TAXES SIMPLIFIED - OVERVIEW

Who is an Assessee?

The question that arises next is who comes under the purview of income tax law in India. The Act applies to the whole of India and

any person who comes within the definition of assessee will have to comply with the requirements of this law. “Assessee” has been

defined as a person by whom any tax or other sum is payable under the Act. The term “other sum” generally indicates any interest

or penalty, etc which the person might be liable to pay even if no tax is outstanding. In addition, “assessee” would also include the

following:

(i) a person against whom income-tax assessment proceedings have been initiated (either on his own income or on the income of

another person on whose behalf he is assessable)

(ii) a person against whom assessment of fringe benefits have been initiated

(iii) a person who is deemed to be an assessee in default under the Act.

Contrary to general perception, when we refer to an “assessee” being a “person”, we do not always refer to individuals. The term

“person” may mean any of the following:

(i) An individual

(ii) A Hindu Undivided Family (HUF)

(iii) A company

(iv) A firm

(v) An Association of Persons or a Body of Individuals (e.g a charitable trust)

(vi) A local authority

(vii) An artificial juridical person (e.g. a religious idol).

All the above categories come under the purview of taxation laws in India.

Do all assessee have to pay income tax?

Any assessee who has income which is taxable is required to pay taxes. At present, in case of individuals, HUF, AOP and BOI,

there is a basic exemption limit of Rs.1,00,000. In other words, if the total income is below Rs.1,00,000, no tax is payable. For

income above this level, income tax is payable at specified rates depending on the income level. Certain special concessions in the

rates have also been given to women and senior citizens. In the case of other categories of assessees, there is no basic exemption

limit. Therefore, tax is payable on the total income.

What are the factors one needs to consider for computing taxable income?

The following factors need to be taken into consideration for the computation of total income:

(i) Residential status: This will determine what kinds of income of an assessee are taxable in India. It is important to remember that

residential status is different from citizenship, and that it has to be determined separately for every assessment year.

(ii) Heads of Income: There are five heads under which any income of an assessee is classified. They are:

    • Income from Salaries

    • Income from House Property

    • Profits and Gains from Business or Profession

    • Capital Gains

    • Income from Other Sources

Within each head of income, certain deductions have been given. Income under each head is to be computed separately taking

into account the specific provisions.

(iii) Deductions from total income: The Act allows certain deductions on account of certain payments like investments, insurance

premia, school fees, etc. (These are loosely referred to as tax saving investments.) These are also to be considered for computing

tax payable.

(iv) Apart from the above, it is important to take note of the following points:

    • There are certain incomes which are totally exempt from tax. These are contained in section 10.

    • An assessee may be assessable for certain other persons’ incomes, e.g minor child, spouse, etc.

    • Some losses are eligible for being set off against income in subsequent years. You may take advantage of these provisions.

Is the Income-tax Act the same as the Union Budget?

The Income-tax Act, 1961 is the basic law governing the incidence and administration of income tax law in India. The Union Budget

or the Finance Act (as it is actually called) is an Act passed by the Parliament every fiscal year to bring in changes in the existing

provisions of the Income-tax Act. Apart from the provisions which are modified specifically by the Finance Act of that year, all other

provisions of the Income-tax Act continue to prevail.

How do I pay income-tax?

Income-tax can be paid either by the assessee directly or in the form of tax deducted or collected at source. The issues concerning

TDS are dealt with under the said topics. If, on the other hand, it is paid directly by you, you will have to see if you are covered by

the provisions of advance tax. The dates and instalments of advance tax are discussed under that topic separately. If advance tax

is not applicable in your case, you may pay self-assessment tax based on your total income as shown in your returns at any time

before the due date of the return of income. The proof of payment should be attached with your return.

What are the consequences if I do not pay income-tax?

It is the liability of the assessee himself to pay the correct amount of income-tax as well as to pay it in time. Ignorance of the law

cannot serve as an excuse for not doing so. If you fail to pay income-tax which is due on your income, you will be liable to pay

interest and penalty in addition to the tax payable by you. Apart from the above, you may be liable to be prosecuted for a minimum

of six months to a maximum period of 7 years (depending on the amount of tax evaded) along with fine.

What happens if I pay excess tax by mistake? Can I recover it?

Yes, if you file your returns in time and show the amount paid in excess as refund due from the Department, you will be able to

recover the amount of excess tax paid. You will be required to file a claim for refund in Form No.30. The refund is supposed to be

paid to you within 3 months. If there is a delay beyond such period, you will be eligible for simple interest @1/2% for every month or

part of a month for the period from 1st April of the assessment year to the date on which the refund is granted. However, no refund

will be due if the amount of refund is less than 10% of the tax as determined on regular assessment.

What do the terms “previous year” and “assessment year” mean?

Please refer to our Glossary section for the meaning of the above terms.

TAXES SIMPLIFIED – GLOSSARY OF TERMS

Assessee

An assessee is a person who is required by law to pay any tax, interest or penalty under the Income-tax Act. Therefore, it would

include any person who has not filed a return so far but who falls within the tax bracket under the provisions of the law. It would

also include any person who might not have any taxable income of his own but may be treated as an assessee on behalf of

someone else’s income. E.g. legal representative of a deceased person, or agent of a non-resident.

Classification of Assessee:

The following are the categories under which an assessee will be defined:

(i) Individual: An Individual means only a natural person i.e. a human being, and includes a minor or a person of unsound mind.

However, their assessment is generally done through other authorized persons or clubbed with parent, in the case of a minor.

Hindu Undivided Family (HUF) A Hindu Undivided Family is defined under the Hindu Law. It consists of all persons lineally

descended from a common ancestor and includes their wives and unmarried daughters.

Firm This basically represents a partnership firm. A partnership is a relationship between persons who have agreed to share the

profits and loses of the business carried on by all or any of them acting for all. Persons who have entered into partnership with one

another are individually called partners and the organization is collectively called a firm. Though, a firm is not a separate legal entity

by itself, under the Income-tax Act, it is treated as separate from its partners. Therefore, a firm will have a separate PAN no. under

which returns are to be filed. Secondly, a firm must have a proper deed of partnership for availing of beneficial provisions under the

Income-tax Act.

Registered Firm All the partnership firms registered in India are governed by the Indian Partnership Act, 1932.

Company A Company is defined to mean – ? Any Indian company i.e. a company formed and registered under the Companies Act,

1956. ? A body corporate incorporated under the laws of a foreign country. ? Any institution, association or a body, whether

incorporated or not and whether Indian or non-Indian, which is declared to be a company by the Central Board of Direct Taxes

(CBDT).

Domestic Company A company, Indian or foreign, which has made arrangements within India for declaration and payment of

dividends out of its income taxable in India.

Association of Persons Association of Person (AOP) means an association in which two or more persons join in for a common

purpose or common action. An association of persons may have companies, firm, joint families as its members e.g. Joint Venture,

Trust, etc.

Body of Individual A group of persons forming a body is known as a Body of Individuals (BOI). Unlike an AOP, a BOI has to consist

of individuals only.

Local Authority Local Authority means a municipal committee, panchayat, district board, cantonment 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.

Artificial Juridical Persons It includes all artificial persons with a juridical personality, i.e an entity which is not a natural person but

has a separate tax identity, e.g. Deity, idols, etc.

Financial Year

Financial Year means a period of twelve months from April 1 to March 31 every year.

Previous Year

Previous year is a Financial year (in full or part) just preceeding the assessment year. In other words Income earned in previous

year (1st April 2006 to 31st March 2007) is taxable in the immediate following assessment year (i.e. 1st April 2007 to 31st March

2008).

Assessment Year

Assessment year is the next financial year following the previous year. It is the year in which income of the previous year is

assessed. In other words for assessment year 1st April 2007 to 31st Mach 2008, the income of previous year 1st April 2006 to 31st

March 2007 will be taxed & assessed.

Residential status

Under the income tax law in India, the taxability of various incomes is dependent on the residential status of the assessee during

that particular previous year. For every previous year, the residential status is determined by the number of days such person was

actually present in India. Residential status may therefore change year to year. The conditions for determining residential status of

an assessee are also different for each type of assessee, namely, individual, HUF, firm, company, etc.

Residential status of Individual

Resident An individual is resident for tax purposes if he satisfies any one of the two conditions below:

(a) He is in India for at least 182 days in the previous year, OR

(b) He is in India for at least 60 days in the previous year and has been in India for at least 365 days in the four preceding previous

years.

Exceptions The Act gives certain concessions for Indian citizens travelling or staying abroad. If an Indian citizen goes abroad for

employment purposes, the period of 60 days will be substituted by 182 days. Therefore, he will be resident only if he is in India for

at least 182 days in the previous year.

Similarly, in the case of an Indian citizen or in the case of a non-resident Indian who lives abroad and comes on a visit to India, he

will not be treated as resident unless he stays in India for at least 182 days in the previous year.

In the case of an individual assessee, we have to further see if residential status is resident and not ordinarily resident (RNOR).

RNOR – A resident individual will be not ordinarily resident if he further satisfies any one of the following conditions:

(i) He is non-resident (as per basic conditions) in 9 out of 10 immediately preceding previous years

OR

(ii) He has been in India for a maximum period of 729 days in the 7 immediately preceding previous years.

If the individual is resident but not ordinarily resident (RNOR), certain types of income will not be taxable in India. But, if he fails to

satisfy the additional condition stated above, he will be resident and ordinarily resident (ROR) and will be taxed accordingly.

Residential status of HUF A HUF is non-resident if its control and management in any previous year is wholly outside India. In all

other situations, it is resident. A HUF also has to be categorized as ROR (ordinarily resident) or RNOR (not ordinarily resident). A

HUF is RNOR if its Karta is not ordinarily resident, i.e.

(i) He is non-resident (as per basic conditions) in 9 out of 10 immediately preceding previous years

OR

(ii) He has been in India for a maximum period of 729 days in the 7 immediately preceding previous years.

Residential status of Firm/AOP Similar to HUF, a firm or AOP will be non-resident if control and management in any previous year

is wholly outside India. In all other situations, it is resident.

Residential status of Company In the case of a company, the conditions are reversed. The company will be resident if it satisfies

the following two conditions:

(i) It is an Indian company.

(ii) Its control and management is wholly in India.

Allowance

Allowance means fixed amount of money received regularly in addition to salary.

Employment

Employment refers to a situation where the assessee gets a regular salary from his employer, including any bonus, commission or

remuneration, by whatever name called. The relationship should be one of employer-employee only.

Perquisites

Perquisite means any benefit or amenity given free or at concessional rate, in addition to regular salary. Perquisite includes

allotment of a house, car, club membership, medical facility, telephone, leave travel allowances etc.

Senior Citizen

If you have completed the age of 65 years, you are a Senior Citizen

Original Return

A return of income filed for the first time for a particular previous year.

Revised Return

A return of income filed after filing the original return in order to correct any mistakes/omissions in the original return. The revised

return, in effect, substitutes the original return. A revised return can be filed at any time before the expiry of one year from the end

of the relevant assessment year, or before the completion of assessment, whichever is earlier. E.g. for the previous year 2006-07,

the assessment year would end on March 31, 2008. Therefore, a revised return may be filed at any time before March 31, 2009,

before assessment is completed.

Due date of filing return

The relevant due dates for filing returns are given below:

 (i)  In the case of a company or other entity including individuals whose accounts are required to be audited, the due date is

October 31 of the assessment year. In the case of a working partner of a firm whose accounts are required to be audited also, the

due date is October 31 of the assessment year.

 (ii)  in case of any other assessee (including individuals not covered under (i) above, the due date is July 31of the assessment

year.

Relative

The term ‘relative’ has different connotations under different sections of the Income-Tax Act.

Relative (In General) - In general, ‘relative’ of an individual would refer to the following persons:

Spouse

Brother or Sister

Lineal Ascendant or Descendant.

Relative (For classification of gifts taxable as Income from Other Sources) -

? Spouse

? Brother or sister and their spouses

? Spouse’s brother or sister & their spouses

? Brother or sister of either of the parents & their spouses

? Lineal ascendants or descendants & their spouses

? Spouse’s lineal ascendants or descendants & their spouses.

Lineal Ascendants or Descendants - A person’s father, grandfather, great-grandfather and so on, vertically upwards in the family,

are known as lineal ascendants and a person’s son, grandson, great-grandson and so on, vertically downwards in the family, are

known as lineal descendants.

Heads of Income:

There are five heads under which any income is taxed. All incomes are to be classified under the following heads of income:

(i) Income from Salaries

(ii) Income from House Property

(iii) Profits and Gains from Business or Profession

(iv) Capital Gains

(v) Income from Other Sources.

TAXES SIMPLIFIED - PAN

How do I apply for PAN?

The application has to be made in Form 49A to the Assessing Officer in charge of allotment of PAN. W.e.f.1.7.2003, the PAN

application form has to be obtained on payment of Rs. 5 from UTI Investor Services Ltd. (UTIISL) at http://www.utitsl.co.in or NSDL

at http://www.tin-nsdl.com or its authorised agents. Then one has to submit the filled in form along with a processing fee of Rs.60

(plus service tax as applicable) in the office of UTIISL or NSDL or its agents. Further, specified documents are also required to be

submitted with the PAN application, as proof of identity and address.

I do not have any taxable income of my own. However, my father passed away recently and I am the sole legal heir. I will be in receipt of all his income from investments and some rental income as well. Do I need to apply for PAN?

Yes, any person who is assessable in respect of any other person whose total income is above the initial exemption limits has to

apply for PAN. In your case, as the legal heir of your father, you will become assessable. Therefore, you need to apply for PAN.

Who are the persons who are required to have a PAN?

The following persons are required to have a permanent account No. (PAN):

1. If his total income or the total income of any person on behalf of whom he has to file a return exceeds the basic exemption limit

i.e. Rs. 1,00,000/- during the previous year 2006-07;

2. If he is carrying on any business or profession and his total sales/return over/gross receipts are likely to exceed Rs. 5,00,000/- in

the previous year; or

3. He is required to furnish a return of a trust or charitable institution; or

4. If he is an employer who is required to furnish a return of fringe benefits under section 115WD.

I already have a PAN. Do I have to apply for a separate PAN in respect of fringe benefit returns?

No, it has been clarified that a person who already been allotted a PAN can use that PAN for the purpose of filing fringe benefit

returns. Therefore, you need not apply again.

I am going to file my income tax returns for the first time. When should I apply for PAN?

You have to first see in which category you fall for the purpose of filing return. The respective time limits for application of PAN are

given below:

(i) In case of a person having taxable income above basic exemption limits, the time limit for making an application for a PAN is

31st May of that assessment year. Therefore, for the assessment year 2007-08, if you are required to file return of income, you

should apply for PAN by 31 May, 2007, i.e. 2 months after the financial year ends.

(ii) In case of a person carrying on any business or profession whose total sales/return over/gross receipts are likely to exceed Rs.

5,00,000/- in the previous year, application for PAN has to be made before the end of that accounting year.

(iii) In case of a person who is required to furnish a return of a trust or charitable institution, application is to be made on or before

the end of the relevant accounting year.

What is the penalty if I do not apply for PAN?

The penalty for not applying for PAN is Rs.10,000.

I am an individual applying for PAN. What are the documents I need to attach with the form?

Along with Form 49A, you need to attach the following documents:

(i) Proof of Identity – Copy of any one of the following:

a. school leaving certificate

b. degree certificate

c. depository account

d. credit card

e. bank account

f. water bill

g. ration card

h. property tax assessment order

i. passport

j. voter identity card

k. driving licence

l. certificate of identity signed by a MP/ MLA/Municipal Councillor/ Gazetted Officer

(ii) Proof of Address – Copy of any one of the following:

a. Electricity bill

b. Telephone bill

c. Depository account

d. Credit card

e. Bank account

f. Ration card

g. Employer certificate

h. Passport

i. Voter identity card

j. Property tax assessment order

k. Driving licence

l. Rent receipt

m. Certificate of address signed by a MP/ MLA/Municipal Councillor/ Gazetted Officer

Note: If the application is for a minor, any of the above documents of any of the parents or guardian will be accepted.

What are the documents required to be submitted in case of persons other than individuals along with PAN application?

In case of other assessees, the following documents are required to be submitted along with PAN application:

(i) In case of a Hindu Undivided Family - Copy of any document applicable in case of an individual specified above, in respect of

Karta of the Hindu undivided family as proof of identity and address.

(ii) In case of a Company - Copy of certificate of Registration issued by the Registrar of Companies.

(iii) In case of a Firm - Copy of Certificate of Registration issued by the Registrar of Firms or Copy of Partnership Deed.

