Tax Payers Information Series-7

Filing

your

Tax Return

INCOME TAX DEPARTMENTINCOME TAX DEPARTMENTINCOME TAX DEPARTMENTINCOME TAX DEPARTMENTINCOME TAX DEPARTMENTDirectorate of Income Tax (PR, PP & OL)Directorate of Income Tax (PR, PP & OL)Directorate of Income Tax (PR, PP & OL)Directorate of Income Tax (PR, PP & OL)Directorate of Income Tax (PR, PP & OL)

6th Floor, Mayur Bhawan, Connaught Circus,6th Floor, Mayur Bhawan, Connaught Circus,6th Floor, Mayur Bhawan, Connaught Circus,6th Floor, Mayur Bhawan, Connaught Circus,6th Floor, Mayur Bhawan, Connaught Circus,New Delhi-110001New Delhi-110001New Delhi-110001New Delhi-110001New Delhi-110001

Tax Payers Information Series-7

Filing Your TaxReturn

INCOME TAX DEPARTMENTINCOME TAX DEPARTMENTINCOME TAX DEPARTMENTINCOME TAX DEPARTMENTINCOME TAX DEPARTMENTDirectorate of Income Tax (PR, PP & OL)Directorate of Income Tax (PR, PP & OL)Directorate of Income Tax (PR, PP & OL)Directorate of Income Tax (PR, PP & OL)Directorate of Income Tax (PR, PP & OL)

6th Floor, Mayur Bhawan, Connaught Circus,6th Floor, Mayur Bhawan, Connaught Circus,6th Floor, Mayur Bhawan, Connaught Circus,6th Floor, Mayur Bhawan, Connaught Circus,6th Floor, Mayur Bhawan, Connaught Circus,New Delhi-110001New Delhi-110001New Delhi-110001New Delhi-110001New Delhi-110001

This publication should not be construed as an exhaustivestatement of the Law. In case of doubt, reference should alwaysbe made to the relevant provisions of the Income Tax Act 1961,Income Tax Rules 1962, Wealth Tax Act 1957, and Wealth TaxRules 1957, and, wherever necessary, to Notifications issued fromtime to time.

Index of Chapters

1. The Scheme for Filing of Tax Returns 1

2. What are Tax Returns 4

3. Due Dates for Filing Tax Returns 6

4. Some Helpful Tips for filing Income-Tax Returns 12

5. Manner of filing of Returns 18

6. How to Fill ‘PAN Form’ 21

7. How to Fill up A Tax Challan 25

8. Exemptions from Income 26

9. Income from Salary at a glance 35

10. Income from House Property at a Glance 37

11. Income from Capital Gains at a Glance 39

12. Income from Business or Profession at a Glance 41

13. Income from Other sources at a Glance 43

14. Deductions from Total Income 45

15. Income-Tax on Fringe Benefits 51

16. Some Helpful Tips for filing Wealth Tax Returns 60

17. Important prescribed Forms under I.T. Rules, 1962 64

PREFACELack of awareness amongst taxpayers is often cited as one of

the main reasons for low level of compliance towards tax laws. Ithas been a constant endeavour of the Directorate of Income Tax(PR, PP & OL) to increase the awareness of the taxpayers aboutthe provisions of tax laws and the steps taken by the governmentto reduce the complexities of tax laws and improve Tax PayerService. The booklets published under the Tax Payers InformationSeries have proved to be an effective and convenient tool to educatethe tax payers in discharging their tax liabilities relating to DirectTaxes.

“Filing Your Tax Return” is one of the most popular bookletsamong the taxpayers. As reflected in the name, the booklet mainlydeals with the procedure for filing of the tax returns. Besides, it alsoguides the reader about filling up the relevant forms/ challanscorrectly. In addition, the booklet gives a brief idea about variousheads of income and the allowable deductions, and also thetaxability of Fringe Benefits. Guidance has also been given in thisbooklet about the taxability of wealth and filing of wealth taxreturns. The present edition incorporates the amendments in lawmade upto the Finance Act, 2008 including changes made in theprocedure for filing of returns of income. The booklet is primarilybased upon the position of law and tax rates as applicable for twoyears, i.e., Assessment Years 2008-09 and 2009-10. However,some important provisions pertaining to earlier years have also beendiscussed. Smt. Batsala Jha Yadav, Addl. CIT has taken keeninterest in updating the edition.

