Income tax in India

Income Tax in India

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

  Personal income tax (direct) (17.43%)
  Corporate tax (direct) (33.99%)
  Other Taxes (direct) (2.83%)
  Excise duty (indirect) (20.84%)
  Customs duty (indirect) (17.46%)
  Other taxes (indirect) (8.68%)

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

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

The Income Tax Department is the biggest revenue mobilizer for the Government. The total tax revenues of the Central Government increased from ₹1,392.26 billion (US$21 billion) in 1997-98 to ₹5,889.09 billion (US$88 billion) in 2007-08.[2][3]

History

Government of India allowed the people to declare their undisclosed incomes in Income Declaration Scheme, 2016 and pay a total of 45% tax for one time settlement. 64,275 disclosures were made amounting to ₹652.5 billion (US$9.7 billion).[4]

Administrative set-up

Central Board of Direct Taxes
Backend job Public handling
Principal Director General, Director General Principal Chief Commissioner of Income Tax, Chief Commissioner of Income Tax
Principal Director, Director Principal Commissioner of Income Tax, Commissioner of Income Tax, CIT (Appeals)
Principal Additional Director, Additional Director Principal Additional Commissioner, Additional Commissioner
Principal Joint Director, Joint Director Principal Joint Commissioner, Joint Commissioner
Deputy Director, Assistant Director Deputy Commissioner, Assistant Commissioner
Income Tax Officer
Tax Recovery Officer
Inspector
Senior tax assistant
Tax assistant

Residential status

For all purposes of Income tax Tax payers are classified into 3 categories

  1. Resident and Ordinarily Resident
  2. Resident but Not Ordinarily Resident
  3. Non-Resident

Charge to income-tax

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

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

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

Income Tax Slabs and Rates for the Assessment Year 2016-17 (applicable on income earned during 01.04.2015 to 31.03.2016) for various categories of Indian Income Tax payers.[5]

  1. Individual resident aged below 60 years
  2. Senior Citizen
  3. Super Senior Citizen
  4. Any NRI / HUF / AOP / BOI / AJP
  5. Co-operative Society
  6. Firm
  7. Local Authority
  8. Domestic Company
  9. Other Company

#Individual resident aged below 60 years (i.e. born on or after 1 April 1956)

Surcharge : 15% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge, if applicable)

Education Cess : 3% of the total of Income Tax and Surcharge.

#Senior Citizen (Individual resident who is of the age of 60 years or more but below the age of 80 years at any time during the previous year i.e. born on or after 1 April 1936 but before 1 April 1956)

Income Slabs Tax Rates
i. Where the taxable income does not exceed Rs. 2,50,000/-. NIL
ii. Where the taxable income exceeds Rs. 2,50,000/- but does not exceed Rs. 5,00,000/- 10% of the amount by which the taxable

income exceeds Rs. 2,50,000/-. Less : Tax Credit u/s 87A -100% of income-tax or Rs. 5,000, whichever is less.

iii. Where the taxable income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/- Rs. 25,000/- + 20% of the amount by which

the taxable income exceeds Rs. 5,00,000/-.

iv. Where the taxable income exceeds Rs. 10,00,000/- Rs. 120,000/- + 30% of the amount by which

the taxable income exceeds Rs. 10,00,000/-.

Surcharge : 12% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge, if applicable)

Education Cess : 3% of the total of Income Tax and Surcharge.

#Super Senior Citizen (Individual resident who is of the age of 80 years or more at any time during the previous year i.e. born before 1 April 1936)

Income Tax :Tax Calculator : AY 2016-17

Income Slabs Tax Rates
i. Where the taxable income does not exceed Rs. 5,00,000/-. NIL
ii. Where the taxable income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/- 20% of the amount by which the taxable

income exceeds Rs. 5,00,000/-.

iii. Where the taxable income exceeds Rs. 10,00,000/- Rs. 100,000/- + 30% of the amount by which

the taxable income exceeds Rs.10,00,000/-.

Surcharge : 12% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge, if applicable)

Education Cess : 3% of the total of Income Tax and Surcharge.

