated above. There were also other sources like profits from Stand land (Sita) religious taxes (Bali) and taxes paid in cash (Kara). Vanikpath was the income from roads and traffic paid as tolls.

He placed land revenues and taxes on commerce under the head of tax revenues. These were fixed taxes and included half yearly taxes like Bhadra, Padika, and Vasantika. Custom duties and duties on sales, taxes on trade and professions and direct taxes comprised the taxes on commerce. The non-tax revenues consisted of produce of sown lands, profits accuring from the manufacture of oil, sugarcane and beverage by the State, and other transactions carried on by the State. Commodities utilized on marriage occasions, the articles needed for sacrificial ceremonies and special kinds of gifts were exempted from taxation. All kinds of liquor were subject to a toll of 5 percent. Tax evaders and other offenders were fined to the tune of 600 panas.

Kautilya also laid down that during war or emergencies like famine or floods, etc. the taxation system should be made more stringent and the king could also raise war loans. The land revenue could be raised from 1/6th to 1/4th during the emergencies. The people engaged in commerce were to pay big donations to war efforts. Taking an overall view, it can be said without fear of contradiction that Kautilyas Arthasastra was the first authoritative text on public finance, administration and the fiscal laws in this country. His concept of tax revenue and the on-tax revenue was a unique contribution in the field of tax administration. It was he, who gave the tax revenues its due importance in the running of the State and its far-reaching contribution to the prosperity and stability of the Empire. It is truly a unique treatise. It lays down in precise terms the art of state craft including economic and financial administration.

CHAPTER TWO: REVIEW OF RELATED LITERATURE

Charges to Income-tax Every Person whose total income exceeds the maximum amount which is not chargeable to the income tax is an assesse, 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 the rate enacted by the Union Budget (Finance Act) for every Assessment Year, on the Total Income earned in the Previous Year by every Person. The changeability is based on nature of income, i.e., whether it is revenue or capital. The principles of taxation of income are-: Income Tax Rates/Slabs Rate (%) For men: Up to 1, 80,000 = NIL, 1, 80,001 5, 00,000 = 10%, 5, 00,001 8, 00,000 = 20%, 8, 00,001 upwards = 30%, Up to 1, 90,000 (for resident women) = NIL, Up to 2, 50,000 (for resident individual of 60 years or above) = 0,

Up to 5, 00,000 (for very senior citizen of 80 years or above) = 0. Education cess is applicable @ 3 per cent on income tax, surcharge = NA

Definitions
Person

The income tax is charged in respect of the total income of the previous year of every 'person'. Here the person means-1. an individual : a natural human being i.e. male, female minor or a person of sound or unsound mind 2. a Hindu undivided family (HUF) 3. a company : y y any Indian company anybody corporate incorporated by under the laws of a country outside India y any institution, association or body whether Indian or non Indian, which is declared by general or special order of the board to be a company y any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income tax Act, 1922 or which is or was assessable or was assesses under this act as a company for any assessment year commencing on or before the 1st day of April. 1970 4. a firm i.e. a partnership firm 5. an association of persons or a body of individuals whether incorporated or not

10

6. A local authority-- means a municipal committee, district board, body of port commissioners, or other authority legally entitled to or entrusted by the government with the control and management of a municipal or local fund. 7. Every artificial, juridical person, not falling within any of the above categories. Previous year

The Financial Year in which the income is earned is known as the previous year. Any financial year begins from 1st of April and ends on subsequent 31st March. The financial year beginning on 1st of April 2003 and ending on 31st March 2004 is the previous year for the assessment year 2004-2005. Assessment year

Assessment year means the period of twelve months commencing on 1st April every year and ending on 31st March of the next year. Income of previous year of an assessee is taxed during the following assessment year at the rates prescribed by the relevant Finance Act. Assessee

Income Tax Act 1961 (Act no. 43) defines 'assessee' as a person by whom any tax or any other sum of money is payable under this Act, and includes y

Every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or the amount of refund due to him or to such other person;

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Every person who is deemed to be an assessee under any provision of this Act;

Every person who is deemed to be an assessee in default under any provision of this Act;