It is hoped that this publication will prove to be more useful forthe readers. The Directorate of Income Tax (Public Relations,Printing & Publications and Official Language) would welcome anysuggestion to further improve this publication.

(Amitabh Kumar)Director of Income-Tax (PR, PP & OL))

New DelhiDated: July 4 2008

CHAPTER – 1

THE SCHEME FOR FILING OFTAX RETURNS

The filing of income tax/wealth-tax return is a legal obligation ofevery person whose total income and wealth tax during the previousyear exceeds the maximum amount which is not chargeable to incometax or wealth tax under the provisions of I.T. Act, 1961 or Wealth TaxAct 1957, as the case may be. The return should be furnished in theprescribed form on or before the due date(s).

At present, there is an emphasis on self compliance on the partof the taxpayers. The assessing officer will accept the returns, u/s 143(1)of the I.T. Act or u/s 16(1) of W.T. Act, as the cases, may be, on thebasis of the returns/documents submitted by the assesses. That is theend of the matter for a majority of the cases, except in the small numberof cases selected for scrutiny. It is, therefore, advisable for the taxpayersto furnish correct and complete particulars in the Income-Tax/WealthTaxreturn itself.

INCOME TAX RETURN

It is compulsory for every company to furnish return of income.Every person, other than a company, whose total income from allsources of income exceeds the maximum amount which is notchargeable to income tax in any previous year ending on 31st March isliable to file the Income-tax Return. The maximum limit of income notchargeable to tax under the provisions of the Income Tax Act, 1961 isRs. 1,10,000 (except in case of resident women below 65 years of ageand resident senior citizens above 65 years of age) for assessment year2008-09.

WHAT ARE THE RATES OF INCOME-TAX ?

In the case of Individuals, HUFs, AOPs and BOIs other than thosecovered under the following two parts of this table :

A.Y. 2008-09Upto Rs. 1,10,000 NilRs. 1,10,001 to Rs. 1,50,000 10%

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Rs. 1,50,001 to Rs. 2,50,000 20%Above Rs. 2,50,000 30%

For Women, resident in India and below the age of 65 years :

Upto Rs. 1,45,000 NilRs. 1,45,001 to Rs. 1,50,000 10%Rs. 1,50,001 to Rs. 2,50,000 20%Above Rs. 2,50,000 30%

For Senior Citizen and Women, age 65 years or more :

Upto Rs. 1,95,000 NilRs. 1,95,001 to Rs. 2,50,000 20%Above Rs. 2,50,000 30%

Surcharge on Income tax:- @10% shall be levied when incomementioned in the above tables exceeds Rs. 10 lakhs.

Education Cess @ 2% on income-tax is also chargeable and anadditional levy of Secondary and High Education Cess is also payable@1% for the A.Y. 2008-09.

The rates of tax for A.Y. 2009-10 shall be as follows :

In the case of Individuals, HUFs, AOPs and BOIs not covered under thefollowing two parts of this table :

Income Range Rate of Income TaxA.Y. 2009-10

Upto Rs. 1,50,000 NilRs. 1,500,01 to Rs. 3,00,000/- 10%Rs. 3,00,001 to Rs. 5,00,000/- 20%Above Rs. 5,00,000/- 30%

For women, resident in India and below the age of 65 years :

Income Range Rate of Income TaxA.Y. 2009-10

Upto Rs. 1,80,000 NilRs. 1,80,001 to Rs. 3,00,000/- 10%Rs. 3,00,001 to Rs. 5,00,000/- 20%Above Rs. 5,00,000/- 30%

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For senior citizen and women, aged 65 years or more:

Income Range Rate of Income TaxA.Y. 2009-10

Upto Rs. 2,25,000 NilRs. 2,25,001 to Rs. 3,00,000/- 10%Rs. 3,00,001 to Rs. 5,00,000/- 20%Above Rs. 5,00,000/- 30%

The Surcharge, Education Cess and Secondary and HigherEducation Cess will be the same as for the assessment year 2008-09.