(iv) In case of an Association of Persons (Trusts) - Copy of Trust Deed or Copy of Certificate of Registration Number issued by

Charity Commissioner.

(v) In case of other Association of Persons (other than Trusts) or Body of Individuals or Local Authority or artificial juridical person -

Copy of agreement or copy of certificate of Registration Number issued by Charity Commissioner or Registrar of Co-operative

Societies or any other Competent Authority or any other document originating from any Central or State Government Department

establishing identity and address of such person.

In which transactions is it compulsory to quote PAN?

For every person it is necessary to quote such number in –

(a)  all his returns and correspondence with any income tax authority;

(b)  all challans for the payment of any sum due under the Income-tax Act.

(c)  all documents pertaining to such transactions as may be prescribed by the CBDT in the interests of the revenue, and entered

into by him.

The following transactions have been notified where quoting of PAN is compulsory:

i) sale or purchase of any immovable property valued at Rs. 5,00,000 or more

ii) sale or purchase of a motor vehicle

iii) a time deposit exceeding Rs. 50,000 with a bank

iv) a deposit exceeding Rs. 50,000 in any account with the Post Office Saving Bank

v) a contract of a value exceeding Rs.1 lakh for sale or purchase of securities

vi) opening an account with a bank

vii) making an application for installation of a cellular telephone connection

viii) Payment of hotels and restaurants against their bills for an amount exceeding Rs.25,000 at any one time

ix) Payment in cash for purchases of bank drafts or pay orders or bankers cheques from a bank for an amount aggregating

Rs.50,000 or more during any one day.

x) Deposit in cash aggregating Rs.50,000 or more, with a bank during any one day.

xi) Payment in cash in connection with travel to any foreign country of amount exceeding Rs.25,000 at any one time, including fare,

payment to travel agent or a tour operator or for the purchase of foreign currency. However, travel to neighbouring countries

(Bangladesh, Bhutan, Maldives, Nepal, Pakistan, Sri Lanka) and on pilgrimages (Saudi Arabia on Haj and China to Kailash

Mansarovar) is not included for this purpose.

xii) making an application for issue of a credit card

xiii) payment of an amount is Rs.50,000 or more to a Mutual Fund for purchase of its units;

xiv) payment of an amount of Rs.50,000 or more to a company for acquiring shares issued by it;

xv) payment of an amount of Rs.50,000 or more to a company or an institution for acquiring debentures or bonds issued by it;

xvi) payment of an amount of Rs.50,000 or more to the RBI, for acquiring bonds issued by it. Besides the above transactions, in

case of transactions where tax is to be deducted or collected at source, it is the obligation of the person receiving any payment to

intimate his PAN to the person who is required to deduct or collect the tax. Similarly, it is the duty of the person deducting or

collecting the tax to quote the PAN of the person to whom he is making the payment.

My minor son has received some money for which I want to open an account in his name. He does not possess a Permanent Account Number. What do we do?

Where a minor needs to open an account with a bank, he can quote the PAN of his father or mother or guardian, as the case may

be, in the required documents.

What happens in a situation where a person has to enter into a transaction which requires quoting of PAN but does not have PAN as yet?

In such a situation the person has to make a declaration in Form No. 60 giving the particulars of the transaction.

What are the consequences if a person fails to quote his Permanent Account Number or quotes a number which is false?

The penalty for not quoting PAN as required or quoting an incorrect PAN is Rs.10,000.

I have recently changed my residence. My PAN card bears my earlier address. What do I have to do to change the address on my PAN card?

You have to make an application to NSDL (http://www.tin-nsdl.com) or UTI (http://www.utitsl.co.in) in PAN Data Correction Form

along with the fees and necessary proof for the change or correction. You will receive a new laminated PAN card, which means

your change or corrections have been made in your PAN record.

I have just received my PAN card but my name has been spelt incorrectly. How can I have it corrected?

For any correction or change in your existing PAN card, you have to make an application to NSDL (http://www.tin-nsdl.com) or UTI

(http://www.utitsl.co.in) in PAN Data Correction Form along with the fees and necessary proof for the change or correction. You will

receive a new laminated PAN card, which means your change or corrections have been made in your PAN record.

I have recently shifted to another city. I already have a PAN card but I do not want to change it since it has my permanent address on it. Can I apply for another PAN number?

No, it is illegal to have more than one PAN. Therefore, you cannot apply for another permanent account number. In case you

already have or are allotted more than one PAN, it is your duty to surrender the additional PAN immediately.

Is there any category of persons who need not apply for a PAN number?

The following categories of persons are exempt from applying for PAN:

(i) a Non-Resident

(ii) a person having only agricultural income

(iii) a Central government, State government or Consulate officer.

TAXES SIMPLIFIED - TAN

What is TAN?

TAN stands for Tax deduction and collection Account Number. It is a unique identification number consisting of ten alphanumeric

characters allotted on application in Form 49B. Every person who is required to collect tax at source or deduct tax at source must

have a TAN. For this, an application is to be made in Form 49B to NSDL (http://www.tin-nsdl.com) or UTI (http://www.utitsl.co.in).

Can I apply for more than one TAN number?

Yes, in case you have more than one branch for carrying out your business, you may apply for separate TAN for each branch by

providing the proper name and address of the branch and the person responsible for tax deduction in Form 49B. In any other case,

you cannot have more than one TAN.I have received two TAN numbers. What shall I do?

It is illegal to hold two TAN numbers, except in the circumstances mentioned above. Hence you need to surrender one.

Where is it compulsory to quote TAN? What if, by mistake, I quote a wrong TAN number?

It is compulsory to quote TAN in all the following documents:

(i) In all challans for payment of TDS/TCS

(ii) In all certificates issued for TDS/TCS

(iii) In all returns pertaining to TDS/TCS (including e-TDS/TCS return)

(iv) In all quarterly statements relating to TDS/TCS payment.

The penalty for quoting incorrect TAN in the documents mentioned above is Rs.10,000/-.

What are the statutory obligations if I am holding TAN?

You have to deduct tax while making payments in case of certain types of transactions as laid down in the Act, pay the deducted tax to the Government within the time limits provided for, issue certificate of deduction to the person whose tax you have deducted and finally file quarterly statements in respect of the tax deducted and paid.

What does agricultural income mean? Does it only include income from growing crops?

“Agricultural income” means

a) any rent or revenue derived from land which is used for agricultural purposes. The land should be situated in India.

b) Agricultural income also includes any income derived from such land by –

i) agriculture, or

ii) any process ordinarily employed by a cultivator to render the produce fit to be taken to market, or

iii) sale of the produce by the cultivator provided the produce has not been treated in any way except a process mentioned above to

make it fit for being marketed.

c) Agricultural income further includes any income derived from any building or land owned and occupied by the cultivator or any

other person on which any process related to the agricultural produce is carried on.

The conditions are that

- the building should be in the immediate vicinity of the land. The building may be used as a dwelling house, store-house or out-

house by the cultivator himself or the person receiving the rent or agricultural income.

- The land should be assessed to land revenue in India

- In it is not so assessed, it should not be in or within 8 km from the limits of any municipal area which has a population of 10,000 or

more as per the last census.

Agricultural income essentially means income from any agricultural activity. This includes not only basic operations performed

directly on the land, like tilling, sowing, planting, etc. but also includes subsequent operations like weeding, harvesting, pruning,

sorting, etc. Further, any rental or other income from any building adjacent to the agricultural land would also form part of

agricultural income, provided such revenue is related to the use of the land.What does exempted income mean? Is it equivalent to a deduction?

Exempted income means that the income need not be included in the computation at all. Deductions, on the other hand, are

generally available under specific heads of income. Exemptions under section 10 are exempt irrespective of the income under

separate heads of income.

If agricultural income is totally exempt, why do we need to give details of the amount of agricultural income?

Though agricultural income is itself exempt, where the agricultural income exceeds Rs.5000, we need to include it in our

computation for determining the rate of income-tax to be levied.

How does the rate calculation work? Please explain with an example.

(i) First, the agricultural and non-agricultural incomes are to be added and tax is to be calculated on the aggregate.

For example, if agricultural income is Rs.60,000 and non-agricultural income is Rs.3,10,000, we will first take the total income as

their sum, i.e. Rs.3,70,000. We calculate tax on Rs.3,70,000. Assuming the assessee is male and is not a senior citizen, the

income-tax on Rs.3,70,000 will be Rs.61,000.

(ii) Next, we calculate tax on the aggregate of agricultural income and basic exemption limit. In this case, the aggregate is

Rs.1,60,000. Tax thereon amounts to Rs. 6,000.

(iii) The difference of the two amounts will be the income tax payable. In the given example, it will be Rs.56,000.

(iv) This amount will be increased by surcharge, if applicable and education cess of 2%.

I propose to set up a poultry farm in a rural area. Will the income be classified as agricultural income?

No, income from a poultry farm will not be agricultural income since there is no agricultural operation involved.

Is any discrimination made between agricultural and horticultural activity? Would income from growing flowers be classified as agricultural income?

Horticultural income would be considered as agricultural income. What is the basic condition is that there should be use of human

effort on the land.

What are the provisions relating to share of income of a partner from the partnership firm?

In case of a partnership firm which is separately assessed as such, a partner’s share of income would be exempt from tax in his

hands. The amount of income thus received should be as per the profit sharing ration laid down in the partnership deed.

How will a member of a HUF be taxed on income received from the HUF?

Where the assessee is a member of a HUF, any sum received by him from the income of the HUF will be fully exempt from tax in

his hands. Where the HUF owns an impartible estate, any sum paid out of the estate to any member of the HUF would also be

exempt from tax in his hands.

I am a partner in a professional firm of engineers. I receive a salary from the firm apart from a share in the profits. The firm pays income tax on its total income. Is my income from the firm exempt from tax?

Your share of profits from the firm will be exempt from tax but your salary income will be taxable as professional income in your

hands.Are withdrawals from a provident fund account taxable or exempt?

Any payment from a provident fund set up under the Provident Fund Act, 1925, or notified for this purpose by the Central

Government is exempt from tax. The Public Provident Fund (PPF) Scheme, 1968 has been notified for this purpose.

I have completed 4 years 6 months in service with my employer. I am thinking of resigning from the job and starting my own business. What are the conditions required to be satisfied for availing exemption in respect of receipt of accumulated balance in a recognised Employees’ Provident Fund account?

The accumulated balance in your provident fund account which will be payable to you will be exempt if the following conditions are

satisfied:

(i) You must have been in continuous service for at least 5 years. Continuous service need not be with the same employer. If the

accumulated balance includes an amount transferred by an erstwhile employer, such earlier period of service will also be included.

(ii) The above condition is not applicable only if the employment is terminated due to reasons beyond the control of the employee,

for example, ill-health, closure of employer’s business, etc.

(iii) If you take up employment elsewhere, the accumulated balance in your name is transferred to your provident fund account

maintained by your new employer.

My father passed away and my mother received the amount due from his LIC policy which was taken in 1997. Is such amount received by her taxable?

No, the amount received under a life insurance policy is not taxable if the following conditions are met:

(i) The amount should not have been received under a policy for handicapped dependant.

(ii) The amount should not have been received under a Keyman insurance policy.

(iii) Except in the case of death, if the insurance policy was issued after 1 April, 2003, the amount of premium paid in any year did

not exceed 20% of the sum assured.

Therefore, the amount will not be taxable in your mother’s hands.

I am in Central Government bureaucratic services. I was sent on deputation for 6 months to Singapore. I was provided free housing and a fixed monthly allowance during my tenure there. Are these amounts taxable?

No, allowances and perquisites provided to you by the Indian Government are exempt from tax under section 10.

What are the types of income exempt in the hands of foreign citizens working in India?

The following types of incomes received by foreign citizens are exempt from tax:

(i) Remuneration received by a foreign national as an official of an embassy, high commission, consulate, trade representation, etc.

or as a staff member of any such official.

However, for this exemption to be available, the said country should also have reciprocal arrangements for Indian Government staff

posted there.

(ii) Remuneration received as an employee of a foreign enterprise. The related conditions are that the organisation is not engaged

in any trade or business in India, the period of stay in India of the foreign national does not exceed 90 days in the previous year,

and the remuneration is not deductible as an expense in the hands of the employer.

(iii) Any salary received by a foreign national on board a foreign ship provided his stay does not exceed 90 days in the previous

year.

(iv) Remuneration received by an employee of a foreign Government on training in India in any establishment or office of the Indian

Government, or any company owned by the Government (Central or State), or any of its subsidiaries, any corporation established

under a Central, State or Provencal Act, or any registered society wholly financed by the Government.

I am an Indian citizen staying in the US for the last 5 years. I would like to know whether I can invest in any special deposit scheme so that the interest earned thereon would be tax free in my hands.

Any interest earned by a non-resident in India on a deposit made in an Off-shore Banking Unit on or after 1 April, 2005 will be exempt from tax. Off-shore Banking Unit means a branch of a bank located in a Special Economic Zone.

TAXES SIMPLIFIED - SALARY

I am a salaried partner in a firm of professional architects. Is my salary taxable under the head “Salaries”?

No, salary received by a partner in a firm will not be taxed as salary income but as income under the head “Profits and Gains of

Business or Profession” since it is being earned in your capacity as a partner of the business and not as an employee. Income is

taxed under the head “Salaries” only if it is received from employer. Salary received from past employer (for example, pension) is

also taxable under the head “Salary Income “.Is the head under which income is taxed important?

Yes. The computation of the income on which tax is charged depends on the head under which income is taxed. The deductions to

be made from gross receipts depend on the head of income and are different for different heads of income

I have taken salary for the months of April and May 2006 in advance in the month of March 2006. Is it to be included in my tax computation for the financial year 2005-06 (1.4.2005 to 31.3.2006)?

Yes, salary for the months of April and May 2006 received in advance in March 2006 is taxable in computing taxable income of

financial year 2005-06 as salary is taxable in the year in which it is received. . However, salary which has already been taxed in one

year will not be taxed again in another year

What if Salary due for the months of January to March 2006 is not paid to me as the company is facing financial difficulties? Will I have to pay tax on the same while computing taxable income for financial year 2005-06?

Yes, Salary for the months of January and March 2006, though not received will have to be included in computing taxable income

for the financial year 2005-06. However, the same will not be taxable again when you actually receive the same.

Due to a recent pay-scale change, I have received arrears of salary for the financial years 2003-04 and 2004-05 in the current financial year (2005-06). Will it be taxable in the financial year 2005-06?

Arrears of salary are taxable in the year of payment if they have not been taxed in any earlier year. However, you are entitled to

claim relief if the tax rate has changed during this period. (Section 89(1) of the Income tax Act, 1961) . The relief will be computed

as follows:

Step 1: Calculate tax payable at current rates on total income including arrears (A).

Step 2: Calculate tax payable at current rates on total income excluding arrears (B).

Step 3: Tax on arrear salary at current rates (C) = (A) – (B)

Step 4: Calculate tax payable on total income including arrears for PY 2003-04 as well as PY 2004-05 at rates applicable in the

respective year (X)

Step 5: Calculate tax payable on total income excluding arrears for PY 2003-04 as well as PY 2004-05 as above (Y)

Step 6: Tax on arrear salary at past rate (Z) = (X) – (Y)

Step 7: Amount of relief = (C) – (Z)

If (C) is less than (Z), no relief is admissible.

Are all allowances tax-free?

Any fixed allowance is taxable unless specific exemptions are provided by the Act e.g. leave travel allowance, house rent

allowance, etc. These exemptions are subject to specific monetary limits and conditions. These exemptions are contained in

Section 10 of the Act.

Am I required to pay tax on gross salary or can I claim deduction for expenses incurred to earn salary income e.g. I incur conveyance for commuting from my home to office, I buy books to update myself on the knowledge required for performance of my duties of employment ?

You are required to pay tax on gross salary received without any deductions other than exclusions of receipts which are exempt

from tax. Earlier (prior to financial year 2005-06 relevant for assessment year 2006-07), there was a provision to allow standard

deduction in computing taxable income. Such deduction is not available.

I am receiving House Rent Allowance from my employer but I do not pay house rent. I live in my own house. Is it required to be included in computing my taxable salary income?

Your House Rent Allowance will be required to be included in computing your taxable income and you will not be entitled to claim

exemption allowable in respect of House Rent Allowance as such exemption is allowable only if you actually pay house rent.

What if I am paying rent to my father with whom I live. The house is owned by my father. The company pays me House Rent Allowance equal to the rent I pay to my father. Can I claim exemption of the House Rent Allowance?

Yes. You can claim exemption for House Rent Allowance. The exemption is equal to the least of the following:

(i) Actual amount of allowance received

(ii) Excess of rent actually paid by you over 1/10 of salary due to you for that period

(iii) 50% of salary due to you for the period (in case of 4 metros – Delhi, Mumbai, Kolkata and Chennai), or 40% of salary due in

case of any other place.