Company

Section 2(17) of the act defines company. The term company includes: 1. any Indian company 2. any corporate incorporated by or under the laws of country outside India 3. any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the 1922 Act or under the 1961 act any institution, association or body, whether incorporated or not and whether Indian or non Indian, which is declared by general or special order of the board to be a company only for such assessment year or assessment years Residence Rules

an individual is treated as resident in a year if present in India 1. for 182 days during the year or 2. For 60 days during the year and 365 days during the preceding four years. Individuals fulfilling neither of these conditions are nonresidents. (The rules are slightly more liberal for Indian citizens residing abroad or leaving India for employment abroad.) A resident who was not present in India for 730 days during the preceding seven years or who was nonresident in nine out of ten preceding years I treated as not ordinarily resident. In effect, a newcomer to India remains not ordinarily resident.

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For tax purposes, an individual may be resident, nonresident or not ordinarily resident.

Non-Residents and Non-Resident Indians

Residents are on worldwide income. Nonresidents are taxed only on income that is received in India or arises or is deemed to arise in India. A person not ordinarily resident is taxed like a nonresident but is also liable to tax on income accruing abroad if it is from a business controlled in or a profession set up in India.

Capital gains on transfer of assets acquired in foreign exchange are not taxable in certain cases.

Non-resident Indians are not required to file a tax return if their income consists of only interest and dividends, provided taxes due on such income are deducted at source.

It is possible for non-resident Indians to avail of these special provisions even after becoming residents by following certain procedures laid down by the Income Tax act.

Taxability of individuals is summarized in the table below Status Resident and ordinarily resident Resident but not ordinary resident Non-Resident Indian Income Taxable Taxable Taxable Foreign Income Taxable Not Taxable Not Taxable

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Heads of Income
Income

There is no specific definition of income but for statutory purposes there are certain items which are listed under the head income. These items include those heads also which normally will not be termed as income but for taxation we consider them as income. These items are included under section 2(24) of the income tax act, 1961. As per the definition in section 2(24), the term income means and includes:
y y y

profits and gains dividends voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes

the value of any perquisite or profit in lieu of salary taxable under clause (2) and (3) of section 17 of the act

y y

any special allowance or benefit, other than those included above any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profits are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living

y y y

capital gains any sum chargeable to income tax under section 28 of the income tax act any winnings from lotteries, crossword puzzles, races, including horse races, card games and games of any sort or from gambling or betting of any form or nature whatsoever

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any received as contribution to the assessee's provident fund or superannuation fund or any fund for the welfare of employees or any other fund set up under the provisions of the employees state insurance act

profits on sale of a license granted under the imports (control) order, 1955 made under the imports and exports (control) act, 1947

Individual Heads of Income Income from Salary

What is Salary? Income under heads of salary is defined as remuneration received by an individual for services rendered by him to undertake a contract whether it is expressed or implied. According to Income Tax Act there are following conditions where all such remuneration are chargeable to income tax:
y

When due from the former employer or present employer in the previous year, whether paid or not

When paid or allowed in the previous year, by or on behalf of a former employer or present employer, though not due or before it becomes due.

When arrears of salary is paid in the previous year by or on behalf of a former employer or present employer, if not charged to tax in the period to which it relates.

What Income Comes Under Head of Salary? Under section 17 of the Income Tax Act, 1961 there are following incomes which come under head of salary:
y y y

Salary (including advance salary) Wages Fees

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y y y y y y y y y y

Commissions Pensions Annuity Perquisite Gratuity Annual Bonus Income From Provident Fund Leave Encashment Allowance Awards

What is Leave Encashment? Leave encashment is the salary received by an individual for leave period. It is a chargeable income whether he is a government employee or not. Under section 10(10AA) (i) there is also a provision of exemption in case of leave encashment depending upon whether he is a government employee or other employees.

What is Annuity? It is an annual income received by the employee from his employer. It may be paid by the employer as voluntarily or on account of contractual agreement. It is not taxable until the right to receive the same arises. Under section 56, Income Tax Act, 1961 other annuities come under a will or granted by a life insurance company or accruing as a result of contract which comes as income under from other sources.