For the A.Y. 2008-09 and 2009-10, two partnership firms anddomestic companies the tax rate shall be 30%, but surcharge of 10% willbe levied only if the net income of the partnership firm or the domesticcompany exceeds Rs 1 crore, education cess will be levied at 2% andan additional Secondary and higher education cess of 1% shall belevied.

WEALTH TAX RETURN

Every Individual, Hindu Undivided Family and Company whosenet wealth exceeds the maximum amount which is not chargeable towealth tax in any previous year ending of 31st March is liable to file thewealth tax return. The maximum limit of net wealth not chargeable to taxunder the provisions of the Wealth tax Act, 1957 is Rs. 15 lakhs atpresent.

WHAT IS NET WEALTH ?

Net wealth is the aggregate value, computed under the provisionsof the W.T. Act, 1957, of all assets (including deemed assets), belongingto the assessee on the valuation date, MINUS the aggregate value ofall debts owed by the assessee on the valuation date which have beentaken in relation to the assets attracting wealth tax.

HOW IS WEALTH TAX CHARGED ?

It is charged @ 1% of the amount by which the net wealth exceedsRs. 15 Lakhs.

CHAPTER – 2

WHAT ARE TAX RETURNS

Through Latest Amendments, the Central Board of Direct Taxes(CBDT) has prescribed new return of income forms for the assessmentyears 2008-09 onwards, as shown in the table below:

FORM FOR WHOM

ITR-1 Individuals having salary, pension,family pension or interest income.

ITR-2 Individuals and Hindu undivided family(HUFs) not having income frombusiness or profession.

ITR-3 Individuals and HUFs who is a partnerin partnership firm but does not carryon a proprietary business or profession.

ITR-4 Individuals and HUFs carrying on aproprietory business or profession.

ITR-5 Partnership firms, Association ofPersons (AoP) and Body of Individuals(BoI).

ITR-6 Companies other than companiesclaiming exemption under section 11.

ITR-7 Persons including companies which arecharitable or religious trust, politicalparty, scientific research association,news agency, hospital, trade union,university, college or other institutionspecified in sub-section (4A), (4B), (4C)and (4D) of section 139 of the Act.

ITR-8 Persons not liable to file return of

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income but are liable to file return offringe benefits

ITR-V Where the data of the return of incomeor Fringe benefits in Forms ITR-1, ITR-2, ITR-3, ITR-4 ITR-5, ITR-6 &ITR-8 istransmitted electronically without digitalsignature.

The above forms are not required to be filed in duplicate. Butwhere the return form is filed in paper format, acknowledgement slipattached should be duly filled in.

Where a return of income or return of fringe benefits, relates tothe assessment year commencing on the 1st day of April, 2007 or anyearlier assessment year, it shall be furnished in the appropriate form asapplicable in that assessment year.

All these Forms (except Form ITR-7) have been designed asannexure-less so as to make them amenable for electronic filing. Thusexcept form ITR-7, which is in respect of charitable/religious trusts,political parties and other non-profit organizations, all the forms can beelectronically filed.

Form prescribed for filing return of wealth tax :

The form is available at website: www.incometaxindia.gov.in

Form No. BA: For filing net wealth of individuals/HUFs and companiesfrom Assessment year 1993-94 onwards.

CHAPTER – 3

DUE DATES FOR FILINGTAX RETURNS

WHAT ARE THE DUE DATES FOR FILING OF RETURNS ?

The Due dates for filing Income Tax returns are:-

I. Where the assessee is a Company 31st October of theAssessment Year.

II. Where the assessee is a person other than a company:-

a) 1. where accounts of the assessee 31st October of theare to be Audited or Assessment Year.

2. a working partner of a firmwhose accounts are required tobe audied under the IncomeTax Act or any other law

b) Where the return has to be filed Discontinued w.e.f.under the one-by-six criteria A.Y. 2006-07

c) Any other assessee 31st July of theAssessment Year.

CONSEQUENCES OF SUBMISSION OF RETURN AFTER DUEDATE

If a return is submitted after the due date, the followingconsequences will be applicable:

1. The assessee will be liable for penal interest under section 234A.

2. A penalty of Rs 5,000 may be imposed under section 271 F ifbelated return is submitted after the end of the assessment year.