I receive Rs.20,000 as leave travel allowance every year. I also spend it on travel every year. Is such allowance to be included in computing my taxable income ?

No, any amount received from the employer on account of leave travel allowance will be exempt only if such amount was actually

spent by you on travel to any place within India. The amount of exemption will be determined as follows:

(i) Where the travel was by air – cost of economy air tickets by Indian Airlines by the shortest route available.

(ii) Where the destination of travel is connected by rail, the cost of AC First Class train tickets by the shortest route

(iii) Where the destination is not connected by rail, the 1st class or deluxe class fare by any public transport system like bus. If there

is no recognised public transport system, the cost of AC First Class train fare as if the journey had been taken on rail.

The exemption can be claimed only if proof of leave availed and journey undertaken are furnished.

How many times can I claim exemption on leave travel allowance?

You can claim exemption in respect of any two journeys in a block of 4 calendar years starting with 1986. In case, you have not

claimed exemption (in respect of one journey or both journeys) in a particular block, you can still claim such exemption in respect of

one such journey in the first year of the next block. For example, in the block 2002-2005, if you have not claimed exemption in any

of the years or have claimed only once, you can still claim one exemption in the year 2006. Hence, in the block 2006-2009, you can

claim exemption 3 times in total.

My parents and unmarried sister also live with me. Can I claim leave travel exemption in respect of all my family members?

Yes, apart from your spouse and children, you will be eligible for exemption in respect of your parents, brothers and sisters

provided they are living with you and are wholly or mainly dependent on you. Therefore, you can claim exemption in respect of your

parents as well as your sister apart from your wife and children. In case of children, exemption will be allowed for only 2 surviving

children born after 1.10.1998 (except multiple births after the first child). The limit of 2 children is not applicable for children born

before that date.

I received leave travel allowance and spent the amount on a journey to Nepal with my family. Can I claim exemption of the amount spent?

No, exemption in respect of leave travel allowance is available only for journeys undertaken within India.

I availed of leave travel allowance in respect of myself and my family. But, my family and I travelled on different dates. They left for my hometown earlier and I joined them later. Will exemption be denied on this ground?

No, it is not necessary that family members should travel together with you. You may claim exemption in respect of the full cost of

the journey.

I have retired and have received gratuity due to me. What is the amount of exemption available in respect of gratuity?

If you are a Government employee, gratuity received is fully exempt from tax. For others, the exemption is limited to the least of the

following:

(i) Actual amount received

(ii) Half month’s average salary for every completed year of service (six months or more being considered a year)

(iii) Rs.3,50,000.

How is average salary calculated for the above purpose?

Salary for the above purpose includes dearness allowance if included in the terms of employment. All other allowances and

perquisites are excluded. Average salary is to be computed for 10 months immediately preceding the month in which the

employment is discontinued. For example, if you have retired w.e.f.15.7.2006, the average salary for the months of September,

2005 through June, 2006 will be considered.

I used to work in the Central Government. I have resigned and joined in the private sector. I have received Rs.1, 77,000 as leave encashment from my previous employers. How much exemption can I claim?

Since you were a Government employee, the earned leave encashment received by you will be fully exempt.

I have retired from a public sector company on 15th June, 2006. I have received Rs.3,25,000 as earned leave encashment. How much exemption can I claim?

Since you were not an employee of the Central or State Government, the exemption in respect of leave encashment will be the

least of the following:

(i) Amount actually received, i.e. Rs.3,25,000 in your case

(ii) 10 months’ average salary i.e. the average of the salary drawn by you from 16th September, 2005 to 15th June, 2006.

(iii) Cash equivalent of the leave calculated on the basis of average salary for 30 days’ leave for every year of actual service

rendered by you to the company. For example, if your period of service is 15 years 3 months, you will calculate leave salary for (30

× 15) days.

(iv) Rs.3,00,000 (an amount specified by the Government).

I am working in a private limited company. During the financial year 2005-06, I received Rs.40,000 as part of earned leave encashment due to me. How much exemption can I claim for the previous year 2005-06?

Since you have received the amount while you are still employed with the company, you cannot claim any exemption.

I am being offered voluntary retirement by my employers with a compensation package of Rs.10 lakhs. What is the maximum limit of exemption I can claim on compensation received ?

You can claim an exemption of Rs. 5,00,000/- received at the time of voluntary retirement. However, the voluntary retirement

scheme of the company must be approved or framed so that the following conditions are satisfied:

(i) The Scheme must apply only to employees who are at least 40 years old or must have completed 10 years of service.

(ii) The Scheme should apply to all employees of the company.

(iii) The Scheme should result in overall reduction in the number of employees.

(iv) No person should be employed in the vacancies created.

(v) You (the retiring employee) should not be employed by the same management in any other company.

(vi) The compensation amount should be the lower of the following amounts:

• 3 months’ salary for each completed year of service

• salary at the time of retirement × balance no. of months of service left before original retirement date.

I have retired from service and am receiving pension @ 4,000 per month. Is this income taxable?

Yes, pension is taxable as salary income under the Income Tax Act. Further, in your case, since the pension is not commuted

pension (i.e.not received as a lumpsum on retirement), it will be fully taxable.

I am receiving entertainment allowance @ Rs.3,000 every month. How much of it is deductible?

Entertainment allowance is deductible only in case of Government employees. Therefore, if you are a Government employee, the

amount of deduction is limited to 1/5 of annual salary (excluding any allowance or perquisite) or Rs.5000, whichever is less. But, if

you are working elsewhere, there is no deduction available to you for the same.

I am applying for a car loan from my company at a concessional rate of interest. How will the perquisite value be calculated?

The comparative rate of interest to be considered for this purpose is the rate of interest charged per annum by the State Bank of

India as on 1st April of the relevant previous year in respect of loans for the same purpose advanced by it. For example, if you have

received a car loan from your company in previous year 2005-06 @ 5% p.a and SBI gives vehicle loans @7% p.a.as on 1.4.2005,

the perquisite value will be calculated at the incremental rate of 2% p.a.

During the financial year 2005-06, I took a loan of Rs.10,000 from my employers for my mother’s medical treatment. Will it be taxable as a perquisite?

No, if the loans are made available for medical treatment of specified diseases, or if the loans are of petty amounts not exceeding

in the aggregate Rs.20,000, such loans are not treated as perquisites. In your case the loan amount was less than Rs.20,000 for

the year. Therefore, it will not be treated as a perquisite.

I have been provided a car by my company since 2004. I am now getting it transferred in my name in 2006-07 and am paying Rs.2,00,000 for it. What is the tax consequence ?

The value of the car in your name will be the cost of the car to the company as reduced by 20% per annum of that cost on reducing

value method by way of wear and tear for each year the asset was in use. For example, if the cost of the car to the company was

Rs.5,00,000, the value of the perquisite will be as follows:

Cost of the car in 2004-05                      Rs.5,00,000

Less: depreciation for 2004-05 (20%)      Rs.1,00,000

Written down value for 2005-06              Rs.4,00,000

Less: depreciation for 2005-06 (20%)      Rs.80,000

Written down value for 2006-07              Rs.3,20,000

The excess of this value over the amount paid by you to the company will be the taxable value of the perquisite. Continuing with the

same example, if you pay Rs.2,00,000 to the company, the taxable value of the perquisite will be Rs.(320000 – 200000) i.e.

Rs.1,20,000.

I am also buying a used computer for Rs.7,500. Will the perquisite value be determined in the same manner?

The manner of valuing the perquisite will be similar except that the rate of depreciation will be 50% in case of computers and

electronic items and 10% in case of other assets, both as fixed percentage of the original cost for each year the asset was in use.

Therefore, if the cost of the computer was Rs.50,000 in 2004-05, the depreciation will be Rs.25,000 for each year 2004-05 and

2005-06. Therefore, the perquisite value will be nil.

I get a medical allowance of Rs.1000 every month. How much exemption can I claim?

Medical allowance is fully taxable. However, if your employer is reimbursing you for any amount actually spent by you on medical

expenditure for yourself and your family, you can claim exemption upto Rs.15000 per annum for the same. In order to claim the

exemption you have to submit supporting bills.

My employer pays premium for my life insurance policy. Is it a taxable perquisite?

Yes, the amount paid by your employer towards your life insurance is a taxable perquisite in your hands.

My company pays insurance premium for me and my wife for a mediclaim policy under section 80D. Is it a taxable perquisite?

No, the premium on mediclaim policy paid by your company in respect of you and your family is not a taxable perquisite.

I receive transport allowance of Rs.2000 every month. Is it taxable?

Transport allowance granted to you would be exempt to the extent of Rs.800 per month. Any amount received by you in excess of

this limit, i.e.Rs.1,200 per month will be taxable.

I live in an apartment in Mumbai provided by my company. The apartment is owned by the company. A sum of Rs.5,000 is deducted from my salary every month for the facility. What will be the value of the perquisite?

The monthly perquisite value of the rent-free accommodation provided to you will be 20% of your salary. From this value, Rs.5,000

will be deducted since it is borne by you. The balance amount will be the taxable value of the perquisite. “Salary” includes basic

pay, allowances, bonus or commission except exempted allowances.

I stay in a rented flat in Pune, the rental amount of which is fully borne by my company. What will be the value of the perquisite?

The value of the perquisite in your hands will be the rent actually paid by the company or 20% of your salary, whichever is lower.

“Salary” for this purpose is defined under Rule 3 as follows:

“Salary” includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, by whatever

name called from one more employers, as the case may be, but does not include the following, namely:-

(a) dearness allowance or dearness pay (unless it forms part of retirement benefits)

(b) employer’s contribution to provident fund;

(c) allowances which are exempt from tax;

(d) the value of perquisites specified in section 17(2) of the Act; and

(e) any payment or expenditure specifically excluded under proviso to section 17(2)(iii) relating to Employee’s Stock Options or

proviso to clause (2) of section 17 dealing with medical reimbursements/ facilities.

I have been provided a car with a driver by my company for my official as well as my personal use. The car is owned by the company and the running expenses are paid by the company. How will this perquisite be valued?

The use of a car and driver provided by the company will not be a taxable perquisite in your hands but will be a taxable fringe

benefit in the hands of the company.

I use a car provided by my company but the running expenses are borne by me. I have a driver whose salary is paid by me, but the company gives me a fixed driver and car allowance.

Any fixed allowance is taxable as a perquisite. The value of the perquisite will be the amount paid to you as reduced by the

expenses incurred by you.

I live in a company owned accommodation. I have been provided with a watchman and a gardener whose salaries are paid by the company. The company deducts Rs.100 in respect of each of them from my monthly salary. What will be the perquisite value in my hands?

The value of the perquisite in respect of the watchman as well as the gardener will be the actual salaries paid by the company as

reduced by the total amount deducted from your salary in respect of the same.

My employers have provided me with a laptop computer for my official purposes. Am I liable to pay any tax for it?

No, use of a laptop computer provided by the employer is not a perquisite.

I have been offered a company owned accommodation from my new employers. I have been asked to opt for a furnished or an unfurnished flat as per my choice. Does it make any difference for the purpose of valuation of perquisite?

If the accommodation is furnished, the value of the perquisite (as determined for unfurnished accommodation) will be increased by 10% of the actual cost of the furniture or , where the furniture is hired by the company, by 10% of the hire charges paid. Therefore, the perquisite value will be higher in the case of furnished flat. If the company deducts any amount from your salary for use of such furniture, the perquisite value of the furniture will be reduced by the amount deducted.

TAXES SIMPLIFIED - PROPERTY INCOME

I own a plot of land which I let out for the purpose of marriage functions, birthday parties, etc. Will such income be taxable under Income from House Property?

No, income from vacant land will not be taxed under this head since there is no building. Such income will be taxed either as

Income from Other Sources or as Business Income, depending on the facts of the case like regularity of income, etc.

I am a resident of India having rental income from house property situated outside India. Is my rental income from such house property taxable in India?

Yes, income from foreign house property would be taxable in India since you are resident in India during the tax year. Entire global

income of a resident is taxable in India.

I own a farmhouse in my ancestral village which I have rented out for farm work. Will that rent be taxed as House Property income?

No, since the house property is used for agricultural purposes, rental income from agricultural property is classified as agricultural

income and hence is not taxed as Income from House Property.

I am the owner of a farm in my village. There is a farmhouse as well as adjoining land. Since it is difficult to grow crops there, I let out that house as well as the adjoining land from time to time for carrying out celebrations like weddings, pujas, plays, fairs, etc. Will the letting out charges received by me be taxed as House Property Income? Or will the income be exempt since it is agricultural property?

Even if the property is a farmhouse, it is not used for agricultural purposes. Therefore, the annual value will be treated as house

property income.

I own a flat which is not yet registered in my name. I have let out the flat and am receiving rent. Is the rent taxable in my name?

Yes, the income will be taxed in your name since the term “owner” means any person who is the real owner of the property and is

entitled to receive the income arising from such property. Registration of the property in your name is not a necessary condition for

taxing income as House Property Income.

I own a shop in a commercial complex and have let it out to an office. Under what head of income will the rent received be taxed?

The rental income will be taxed as income from House Property irrespective of whether the property is used for residential or

commercial purposes.

Is there any tax liability under the head “Income from House Property” if the property is used for self residence?

The annual value of one residential house property is taken as Nil which means that there is no tax liability if the taxpayer owns

only one house property which is used for self occupation.

Is there tax liability in respect of a commercial property used by self for own business/ profession? Is it treated as self occupied property?

No. There is no tax liability under the head “Income from House Property” in respect of self owned commercial property used for

own business or profession. The tax liability in such cases arises only if the property is let out.

I own two house properties, both of which are occupied by me and my family. Can I take both their annual values to be Nil?

No, you may claim exemption only in respect of one house property whose annual value will be taken as nil. The other property will

be deemed to be let-out and its annual value will be taxed accordingly. However, you can choose which property you wish to be

treated as self-occupied or deemed let-out.

Is taxable income from house property equal to the rent received from the house property?

No, there are specific provisions for computing taxable income from house property. The computation starts with determination of

“annual value” of the property and thereafter specified deductions are to be made to arrive at the taxable income.

What is the meaning of “annual value”? Is it the same as rental value?

Annual value is the notional value of the property as defined u/s 23 that is considered for tax purposes.

In case of let-out property, it is the higher of the municipal valuation of the property and fair rental value. However, if the actual rent

received is higher than these two values, the actual rent will be the annual value.

In case of self-occupied property, the annual value is nil.

I own two flats. I use one for my residence and one as my office. Can I claim exemption in respect of both the properties as self-occupied property?

The property which you use as your office will not come under the provisions dealing with Income from House Property. Therefore,

only the flat used for residence will be treated as self-occupied and its annual value will be taken as Nil.

Can I claim deduction in respect of repairs on my self-occupied house?

No, the deduction of 30% u/s 24(1) is available only in case of property which is let out or deemed to be let-out. Since the annual

value of a self-occupied house is Nil, no such deduction can be claimed.

How are municipal taxes deducted?

Municipal taxes will be deducted on the basis of the amount actually paid in the previous year.

Can I claim deduction on account of municipal taxes paid for my self-occupied property?

No, municipal taxes cannot be deducted in case of self-occupied property since the annual value of the property is taken as Nil.

What is the next step in computing taxable income from house property after net annual value is worked out?

A deduction at the rate of 30 % of the annual value is to be made to determine taxable income from house property. This is a

notional deduction (and is often referred to as standard deduction) irrespective of any expenditure incurred by the owner of the

house property.

Is expenditure incurred on repairs and maintenance of house property allowed in computing taxable income?

There is no separate deduction in respect of repairs and maintenance. However, the owner is entitled to a flat deduction of 30% of

net annual value in respect of all such costs, irrespective of whether the costs are actually incurred or not or whether they exceed

30 % of the net annual value.

I have paid arrears of municipal tax along with the current dues. Will I be allowed deduction on the arrears?

Deduction on account of municipal taxes is allowed in the year in which they are paid, irrespective of the year in which they are

due. Hence, the full amount paid will be allowed to be deducted in the year of payment.

I have taken a housing loan for carrying out repairs of my house. Can I claim deduction on account of interest on the loan? How much deduction can I claim?

Interest payable on any housing loan taken for any of the following purposes is deductible in computing taxable income from house

property:

• Purchase

• Construction

• Repairing

• Renovation

• Reconstruction.

Therefore, you can claim deduction for the interest on such loan. However, in case of housing loans taken for the purpose of

repairs and renovations, the limit of deduction is Rs.30,000.