What is Gratuity? It is salary received by an individual paid by the employee at the time of his retirement or by his legal heir in the case of death of the employee.

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What is Allowance? It is the amount received by an individual paid by his/her employer in addition to salary. Under section 15 of the Income Tax Act, 1961 these allowance are taxable excluding few condition where they are entitled of deduction/ exemptions.

Under Income Tax Act following types of allowance are defined

House Rent Allowance: Under sections 10(13A) of Income Tax Act, 1961 allowance is defined as an amount received by an employee paid by his/ her employer as a rent of his/her house. It is a taxable income. There is no exemption in tax if he is living in his own house or house for which he is not paying rent. There are following amount which are exempt from tax:
y y y

Actual house rent paid by that individual Rent paid for the accommodation over 10% of the salary 50% of the salary if house is placed at Delhi, Mumbai, Kolkata, Chennai or 40% of the salary in it is placed in any other city

Entertainment Allowance: It is the amount paid by employer for availing entertainment services. Under section 16(ii) of Income Tax Act, 1961 it is entitled to deduction in tax from is salary. But in this case deduction is given to his gross salary which also includes entertainment allowance. Deduction in tax against this allowance can be divided into two parts: In case of Government employee entitled to minimum deduction of
y y y

Entertainment allowance received 20% of basic salary excluding any other allowance Rs. 5000 In case of other employee entitled to minimum deduction of

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y y y y

(a) Entertainment allowance received 20% of basic salary excluding any other allowance Rs. 7500 Entertainment allowance received during 1954-1955

Other Special Allowances

y y y y y y y y

Children Education Allowance Tribal Area Allowance Hostel Expenditure Allowance Remote Area Allowance Compensatory Field Area Allowance Counter Insurgency Allowance Border Area Allowance Hilly Area Allowance Allowances for there is a provision of exempt in income tax are:

Allowance given to a citizen of India, who is a government employee, for rendering services outside India

y y y

Allowances given to Judges of High Courts Allowance given Judges of Supreme Court Allowances received by an employee of UNO

What is Perquisite under section 17(2) of Income Tax Act, 1961 perquisite is defined as:
y

Amount paid for the rent-free accommodation provided to the assessee by his employer

Any concession in the matter of rent respecting any accommodation provided to the assessee by his employer

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Any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases:

1. 2.

By a company to an employee, who is a director thereof By a company to an employee being a person who has a substantial interest in the company

3.

By any employer to an employee whose income under the head 'Salaries' exceeds Rs.24000 excluding the value of non monetary benefits or amenities

4.

Any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee

5.

Any sum payable by the employer whether directly or through a fund, other than a recognized provident fund or EPF, to effect an assurance on the life of the assessee or to effect a contract for an annuity

There are following perquisites which are tax free:

y y y y y y y y y y y y

Medical facility Medical reimbursement Refreshments Subsidized Lunch/ Dinner provided by employer Facilities For Recreation Telephone Bills Products at concessional rate to employee sold by his/ her employer Insurance premium paid by employer Loans to employees by given by employer Transportation Training House without rent

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Residence Facility to member of Parliament, judges of High Court/ Supreme Court

Conveyance to member of Parliament, judges of High Court/ Supreme Court

Contribution of employers to employee's pension, annuity schemes and group insurance

Deductions from Salary income certain deductions are available while determining the taxable salary income.

A) Standard Deduction Income tax slabs 2009-2010 (for Men) in India: Income Tax Slab (in Rs.)
0 to 1,60,000 1,60,001 to 3,00,000 3,00,001 to 5,00,000 Above 5,00,000

Tax
No Tax 10% 20% 30%

Income tax slabs 2009-2010 (for Women) in India: Income Tax Slab (in Rs.)
0 to 1,90,000 1,90,001 to 3,00,000 3,00,001 to 5,00,000 Above 5,00,000

Tax
No Tax 10% 20% 30%

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Income tax slabs 2009-2010 (for Senior Citizens) in India: Income Tax Slab (in Rs.)
0 to 2,40,000 2,40,001 to 3,00,000 3,00,001 to 5,00,000 Above 5,00,000

Tax
No Tax 10% 20% 30%

B) Professional Tax Professional tax, which is paid, is allowed as deduction.