3. If the return of loss is submitted after the due date, a few lossescannot be carried forward.

4. If the return is submitted belated, deductions allowable undercertain sections will not be available.

INTEREST U/S. 234-A FOR LATEOR NON-FURNISHING

OF INCOME TAX RETURN

For defaults in furnishing Simple interest @ 1% for everyReturn of income month or Part thereof from the

due date of filing of the Return tothe date of furnishing of thereturn & in case return is notfiled, it is upto the date ofcompletion of assessment u/s 144.The interest is calculated on theamount of the tax on the totalassessed income as determinedunder sub-section (1) of section143 or on regular assessment u/s143(3) as reduced by the AdvanceTax, if any, paid and any taxdeducted or collected at source.

IF AN ASSESSEE DOES NOT FILE HIS RETURN OF INCOME, ISANY PENALTY IMPOSABLE UPON HIM ?

Yes, Penalty of Rs. 5000 is imposable for non-filing of return withinthe assessment year. Interest is also chargeable for non-filing or latefiling, as shown above.

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Vide Finance Act, 2008, the due date for filing of return for thefollowing categories of assessees has been specified as 30th Sep-tember of the assessment year instead of 31st October of theassessment year (w.e.f. 1-4-2008):

(i) a company;(ii) a person (other than a company) whose accounts are to

be audited(iii) a working partner of a firm whose accounts are to be

audited

IS TAX TO BE PAID DURING THE FINANCIAL YEAR ON THEBASIS OF PAY AS YOU EARN ?

Yes, Such payments have to be made in instalments and areknown as ‘Advance-Tax’ payments. However the liability for paymentof advance tax arises only where the amount of such tax payable by theassessee during that year is Rs. 5,000 or more.

The due dates and the percentage of instalments of Advance Taxfor assessees other than Companies are as below :-

Due Date of instalments Amount payable

1st on or before 15th September. Amount not less than 30% ofsuch advance tax.

2nd on or before 15th December. Amount not less than 60% ofsuch advance tax after deductingamount paid in earlier instalment.

3rd on or before 15th March. Entire balance amount of suchadvance tax.

In case of companies, there are 4 instalments of advance taxpayable on or before 15th June (15%); 15th Sept. (45%); 15th Dec.(75%); & balance amount of Advance Tax payable by 15th March. Also,any amount paid by way of Advance Tax on or before the 31st Marchof that year, is treated as Advance Tax Paid during that Financial Year.The percentages of 45% and 75% specified with reference to dates of15th Sept. and 15th Dec. include the amount of advance tax paid earlierduring the year.

IF THE TAX PAYER FAILS TO PAY 90% TAX PLUS APPLICABLEINTEREST THEN HOW IS INTEREST FOR SHORT PAYMENT OFSUCH ADVANCE-TAX CALCULATED ?

INTEREST U/S. 234-B FOR SHORT PAYMENT OF ADVANCETAX

Shortfall in payment of Simple interest @ 1% for monthAdvance tax of more than or part thereof is chargeable w.e.f.10%. 1st April of the Assessment Year

to the date of determination ofincome u/s. 143(1) or regularassessment u/s 143(3) on theassessed tax.

‘‘Assessed tax’’ means the tax onthe total income determined undersub section (1) of section No. 143or on regular assessment u/s 143(3),as reduced by the amount of taxdeducted or collected at source.

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1. If no advance tax is paid or theadvance tax paid in 1st installmenton or before 15th September is lessthan 30% of the tax payable on thereturned income as reduced by taxesdeducted at source.

2. If no advance tax is paid or if theadvance tax paid in 2nd installmenton or before 15th December is lessthan 60% inclusive of 1st installmentof the tax payable on the returnedincome as reduced by taxes deductedat source.

3. If the advance tax paid on thecurrent income on or before the 15thday of March is less than the tax dueon the returned income.

B. INTEREST U/S 234C FOR THE CORPORATE ASSESSEES

1. If advance tax paid on or beforeJune 15th is less than 12%.

2. If advance tax paid on or beforeSept. 15th is less than 36%.

3. If advance tax paid on or beforeDec., 15th is less than 75%.

4. If advance tax paid on or beforeMarch 15th is less than tax due onreturned income (100%).

Simple interest @ 1% p.m.is chargeable on the amountof shortfall for a period of 3months.