I was unable to pay the interest due on my loan during the financial year for which I am filing my returns now. Does it mean that I cannot claim deduction in respect of that interest?

Deduction in respect of interest on housing loan is allowed on due basis. Therefore, you may still claim deduction in respect of the

interest due but not paid. However, subsequently, if you pay interest on the unpaid interest, that portion of interest will not be

deductible.

I have taken a second loan to pay off my earlier housing loan. Can I claim deduction for interest paid on the second loan?

If the second loan has been taken purely to repay the original loan, you can claim deduction in respect of the interest on the second

loan in computing your income from house property.

Can I claim deduction on account of brokerage or commission paid for acquiring the housing loan?

No deduction is allowed for any amount paid as brokerage or commission in obtaining housing loan.

I have taken a loan from my father for purchasing a house property. Can I claim deduction in respect of the interest paid to him?

You can claim deduction in respect of interest paid on housing loan taken from any party. The conditions are that the loan should

be a housing loan with a proper agreement for payment of interest. In your case, you can claim deduction in respect of the interest

paid by you to your father, provided you are actually paying him such interest amount and that he has issued you a certificate

specifying the amount of interest paid to him in this respect.

I have paid Rs.1,200 as insurance premium to insure my house against fire. Can I claim deduction?

There is no separate deduction in respect of insurance premium. Instead, a flat deduction u/s 24(1) of 30% of net annual value is

available. This deduction is available in respect of all let-out property, irrespective of whether the costs were actually incurred or

not.

I have taken a housing loan and am paying interest on such loan. The property is still under construction, so I am yet to get possession. Can I claim deduction on account of such interest? How will annual value be worked out for determining taxable income under the head house property income?

The taxability of income from house property commences when the house property comes into existence. In your case, since the

property is under construction, there will be no income computation in respect of such under construction property.

As a result, you will also not be able to claim deduction for the interest being paid by you on the loan taken for the house property.

However, you are allowed to claim deduction towards such interest when the house property is constructed. The interest paid for

the pre-construction period is to be accumulated and will become deductible in 5 equal annual instalments starting with the tax year

in which the construction is completed.

Pre-construction period means the period starting from the date of commencement of construction or date of borrowing, whichever

is later, and ending with 31st March of the calendar year in which the construction is completed. Therefore, in the first year of

construction being completed, you will be entitled to the current year’s accrued interest as well as 1/5th of the pre-construction

period interest. However, this total must not exceed the limits imposed by section 24(2), i.e. Rs.30,000 or Rs.1,50,000, as the case

may be, for self-occupied property.

I took a housing loan in 1998 for purchasing a residential house property where I live and have paid interest of Rs.1,60,000 in the financial year 2005-06. Can I claim interest deduction of Rs.1,60,000?

Deduction upto Rs.1,50,000 is allowable on interest payable on any loan taken on or after 1.4.1999 for the purpose of acquiring or

constructing a house property. For any loan taken before that date, the amount of interest deductible is limited to Rs.30,000. The

limit of Rs.30,000 also applies to loans taken after 1.4.1999 for work of any other nature on the house property, namely, repair,

renovation, etc.

Can I claim deduction of any interest paid outside India?

No, interest paid outside India is not eligible for deduction unless tax has been deducted at source or there is an agent in India who

is responsible for paying the tax on the same.

Is the limit of Rs.30,000/ 1,50,000 applicable to let-out property?

No, the limit of Rs.30,000/ 1,50,000 is applicable to self-occupied property only. In case of let-out property, the entire interest is

allowed as deduction.

I own a house property which I have rented out at Rs.20,000 per month. In the year 2005-06, my tenant did not pay rent for the last quarter and is now absconding. Do I still have to pay tax on the unrealised rent? What will happen if I subsequently recover it in 2006-07? What will happen if I sell off the property before realising the unrealised amount?

The amount of unrealised rent will not be included in the annual value. So, your annual value for the year 2005-06 will be

Rs.1,80,000, instead of Rs.2,40,000, and tax payable will be computed accordingly. Later, if you recover the unrealised rent of

Rs.60,000, it will be taxed as Income from House Property in that previous year, even if you are no longer the owner of the house

property in that year.

I have received arrear rent from my previous tenants. How will I include this income in my tax computation?

Arrears of rent will be treated as Income from House Property in the year in which they are received. The amount included in your total income will be the amount received less 30% standard deduction from the same.

TAXES SIMPLIFIED – CAPITAL GAINS

I am going to sell my car. Am I liable to pay any capital gains tax on the transaction?

No, moveable personal assets (except jewellery) are not considered capital assets if they are used for personal use. Therefore,

gains arising from sale of such assets will not be liable for tax.

I own farmland in my ancestral village. I sold part of it this year. How do I calculate capital gains on the transaction?

If your ancestral village is outside municipal limits, capital gains will not arise in your case because rural agricultural land is not

considered a capital asset. Therefore, gains arising from selling it will not give rise to capital gains.

I own some old silver coins. I understand that since these are personal effects, they would not be considered as capital assets. Am I right?

No, you are not. It has been held that silver coins are classified as jewellery and will therefore be treated as capital assets.

What are short term capital assets?

A capital asset that is held for less than three years is deemed to be a short-term asset. In the case of financial assets, such as

equity or preference shares of companies, any other security listed in a recognised stock exchange of India like debentures,

government issues, etc. and units of mutual funds and the Unit Trust of India (UTI), the assets are deemed short-term if they are

held for less than 12 months.

Why is it important to classify capital assets as short-term or long-term?

Capital assets are to be classified as short-term or long-term since we need to classify the capital gains arising on the transfer of

those assets as short-term or long-term. Short term capital gains are taxed at normal rates as any other head of income, but long

term capital gains are taxed separately at a concessional rate of 20%. It is also important to note that deductions under Chapter

VIA dealing with tax saving on investments, etc. will not be available from long-term capital gains included in the total income.

What is the tax rate for short term capital gains?

Short term capital gains will be added to income under the other heads of income to arrive at the total income. The normal slab

rates of tax will be applied on the total income to arrive at the tax liability for the year.

I have gifted a flat to my daughter. Will this transaction be treated as “transfer” for the purpose of capital gains?

No, transfer of a flat as a gift will not amount to “transfer”.

How are capital gains computed?

The method of computation differs for short term assets and long term assets, given as follows:

Computation of Short-term Capital Gains

Full value of consideration                                                                   A

Less: (i) Expenditure incurred wholly and exclusively

             in connection with the transfer                              --- 

        (ii) Cost of acquisition                                               --- 

        (iii) Cost of improvement                                           ---               B

Short term capital gains (A-B)                                                              C

Computation of Long-term Capital Gains

Full value of consideration                                                                   A

Less: (i) Expenditure incurred wholly and exclusively

             in connection with the transfer                                ---

        (ii) Indexed Cost of acquisition                                    ---

        (iii) Indexed Cost of improvement                                ---             B

Long term capital gains (A-B)                                                               C

What is indexed cost of acquisition?

In case of a long term capital asset the cost of acquisition and cost of improvement are indexed on the basis of the cost inflation

index (CII) which is determined and notified by the Government after considering the consumer price index.

How is indexed cost of acquisition calculated?

Indexed cost of acquisition

=     Cost of acquisition × CII of the PY in which asset was transferred

        CII of the PY in which asset was first held by the assessee

                  or PY 1981-82, whichever is later

[PY = previous year]  , [CII = cost inflation index]

I am selling a plot of land. However, as per the agreement, I will receive 50% of the sale consideration now and the balance after a year. Should I consider 50% of the sale price each year for two years for computing capital gains?

Even if you receive the sale consideration in instalments which are spread over two previous years, your incidence of capital gains

tax will arise in the year of transfer. Therefore, the full value of the sale consideration will be considered for computing capital gains

in the previous year in which the sale takes place.

I am selling a house property which I have inherited through my uncle’s will. What will be the cost of acquisition in this case?

The cost of acquisition will be taken to be the cost of acquisition borne by your uncle. If such cost cannot be ascertained, it will be

the fair market value of the property on the date on which he became its owner. However, if he acquired the property before

1.4.1981, you have the option to take the fair market value of the property as on 1.4.1981, instead of the actual cost borne by your

uncle.

I sold some jewellery which I had purchased long time back. I do not have any records of the cost of the individual pieces. How do I determine the cost of acquisition?

In case you cannot determine the actual cost, you can take the fair market value of the pieces as on the dates you acquired them.

In case you purchased them before 1.4.1981, you may take the fair market value of the jewellery as on 1.4.1981 to be the cost of

acquisition.

I am selling 200 shares of a company. Out of these, 100 were allotted to me as bonus shares. What will be the cost of acquisition of the bonus shares?

The cost of acquisition of the 100 bonus shares (if allotted after 1.4.1981) will be taken to be nil. If they were allotted before

1.4.1981, you may opt for their market value on 1.4.1981. The cost of the original shares will be the actual amount paid by you for

acquiring them.

I owned a house property in which the office of my firm was located. Certain renovation was carried out in the premises, the expenses being borne by the firm. I am now selling the house. Can I show the renovation expenses as cost of improvement?

No, only such cost can be shown as cost of improvement which is actually borne by you. If the renovation expenses were borne by

the firm, you cannot show them as cost of improvement. Only your share of the expenses, which were debited to your account in

the firm’s books may be shown.

What kind of expenses can be shown as cost of improvement? Please give some examples.

Cost of improvement means any capital expenditure incurred for making additions or alteration to an existing capital asset which

increase or enhance the life, utility or worth of the asset. For example, raising an additional floor of the building, adding a room,

renovating the look of the building, construction of a boundary wall around a plot of land, clearing of encumbrances on a property,

cost of getting the property vacated from unauthorised occupiers, etc.

I took a loan for purchasing the house property. Can I include the interest paid by me on the loan as part of the cost of acquisition?

No, you cannot, since such interest is deductible under the head “Income from House Property”.

Please give some examples of costs of transfer which may be claimed as deduction from sale consideration for the purpose of computing capital gains.

Some examples of costs of transfer are:

(i) Cost of stamp duty and registration fee borne by the owner

(ii) Commission or brokerage paid to agent

(iii) Travelling expenses in connection with the transfer

(iv) Lawyer’s fees and other expenses for preparing the conveyance deed and other documents

(v) Advertising cost for putting ads in newspapers, expenses on valuer for valuing the property, etc.

I received Rs.1,00,000 from the Insurance company as compensation for the servant’s quarter in my house which was damaged by fire. How is this compensation amount to be treated?

If any capital gains arise on account of the compensation received by you, the capital gains will be chargeable to tax in the year in

which the compensation money was received.

What is the Cost Inflation Index for the financial year 2006-07?

Cost Inflation Index for the year 2006-07 is 519.

I am selling the house property in which I am currently residing and am purchasing another house instead. Am I entitled to any exemption?

Yes, you may avail of the provisions of section 54 in respect of transfer of residential house property. The following conditions must

be satisfied in order to claim exemption:

(i) The house property being sold must be a residential property.

(ii) It must be a long term capital asset.

(iii) The capital gains arising upon the transfer must be re-invested in another residential house property.

(iv) If the new house is purchased, the purchase must be within 1 year before or 2 years after the sale.

(v) If the new house is constructed, the construction must be completed within 1 year before or 3 years after the sale.

(vi) The new property must not be transferred within 3 years from the date of its acquisition.

Amount of exemption = Amount of capital gains or cost of the new house, whichever is less.

I have just sold a residential house property. If I am unable to purchase another house before the end of the same previous year, how can I avail of the exemption u/s 54? Can I show the capital gains in the year I purchase the new house?

No, capital gains arise in the year of transfer. So you have to show it in your tax return for that previous year. However, there is a

practical remedy to the problem. Since the Act gives you 2 years to purchase or 3 years to construct the new house, in order to

claim exemption u/s 54, you may deposit the amount of capital gains which remain unutilised till the due date of filing return, in the

Capital Gains Account Scheme, 1988. The deposit has to be made before the due date of filing return and the proof of such deposit

is to be attached to the return. The amount already utilised by you towards cost of acquisition of the new house (e.g. any initial

deposit paid, etc.) as well as the amount deposited under the Scheme will together be deemed to be the cost of the new house and

exemption u/s 54 will be granted accordingly. For example, if you have earned capital gains of Rs.8,00,000 in the previous year

2005-05 and have paid Rs.50,000 as advance against the new house that you are buying, you will have to deposit Rs.7,50,000

under the Capital Gains Account Scheme before 31st July, 2006, the due date for filing return. Only then, you can claim exemption

in respect of Rs.8,00,000.

What happens if I do not ultimately acquire the new house? I have already claimed exemption.

The unutilised amount lying in the Capital Gains Account Scheme after the expiry of 3 years from the date of the transfer will be

deemed to be long term capital gains of that previous year and will be charged to tax accordingly. In the previous example,

assuming that the original house was sold on 1.7.2005, if the new house is not acquired by 1.7.2008, the amount of exemption

claimed earlier will be taxed as long term capital gains of the previous year 2008-09.

What are the consequences if the new house is transferred within 3 years of its acquisition?

In this case, for computing capital gains on the transfer, the cost of acquisition of this house will be reduced by the capital gains

which had been exempted earlier. Continuing with the same example, suppose the new house is acquired on 1.2.2008 for

Rs.15,00,000 and it is sold on 15.12.2010. Then, for computing capital gains arising in the previous year 2010-11, the cost of the

house will be taken to be Rs.(15,00,000 – 8,00,000) i.e. Rs.7,00,000 instead of Rs.15,00,000.

I have sold some shares and earned capital gains on the same. I do not wish to invest in a house. In what else can I invest this money in order to claim exemption in respect of the capital gains?

You can claim exemption u/s 54EC by investing in specified financial assets. The detailed provisions are given in the previous answer.

TAXES SIMPLIFIED – INCOME FROM OTHER SOURCES

How will I know whether an income will be chargeable under this head?

Any income which is chargeable to tax but does not fall under the other four heads of income, namely, Salaries, House

Property, Business or Professional Income and Capital Gains, will be chargeable under this head.

Can you give some examples of incomes that could be charged under this head?

Casual income e.g. prize money from a competition

Interest on loans

Insurance commission

Agricultural income from land in foreign country

Income from racing and lotteries

Family pension, etc.

Please note that the above list is only indicative, and not exhaustive.

Is the entire amount received chargeable to tax?

In certain types of income (e.g. winnings from lotteries, etc.), the entire amount is chargeable to tax. In other cases, whenever

any amount is received which is of the nature of Income from Other Sources, you will be entitled to a deduction in respect of any

expenses (other than capital expenditure) incurred by you for the purpose of earning that income. The net amount received will be

the income chargeable to tax.

I have received dividend from an overseas company which was remitted to me from abroad. I am told that dividend income is not taxable any more. Is that correct?

As per the law as of now, dividends from domestic companies only are exempt from tax. Therefore, dividend received from a

foreign company continues to be taxable and is chargeable under the head “Income from Other Sources”. However, any commission

paid by you to a bank or other person for realising the dividend will be allowed as a deduction from such income.

How are dividend from UTI, etc. taxed?

Dividends and other income from UTI and other specified Mutual Funds are exempt from tax.

I own a plot of land which I recently let out for a marriage function. How will the amount received be taxed?

If this is the first time you let out the place for a function, and do not intend to rent it out repeatedly as a business, the income

received will be taxed as Income from Other Sources. In such case, any amount you may have spent on expenses related to that

rental income will be deducted and the residual income will be charged to tax.

I have won Rs.50,000 as prize money in a game show hosted by a television channel. Can I claim the cost of participation as a deduction?

No, in case of the following types of earnings, namely, winnings from lotteries, crossword puzzles, races (including horse

races), card games and other games, gambling, betting, etc., no deduction will be allowed against the amount received. The entire

amount will be charged to tax.

My father was receiving pension which was taxable in his hands. Now he has passed away, and we are receiving family pension. How will this income be taxed?

Family pension is taxed in the hands of the legal heir as Income from Other Sources.

However, you are entitled to claim deduction as follows:

33 1/3 % of the family pension received, or

Rs.15,000,

Whichever is less.

The net amount will be charged to tax.

Are gifts taxable? My brother has given my son an amount of Rs.60,000 by bank draft on the occasion of my son’s 21st birthday. Is the amount taxable?

Gifts in excess of Rs.50,000 are taxable except in the following cases:

(i) Money received from a relative

(ii) Money received on the occasion of marriage of the assessee

(iii) Money inherited or received through a will

(iv) Money received from a person in contemplation of death, i.e. the payer believes that he/ she might have reason to die soon

(v) Money received from a local authority or from notified trusts, institutions, universities, etc.

Since your brother falls within the definition of ‘relative’ for this purpose, the amount will not be taxable.