C) Arrears salary if salary is received in arrears or in advance, it can be spread over the years to which it relates and be taxed accordingly as per section 89(1) of the Income tax Act.

Income from House Property

The annual value of property, consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him, the profits of which are chargeable to income tax, shall be chargeable to income tax under the head "Income from House Property". Is income from any property covered under this section?

No. Only the income from buildings or part of a building, held by the assessee as the owner and the income from land appurtenant to the buildings is covered under

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this section. Income from other property such as open land is out of the purview of this section. Income from such land will be taxed under the head, 'income from other sources.'

When the property is used by the owner for his business or profession, the income of which business or profession is chargeable to income tax, the income of that property is not charged in the hands of the owner. Similarly, when a firm carries on business or profession in a building owned by a partner, no income from such property is added to the income of the partner, unless the firm pays the partner any rent for the same. If the assessee is not the owner of the building but is a lessee and he sublets the property, he would be taxed under the head 'Income from other sources'. 'Buildings' Includes The term 'buildings' includes any building (whether occupied or intended for selfoccupation), office building, godown, storehouse, warehouse, factory, halls, shops, stalls, platforms, cinema halls, auditorium etc. Income arising out of the building or a part of the building is covered under this section. "Land appurtenant" Land appurtenant includes land adjoining to or forming a part of the building. It would depend on the nature of the land, whether it is appurtenant to the residential building, factory building, hotel building, club house, theatre etc. and will include courtyards, compound, garages, car parking spaces, cattle shed, stable, drying grounds, playgrounds and gymkhana.

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Income arising from vacant land Any income, arising out of vacant land, is not covered under this section even though it may be received as rent, ground rent or lease rent. Such income would be assessable as income from other sources. Even rent, arising out of open spaces, or quarry rent, is taxed as income from other sources. When is the income from house property wholly exempt from tax?

In the following cases, income from house property is completely exempt from any tax liability: A. Income from any farmhouse forming part of agricultural income; B. Annual value of any one palace in the occupation of an ex-ruler; C. Property Income of a local authority; D. Property Income of an authority, constituted for the purpose of dealing with and satisfying the need for housing accommodation or for the purposes of planning development or improvement of cities, towns and villages or for both. (The Finance Act, 2002, w.e.f. 1.4.2003 shall delete this provision.); E. Property income of any registered trade union; F. Property income of a member of a Scheduled Tribe; G. Property income of a statutory corporation or an institution or association financed by the Government for promoting the interests of the members either of the Scheduled Castes or Scheduled tribes or both; H. Property income of a corporation, established by the Central Govt. or any State Govt. for promoting the interests of members of a minority group; I. Property income of a cooperative society, formed for promoting the interests of the members either of the Scheduled Castes or Scheduled tribes or both;

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J. Property Income, derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities by an authority constituted under any law for the marketing of commodities; K. Property income of an institution for the development of Khadi and village Industries;' L. Self-occupied house property of an assessee, which has not been rented throughout the previous year; M. Income from house property held for any charitable purposes; N. Property Income of any political party. What are the deductions permitted to be made from Income from house property"?

S 24 lays down that 'income chargeable under the head 'Income from house property' shall be computed after making the following deductions: 1. A sum equal to 30% of the annual value; 2. If the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital. Where such property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, on or after 1st April 2003, the amount of deduction under this clause shall not exceed Rs 1, 50,000. The amount of deduction shall not exceed Rs 30,000 where the property consists of a house or part of a house, which the owner occupies for his own residence or which cannot be occupied by him because his employment, business or profession is carried on at any other place and he has to reside at that other place in a building which is not his own.

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Income from business or professions

Conditions for an income to fall under the head of income from profits and gains of business For charging the income under the head "Profits and Gains of business," the following conditions should be satisfied:
y y y

There should be a business or profession. The business or profession should be carried on by the assessee. The business or profession should have been carried on by the assessee at any time during the previous year.