Simple interest @ 1% p.m. ischargeable on the amountof shortfall for a period of 3months.

Simple interest @ 1% ischargeable on the amountof shortfall from the tax dueon the returned income.

Simple interest @ 1% p.m.is chargeable on the amountof shortfall for a period ofthree months.

Simple interest @ 1% p.m. ischargeable on the amountof shortfall for a period ofthree months.

Simple interest @ 1% p.m.is chargeable on the amountof shortfall for a period ofthree months.

Simple interest @ 1% ischargeable on the amountof shortfall from the tax dueon the returned income.

However, no interest is leviable if the short fall in payment ofadvance-tax is on account of under estimation or failure to estimate theamount of capital gains or any income from winnings from lotteries,crossword puzzles, races, and other games including an entertainmentprogram on television or electronic mode, in which people compete towin prizes etc., and the assessee has paid the tax on such income as partof the remaining instalments of advance tax which are due or if noinstalment is due, by 31st March, of the Financial Year.

WHAT ARE THE DUE DATES FOR FILING OF WEALTH TAXRETURNS ?

The due dates for filing Wealth Tax returns by different assessees,are the same as that given above for filing Income Tax returns.

WHAT ARE THE CONSEQUENCES OF NOT FILING OR LATEFILING OF WEALTH TAX RETURNS ?

Where the assessee had defaulted in timely furnishing of hisreturn of wealth, then penal interest @ 1% for every month or part ofa month of delay is chargeable for Non/Late filing of return.

HOW IS INTEREST FOR DEFERMENT OF ADVANCE-TAXCALCULATED ?

(A) INTEREST U/S. 234-C FOR DEFERMENT OF ADVANCETAX (Non Corporate assessees)

CHAPTER – 4

SOME HELPFUL TIPS FORFILING INCOME TAX RETURNS

“SOME HELPFUL TIPS FOR INCOME TAX RETURN

Income-tax return is a legal document and it should be filed by theassessee with due care and caution. There should be no corrections oroverwriting and it should be properly signed and verified by the personauthorized to do so under the provisions of the Income-tax Act. Thefollowing important points may be taken care of while filling up thereturn forms:

1. Assessment year to which New Forms are applicable

The new ITRs notified are applicable for the assessment years2008-09 onwards only, for return of income relating to earlier assessmentyears return is to be furnished in the appropriate form as applicable inthat assessment year. Each assessee has to identify the correct ITRForm applicable in its case before filing the return of income.

2. No enclosures to the return

Rule 12(2) of the I.T Rules provides that the return of income andreturn of fringe benefits required to be furnished in Form No. ITR-1,ITR-2, ITR-3, ITR-4, ITR-5, ITR-6, or ITR-8 shall not be accompaniedby a statement showing the computation of tax payable on the basis ofreturn, or proof of tax, if any, claimed deducted or collected at sourceor the advance tax or tax on self assessment, if any, claimed to havebeen paid or any document or copy of any account or form or reportof audit required to be attached with the return of income or return offringe benefits under any provisions of the Act.

3. For timely delivery of refunds, ensure correct address andaccount number on your Return of Income

From 1.10.07 onwards, all income tax refunds in Bangalore,Chennai, Delhi, Kolkata and Mumbai will be delivered by the RefundBanker directly at the communication address mentioned on the Returnof Income. Taxpayers are requested to fill in the correct address

(available during working hours for delivery) to ensure speedy deliveryof refunds. In the case of taxpayers who opt for refunds through ECS,it will be credited directly to the bank account for which correct MICRcode/ Bank Account Number has to be furnished on the Return.

4. Manner of filing the new Forms

These Forms can be submitted in the following manner:

(i) a paper form;

(ii) e-filing

(iii) a bar-coded paper return.

Returns can be e-filed through the internet. E-filing of return ismandatory for companies and firms requiring statutory audit u/s 44AB.E-filing can be done with or without digital signature-

a) If the returns are filed using digital signature, then no furtheraction is required from the tax payers.

b) If the returns are filed without using digital signature, thenthe tax payers have to file ITR-V with the department within15 days of e-filing.

c) The tax payers can e-file the returns through an e-intermedi-ary who would e-file and assist him in filing of ITR-V within15 days.