I got married recently and was gifted a Santro car by my brother. Will the gift be taxable?

Gifts in kind are not taxable under this head.

I would like to gift a sum of Rs.10,000 to my close friend’s daughter on the birth of her son. Will she have to pay tax on it?

If the total amount received by her on such occasion is in excess of Rs.50,000, the entire amount will be taxable under the

head Income from Other Sources. Therefore, the taxability of the amount gifted by you will depend on the aggregate sum of money

she gets from all the donors who gift money to her.

I own some antique furniture which I had lent out in 2006 for the shooting of a period film. In recognition of my gesture, the producer paid me an ad hoc amount of Rs.1,00,000. I am now told that the amount will be treated as business income. I do not wish to make this my business and I made this gesture simply because the producer happens to be my neighbour. What option do I have?

The amount received by you will be treated as income. However, since you have no intention of renting out the furniture

regularly as a business, you may show it as Income from Other Sources. For this purpose, you will also be entitled to claim

deduction on account of expenditure incurred by you on repairs and maintenance and depreciation of the furniture.

I own a fully furnished flat in Pune which is for my personal use. Last year I let it out for a month to my friend’s family on the occasion of a wedding in their family. I received a composite rent of Rs.12,000 for the use of the flat along with the furniture, as well as use of electricity, gas, etc. How will I show this income in my returns?

Normally, income from letting out of a house property is chargeable under Income from House Property and income from other

services is chargeable as business income if it is in the nature of a business, or as income from other sources. In the given situation,

since the flat has been let out as a one-off instance, and further, since the cost of other services is included in the composite rent

and it is not possible to segregate them, the whole amount (net of expenses, if any) would be chargeable under Income from Other

Sources.

TAXES SIMPLIFIED – CLUBBING OF INCOME

I stay in a house owned by my nephew. The ground floor has been rented out. As per my nephew’s instructions, I collect the rent as my monthly income. Under which head of income will that income be taxed in my hands?

The rental income will not be taxed in your hands since the house property belongs to your nephew. It will be included as house

property income in your nephew’s total income.

The rental income will not be taxed in your hands since the house property belongs to your nephew. It will be included as house property income in your nephew’s total income.

Since the fixed deposits are not in your name, the income arising thereon, being the interest earned on them, will not be your

income but your husband’s and will accordingly clubbed with his total income, even though it is credited to your bank account.

We own a flat in another city which is rented out for residential purposes. The flat is presently in my husband’s name but he is thinking of transferring it in my name since I do not have any income of my own. I will be using the rent income for my personal expenses. Please advise.

As per the income tax law, if a person transfers any asset to his spouse’s name without adequate consideration in return, the

income from the asset will be clubbed with the person’s income. Therefore, even if the property is transferred in your name and the

rent is to be your income, the income will still be taxed in your husband’s name since he is transferring it without any consideration

in return.

I am a self employed professional. I am thinking of employing my wife as my secretary in my office. I will be paying her a monthly salary. What are the tax consequences?

As per clubbing provisions, if a person gets a remuneration from his/her spouse’s organisation without possessing any professional

or technical qualifications which are required for such employment, the income will be clubbed with the spouse’s income. Hence, if

your wife is neither specially trained nor has any experience of working as a secretarial help, her income is liable to be clubbed in

your hands.

My wife and I are both partners in our firm of Architects and Designers. I am a qualified architect and she has done a course in interior decoration. Will we attract clubbing provisions?

No, since both you and your wife are professionally qualified to act in your respective capacities, clubbing provisions will not be

attracted.

My wife and I separated a year ago, but the formal divorce is not yet through. As per the agreement to live apart, I transferred one of my properties (shop space) in her name. She earns rental income from it. In whose name will the income be taxed?

Even though the property was transferred in your spouse’s name without adequate consideration, since the transfer of ownership

was in consonance with the agreement to live apart, the rental income will form part of your wife’s income.

My fiancée and I are planning to get married next winter. I have purchased some bonds in her name. Will the income be taxed in my hands? What will be the position after we are married?

At the time of transfer of the assets in your fiancée’s name, she was not your spouse. Therefore, the income from the bonds will be

taxed in her hands. This position will hold true even after you marry her.

My 8 year old son is a child model for T.V. ads. My wife is a housewife and I am employed in a private firm. The fee for modelling is paid in my son’s name for which my wife and he have opened a joint bank account. How will his income be taxed?

Though your child is still a minor, he earns his income through his skills as a model. Therefore, his income will not be clubbed with

your income but will be taxed in his name.

My wife and I are both doctors. Our sixteen year old daughter is a professional tennis player. Will her income still be clubbed with ours? If so, in whose hands?

Since your daughter is a professional tennis player, she earns her income on her own merit. In such a situation, clubbing provisions

will not be attracted.

I have made some fixed deposit in my minor child’s name, the interest from which is credited to his personal Saving Accounts. How will be this income taxed?

Your minor child’s income will be clubbed with your or your wife’s income, whichever is more, before adding your child income.

However, you will be entitled to a flat deduction of Rs.1,500 from such income before it is clubbed.

My husband and I got divorced last year. I have the custody of my six year old daughter. My ex-husband is a doctor, and I work as an office assistant in a private firm. My ex-husband pays for the maintenance of my child. My daughter has certain fixed deposits in her name. Will the interest income be clubbed with my income?

In case of a minor child whose parents are separated, the income of the minor will be clubbed along with the income of the parent

who maintains the child in that previous year. Therefore in your case, since the maintenance of your child is done by her father her

income will be clubbed with your ex-husband’s income.

My son who lives in the U.S is engaged to be married. The marriage will take place after one year when he next visits India. The formal engagement took place last month in the U.S. I have gifted a flat to them which I have registered in my future daughter-in-law’s name. The flat is currently rented out, and the rental income is received by my daughter-in-law who hands it over to us. In whose hands will the rental income be taxed?

According to the clubbing provisions, where an asset is transferred by a person in the name of his son’s wife without any

consideration, the income from such asset will be clubbed along with the income of the transferor. In your case, since the

transferee is not yet your son’s wife, clubbing provisions will not be attracted. Therefore, the rental income will be taxed in her

name.

I own several bonds, some of which I am thinking of gifting to my daughter-in-law. What will be the tax consequences?

Since you will be transferring the bonds in your daughter-in-low’s name without receiving adequate consideration in return, as per

the income-tax law, the income from such bonds will be taxed in your hands along with your other income.

How will be clubbing of income under different heads will be carried out?

The income which is to be clubbed should be added to income under that particular head to arrive at the gross total income.

Thereafter deductions from gross total income provided under Chapter VI A will be deducted from the gross total income.

TAXES SIMPLIFIED – LIVE INSTANCES

I already own one residential house property on which I am claiming deduction of interest on housing loan. I am showing this property as self occupied. I am now thinking of buying another house property in the same town. Can I claim deduction for the interest on the second housing loan as well?

For the purpose of claiming deduction of housing loan interest, there is no bar on the number of house properties. However, if you

own more than one house, you can claim only one such house to be self occupied. The other house property will be treated as let

out (whether or not it is actually rented out) and the income from that house will be computed on the basis of actual or notional rent,

as the case may be. Interest will be allowed to be deducted from the income thus computed.

I have recently changed jobs. My earlier employer has been deducting tax at source from my salary income. Since I have shifted in the middle of the financial year, how will the earlier TDS be adjusted? Which Form No.16 should I furnish with my returns?

You may furnish the details of the tax deducted earlier so that your new employer may take that into account. This will prevent

double deduction of tax at source. While preparing your returns, you will need to consolidate your total salary income from both the

places of employment and attach the Form No.16 from both your employers.

I have inherited a house property by virtue of my grandfather’s will. Will there be any tax consequences?

Income-tax arises on income and on capital gains arising from the transfer of an asset. What is important, therefore, is to determine

whether inheritance falls within the definition of “transfer”. The Act clearly says that transfer of a capital asset under a gift or will

does not constitute transfer. Therefore, there will be no tax incidence on the inheritance. However, any income you might earn from

the asset itself (e.g. rent, etc) will be taxable in your hands. Similarly, if you sell or transfer the property, any capital gains arising on

that transfer will be taxable in your hands.

On my father’s death, I have inherited some antique teak furniture. What will be the taxability of the inheritance?

Capital gains arise on the transfer of capital assets. By definition under the Income-tax Act, capital assets do not include “personal

effects, that is to say, …furniture,….held for personal use by the assessee….”. Therefore, no capital gains arise on inheriting

furniture. In any case, transfer on account of inheritance is not considered as a transfer for the incidence of capital gains.

Therefore, there will be no tax consequence.

My mother has passed on her family heirloom jewellery to my wife through her will. Does my wife become liable to tax?

Though jewellery is used for personal adornment, by definition under the Act, jewellery is treated as “capital asset”. Therefore,

transfer of jewellery is exigible to capital gains in the hands of the transferor. However, since the mode of transfer is inheritance,

(which is not a transfer for the purpose of capital gains) no capital gains will arise on this transfer. However, in future, if your wife

sells this jewellery, she will be liable to pay tax on the capital gains arising from such sale.

My uncle (mother’s brother) has just gifted me a car. Will I have to pay tax on it? Will my uncle be liable to pay tax in any way?

Transfer of a personal effect is not a transfer for the purpose of capital gains. Therefore, no tax arises on account of capital gains in

the hands of your uncle. However, you may be questioned under the purview of section 69A which deals with unexplained money,

etc. If the Assessing Officer is not satisfied by your explanation regarding the source of the asset, the value of the car may be

treated as your income. Further, your uncle may have to satisfy the Assessing Officer regarding his source of income for making

the gift.

Are gifts from non-relatives taxable in the hands of the recipient?

Gifts in cash which aggregate Rs.50,000 or more in any previous year, the entire amount may be taxed as Income from Other

Sources. Certain exceptions are provided, e.g on the occasion of marriage, if the gifts are made by relatives, etc. Gifts in kind are

not taxable as other sources, but the recipient will be covered by section 69A, which deals with unexplained money, etc. If the

Assessing Officer is not satisfied by the explanations regarding the source of the gift, the value of the gift may be treated as income

of the recipient and will be taxed accordingly.

TAXES SIMPLIFIED – DEDUCTIONS

How much rebate or deduction is now available in respect of investments? Is there any restriction on the amount of investment I can make?

With effect from assessment year 2006-07, there is no rebate from tax in respect of investments made. Rather, deductions under

sections 80 C, 80 CCC and 80 CCD in Chapter VI A of the Income-tax Act, 1961 are available from the gross total income. These

deductions are allowed only to individuals and HUFs, and the maximum deduction allowed is Rs.1,00,000 in a particular year. In

other words, if the total sum paid/invested in all the eligible categories under sections 80 C, 80 CCC and 80 CCD exceeds

Rs.1,00,000 you can claim only Rs.1,00,000 in total from your gross total income.

What are the investment payments which are eligible for deduction under section 80C?

The eligible categories of payments/ investments are as follows:

i) any life insurance premium paid by an individual in respect of :

  a) himself/herself,

  b) his/her spouse, and

  c) any of his/her children.

However, the amount of premium paid should not exceed 20% of the capital sum assured.

ii) any payment made by the individual only to in respect of a non-commutable deferred annuity on the life of: (a) the individual

himself, (b) his/her spouse, and (c) any of his children

iii) any sum deducted in accordance with the conditions of services from the salary payable by or on behalf of the Government to

any individual for the purpose of securing to him a deferred annuity or making provision for his spouse or children. The sum

deducted should not exceed 1/5th of the salary;

iv) any contribution by the employee towards a statutory provident fund or recognized provident fund. The deduction in this respect

is allowable to an individual only.

v) any contribution to a public provident fund by an individual or HUF. The contribution may be made to an account standing in the

name of the person himself, his/her spouse, any of his children.

vi) any contribution by an employee to an approved superannuation fund;

vii) any subscription by an individual or HUF to National Savings Scheme, 1992;

viii) any subscription by an individual or HUF to National Savings Certificates (VIII Issue). Any interest accrued on these certificates

which is deemed to be reinvested also qualifies for deduction.

ix) any contribution by an individual or HUF for participation in the Unit Linked Insurance Plan of the Unit Trust of India or Unit

Linked Insurance Plan (formerly known as Dhanraksha-1989) of LIC Mutual Fund notified under section 10(23D). The contribution

may be made in the name of the person himself, his/her spouse, any of his children.

x) any payment made by an individual or HUF to effect or keep in force a contract for notified annuity plan of the Life Insurance

Corporation or any other insurer. New Jeevan Dhara, New Jeevan Dhara-I and New Jeevan Akshay, New Jeevan Akshey-I and

New Jeevan Akshey-II are the schemes which have been notified;

xi) any subscription, by an individual or HUF to notified units of (a) any mutual fund covered under section 10(23D), or (b) the

Administrator or the specified company as referred in section 2 of the Unit Trust of India. Equity linked Saving Scheme, 2005 has

since been notified;

xii) any contribution by an individual to a notified pension fund set up by any mutual fund notified u/s 10(23D) or by the

Administrator or the specified company as referred in section 2 of the Unit Trust of India. UTI- Retirement Benefit Pension Fund has

since been notified;

xiii) any subscription by an individual or HUF to any deposit scheme or contribution to any pension fund set up by the National

Housing Bank. The Home Loan Account Scheme of the National Housing Bank has been notified.

xiv) a subscription by an individual or HUF to any notified deposit scheme of:

(a) a public sector company which is engaged in providing long-term finance for construction or purchase of houses in India for

residential purposes; or

(b) any Authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for

housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both;

xv) any sum paid by an individual as tuition fees provided certain conditions are satisfied

xvi) any payment by an individual or HUF for purchase or construction of a residential house property, the income from which is

chargeable to tax under the head ‘Income from house property’.

xvii) Any subscription by an individual or HUF to equity shares or debentures forming part of any eligible issue of capital approved

by the CBDT on an application made by a public company or as subscription to any eligible issue of capital by any public financial

institution in the prescribed form;

xviii) Any subscription by an individual or HUF to any units of any mutual fund referred to in clause (23D) of section 10 and

approved by the Board provided that this clause shall apply if the amount of subscription to such units is subscribed only in the

eligible issue of capital of any company.

xix) Any sum paid as term deposit for a period of at least 5 years with a scheduled bank.

I had started a LIC policy on the life of my daughter for which I was paying the premium and claiming rebate accordingly. My daughter has recently got married. I am continuing to pay the insurance premium on her policy. Can I still claim deduction?

Yes, you can claim deduction so long as you are paying the premium. This deduction is available irrespective of whether the

children are married/unmarried, dependent or not.

What are the payments in respect of housing loan for which I can claim deduction under section 80C?

The deduction is available in respect of payment made for the purchase or construction of a residential house property in any of the

following forms:

(a) any instalment or part payment of the amount due under any self-financing or other scheme of any development authority,

housing board or other authority engaged in the construction and sale of house property on ownership basis; or

(b) any instalment or part payment of the amount due to any company or co-operative society of which the assessee is a

shareholder or member towards the cost of the house property allotted to him; or

(c) repayment of the amount borrowed by the assessee from

  (1) the Central Government or any State Government, or

  (2) any bank, including a Co-operative Bank, or

  (3) the Life Insurance Corporation, or

  (4) the National Housing Bank

  (5) any public company formed and registered in India with the main object of carrying on the business of providing long-term

finance for the construction or purchase of houses in India for residential purpose which is eligible for deduction under income tax

law, or

  (6) any company in which the public are substantially interested or any co-operative society, where such company or co-operative

society is engaged in the business of financing the construction of houses, or

  (7) the assessee’s employer where such employer is a public company or a public sector company or a University established by

law or a college affiliated to such University or a local authority or a co-operative society;

  (8) The assessee’s employer where such employer is an authority or a board or a corporation or any other body established or

constituted under a Central or State Act.

(d) stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee.

The following payments shall not qualify for deduction:

(i) the admission fee, cost of share and initial deposit which a shareholder of a company or a member of a co-operative society has

to pay for becoming such shareholder or member; or

(ii) the cost of any addition / alteration / renovation / repair of the house property which is carried out after the issue of the

completion certificate in respect of the house property or after the house property or any part thereof has either been occupied by

the assessee or been let out; or

(iii) any expenditure in respect of which deduction is allowable for computing income from House Property.

I am told that I can claim deduction in respect of school fees paid for my younger child. Can I claim the full amount paid to the school? I also have a college going older child. Is the deduction available for him as well?

For claiming deduction in respect of tuition fees, the following conditions must be satisfied:

(1) Such sum should have been paid as tuition fees only. Payments towards development fees or donations, etc. are not eligible for

deduction.

(2) It should have been paid at the time of admission or thereafter.