Income chargeable to income tax under the head 'Profits and gains of business or profession The following income would be chargeable under the head "Profits and gains of business or profession":
y

The profits and gains of any business or profession, which was carried on by the assessee at any time during the previous year;

Any compensation or other payment, due or received by the following: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

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or in connection with the termination of any 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;
y

Income, derived by a trade, professional or similar association from specific services performed for its members;

Profits on sale of a license granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947;

Cash assistance (by whatever name called), received or receivable by any person against exports under any scheme of the Government of India;

Any duty of customs or excise repaid or repayable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971;

The value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession;

Any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm.

Deductions allowed in computing income from profits and gains of business or profession S 30: The deductions that are allowed while computing income from 'profits and gains from business or profession' in respect of rent, rates, taxes, repairs and insurance for premises, which are used for the purpose of business or profession while computing income from 'profits and gains from business or profession' are as follows:
y

Where the premises are occupied by the assessee:

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1. 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; excluding expenditure in the nature of capital expenditure. 2. Otherwise than as a tenant, the amount paid by him on account of current repairs to the premises; excluding expenditure in the nature of capital expenditure.
y y

Any sums, paid on account of land revenue, local rates or municipal taxes; The amount of any premium, paid in respect of insurance against risk of damage or destruction of the premises.

What deductions shall be allowed in respect of repairs and insurance of machinery, plant and furniture?

S 31: The following deductions shall be allowed in respect of repairs and insurance of machinery, plant and furniture:
y

The amount paid on account of current repairs thereto; excluding expenditure in the nature of capital expenditure.

The amount of any premium, paid in respect of insurance against damage or destruction thereof.

Income from Capital Gains

Capital Assets S 2(14): Capital asset means property of any kind held by an assessee whether or not connected with his business or profession. It however does not include the following: 1. Any stock-in-trade, consumable stores or raw materials held for the purpose of his business or profession;

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2. Personal effects, i.e., movable property (including wearing apparel and furniture, excluding jewellery), held for personal use by the assessee or any member of his family dependent on him. 3. Agricultural land in India, not being land situated in the following:a. In any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and, which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or b. In any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette; 4. 6.5 per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National, Defense Gold Bonds, 1980, issued by the Central Government; 5. Special Bearer Bonds, 1991, issued by the Central Government; 6. Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government. The assets, which do not fall within the term "capital assets", and which can give rise to a tax-free surplus
y

Any stock-in-trade, consumable stores or raw materials, held for the purpose of his business or profession;

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Personal effects, i.e., movable property (including wearing apparel and furniture, excluding jewellery), held for personal use by the assessee or any member of his family dependent on him;

Agricultural land in India, not being land situated in the following: o

In any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or

In any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;

6.5 per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National, Defense Gold Bonds, 1980, issued by the Central Government;

y y

Special Bearer Bonds, 1991, issued by the Central Government; Gold Deposit Bonds, issued under the Gold Deposit Scheme, 1999 notified by the Central Government.

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The method of computation of short-term and long-term capital gain, as applicable from the assessment year 1993-94 onwards, is as follows: Computation of Short-term capital gain 1. Find out the full value of consideration 2. Deduct the following: a. Expenditure incurred wholly and exclusively in connection with such transfer. b. Cost of acquisition. c. Cost of improvement 3. From the resulting sum deduct the exemption provided by section 54B, 54D and 54G. 4. The balancing amount is the shortterm capital gain. Computation of Long-term capital gain 1. Find out the full value of consideration 2. Deduct the following: a. Expenditure incurred wholly and exclusively in connection with such transfer b. Indexed Cost of acquisition c. Indexed Cost of improvement. 3. From the resulting sum deduct the exemption provided by section 54, 54B, 54D, 54EC, 54ED, 54F and 54G. 4. The balancing amount is the longterm capital gain.

Full value of consideration: Whole price without any deduction whatsoever. Expenditure incurred wholly and exclusively in connection with such transfer: Expenditure incurred which is necessary to affect such transfer e.g. stamp duty, registration etc. Cost of acquisition of an asset: Value for which it was acquired. Expenses of capital nature for completing or acquiring the title to the property may be included in the cost of acquisition.