#Any NRI or HUF or AOP or BOI or AJP

Income Tax :Tax Calculator : AY 2016-17

Income Slabs Tax Rates
i. Where the taxable income does not exceed Rs. 2,50,000/-. NIL
ii. Where the taxable income exceeds Rs. 2,50,000/- but does not exceed Rs. 5,00,000/-. 10% of amount by which the taxable income

exceeds Rs. 2,50,000/-.

iii. Where the taxable income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/-. Rs. 25,000/- + 20% of the amount by which

the taxable income exceeds Rs. 5,00,000/-.

iv. Where the taxable income exceeds Rs. 10,00,000/-. Rs. 125,000/- + 30% of the amount by which

the taxable income exceeds Rs. 10,00,000/-.

Surcharge : 12% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge, if applicable)

Education Cess : 3% of the total of Income Tax and Surcharge.

  NRI - Non Resident Individual; HUF - Hindu Undivided Family; AOP - Association of Persons; BOI - Body of Individuals; AJP - Artificial Judicial Person

#Co-operative Society

Income Tax :

Income Slabs Tax Rates
i. Where the taxable income does not exceed Rs. 10,000/-. 10% of the income.
ii. Where the taxable income exceeds Rs. 10,000/- but does not exceed Rs. 20,000/-. Rs. 1,000/- + 20% of income in excess of Rs.

10,000/-.

iii. Where the taxable income exceeds Rs. 20,000/- Rs. 3.000/- + 30% of the amount by which the

taxable income exceeds Rs. 20,000/-.

Surcharge : 12% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge, if applicable)

Education Cess : 3% of the total of Income Tax and Surcharge.

#Firm

Income Tax : 30% of taxable income.

Surcharge : 12% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge, if applicable)

Education Cess : 3% of the total of Income Tax and Surcharge.

#Local Authority

Income Tax : 30% of taxable income.

Surcharge : 10% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge, if applicable)

Education Cess : 3% of the total of Income Tax and Surcharge.

#Domestic Company

Income Tax : 30% of taxable income.

Surcharge : The amount of income tax as computed in accordance with above rates, and after being reduced by the amount of tax rebate shall be increased by a surcharge

At the rate of 7% of such income tax, provided that the taxable income exceeds Rs. 1 crore. (Marginal Relief in Surcharge, if applicable) At the rate of 12% of such income tax, provided that the taxable income exceeds Rs. 10 crores. Education Cess : 3% of the total of Income Tax and Surcharge.

i)Company other than a Domestic Company

Income Tax : @ 50% of on so much of the taxable income as consist of (a) royalties received from Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern after the 31st day of March, 1961 but before the 1st day of April, 1976; or (b) fees for rendering technical services received from Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern after the 29th day of February, 1964 but before the 1st day of April, 1976, and where such agreement has, in either case, been approved by the Central Government. @ 40% of the balance

Surcharge : The amount of income tax as computed in accordance with above rates, and after being reduced by the amount of tax rebate shall be increased by a surcharge as under

At the rate of 2% of such income tax, provided that the taxable income exceeds Rs. 1 crore. (Marginal Relief in Surcharge, if applicable) At the rate of 5% of such income tax, provided that the taxable income exceeds Rs. 10 crores.

Education Cess : 3% of the total of Income Tax and Surcharge.

Marginal Relief in Surcharge

When an assessee's taxable income exceeds Rs. 1 crore, he is liable to pay Surcharge at prescribed rates mentioned above on Income Tax payable by him. However, the amount of Income Tax and Surcharge shall not increase the amount of income tax payable on a taxable income of Rs. 1 crore by more than the amount of increase in Example In case of an individual assessee (< 60 years) having taxable income of Rs. 1,00,01,000/-

1. Income Tax Rs. 28,25,300 2. Surcharge @12% of Income Tax Rs. 3,39,036 3. Income Tax on income of Rs. 1 crore Rs. 28,25,000 4. Maximum Surcharge payable (Income over Rs. 1 crore less income tax on income over Rs. 1 crore) Rs. 700/- (1000 - 300) 5. Income Tax + Surcharge payable Rs. 28,26,000 6. Marginal Relief in Surcharge Rs. 3,38,336/- (339036 - 700)

Disclaimer :

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

Residential status of a person other than an individual

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

^1 HUF is resident or non-resident, the additional conditions (as laid down for an individual) should be checked for the karta to determine whether the HUF is ordinary or not-ordinary resident.
^2 An Indian company is the one which satisfies the conditions as laid down under section 2(26) of the Act.
^3 Foreign company is the one which satisfies the conditions as laid down under section 2(23A) of the Act.