(3) It should have been paid to any university, college, school or other educational institution situated within India.

(4) It should have been paid for the purpose of full-time education.

The deduction is available in respect of fees of any two children of the assessee subject to the overall limit of Rs.1,00,000 for

sections 80C, 80CCC and 80CCD.

What are the provisions with regard to the Government’s new pension scheme for its employees?

Section 80CCD has been inserted to provide for deduction in respect of the New Pension Scheme applicable to new entrants in

Government service. As per the scheme, it is mandatory for persons entering the service of the Central Government on or after 1-

1-2004, to contribute 10% of salary every month towards their pension account. A matching contribution is required to be made by

the Government to the said account which will form part of the salary of the employee.

To give effect to the new pension scheme of the Central Government, a new section 80CCD has been inserted to provide for a

deduction of the following amounts from the total income of such an individual:

(1) any amount not exceeding 10% of salary of the previous year paid or deposited by the employee in his account under the

notified pension scheme;

(2) any amount contributed by the employer (i.e. Central Government) to such pension scheme not exceeding 10% of the salary of

the employee.

However, any amount received from such pension fund will be taxable as income in the year in which such amounts are received

by the assessee or his nominee on closure of the account or his opting out of the said scheme or on receipt of pension from the

annuity plan.

How much deduction can I claim in respect of medical insurance premium? Is the premium paid in respect of my wife’s mediclaim policy also eligible for deduction?

Deduction in respect of health or medical insurance premium is available under section 80D. This deduction is available to

individuals & HUF. The maximum amount of deduction is Rs.10,000/- during the year. Where the premium is paid to keep in force

the health insurance of a senior citizen, the maximum limit is Rs.15,000/-. In case of an individual the deduction is available with

respect of health insurance premium paid for self, spouse, dependent parents or dependent children. In case of HUF it is available

for health insurance premium paid for any member of HUF. However, the condition is that the premium must be paid by cheque in

the previous year out of the income chargeable to tax and the insurance should be in accordance with a skim framed by the

General Insurance Co-operation of India or Any other Insurer approved by the Insurance Regulatory and Development Authority

(IRDA).

What are the provisions dealing with expenditure incurred for a disabled dependant? What are the disabilities covered under this provision?

Deduction is available under section 80 DD in respect of any amount spent by a person on the medical treatment or medical

insurance of a disabled dependant. Such expenditure may be for the treatment, nursing, training and rehabilitation of the disabled

person. In case of insurance payments the amount should have been paid under any scheme framed by LIC or UTI or any other

scheme, approved by the CBDT. The scheme should be such that the benefits should be in favour of the disabled dependant or

any person or trust on his behalf.

The assessee should furnish a copy of the certificate issued by the medical authority in Form 10 IA along with his return of income.

The amount of deduction is Rs.50,000 irrespective of actual expenditure incurred/ amount deposited. In case of severe disability,

the deduction will be Rs.75,000.

Meaning of “dependant”:

 “Dependant” means-

  (a) in the case of an individual, the spouse, children, parents, brothers and sisters of the individual or any of them.

  (b) in the case of a HUF, a member of the HUF, dependant wholly or mainly on such individual or Hindu undivided family for his

support and maintenance, and who has not claimed any deduction under section 80U in computing his total income for the

assessment year relating to the previous year.

Meaning of “disability”- “Disability” shall have the meaning assigned to it in section 2(i) of the Persons with Disability (Equal

Opportunities, Protection of Rights and Full Participation) Act, 1995. It includes autism, cerebral palsy and multiple disability as

proved for in the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability

Act,1999.

Meaning of “medical authority”-

 “Medical authority” has been defined in the Persons with Disability (Equal Opportunities, Protection of Rights and Full Participation)

Act, 1995. As per this Act “Medical authority” means a hospital or institution specified for the purposes of this Act by notification by

the appropriate Government.

The medical authority for certifying ‘autism’, ‘cerebral palsy’, multiple disabilities, person with disability and severe disability referred

to in section 2(a), (c), (h), (j) and (o) of the National Trust for Welfare of Persons with autism, cerebral palsy, Mental Retardation

and Multiple Disabilities Act, 1999 shall consist of the following:

 (i)  a Neurologist having degree of Doctor of Medicine (MD) in Neurology (in case of children, a Paediatric Neurologist having an

equivalent degree); or

 (ii)  a Civil Surgeon or Chief Medical Officer in a Government hospital.

Meaning of “person with disability”- “Person with disability” means a person as referred to in section 2(t) of the Persons with

Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995.

 As per section 2(t), “person with disability” means a person suffering from not less than 40% of any disability as certified by a

medical authority.

  “Disability means-

 (i)  blindness;

 (ii)  low vision;

 (iii)  leprosy-cured;

 (iv)  hearing impairment;

 (v)  locomotor disability;

 (vi)  mental retardation;

 (vii)  mental illness.

  “Blindness” refers to a condition where a person suffers from any of the following conditions, namely:-

 (i)  total absence of sight; or

 (ii)  visual acuity not exceeding 6/60 or 20/200 (snellen) in the better eye with correcting lenses; or

 (iii)  limitation of the field of vision subtending an angle of 20 degree or worse.

  “Person with low vision” means a person with impairment of visual functioning even after treatment or standard refractive

correction but who uses or is potentially capable of using vision for the planning or execution of a task with appropriate assistive

device.

   “Leprosy-cured person” means any person who has been cured of leprosy but is suffering from-

 (i)  loss of sensation in hands or feet as well as loss of sensation and paresis in the eye and eye-lid but with no manifest deformity;

 (ii)  manifest deformity and paresis but having sufficient mobility in their hands and feet to enable them to engage in normal

economic activity;

 (iii)  extreme physical deformity as well as advanced age which prevents him from undertaking any gainful occupation.

  “Hearing impairment” means loss of sixty decibels or more in the better year in the conversational range of frequencies.

  “Locomotor disability” means disability of the bones, joints or muscles leading to substantial restriction of the movement of the

limbs or any form of cerebral palsy.

  “Mental retardation” means a condition of arrested or incomplete development of mind of a person which is specially characterized

by sub-normality of intelligence.

  “ Mental illness” means any mental disorder other than mental retardation.

  Meaning of “person with severe disability”

  “Person with severe disability” means a person with 80% or more of one or more disabilities, as referred to in sub-section (4) of

section 56 of the Persons with Disabilities (Equal opportunities, Protection of Rights and Full Participation )Act, 1995.

I am a senior citizen. My wife is suffering form cancer and has had to undergo specialised treatment for which I have spent a considerable sum of money. Am I eligible for any tax relief in respect of the amount?

You may take advantage of Section 80DDB which provides for deduction in respect of medical expenditure for yourself or your

dependant. The section provides that where an assessee who is resident in India has, during the previous year, actually paid any

amount for the medical treatment of such disease or ailment as may be specified in the rules made in this behalf by the Board-

(a) for himself or a dependant, in case the assessee is an individual; or

(b) for any member of a HUF, in case the assessee is a HUF.

The maximum deduction allowed is Rs.40,000, in respect of that previous year in which such amount was actually paid. In case the

amount actually paid is in respect of the assessee or his dependant or any member of the HUF of the assessee who is a senior

citizen, a higher deduction of Rs. 60,000 shall be available. Therefore, if your wife is also a senior citizen, you may claim Rs.60,000

for the previous year.

The conditions required to be satisfied are as follows:

(i) You should furnish with your return of income, a certificate in Form 10-I, from (as the case may be) a neurologist, an oncologist,

a urologist, a haematologist, an immunologist or such other specialist, as may be prescribed, working in a Government hospital.

(ii) If any amount was received under an insurance from an insurer or reimbursed by an employer in this respect, the deduction

under this section shall be reduced by the amount received.

According to Rule 11DD, for the purposes of section 80DDB, the following shall be the eligible diseases or ailments:

 (i) Neurological Disease where the disability level has been certified to be of 40% and above,-

  a. Dementia;

  b. Dystonia Musculorum Deformans

  c. Motor Neuron Disease

  d. Ataxia;

  e. Chorea;

  f. Hemiballismus;

  g. Aphasia;

  h. Parkinsons Disease;

 (ii) Malignant Cancers;

 (iii) Full Blown Acquired Immuno-Deficiency Syndrome (AIDS);

 (iv) Chronic Renal failure;

 (v) Hematological disorders;

  (i) Haemophilia;

  (ii) Thalassaemia.

My son has been selected for an Engineering course. I am thinking of applying for an educational loan for this purpose. What are the deductions available for this purpose?

Firstly the loan has to be taken by your son, because the Act provides for deduction in respect of loan taken by a person for his

own higher education. Secondly, the deduction will be applicable from the year in which your son starts repaying the interest out of

his own income chargeable to tax. The deduction will be available in respect of the full interest which is paid for maximum of 8

consecutive assessment years, beginning with the assessment year in which the interest is first paid and ending with the year in

which the interest is fully paid. Please note that no deduction is now available on repayment of the principal amount. Further, the

loan should be taken from any financial institution or charitable institution approved by the Central Government for this purpose.

Meaning of higher education: Higher education means full time studies for any graduate or post-graduate course in engineering,

medicine, management or for a post-graduate course in applied sciences or pure sciences, including mathematics or statistics.

Please explain the provisions for claiming deductions in respect of donations to charity. I have donated different sums to organisations like CRY, Helpage India, etc. Can I claim the full amount donated by me to various charitable organisations?

Donations to charitable organisations are eligible for deduction under section 80G. However, different limits apply to different types

of charities. There are 4 categories in all. They are listed as follows:

(1) Donations made to following are eligible for 100% deduction without any qualifying limit:

i) National Defence Fund set up by the Central Government.

ii) Prime Minister’s National Relief Fund.

iii) Prime Minister’s Armenia Earthquake Relief Fund;

iv) Africa (Public Contributions India) Fund;

v) National Foundation for Communal Harmony;

vi) University/ Educational Institution of National Eminence approved by the prescribed     authority;

vii) Maharashtra Chief Minister’s Earthquake Relief Fund;

viii) Any fund set up by the State Government of Gujarat, exclusively for providing relief to     the victims of earthquake in Gujarat;

ix) Zila Saksharta Samiti constituted in any district;

x) The National Blood Transfusion Council or any State Blood Transfusion Council;

xi) Any Fund Set up by a State Government to provide medical relief to the poor;

xii) Any Amy Central Welfare Fund or the Indian Naval Benevolent Fund or the Air Force     Central Welfare Fund.

xiii) The Andhra Pradesh Chief Minister’s Cyclone Relief Fund, 1996;

xiv) National Illness Assistance Fund;

xv) The Chief Minister’s Relief Fund or the Lieutenant Governor’s Relief Fund in respect of any     State Union Territory, as the case

may be;

xvi) National Sports Fund set up by the Central Government;

xvii) National Cultural Fund set up by the Central Government;

xviii) Fund for Technology Development and Application, set up by the Central Government;

xix) National Trust for Welfare of persons with Autism, Cerebral Palsy, Mental Retardation and     Multiple Disabilities;

(2) Donations made to the following are eligible for 50% deduction without any qualifying limit:

(i) Jawaharlal Nehru Memorial Fund;

(ii) Prime Minister’s Drought Relief Fund;

(iii) National Children’s Fund;

(iv) Indira Gandhi Memorial Trust;

(v) Rajiv Gandhi Foundation.

All other donations in aggregate will be subject to a qualifying limit of 10% of adjusted gross total income. Adjusted Gross Total

Income means Gross Total Income as reduced by long term capital gains, if any included in the total income, all other deductions

under Chap. VI A, and all income under sections 115 A to 115 D. Within this category, some qualify for 100% deduction of the

amount of donation. Others are limited to 50% of the amount donated.

(3) Donations to the following are eligible for 100% deduction subject to qualifying limit:

(i) Donations to Government or any approved local authority, institution or association to be     utilized for promoting family

planning.

(ii) Any sums paid by the assessee, being a company, in the previous year as donations to     India Olympic Association or to any

other association or institution established in India and     notified by the Central Government for-

  (a) the development of infrastructure for sports and games; or

  (b) the sponsorship of sports and games, in India.

Donations to the following are eligible for 50% deduction subject to qualifying limit:

(i) Donation to Government or any approved local authority, institution or association to be     utilized for any charitable purpose

other than promoting family planning.

(ii) Any other fund or institution which satisfies the conditions of section 80G(5). CRY, Helpage     India, etc. would fall within this

category.

(iii) To any authority constituted in India by or under any law for satisfying the need for     housing accommodation or for the

purpose of planning development or improvement of     cities, towns and villages or for both.

(iv) To any corporation established by the Central or any State Government minority     community.

(v) Any notified temple, mosque, gurdwara, church or other place notified by the Central     Government to be of historic,

archaeological or artistic importance, for renovation or repair     of such place.

I am told that there is a deduction available for payment of rent in Chapter VI A. Part of my rent is reimbursed by my employer. Can I claim the remainder as a deduction?

Deduction is available under section 80GG in respect of rent paid by an individual. However, the following conditions must be

satisfied:

(i) The rent should be paid by the individual himself.

(ii) The individual should be self-employed. If employed, he should not be receiving any HRA from his employer.

(iii) The individual, his spouse or minor child of HUF of which he is a member, should not own any residential house in the same

place.

(iv) If the individual owns any residential house property in any other place, he should be showing it in his returns as self-occupied

house property.

(v) The individual should file a declaration in Form 10 BA along with his returns.

The amount of deduction that can be claimed under this section is the least of the following:

(i) Excess of rent paid over 10% of adjusted Gross Total Income.

(ii) 25% of adjusted Gross Total Income.

(iii) Rs.2,000 per month.

Adjusted Gross Total Income means Gross Total Income as reduced by long term capital gains, if any included in the total income,

all other deductions under Chap. VI A, and all income under sections 115A to 115D.

I am a retired professor. I would like to donate some part of my retirement benefits to my erstwhile University for the purpose of carrying out scientific research. Can I claim any deduction on account of such payment.

Deduction is available under section 80GGA in respect of donations made for scientific research or rural development. The

condition is that you should not have any business or professional income during the year. The deduction is available for payments

made to the following organisations:

(i) an approved scientific research association, university, college or other institution to be used for scientific research;

(ii) an approved university, college or other institution for research in social science or statistical research;

(iii) an association or institution engaged in any approved programme for rural development, or which is engaged in training of

persons for implementation of rural development programmes, or to a notified rural development fund or to the notified National

Urban Poverty Eradication Fund. In this case, the assessee should furnish a certificate as is required under section 35CCA;

(iv) a public sector company or a local authority, or to an association or institution approved by the National Committee, for carrying

out any eligible project or scheme. In this case also, the assessee should furnish a certificate as a required under section 35AC

The amount of deduction will be the full amount actually paid for this purpose during the previous year. However, you cannot claim

any deduction in respect of the above payment under any other section of the Act.

Are donations to a political party eligible for deduction?

Any contribution by a person to a registered political party will be eligible for deduction under section 80 GGC.

What are the deductions available if the person filling the return is disabled?

Deduction is available under section 80U in case of a person with disability. The conditions are that the assessee should be a

resident of India and should be a person satisfied by the appropriate medical authority to be a person with disability at any time

during the previous year. In case of a person with disability, the amount of deduction is Rs. 50,000/-. This amount is Rs. 75,000/- in

case of a person with severe disability. For claiming this deduction the assessee has to furnish a certificate issued by the medical

authority along with his return of income.

Meaning of “disability”- “Disability” shall have the meaning assigned to it in section 2(i) of the Persons with Disability (Equal

Opportunities, Protection of Rights and Full Participation) Act, 1995. It includes autism, cerebral palsy and multiple disability as

proved for in the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability

Act, 1999.

Meaning of “medical authority”-

   “Medical authority” has been defined in the Persons with Disability (Equal Opportunities, Protection of Rights and Full

Participation) Act, 1995. As per this Act “Medical authority” means a hospital or institution specified for the purposes of this Act by

notification by the appropriate Government.

The medical authority for certifying ‘autism’, ‘cerebral palsy’, multiple disabilities, person with disability and severe disability referred

to in section 2(a), (c), (h), (j) and (o) of the National Trust for Welfare of Persons with autism, cerebral palsy, Mental Retardation

and Multiple Disabilities Act, 1999 shall consist of the following:

 (iii)  a Neurologist having degree of Doctor of Medicine (MD) in Neurology (in case of children, a Paediatric Neurologist having an

equivalent degree); or

 (iv)  a Civil Surgeon or Chief Medical Officer in a Government hospital.

Meaning of “person with disability”- “Person with disability” means a person as referred to in section 2(t) of the Persons with

Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995.