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Cost of improvement: a. In relation to goodwill of a business or a right to manufacture, produce or process any article or thing, the cost of improvement is taken to be nil. b. In relation to any other capital asset1. Where the capital asset became the property of the assessee before April 1, 1981 the cost of improvement includes all expenditure of capital nature incurred in making any addition/alteration to the capital asset on or after April 1, 1981 by the owner. 2. In any other case, the cost of improvement refers to all expenditure of a capital nature that is incurred in making any additions or alterations to the capital asset by the assessee or the previous owner. What is the indexed cost of acquisition?

S 48 defines "indexed cost of acquisition" as the amount, which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year, in which the asset is transferred, bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981, whichever is later.

The Cost Inflation Index, in relation to a previous year, means such Index as the Central Government may, having regard to 75% of average rise in the Consumer Price Index for urban non-manual employees for the immediately preceding previous year to such previous year, by notification in the Official Gazette.

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What is the indexed cost of improvement?

S 48 defines indexed cost of improvement as the amount, which bears to the cost of improvement the same proportion as Cost Inflation Index for the year, in which the asset is transferred, bears to the Cost Inflation Index for the year in which the improvement to the asset takes place.

Cost Inflation Index, in relation to a previous year, means such Index as the Central Government may, having regard to 75% of average rise in the Consumer Price Index for urban non-manual employees for the immediately preceding previous year to such previous year, by notification in the Official Gazette, specify in this behalf.

Income from other sources

1. Dividend; 2. Any annuity due or commuted value of any annuity paid under section 280D. 3. Any 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. 4. Any sum, received by the assessee from his employees as contributions to any provident fund or Superannuation fund or any fund set up under the provisions of the Employees State Insurance Act, 1948 (34 of 1948), or any officer fund for the welfare of such employees, if such income is not chargeable to income-tax under the head "Profits and gains of business or profession"; 5. 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";

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6. 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 income tax under the head "Profits and gains of business or profession." 7. Any sum received under a Key man insurance policy, including the sum allocated by way of bonus on such policy, if such income is not chargeable to income tax under the heads "Profits and gains of business and profession" or under the head "Salaries". (Key man insurance policy means a life insurance policy taken by a person on the life of another person who is/ was the employee of the 1st mentioned person or who is/was connected in any manner whatsoever with the business of the 1st mentioned person.)

So, basically "income from other sources" is the residuary head of income, which takes within its ambit any income, which does not specifically fall under any other head of income. Deductions allowed under the head 'Income from other sources The income, chargeable under the head 'income from other sources,' shall be computed after making the following deductions:
y

In the case of interest on securities, any reasonable sum, paid by way of commission or remuneration to a banker or to any other person for the purpose of realizing such dividend or interest on behalf of the assessee;

In the case of income, received by the assessee from his employees as contributions to any provident fund or Superannuation fund or any fund set up under the provisions of the Employees'' State Insurance Act, 1948, or any other fund for the welfare of such employees, which is chargeable

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to income tax under the head "Income from other sources" deductions so far, as may be in accordance with provisions of S 36(1) (va).
y

In the case of 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 or 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 income tax under the head "Profits and gains of business or profession", deductions, so far as may, be in accordance with the provisions of clause (a), clause (3)of Section 30, Section 31, and subsections (1) and (2) of Section 32 and subject to the provisions of S 38.

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.

Any other expenditure (not being capital expenditure) laid out or used wholly and exclusively for the purpose of making or earning such income.

Deduction
Section 80CCC Any individual who makes a contribution for any annuity plan of the Life Insurance Corporation of India or any other insurer is eligible for a deduction of the amount paid or Rs. 10,000, whichever is less. When an individual or his nominee receives any amount under the following circumstances it will be taxed as the income of the individual or his nominee, in the year of withdrawal or the year in which the pension is received:

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y y

On the surrender of the annuity plan or As pension received from the annuity plan.

The limit of investment is proposed to increase from Rs 10,000 to Rs 1,00,000 subject to overall cap of Rs 1,00,000 provided under section 80CCE.