Scope of total income

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

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

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

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

Heads of income

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

Income from salaries

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

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

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

Income from house property

Income under this head is taxable if the assessee is the owner of a property consisting of building or land appurtenant thereto and is not used by him for his business or professional purpose. An individual or an Hindu Undivided Family (HUF) is eligible to claim any one property as Self-occupied if it is used for own or family's residential purpose. In that case, the Net Annual Value (as explained below) will be nil. Such a benefit can only be claimed for one house property. However, the individual (or HUF) will still be entitled to claim Interest on borrowed capital as deduction under section 24, subject to some conditions. In the case of a self occupied house deduction on account of interest on borrowed capital is subject to a maximum limit of ₹2,00,000(1,50,000 for A/Y 2014-15 and before) (if loan is taken on or after 1 April 1999 and construction is completed within 3 years) and ₹30,000 (if the loan is taken before 1 April 1999). For let-out property, all interest is deductible, with no upper limits. The balance is added to taxable income.

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

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

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

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

Profits and Gains of business or profession

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

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

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

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

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

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

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

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

Income from capital gains

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

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

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

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

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

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

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

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

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

Income from other sources

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

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

Agricultural income

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

Income partly agricultural and partly business activities

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

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

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

Permissible deductions from Gross Total Income

Ministry of Finance has notified certain deductions from Gross Total Income of an assessee. Below are deductions as updated by finance act, 2015

SECTION NATURE OF DEDUCTION REMARKS
80C This section has been introduced by the Finance Act, 2005. Broadly speaking, this section provides deduction from total income in respect of various investments/ expenditures/payments in respect of which tax rebate u/s 88 was earlier available. The total deduction under this section is limited to Rs. 1.50 lakh only.

Deductions can be claimed for:

Provident Fund (PF) & Voluntary Provident Fund (VPF) : PF is automatically deducted from your salary. Both you and your employer contribute to it. While employer’s contribution is exempt from tax, your contribution (i.e., employee’s contribution) is counted towards section 80C investments. You also have the option to contribute additional amounts through voluntary contributions (VPF). Current rate of interest is 8.5% per annum (p.a.) and is tax-free.

Public Provident Fund (PPF): Among all the assured returns small saving schemes, Public Provident Fund (PPF) is one of the best. Current rate of interest is 8.70% tax-free (Compounded Yearly) and the normal maturity period is 15 years. Minimum amount of contribution is Rs 500 and maximum is Rs 1,50,000. A point worth noting is that interest rate is assured but not fixed.

Life Insurance Premiums: Any amount that you pay towards life insurance premium for yourself, your spouse or your children can also be included in Section 80C deduction. Please note that life insurance premium paid by you for your parents (father / mother / both) or your in-laws is not eligible for deduction under section 80C. If you are paying premium for more than one insurance policy, all the premiums can be included. It is not necessary to have the insurance policy from Life Insurance Corporation (LIC) – even insurance bought from private players can be considered here.

Equity Linked Savings Scheme (ELSS): There are some mutual fund (MF) schemes specially created for offering you tax savings, and these are called Equity Linked Savings Scheme, or ELSS. The investments that you make in ELSS are eligible for deduction under Sec 80C.

Home Loan Principal Repayment: The Equated Monthly Installment (EMI) that you pay every month to repay your home loan consists of two components – Principal and Interest.The principal component of the EMI qualifies for deduction under Sec 80C. Even the interest component can save you significant income tax – but that would be under Section 24 of the Income Tax Act. Please read “Income Tax (IT) Benefits of a Home Loan / Housing Loan / Mortgage”, which presents a full analysis of how you can save income tax through a home loan.

Stamp Duty and Registration Charges for a home: The amount you pay as stamp duty when you buy a house, and the amount you pay for the registration of the documents of the house can be claimed as deduction under section 80C in the year of purchase of the house.

Sukanya Samriddhi Account : Sukanya Samriddhi Account meaning Girl Child Prosperity Scheme is a special deposit scheme launched by Prime Minister Narendra Modi on 22 January 2015 for girl child. The scheme of Sukanya Samriddhi Account came into effect via notification of Ministry of Finance. The notification details are Notification No. G.S.R.863(E) Dated 02.12.2014. Scheme will be governed by ‘Sukanya Samriddhi Account Rules, 2014’.