Where the form is furnished by using bar coded paper return then thetax payers need to print two copies of Form ITR-V. Both copies shouldbe verified and submitted. The receiving official shall return one copyafter affixing the stamp and seal.

5. Filling out acknowledgement

Where the return is furnished in paper format, acknowledgementslip attached with the return should be duly filled in. The new forms arenot required to be filed in duplicate.

6. Intimation of processing under section 143(1)

The acknowledgement of the return is deemed to be the intima-tion of processing under section 143(1). No separate intimation will besent to the taxpayer unless there is a demand or refund.

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7. Furnishing details of high value transactions

In the return the details of high value transactions need to becompulsorily stated, which are ordinarily reported through the annualinformation return (AIR) and these details are cross checked andmatched with the data in the AIR.

8. Filing your return through Tax Return Preparers (TRPs)

If you are an individual or an HUF assessee and you are notrequired to get your accounts audited (called ‘eligible person’) underthe provisions of the Income Tax Act, then you can use the servicesof a Tax Return Preparer (TRP). However, if the ‘eligible person’ is nota resident in India during the previous year relevant to such assessmentyear, he can not avail of the services of a TRP.

If you are filing your returns through a TRP then you shouldensure that:

i) You are eligible to file return of Income under this Scheme;

ii) You give your consent to any Tax Return Preparer to prepareyour return of income for any assessment year;

iii) You verify that the facts mentioned in the return are true andcorrect before you sign the return;

iv) You certify the amount which has been paid by you under thisScheme to the Tax Return Preparer for preparing and furnishingof the return of income; and

v) You take a receipt of the payment made to the Tax ReturnPreparer and produce the same before the Resource Centre orAssessing Officer, if required,

Incentive to Tax Return Preparers

The Tax Return Preparer shall charge a fee of two hundred andfifty rupees for any assessment year from the eligible person forpreparing and furnishing his return of income for that assessment year:

Provided that he will charge no fees for preparing and furnishingthe return for any eligible assessment year if the amount disbursable tohim as per the scheme notified by the government for that eligibleassessment year exceeds two hundred and fifty rupees. If the amount

disbursable is less than two hundred and fifty rupees, we can chargethe difference between rupees two hundred fifty and the amountdisbursable.

9. Verification

The verification must be signed by the authorized person beforefurnishing the return and the name and designation of the personsigning the return should also be written. Any person making falsestatement is liable to be prosecuted under section 277 of the Act.

WHO CAN VERIFY AND SIGN THE INCOME TAX RETURN ?

a) Individual : The individual filing his Income Tax Return has to signthe return. In case the individual is mentally incapable, then thereturn may be signed by his Guardian or by any other personcompetent to act on his behalf.

In case the individual is absent from India or because of any otherreason he is not able to sign and verify his return of income, thenany person duly empowered by him through valid Power ofAttorney may sign on his behalf. In such a case, a certified copyof the Power of Attorney must accompany the return.

b) Hindu Undivided Family : By the Karta or where he is absentfrom India or is mentally incapacitated from attending to hisaffairs, by any other adult member of such family.

c) Company : In this case by the following :-

1) Resident : Managing Director or, where there is no ManagingDirector or he is not able to sign and verify the return dueto any unavoidable reason, by any director thereof.

2) Non-Resident : The return may be signed and verified by aperson holding a valid Power of Attorney from the Company,which should be attached to the return.

3) Wound up/taken over by the Govt. : The return should besigned and verified by the Liquidator or the Principal Officeras the case may be.

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d) Firm : Managing Partner, or where there is no Managing Partneror due to some unavoidable reasons, he is not able to sign andverify the return, by any partner thereof not being a minor.

e) Local Authority : By the Principal Officer.

f) Association of Persons : By any member of the Association or thePrincipal Officer thereof.

Documents to be enclosed with return:

1. Acknowledgment slip in duplicate.

2. Statement of Computation of Income and Tax.

3. Ensure that Challan Identification Number (CIN) is mentioned inyour Income-tax Challan. Attach copy of the acknowledgment ofChallan.