Section 80CCD the deduction for contributions to a pension scheme of the Central Government is available only to those individual who have been employed by the central government on or after 1st January 2004, and will be allowed for any amount deposited in such a pension scheme. But, in this case, deduction of more than 10 per cent of the employee's salary shall not be allowed.

The contributions to the fund are also made by the Central Government. Deduction will be available for any contribution which is made by the Central Government or 10 per cent of the employee's salary, whichever is less.

When the individual or his nominee receives any amount out of the scheme which meets the following descriptions, it shall be taxed in the hands of the recipient.
y y

On closure/ opting out of the pension scheme; or As pension received from the annuity plan.

The term 'salary' here includes Dearness Allowance (if considered for retirement benefits), but it excludes other allowances and perquisites.

The aggregate deduction under the Sections 80C, 80CCC and 80CCD cannot exceed Rs 1 lakh as whole.

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Section 80D Additional deduction of Rs 15,000 under Section 80D is allowed to an individual who pays medical insurance premium for his/ her parent or parents.

Any Premium which is paid for medical insurance that has been taken on the health of the assessee, his spouse, dependent parents or dependent children, is allowed as a deduction, subject to a ceiling of Rs 10,000.

Where any premium is paid for medical insurance for a senior citizen, an enhanced deduction of Rs 15,000 is allowed. The deduction is available only if the premium is paid by cheque. Under section 80D, the deduction has been increased to Rs 15,000 and for senior citizen it is now Rs 20,000.

Section 80DD Deduction under this section is available to an individual who:

y

Incurs any expenditure for the medical treatment, training and rehabilitation of a disabled dependant; or

Deposits any amount in schemes like Life Insurance Corporation for the maintenance of a disabled dependant. An annuity or a lump sum amount is paid to the dependant or to a nominee for the benefit of the dependant in the event of the death of the individual depositing the money, from the said scheme,

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A deduction of Rs 50,000 is available. Where the dependant is with a severe disability, a deduction of Rs 1,00,000 is allowed. (As per AY 2009-10)

If the death of the dependant occurs before that of the assessee, the amount in the scheme is returned to the individual and is taxable in his hands in the year that it is received.

An individual should furnish a copy of the issued certificate by the medical board constituted either by the Central government or a state government in the prescribed form, along with the return of income of the year for which the deduction is claimed.

The term 'dependent' here refers to the spouse, children, parents and siblings of the assessee who are dependent on him for maintenance and who themselves haven't claimed a deduction for the disability in computing their total incomes.

This deduction is also available to Hindu Undivided Families (HUF).

Section 80DDB An individual, resident in India spending any amount for the medical treatment of specified diseases affecting him or his spouse, children, parents, brothers and sisters and who are dependent on him, will be eligible for a deduction of the amount actually spent or Rs 40,000, whichever is less.

Note: - For the complete list of disease specified, refer to Rule 11DD of the Income Tax Rules.

For any amount spent on the treatment of a dependent senior citizen an individual is eligible for a deduction of the amount spent or Rs 60,000, whichever is less is

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available.

The individual should furnish a certificate in Form 10-I with the return of income issued by a specialist working in a government hospital.

If any amount of medical expenditure is borne by the employer or is reimbursed under an insurance scheme, the eligibility of the deduction is the reduction to that extent. This deduction is also available to Hindu Undivided Families (HUF).

Section 80E Deduction under section 80E of the Income-tax Act allowed in respect of interest on loans taken for pursuing higher education in specified fields of study to be extended covering all fields of study, including vocational studies, pursued after completion of schooling.

Under this section, deduction is available for payment of interest on a loan taken for higher education from any financial institution or an approved charitable institution. The loan should be taken for either pursuing a full-time graduate or post-graduate course in engineering, medicine or management, or a post-graduate course in applied science or pure science.

The deduction is available for the first year when the interest is paid and for the subsequent seven years. Up to March 2005, deduction was available for the repayment of principal and interest aggregating to Rs 40,000 a year.

Section 80U it is deduction in the case of a person with a disability. An individual who is suffering from a permanent disability or mental retardation as specified in the persons with disabilities (Equal Opportunities, Protection of Rights and Full

38

Participation) Act, 1995 or the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999, shall be allowed a deduction of Rs 50,000. In case of severe disability it is Rs. 75,000.