  • Per girl child only single account is allowed. Parents can open this account for maximum two girl child. In case of twins this facility will be extended to third child
  • Minimum deposit amount for this account is ₹ 1,000/- and maximum is ₹ 1,50,000/- per year
  • Money to be deposited for 14 years in this account.
  • Interest rate for this account is 9.1% per annum, calculated on yearly basis, Yearly compounded.
  • Passbook facility is available with Sukanya Samriddhi account.
  • From FY 2014-14 the interest earned on account will be tax exempted. As per Finance Bill 2015-16.

National Savings Certificate (NSC) (VIII Issue):

NSC is a time-tested tax saving instrument with a maturity period of Five and Ten Years. Presently, the interest is paid @ 8.50% p.a. on 5 year NSC and 8.80% Per Annum on 10 year NSC. Interest is Compounded Half Yearly. While the minimum investment amount is Rs 100, there is no maximum amount. Premature withdrawals are permitted only in specific circumstances such as death of the holder. Investments in NSC are eligible for a deduction of up to Rs 150,000 p.a. under Section 80C. Furthermore, the accrued interest which is deemed to be reinvested qualifies for deduction under Section 80C. However, the interest income is chargeable to tax in the year in which it accrues.

Infrastructure Bonds: These are also popularly called Infra Bonds. These are issued by infrastructure companies, and not the government. The amount that you invest in these bonds can also be included in Sec 80C deductions.

Pension Funds – Section 80CCC: This section – Sec 80CCC – stipulates that an investment in pension funds is eligible for deduction from your income. Section 80CCC investment limit is clubbed with the limit of Section 80C – it means that the total deduction available for 80CCC and 80C is Rs. 1.50 Lakh.This also means that your investment in pension funds up to Rs. 1.50 Lakh can be claimed as deduction u/s 80CCC. However, as mentioned earlier, the total deduction u/s 80C and 80CCC can not exceed Rs. 1.50 Lakh.

5-Yr bank fixed deposits (FDs): Tax-saving fixed deposits (FDs) of scheduled banks with tenure of 5 years are also entitled for section 80C deduction.

Senior Citizen Savings Scheme 2004 (SCSS): A recent addition to section 80C list, Senior Citizen Savings Scheme (SCSS) is the most lucrative scheme among all the small savings schemes but is meant only for senior citizens. Current rate of interest is 9.20% per annum payable quarterly. Please note that the interest is payable quarterly instead of compounded quarterly. Thus, unclaimed interest on these deposits won’t earn any further interest. Interest income is chargeable to tax.