  As per section 2(t), “person with disability” means a person suffering from not less than 40% of any disability as certified by a

medical authority.

“Disability means-

(viii) blindness;

(ix) low vision;

(x) leprosy-cured;

(xi) hearing impairment;

(xii) locomotor disability;

(xiii) mental retardation;

(xiv) mental illness.

“Blindness” refers to a condition where a person suffers from any of the following conditions, namely:-

(iv) total absence of sight; or

(v) visual acuity not exceeding 6/60 or 20/200 (snellen) in the better eye with correcting lenses; or

(vi) limitation of the field of vision subtending an angle of 20 degree or worse.

“Person with low vision” means a person with impairment of visual functioning even after treatment or standard refractive correction

but who uses or is potentially capable of using vision for the planning or execution of a task with appropriate assistive device.

“Leprosy-cured person” means any person who has been cured of leprosy but is suffering from-

(iv) loss of sensation in hands or feet as well as loss of sensation and paresis in the eye and eye-lid but with no manifest deformity;

(v) manifest deformity and paresis but having sufficient mobility in their hands and feet to enable them to engage in normal

economic activity;

(vi) extreme physical deformity as well as advanced age which prevents him from undertaking any gainful occupation.

“Hearing impairment” means loss of sixty decibels or more in the better year in the conversational range of frequencies.

“Locomotor disability” means disability of the bones, joints or muscles leading to substantial restriction of the movement of the limbs

or any form of cerebral palsy.

“Mental retardation” means a condition of arrested or incomplete development of mind of a person which is specially characterized

by sub-normality of intelligence.

“ Mental illness” means any mental disorder other than mental retardation.

Meaning of “person with severe disability”

“Person with severe disability” means a person with 80% or more of one or more disabilities, as referred to in sub-section (4) of

section 56 of the Persons with Disabilities (Equal opportunities, Protection of Rights and Full Participation )Act, 1995.

TAXES SIMPLIFIED – LOSSES

What do you mean by setting off of losses? How does one carry it out?

The general process of setting off of losses is as under:-

Firstly, if there is a loss from a particular source (say House Property 1) of income under a certain Head of Income (in this case,

House Property), and at the same time an income from another source (say, House Property 2) within the same head of income,

the loss from one source can be set off against the income from the other source, subject to some exceptions.

In this way, the aggregate income or loss is worked out under each head of income separately.

If the resultant is a loss, i.e. if the loss could not be set off fully under the same head of income, then the balance loss may be

adjusted against income under any other head of income in the same assessment year subject to certain specific exceptions.

Any loss which could not be fully set off in the current assessment year can be carried forward to subsequent years, subject to

certain exceptions.

For this purpose, the Act has laid down specific provisions giving the exceptions referred to as well as the time limits upto which

carry forward of losses is permitted.

What are the exceptions to setting off of loss from one source against income from another source within the same head of income?

In the following cases, loss from one source cannot be set off from income from another source even though they fall under the

same head of income.

1. Loss from a speculation business- Any loss arising from a speculation business carried on by a person cannot be set off against

non-speculative business income. Such a loss can be set off only against another speculative business income. However, the

reverse is allowed i.e. a non-speculative business loss can be set off against speculative business income.

2. Capital Losses Short Term- Short term capital loss can be set off against both long term capital gain and short term capital gain.

However, long term capital loss can be set off only against long term capital gain.

3. Loss from the activity of owning and maintaining race horses- Loss from the activity of owning and maintaining race horses can

only be set off from income of the same kind of activity and not from any other source.

4. Loss an account of lottery, etc. cannot be set off against winnings from lotteries, crossword puzzles, card games, etc,- No

expenditure or allowance is allowed from winnings from lotteries or crossword puzzle, etc. Similarly, no loss from any lottery, card,

games, races, etc. is allowed to be set off against any other income, not even against income of other winnings of lotteries,

crossword puzzles, card games, races, etc.

Which losses are not allowed to be set off against income from other heads of income?

The Act has specifically laid down exceptions to the general rule that loss from a particular head can be set off against income from

another head of income. They are as follows:

  (i) Business Loss cannot be set off against Salary income.

  (ii) Loss in a speculation business cannot be set off against any other income.

  (iii) Losses incurred in the business of owning and maintaining race horses cannot be set off       against any other income.

  (iv) Losses under the head “Capital Gains” cannot be set off against income under other       heads of income.

Which losses are allowed to be carried forward to be set off in subsequent years?

All losses are not allowed to be carried forward to subsequent years. Only the following are allowed:

 (i)  Loss from House Property

 (ii)  Business losses

 (iii)  Capital losses

 (iv)  Speculation loss

 (v)  Loss from the activity of owning and maintaining race horses.

Are there any conditions to be satisfied for carrying forward of loss?

Yes, for carrying forward of losses under the permitted heads of income, the condition is that the return should be filed within the

due date of filing returns. This means that if a belated return is filed, the benefit of carry forward is lost. Only in the case of loss from

house property, this restriction is not laid down. Therefore, even if a belated return is filed, the loss under the head House Property

shall be allowed to be carried forward.

Is there any limit to the number of years for which losses can be carried forward?

Yes, the Act has laid down specific provisions regarding the number of years for which losses under specific heads can be carried

out.

Loss from House Property: Can be carried forward for 8 assessment years immediately succeeding the assessment year for which

the loss first arose.

Business Losses: Can be carried forward for 8 assessment years immediately succeeding the assessment year for which the loss

first arose.

Unabsorbed depreciation: Unabsorbed depreciation is allowed to be carried forward separately from business loss. Unabsorbed

depreciation is carried forward to the next assessment year and can be carried forward indefinitely. However, for the purpose of set

off, unabsorbed depreciation can be set off only after first setting off the unabsorbed business loss.

Speculation Loss: Can be carried forward for 8 assessment years immediately succeeding the assessment year for which the loss

first arose.

Capital Loss: Can be carried forward for 8 assessment years immediately succeeding the assessment year for which the loss first

arose. Loss from the activity of owning and maintaining race horses: Can be carried forward for 4 assessment years immediately

succeeding the assessment year for which the loss first arose.

What happens if I forget to adjust the carried forward loss in any particular assessment year? Can I adjust it in the next assessment year?

It is important that losses must be carried forward to the immediately succeeding assessment year and be set off against income

arising in that year. Only the balance which could not be set off due to lack of availability of income will be allowed to be carried

forward to the next assessment year. If, for any reason, losses were not carried forward to the next year, the right to carry forward

to following years will lapse. Once the losses are carried forward to the subsequent year, they are to be set off as per the provisions

relating to set off of losses. Further, in order to avail of carry forward and set-off of losses, the income-tax return must be filed within

the due date.

TAXES SIMPLIFIED – TAX PAYMENTS

What do you mean by self assessment?

Self assessment refers to the situation wherein the assessee himself estimates his total income for the year and the tax payable on

such income. Based on the estimation the assessee himself pays advance tax (where required) or self assessment tax at the end

of the year.

Is advance tax payable by all assessees?

Advance tax is payable in every case where the amount of tax payable for a financial year is more than Rs.5,000. In order to arrive

at the tax payable, the following steps are to be followed:

 (i)  The assessee first needs to estimate his income for the year in accordance with the provisions of the Act. This means income

under all the heads of income have to be calculated after taking into account all exemptions, deductions and other relevant

provisions.

 (ii)  The income-tax on the total income arrived at is to be calculated as per the rates in force for previous year in question.

 (iii)  The income-tax shall then be reduced by the amount of tax likely to be deducted or collected for that year. The balance will be

the amount of tax payable.

 (iv)  If this resultant is more than Rs.5,000, the assessee is required to pay advance tax before the due dates for advance tax

instalments together with surcharge (where applicable) and education cess @2%.

Suppose I realise after the end of the financial year that the advance tax paid is less than 100% of the tax payable by me. What remedy is there in my hands?

In such a situation, you can pay the balance tax due along with interest, as applicable, before furnishing your return in that

assessment year, and the proof of payment of such tax and interest will be attached with your return of income. The only exception

is in a situation where any tax liability arises on account of capital gains or casual income, i.e. income from lotteries, etc. Since

these cannot be foreseen ahead of the date on which they arise, the advance tax liability will only arise on the due date for the

immediate next instalment. If they arise after the last instalment date i.e. after 15th March, the entire amount of tax payable should

be paid by 31st March.

How much interest is payable in case advance tax paid is less than the given percentage?

The interest payable under section 234B on account of under-payment of advance tax is to be computed as follows:

Where the total advance tax paid is less than 90% of the total assessed tax, simple interest will be paid @1% per month of the

shortfall for every month or part of a month, as the case may be. The period for which the interest will be calculated shall be from

the 1st day of April of the assessment year upto the date of determination of total income under section 143(1) or the date of

regular assessment, as the case may be.

In case advance tax paid in an instalment is less that the stipulated percentage:

Interest shall be payable under section 234C @ 1% per month for a period of 3 months on the amount of shortfall. In the last

quarter, if the advance tax paid so far is less than the total tax due on the returned income, interest shall be paid @ 1% of the

shortfall.

The only exception shall be in case of capital gains and casual income which arise after any instalment date. No interest shall be

levied if the tax due is paid before the next instalment date or 31st March, as the case may be.

What happens if the bank is closed on the due date of instalment?

If on the due date for payment of advance tax instalment, the bank is closed, the payment can be made on the next working day.

No interest will be levied on the delay.

Which date will be considered as date of payment of advance tax – the date the cheque is presented to the bank or the date of clearance of cheque?

As per a judicial ruling, for the purpose of advance tax, the date of presentation of the cheque will be considered to be the date of

payment, if the cheque is not dishonoured. However, it is advisable to present the cheque well in time so that the cheque is cleared

before the due date of advance tax instalment.

TAXES SIMPLIFIED – TAX DEDUCTIONS (TDS)

As per a judicial ruling, for the purpose of advance tax, the date of presentation of the cheque will be considered to be the date of payment, if the cheque is not dishonoured. However, it is advisable to present the cheque well in time so that the cheque is cleared before the due date of advance tax instalment.

Tax is paid either by deduction (or collection) or by advance payment. In certain types of payments, the law has made deduction of

tax mandatory by the person making the payment. In such cases, the person making the payment is made responsible for correct

and timely deduction or collection of tax. The person who deducts the tax has to pay the sum deducted to the credit of Central

Government within the prescribed time. Further, such person has to prepare quarterly statement of the periods ending on 30th

June, 30th September, 31st December and 31st March in each financial year giving the particulars of the tax deducted and paid to

the Central Government.

What will happen if the concerned person fails to deduct or collect the tax as provided by law?

Any lapse on the part of such person to deduct and collect tax is a punishable offence in the eyes of the law, and penalties have

been imposed for the same. Such person will be deemed to be an assessee in default and will be liable to pay simple interest at

12% per annum on the amount of the tax. The period for calculating this interest will begin from the date on which such tax was

deductible to the date on which such tax is actually paid. Such interest has to be paid before furnishing the quarterly statement.

Further, if tax has not been deducted or collected and paid to the Government as per the provisions, no deduction will be allowed

from business or professional income on account of such expenditure.

What are the categories of payments for which tax deduction at source is mandatory?

In the following types of payments, it is mandatory to deduct tax at source:

 (i)  Payment of salary

 (ii)  Payment of interest on securities

 (iii)  Payment of any other interest

 (iv)  Payment of any prize money or winnings from lottery, crossword puzzles, card game, etc.

 (v)  Payment of any money as winnings from horse races

 (vi)  Payment to contractors/ sub-contractors

 (vii)  Payment of insurance commission

 (viii)  Payment of rent

 (ix)  Payment of fees for professional or technical services

 (x)  Payment to any non-resident of any interest or other income which is chargeable to tax.

On what basis is tax deducted on salary income?

Tax is deducted on salary income at the time of payment of the salary. The deduction is made by the employer on the basis of

estimated income of the employee chargeable under the head “Salaries”. The tax is deducted on a monthly basis at an average of

the income tax computed for that financial year. This liability on the part of the employer is absolute, irrespective of whether the

employer is an individual, HUF, Firm or Company.

What happens if the employee changes jobs?

If, during the course of the year, the employee changes jobs, i.e. he works for more than one employer, he may furnish to the

second employer, the details of his income received from the first employer and the amount of tax already deducted at source on

such salary income. The second employer shall then take into account this record for the purpose of deduction of tax in case of the

concerned employee.

I am a salaried person but I also have rental income from house property as well as some income chargeable under Other Sources on account of interest earnings. Since my house property income is a loss on account of interest payment on housing loan, can I adjust such loss against my salary income?

In case you have any other income in addition to your salary income, you can provide such details to your employer in the

prescribed manner. Your employer will take such details into consideration for deducting TDS. However, please remember that you

cannot show any loss under any head except loss under house property income.

What are the factors to be considered by an employer for the purpose of deducting tax on salary payment to his employees?

The person responsible for deducting tax on salary income (i.e. the employer) should take into account the following factors for

arriving at the amount of tax to be deducted in the case of every employee:

 (i)  The salary income should be computed in according with the provisions of the Income-tax Act. For this purpose sections 15,16

and 17 together with rules 2BB, 3, 3A, etc. need to be studied carefully.

 (ii)  Provisions of section 10(5) dealing with leave travel assistance, section 10(10) dealing with gratuity payments, section 10(10A)

dealing with pension, section 10 (10AA) dealing with leave encashment, section 10(10B) dealing with workmen’s retrenchment

compensation, section 10(10C) dealing with voluntary retirement scheme, section 10(11) & section 10(12) dealing with payments

from provident fund, section 10(13) dealing with approved superannuation funds, section 10(13A) dealing with house rent

allowance, and section 10(14) dealing with special allowances also need to be considered.

All perquisites, whether in cash or kind, should be valued in accordance with the provisions laid down.

(iii) Deductions under chapter VI A under certain sections like 80C, 80CCC, 80CCD, 80CCE, 80D, 80DD, 80E, 80G, 80GG and

80U should be taken into account.

(iv) Tax deducted by any earlier employer should also be considered.

What happens if my salary income is below the taxable limit?

If your income has computed is below the exemption limit no tax will be deducted at source.

What are the documents I need to submit to my employer for the purpose of claiming deduction?

In order to claim deduction under Chapter VI A, you need to give proof of payments to your employer on the basis of which he will

be able to make adjustment in your total income. Please be sure to give him advance notice of your investment plans so that the

chances of over deduction of tax are minimised.

I forgot to inform my employer about my investment in tax saving schemes? As a result, excess tax has been deducted from my salary. How can I get back the excess amount deducted?

The excess amount deducted can be claimed as a refund on filing your income-tax return within the due date. The Department will

refund the excess tax paid after your assessment is complete.

What are the other categories of payments on which tax is to be deducted at source by individuals?

Apart from payment of salary, in the following cases, even individuals making such payment are required to deduct tax at source if

the person making the payment has income from business or profession, and he is subject to tax audit under section 44AB, i.e. the

gross turnover/receipts from his business or profession in the immediately preceding financial year exceeded Rs.

40,00,000/10,00,000 (as the case may be):

(i) Payment of rent

(ii) Fees for professional or technical services, etc.

(iii) Commission or brokerage

(iv) Interest other than interest on securities

What are the provisions for TDS on each of the above categories of payment?

(1) TDS on Rent - For the purpose of TDS on payment of rent, ‘rent’ means any payment, by whatever name called, under any

lease, sub-lease, tenancy or any other agreement or arrangement for the use of any

 (i)  land

 (ii)  building (including factory building)

 (iii)  land appurtenant thereto

 (iv)  machinery

 (v)  plant

 (vi)  equipment

 (vii)  furniture

 (viii)  fittings.

The rent may be paid either separately or together for one or more of the items above. It is also not necessary that any or all of the

above should be owned by the payee.

The rate at which the tax is to be deducted is 15% plus surcharge plus education cess @ 2% in the case where the payee is an

individual or HUF. Where the payee is a company, the rate is 20% instead of 15%. Tax should be deducted either at the time of

actual payment of rent or at the time of its credit to the account of the payee, whichever is earlier.

(2) TDS on professional or technical fees, royalty, etc. – Tax is to be deducted at source on the amount paid for the following:

(i) professional or technical fees,

(ii) royalty

(iii) any amount paid by way of non-competition agreement, i.e. for not carrying out any activity in relation to any business, or for not

sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature

which is likely to assist in the manufacture or processing of goods or in the provision of any services.

However, where the sum is credited or paid exclusively for personal purposes, no individual or Hindu undivided family shall be

liable to deduct income-tax on such sum.