The assessee should furnish a certificate from a medical board constituted by either the Central or the State Government, along with the return of income for the year for which the deduction is claimed.

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CHAPTER THREE: - DESIGN OF RESARCH

E-filing of income tax return was introduced by Income tax department couple of years ago. Using e-filing is a simple and very easy way of filing the return for everyone. However, if you look at stats only 16% of tax payers file their return through e-filing while the rest of the tax payers take the conventional physical route.

There are several reasons for that, one being the penetration of computers and accessibility of internet is very low in certain parts of India. However, even in large metros where the accessibility of Internet is very much, only 30-35 percent of the tax payers opt for filing their taxes online.

Thus the real problem is not the poor internet access or non availability of computer. It is the mindset and misconception of the people which they have about filing their tax returns online. What is e-Filing? The process of electronically filing Income tax returns through the internet is known as e-Filing. It is mandatory for Companies and Firms requiring statutory audit u/s 44AB to submit the Income tax returns electronically from AY 2007-08 onwards. Any Company/Firm requiring statutory audit u/s 44AB return submitted without an e-Filing receipt will not be accepted. E-filing is possible with or without digital signature.

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Digital signature is mandatory for Companies from AY2010-11 onwards.

Types of e-Filing There are three ways to file returns electronically Option 1: Use digital signature in which case no paper return is required to be submitted Option 2: File without digital signature in which case ITR-V form is to submitted to CPC Bangalore within 120 days of efiling. This is a single page receipt cum verification form. Option 3: File through an e-return intermediary who would do e-Filing and also assist the Assessee file the ITR V Form.

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Process of Efilling

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e-Filing Process At a glance Select appropriate type of Return Form Download Return Preparation Software for selected Return Form. Fill your return offline and generate a XML file. Register and create a user id/password Login and click on relevant form on left panel and select "Submit Return" Browse to select XML file and click on "Upload" button On successful upload acknowledgement details would be displayed. Click on "Print" to generate printout of acknowledgement/ITR-V Form. Incase the return is digitally signed; on generation of "Acknowledgement" the Return Filing process gets completed. You may take a printout of the Acknowledgement for your record. In case the return is not digitally signed, on successful uploading of eReturn, the ITR-V Form would be generated which needs to be printed by the tax payers. This is an acknowledgement cum verification form (ITRV). A duly signed ITR-V form should be submitted to CPC using Ordinary Post or Speed Post within 120 days of transmitting the data electronically. This completes the Return filing process for non-digitally signed Returns.

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CHAPTER FOUR: CONCLUSION AND SUGGESTION

All registered e-filing portals send the tax returns uploaded by assesses to the Income Tax Department. The government website uses the latest software to make it fully secure. For example www.taxyogi.com uses 128 bit encryption to transmit data. There is very little chance of it being hacked. You need digital signature only when you file your return completely online. You don't need one if you e-file your return and then post a signed ITR V form to the income-tax office in Bangalore. The new rule, which requires a taxpayer to send the ITR V by post within 120 days, has made the submission process very simple and convenient. This is purely a fictitious assumption. Every year income tax department pull out random list of people to scrutinize. Whether the person has filed income tax returns electronically or through traditional paper filing method have no bearing on this list. In fact, digital filing can help in automatically tallying Returns Particulars filed by you and that filed by your Employer, Banks and other Financial Institutions. E-filing through the government site is free but it's difficult to use in terms of usability. Some private portals also offer free filing. For example you can avail free e-filing at www.taxyogi.com. Others offer various packages. Alternately a lot of people utilize the service of tax professionals and chartered accountants which may be much more expensive. Also, consider the cost of your time and the environmental cost that mother earth pays for every return that is filed physically. E-filing is also an environment friendly way.

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E-filed returns can be revised in the same way as those filed in any other manner. All e-filing portals allow you to file revised tax returns. So e-filling is a safest, simplest, fast, and accurate way to income tax return.

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BIBLIOGRAPHY

www.finance.indiamart.com www.incometaxindia.gov.in www.incometaxindiapr.gov.in

BOOKS REFFERED

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