80CCC Payment of premium for annuity plan of LIC or any other insurer Deduction is available up to a maximum of Rs. 1,00,000/- The premium must be deposited to keep in force a contract for an annuity plan of the LIC or any other insurer for receiving pension from the fund. The Finance Act 2015 has enhanced the ceiling of deduction under Section 80CCC from Rs.100,000 to Rs. 1,50,000 with effect from A.Y. 2016-17
80CCD Deposit made by an employee in his pension account to the extent of 10% of his salary. Where the Central Government makes any contribution to the pension account, deduction of such contribution to the extent of 10% of salary shall be allowed. Further, in any year where any amount is received from the pension account such amount shall be charged to tax as income of that previous year. The Finance Act, 2009 has extended benefit to any individual assesse, not being a Central Government employee.
80CCF Subscription to long term infrastructure bonds Subscription made by individual or HUF to the extent of Rs. 20,000 to notified long term infrastructure bonds is exempt from A.Y. 2011-12 onwards. This deduction is discontinued w.e.f. A.Y. 2013-14.
80CCG Investment under Rajiv Gandhi Equity Savings Scheme, 2013 The deduction was 50% of amount invested in such equity shares or ₹ 25,000, whichever is lower. The maximum Investment permissible for claiming deduction under RGESS is Rs. 50,000. The benefit is in addition to deduction available u/s Sec 80C.
80D Payment of medical insurance premium. Deduction is available up to Rs.15,000/ for self/ family and also up to Rs. 15,000/- for insurance in respect of parent/parents of the assessee. In case of senior citizens, a deduction up to Rs.20,000/- shall be available under this Section. Insurance premiume of senior citizen parent/ parents of the assessee also eligible for enhanced deduction of Rs. 20000/- The premium is to be paid by any mode of payment other than cash and the insurance scheme should be framed by the General Insurance Corporation of India & approved by the Central Govt. or Scheme framed by any other insurer and approved by the Insurance Regulatory & Development Authority. The premium should be paid in respect of health insurance of the assessee or his family members. The Finance Act 2008 has also provided deduction up to Rs. 15,000/- in respect of health insurance premium paid by the assessee towards his parent/parents. w.e.f. 01.04.2011, contributions made to the Central Government Health Scheme is also covered under this section.
80DD Deduction of Rs.40,000/ — In respect of (a) expenditure incurred on medical treatment, (including nursing), training and rehabilitation of handicapped dependent relative. (b) Payment or deposit to specified scheme for maintenance of dependent handicapped relative. W.e.f. 01 .04.2004 the deduction under this section has been enhanced to Rs.50,000/- Further, if the dependent is a person with severe disability a deduction of Rs.1,00,000/– shall be available under this sectionBudget 2015 has Further Proposed to hike the limit from A.Y. 2016-17 to Rs. 75000 from existing Rs. 50,000/- and for person with severe disability to Rs. 1.25 lakh from existing Rs. 1 Lakh. The handicapped dependent should be a dependent relative suffering from a permanent disability (including blindness) or mentally retarded, as certified by a specified physician or psychiatrist.Note: A person with severe disability means a person with 80% or more of one or more disabilities as outlined in section 56(4) of the “Persons with Disabilities (Equal opportunities, Protection of Rights and Full Participation) Act.,”
80DDB Deduction of Rs.40,000/- in respect of medical expenditure incurred. W.e.f. 01.04.2004, deduction under this section shall be available to the extent of Rs.40,000/- or the amount actually paid, whichever is less.In case of senior citizens, a deduction up to Rs.60,000/- shall be available under this Section.Budget 2015 has proposed deduction of Rs. 80000/- for seniot citizen aged 80 year or More from A.Y. 2016-17 Expenditure must be actually incurred by resident assessee on himself or dependent relative for medical treatment of specified disease or ailment. The diseases have been specified in Rule 11DD. A certificate in form 10I is to be furnished by the assessee from a specialist working in a Government hospital.Budget 2015 has Proposed for the purpose of claiming deduction under the section assessee will be required to obtain a prescription from a specialist doctor instead of Certificate.
80E Deduction in respect of payment in the previous year of interest on loan taken from a financial institution or approved charitable institution for higher studies. This provision has been introduced to provide relief to students taking loans for higher studies. The payment of the interest thereon will be allowed as deduction over a period of up to 8 years. Further, by Finance Act, 2007 deduction under this section shall be available not only in respect of loan for pursuing higher education by self but also by spouse or children of the assessee. W.e.f. 01.04.2010 higher education means any course of study pursued after passing the senior secondary examination or its equivalent from any recognized school, board or university.
80EE Deduction in respect of interest on loan taken for residential house property Vide Finance Act 2013, an individual is allowed a deduction up to a limit of Rs 1,00,000 being paid as interest on a loan taken from a Financial Institution, sanctioned during the period 01-04- 2013 to 31-03-2014 (loan not to exceed Rs 25 lakhs) for acquisition of a residential house whose value does not exceed Rs 40 lakhs. However the deduction is available if the assessee does not own any residential house property on the date of sanction of the loan.
80G Donation to certain funds, charitable institutions etc. The various donations specified in Sec. 80G are eligible for deduction up to either 100% or 50% with or without restriction as provided in Sec. 80G
80GG Deduction available is the least of(i) Rent paid less 10% of total incomeii. Rs.2000 per monthiii. 25% of total income (1) Assessee or his spouse or minor child should not own residential accommodation at the place of employment.(2) He should not be in receipt of house rent allowance.(3) He should not have a self-occupied residential premises in any other place
80TTA Deduction in respect of interest on deposits in savings account Section 80TTA is introduced wef A.Y. 2013-14 to provide deduction to an individual or a Hindu undivided family in respect of interest received on deposits (not being time deposits) in a savings account held with banks, cooperative banks and post office. The deduction is restricted to Rs 10,000 or actual interest whichever is lower.
80U Deduction of Rs.50,000/- to an individual who suffers from a physical disability (including blindness) or mental retardation. Further, if the individual is a person with severe disability, deduction of Rs.75,000/- shall be available u/s 80U.W.e.f. 01.04.2010 this limit has been raised to Rs. 1 lakh.Budget 2015 proposed to amend section 80U to raise limit of deduction in respect of a person with disability from Rs. 50,000/- to Rs. 75,000 and for person with severe disability from one lakh rupees to one hundred and twenty five thousand rupees. Certificate should be obtained on prescribed format from a notified ‘Medical authority’.
87A Rebate Of Rs 5000 For Individuals Having Total Income up to Rs 5 Lakh Finance Act 2013 has provided relief in the form of rebate to individual taxpayers, resident in India, who are in lower income bracket, i. e. having total income not exceeding Rs 5,00,000/-. The amount of rebate is Rs 2000/- or the amount of tax payable, whichever is lower. WEF A.Y. 2014-15.
80RRB Deduction in respect of any income by way of royalty in respect of a patent registered on or after 01.04.2003 under the Patents Act 1970 shall be available as :-Rs. 3 lacs or the income received, whichever is less. The assessee who is a patentee must be an individual resident in India. The assessee must furnish a certificate in the prescribed form duly signed by the prescribed authority along with the return of income.
80QQB Deduction in respect of royalty or copyright income received in consideration for authoring any book of literary, artistic or scientific nature other than text book shall be available to the extent of Rs. 3 lacs or income received, whichever is less. The assessee must be an individual resident in India who receives such income in exercise of his profession. To avail of this deduction, the assessee must furnish a certificate in the prescribed form along with the return of income.