The rate of TDS is 5% on such amount plus surcharge if applicable plus education cess @ 2%. The tax is to be deducted either at

the time of actual payment of such fees or its credit to the account of the payee whichever is earlier. However, no tax is to be

deducted if the amount or the aggregate amounts of such fees does not exceed Rs.20,000 in a financial year.

For this purpose, ‘professional services’ mean services rendered by a person in the course of carrying on legal, medical,

engineering or architectural profession or profession of accountancy or technical consultancy or interior decoration or advertising or

any other profession notified for this purpose by CBDT.

“Fees for technical services” means any consideration (including any lump sum consideration) for the rendering of any managerial,

technical or consultancy services (including the provision of services of technical or other personnel) but does not include

consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be

income of the recipient chargeable under the head ‘Salaries’.

(3) TDS on commission or brokerage - Here too, tax is to be deducted @ 5% on the amount paid. In addition, surcharge (if

applicable) as well as education cess @2% will be deducted. However, no tax is to be deducted if the amount or the aggregate

amounts of such fees does not exceed Rs.2,500 in a financial year.

Commission or brokerage includes any payment received directly or indirectly by any person on behalf of another person for

services (other than professional services) rendered or in the course of buying or selling goods or in relation to any asset, valuable

article or thing. The term does not include insurance commission.

(4) TDS on interest other than interest on securities – Tax is to be deducted @ 10% plus surcharge and education cess, if the

payee is a person other than a company. If the payee is a company, the rate of TDS is 20% instead of 10% of the amount paid. No

tax is to be deducted if the interest paid or credited does not exceed Rs.5,000 in the financial year.

TAXES SIMPLIFIED – FIRST TIME FILER

What is a return of income?

A return of income is a statement in a pre-designed format which shows the computation of your total income and the tax payable

by you, in accordance with the provisions of the Income-tax Act, 1961 and the related rules.

What is the level of income for which filing a return of income is compulsory?

For assessment year 2007-08, the basic exemption level i.e. the level of income which is exempt from income-tax is Rs.1,00,000.

This means that if the total income as computed in accordance with the Income-tax Act, 1961 is below Rs.1,00,000, no tax is

payable. The law states that if the total income exceeds the basic exemption level, one is required to file a return of income.

However, this limit is for individuals and Hindu Undivided Families (HUFs). In case of companies and firms, these limits do not

apply. All firms and companies are therefore required to file their return of income.

I am a salaried person. My company deducts tax from my income. I do not owe any tax to the government. Do I still need to file a return?

The return of income is a record of the income earned by you and the tax that arises on that income. It has to be filed irrespective

of whether any tax is due from you. Therefore, even if your employer has already deducted the tax that arises on your income, you

still need to file a return.

What is the due date for filing return in the case of individuals?

Different due dates have been prescribed by law for filing return of income. For individuals, the due date is 31st July of the

assessment year. Therefore, for the financial year ended 31 March, 2007, the due date for filing return for individuals will be 31

July, 2007. However, in case of certain categories of individuals, the due date is 31st October of the relevant assessment year.

They are:

• An individual who carries on business or profession and whose accounts are required to be audited under the Income-tax Act,

1961 or under any other law.

• An individual who is a working partner in a firm whose accounts are required to be audited under the Income-tax Act, 1961 or

under any other law.

• Audit under the Income-tax Act is compulsory if the gross receipts or turnover from business exceed Rs.40 lakhs in any previous

year or if gross receipts in profession exceed Rs.10 lakhs in any previous year.

What documents do I need to submit along with my returns?

Along with the return form, the following documents need to be submitted:

 (i)  A statement showing computation of tax payable.

 (ii)  Proof of tax deducted at source (Form 16 in case of salaried persons)

 (iii)  Proof of advance tax paid

 (iv)  Proof of self-assessment tax paid

 (v)  Proof of compulsory deposit paid

 (vi)  Profit & Loss / Income & Expenditure Account, as the case may be

 (vii)  Balance Sheet

 (viii)  Personal Account of the Proprietor/Partners, as the case may be

 (ix)  Audit report/ cost audit report, as the case may be

 (x)  Where no regular books are maintained, a statement showing turnover/ gross receipts, expenses, net profit and basis of such

computation.

On what basis will my employer deduct tax from my salary income? What are the documents or information I need to submit to my employer for the purposes of my tax calculations?

Your employer is bound to deduct tax on a monthly basis on your estimated total income. For this purpose, apart from your salary

details which are already available to him, you should bring to his knowledge details of your investments and other payments for

which you may be eligible for a deduction under the Act. Also, you are required to furnish details of incomes chargeable under any

other head as well as loss, if any, arising on house property (e.g. on account of interest on housing loan) for the purpose of

computing your estimated total income for the previous year.

Please remember that if you fail to provide this information to your employers in time, the delay may result in more tax getting

deducted and you will then be able to claim the refund only at the time of your assessment.

Who is required to sign the form? If I am out of station at the time of filing returns, can I authorise someone else to sign it on my behalf? Alternatively, can a scanned copy of the signed form be filed?

In the case of an individual, the return has to be signed by the individual himself in original. A return without the assessee’s original

signature will not be accepted. A scanned copy will also not be a valid return. However, in certain special circumstances, you may

authorise someone through a valid power of attorney to sign your return. The power of attorney has to be attached to the return at

the time of filing. The circumstances laid down in the Act are as follows:

(i) If the individual is absent from India, or

(ii) For any other reason, he is unable to sign the return himself.

Alternatively, you may avail of e-filing facilities.

What happens if I choose not to file a return? Do I have to pay a fine?

Yes, if you fail to file your return of income as required by section 139(1) before the end of the relevant assessment year, you will

be liable to pay a fine of Rs.5,000. Moreover, you will also be liable to pay interest under section 234A for late filing of return or

non-filing of return, as the case may be. The amount payable will be simple interest calculated at 1% per month or part of a month

on the amount of net tax payable after deducting the tax collected or any advance tax already paid. The period to be considered for

calculation will be the period commencing on the date immediately following the due date for filing of return and ending on the

actual date of furnishing the return. If the return is not filed at all, interest will be calculated up to the date of completion of best

judgment assessment by the income-tax authorities. Wilful failure to furnish return may also make you liable for prosecution under

section 276 CC which could result in fine and imprisonment for 3 months.

I did not file my return of income last year. Can I still file it?

If you have not received any notice under section 142(1) yet, you can file a belated return u/s 139(4) in respect of previous year

2004-05 at any time before 31st March, 2007. However, if the Assessing Officer has already completed assessment u/ s 144 and

has passed an assessment order which is yet to reach you, the belated return filed by you will not be valid.

I filed my returns last year along with Form 16 as given by my employer. However, I forgot to claim deductions on insurance premia paid by me. How can I rectify the mistake?

You can file a revised return u/s 139(5) at any time before one year from the end of the assessment year. So, if you made a

mistake in your return for assessment year 2005-06, you can file a revised return before 1.4.2007. The revised return will then

substitute the original return. However, if in the meantime the Assessing Officer has completed assessment, you cannot file a

revised return any longer.

Can I file a return without a PAN? I have not applied for a PAN yet.

It is advisable to apply for a permanent account number (PAN) before filing the return for the first time. In case the PAN has not

been received at the time of filing the return of income, you may attach a copy of your PAN application together with a copy of

document giving proof of proof along with your return.

Where am I supposed to file my return?

The return of income is to be filed with the Assessing Officer having jurisdiction over your area. This can be ascertained from the

PRO in the Income Tax Department or from any practising chartered accountant. Generally, the area of jurisdiction is based on the

territorial area of the assessee. However, in metropolitan cities, separate jurisdiction has been created for separate classes of

assesses such as salaried persons, doctors, advocates, chartered accountants, companies, charitable trusts and societies, etc.

TAXES SIMPLIFIED – RETURN LIABILITY

What is the due date for filing returns in case of individuals?

The due date is 31st July of the assessment year. However, in case of certain categories of individuals, the due date is 31st

October of the relevant assessment year. They are:

• An individual who carries on business or profession and whose accounts are required to be audited under the Income-tax Act,

1961 or under any other law.

• An individual who is a working partner in a firm whose accounts are required to be audited under the Income-tax Act, 1961 or

under any other law.

• Audit under the Income-tax Act is compulsory if the gross receipts or turnover from business exceed Rs.40 lakhs in any previous

year or if gross receipts in profession exceed Rs.10 lakhs in any previous year.

I am a salaried person having total income below taxable limits. Do I need to file my return?

W.e.f assessment year 2006-07, you need not file your return only if your income before deducting any amount under Chapter VI –

A is below the taxable limits.

Our firm’s total income is below the taxable limits. Do we need to file returns?

Yes, you have to file returns even if your income is below taxable limits since w.e.f Assessment Year 2006-07, all firms are required

to file return of income.

I am earning rental income. My total income for the year is below taxable limits. However, tax has been deducted at source from the rent credited to me. Do I need to file a return?

Yes, even though no tax arises on your total income, you need to file a return of income/ loss in order to claim refund of the tax

deducted at source.

I was filing return of income on the basis of economic criteria. Do I have to file a return of income this year?

No, from the Assessment Year 2006-07, returns under economic criteria have been discontinued. So, you do not need to file a

return if you do not have any taxable income.

I did not file my return of income last year. Can I still file it?.

If you have not received any notice under section 142(1) yet, you can file a belated return u/s 139(4) in respect of previous year

2004-05 at any time before 31st March, 2007. However, if the Assessing Officer has already completed assessment u/ s 144 and

has passed an assessment order which is yet to reach you, the belated return filed by you will not be valid.

I have been carrying on business for the last 3 years. However, I have not filed any returns so far? What are the consequences?

If a return is not filed within the due date, interest and penalty are payable. For each year that you have not filed a return, you will

have to pay interest @1% per month or part of a month. The period will begin (in respect of each year’s return) from the due date

and will end on the date that the return is filed by you. It will be calculated on the tax payable by you as reduced by tax deducted at

source on your income and any advance tax paid by you.

The penalty will arise in respect of the returns which are not filed before the end of the relevant assessment year and will be

Rs.5000 in respect of each such return.

You may also attract the provisions of section 276CC dealing with prosecution.

I filed my returns last year. However, I have made a mistake in my return. How can I rectify the mistake?

You can file a revised return u/s 139(5) at any time before one year from the end of the assessment year. So, if you made a

mistake in your return for assessment year 2005-06, you can file a revised return before 1.4.2007. The revised return will then

substitute the original return. However, if in the meantime the Assessing Officer has completed assessment, you cannot file a

revised return any longer.

I filed a belated return u/s 139(4). Now I have discovered an omission in it. Can I file a revised return?

No, you cannot, since a belated return cannot be revised.

11. What documents do I need to submit along with my returns?.

Along with the return form, the following documents need to be submitted:

(i) A statement showing computation of tax payable.

(ii) Proof of tax deducted at source

(iii) Proof of advance tax paid

(iv) Proof of self-assessment tax paid

(v) Proof of compulsory deposit paid

(vi) Profit & Loss / Income & Expenditure Account, as the case may be

(vii) Balance Sheet

(viii) Personal Account of the Proprietor/Partners, as the case may be

(ix) Audit report/ cost audit report, as the case may be

(x) Where no regular books are maintained, a statement showing turnover/ gross receipts, expenses, net profit and basis of such

computation.

Can I file my returns through the internet?

Yes, the Act has recently introduced schemes for filing returns online as well as on computer readable media. With effect from

assessment year 2003-04, return may be filed on a specified computer readable media such as a floppy, diskette, magnetic

cartridge tape, CD-ROM or any other computer readable media) in the manner prescribed and subject to conditions laid down in

the schemes.

Two Schemes have been notified in this regard. They are described below:

(i)  Electronic Furnishing of Return of Income Scheme, 2004 [Notification No. 253/2004, dated 30.9.2004]: In this case, a person

who has been allotted a PAN and who is assessed or assessable to tax at any of the cities specified in Schedule ‘A’ of the scheme

shall be eligible to file such return.

(ii)  Furnishing of Returns of Income on Internet Scheme, 2004 [Notification No. 254/2004, dated 30.9.2004].

For filing return under these Schemes, a person must satisfy the following conditions:

 (a)  He must be an individual.

 (b)  He must hold a valid PAN.

 (c)  He should not have any income under the head Business or Profession.

 (d)  He should be assessed or assessable to tax in any of the cities specified in Schedule A of  this scheme, namely, Ahmedabad,

Bangalore, Baroda, Bhopal, Chandigarh, Chennai, Delhi, Gandhinagar, Hyderabad, Jaipur, Jabalpur, Kolkata, Mumbai, Nagpur,

Pune or Thane.

Is there any other facility through which I can file my returns ?

There is now a system of filing of returns of by the employer on computer readable media. The Act now enables any individual, who

is in receipt of income chargeable under the head “Salaries”, to furnish the return of his income for any previous year to his

employer. Such employer shall furnish returns received by him on or before the due date in accordance with the scheme notified by

the Board in this behalf. Such return shall then be deemed to be a return furnished under section 139(1).

The following two schemes have been notified for filing the return income through the employer.

(i) Scheme for Bulk Filing of Returns by Salaried Employees, 2002

(ii) Scheme for filing of returns of Salaried Employees Through Employer, 2004.

The salient features of each Scheme are given below:

(i) Scheme for Bulk Filing of Returns by Salaried Employees, 2002 [SO No.661(E), dated 24.06.2002]: This scheme is applicable

only when the employer employs minimum of 50 employees whose total income exceeds the maximum exemption limit. Further,

such employees and employer must be assessed to tax at Ahmedabad, Bangalore, Baroda, Bhopal, Chandigarh, Chennai, Delhi,

Gandhinagar, Hyderabad, Jaipur, Jabalpur, Kolkata, Mumbai, Nagpur, Pune or Thane.

The Scheme provides that a salaried tax-payer, at his option, furnish his return of income to his employer in accordance with the

scheme for bulk filing of returns.

However, the following returns cannot be submitted under this scheme:

(a) return of a year other than the current year.

(b) return without PAN or with incorrect PAN.

(c) return under block assessment

(d) return of an employee having more than one employer.

(e) return of an employee who is not getting salary from an eligible employer on the last day of the previous year.

(f) revised return.

The employer shall furnish all such returns received by him on or before the due date, on-

(a) CD ROM of 650 MB capacity;

(b) 4mm 2GB/4GB (90m/120m) DAT Cartridge; or

(c) 3.5” 1.44 MB floppy diskette.

(ii) Scheme for Filing of Returns by Salaried Employees through Employer, 2004 [Notification No.13/2004, dated 12-1-2004]: This

scheme is applicable only to the eligible employees.

“Eligible Employee” means an individual, resident in India, where-

(i) his total income includes income chargeable to income-tax under the head ‘Salaries’.

(ii) The income from salaries before allowing deduction under section 16 of the Income-tax Act, 1961, does not exceed

Rs.1,50,000;

(iii) His total income does not include income chargeable to income- tax under the head ‘Profits and gains of business or

profession’ or ‘Capital gain’ or, agricultural income; and

(iv) He is not in receipt of any other income from which the tax has been deducted at source during the previous year by any

person other than the employer.

Following types of returns shall not be furnished under this Scheme-

(i) Return of income for any assessment year other than relevant to the current financial year.

(ii) Return of income where no PAN or incorrect PAN of the employee has been quoted.

(iii) Return of income under section 153A of the Income-tax Act;

(iv) Return of an employee having more than one employer during the previous year for which the return is being furnished; and

(v) Return of employee who is not in receipt of his salary from the employer as on the last day of the previous year, for which the

return is being furnished.

The Scheme is optional and provides an additional mode of furnishing returns of income by salaried persons. On his option, an

eligible employee may furnish his return through his employer under the Scheme, as per the following procedure:-

(i) On receipt of the certificate of tax deducted at source from the income chargeable under the head ‘Salaries’ in Form No. 16AA

from the employer, the eligible employee shall verify the information given in the Form as correct, complete and true in accordance

with the provisions of Income-tax Act, 1961 in respect of his income chargeable for the relevant assessment year. Thereafter, the

signed and verified form shall be furnished by him to the employer before the due date of filing return.

(ii) The employer shall then furnish the return of income of the eligible employee in Form No. 16AA to the Assessing Officer and

obtain an acknowledgement.

(iii) The employer shall ensure that the return of income is furnished to the Assessing Officer on or before the due date of filing

return.

(iv) The employer shall distribute acknowledgements obtained from the Assessing Officer to the respective eligible employees.

For an eligible employee who opts to furnish the return of income through his employer under this Scheme, the date on which the

employer has furnished the return of income of the eligible employee to the Assessing Officer shall be treated as the date of

furnishing the return of income by the eligible employee and the relevant provisions of the Income-tax Act, 1961, for furnishing of

income shall apply as if the return has been filed by the employee.