Due date of submission of return

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

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

If the Income of a Salaried Individual is less than ₹ 500,000 and he has earned income through salary or Interest or both, such Individuals are exempted from filing their Income Tax return provided that such payment has been received after the deduction of TDS and this person has not earned interest more than ₹ 10,000 from all source combined. Such a person should not have changed jobs in the financial year.[8]

CBDT has announced that all individual/HUF taxpayers with income more than ₹ 500,000 are required to file their income tax returns online. However, digital signatures won't be mandatory for such class of taxpayers.[8]

Advance tax

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

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

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

Tax deducted at source (TDS)

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

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

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

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

Corporate income tax

Income-wise number of corporate assessee in India

For companies, income is taxed at a flat rate of 30% for Indian companies(24.99% as per Budget 2015-16). Foreign companies pay income tax at the rate of 40%.[9] An education cess of 3% (on both the tax and the surcharge) are payable. [10] From 2005-06, electronic filing of company returns is mandatory.[11]

Surcharge1

Non Corporate Assessee :

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

 Particulars Taxable Income > 1 Crore Taxable Income > 10 Crore
Domestic company 7% of income tax payable 12% of income tax payable
Foreign company 2% of income tax payable 5% of income tax payable

^1 Applicable from assessment year 2015-16 onwards.

Tax returns

Categories

There are five categories of Income Tax returns.

Normal return u/s 139(1)

In business, "normal" is any gained revenue that exceeds the cost, expenses, and taxes needed to sustain the business or an activity.

Belated return

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

Revised return

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

Defective return

Assessing Officer considers that the return is defective, he may intimate the defect. One has to rectify the defect within a period of fifteen days from.

Returns in response to notices

Statistics

As of January 2016, a total of more than 3.27 crore returns were e-filed for the financial year 2014-15.[12]

Annual information return and statements

Annual information return

Those who are responsible for registering, or, maintaining books of account or other documents containing a record of any specified financial transaction,[13] shall furnish an annual information return in Form No.61A.

Statements By producers

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

whichever is earlier.

Statements by non-resident having a liaison office in India

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

Assessments

Self-assessment is done by the assessee himself in his Return of Income. The department assess the tax of an assessee under section 143(3) (scrutiny), 144 (best judgement), 147 and 153A (search and seizure). The notices for such assessments are issued under section 143(2), 148 and 153A respectively. The time limits are prescribed under section 153.[14]

Tax penalties

The major number of penalties initiated every year as a ritual by I-T Authorities is under section 271(1)(c)[15] which is for either concealment of income or for furnishing inaccurate particulars of income.

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

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

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

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

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

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

Appeals

When taxpayers dispute the income tax demands raised on them, a structured appeal process has to be followed. The first level of appeals lies with the CIT (A). The next level of appeal lies with the Income Tax Appellate Tribunal - an independent body, which is the final fact finding authority. Courts can subsequently be approached by the aggrieved party only if a question of law is involved.[16]

See also

References

New Major Changes in ITR Forms for the Year 2016

External links

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