4. Attach original T.D.S. Certificate in Form No. 16 or 16A or 16AAas applicable.

5. Certificates/Receipts of payment of insurance premium, providentfund, purchase of NSCs, new equity shares, mutual fund, NSS,medical insurance, donations etc. in support of deductions/rebatesclaimed. Requisite evidence where ever prescribed by law insupport of your claim for any deduction/exemption, must beattached alongwith the return. Failure to do so may deprive youof the deduction and such evidence, even if produced later maynot be entertained by the Assessing Officer.

6. Certificate of interest on housing loan from the lender, in supportof deduction from house property income.

7. Other documents/statements as specified in the return itself andin support of income.

8. Quote your PAN clearly and correctly.

9. In case the assessee has applied for PAN but has yet not receivedallotment, a copy of PAN application form filed earlier and itsacknowledgment should be enclosed with the return.

10. The name of the employer needs to be mentioned. Salariedemployees to mention whether they are pensioners/Sr. Citizens.

11. Details of bank account to be mentioned to help in issue ofelectronic refunds.

It may, however, be noted that the new return forms on mentionedin Chapter-2 are not required to be filed in duplicate and no annexuresare to filed with such forms.

WHERE TO FILE THE INCOME TAX RETURNS ?

An existing assessee must file his Income-Tax Return with theAssessing Officer who had previously assessed him or with the AssessingOfficer where his case stands transferred. A new assessee should filethe Return with the Assessing Officer having territorial jurisdictionover the area where he resides or his principal place of business issituated or with the Assessing Officer having special jurisdiction overspecific assessees or classes of income. For example, where the majorsource of income of an assessee is the income from contract business,the IT Return should be filed with the assessing officer having jurisdictionover the contractor circles. A doctor or C.A. or an Advocate should filethe returns in professional circles if any specified.

The return may be delivered at the counter in the concernedRange/Circle or it may be sent by registered post. The return is attachedwith two acknowledgement forms which should be duly filled in by theassessee. One copy of the acknowledgement form is to be returned bythe official at the counter duly signed, stamped, numbered and dated insupport of having received the return. In case of any doubt or problem,the taxpayer should contact the Public Relations Officer for guidanceand help.

CHAPTER – 5

MANNER OF FILING OFRETURNS

MANNER OF FURNISHING RETURNS

Rule 12(3) provides that the return of income or return of fringebenefits referred to in rule 12(1) may be furnished in any of the followingmanners namely:

(i) furnishing the return in a paper form;

(ii) furnishing the return electronically under digital signature;

(iii) transmitting the data in the return electronically and thereaf-ter submitting the verification of the return in Form ITR-V

(iv) furnishing a bar-coded return in a paper form:

Provided that-

(a) a firm required to furnish the return in Form ITR-5 and towhom provisions of section 44AB are applicable or a com-pany required to furnish the return in Form ITR-6 shallfurnish the return in the manner specified in clauses (ii) or(iii) above.

(b) A person required to furnish the return in Form ITR-7 shallfurnish the return in the manner specified in clause (i).

Filing of Bulk Return by Employer [Section 139 (1A)]

Under section 139(1A) the Board has specified a scheme for Bulkfiling of returns by employer, wherein the eligible employee at his optionmay furnish a return together with documents to his employer and suchemployer shall furnish returns received by him on or before the due dateon computer readable media using the authorized Bulk Return Prepara-tion Software (BRPS).

Filing of return of income on computer readable medium [Section139(1B)]

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Any person may, at his option, on or before the due date, furnisha return of income under section 139(1) in accordance with the schemespecified by the Board. Under this scheme, return has to be submittedin a computer readable media( including on a floppy, diskette, magneticcartridge tape, CD-ROM or any other computer readable media) andsuch return shall be deemed to be a return furnished u/s 139(1).

This is an optional scheme and under this scheme, an eligibletaxpayer can furnish his return to one of the intermediaries authorizedfor this purpose, who will transcribe the data from paper return to theIncome-tax department. The intermediary will then submit the paperreturn to the department. The intermediary will also provide the facilityof preparing the returns of income of taxpayers at their request on thebasis of the documents provided by such taxpayers.

Filing of return in electronic form

Section 139 D provides that the Board may make rules providingfor:

(a) the class or classes of persons who shall be required tofurnish the return in electronic form;

(b) the form and the manner in which the return in electronicform may be furnished;

(c) the documents, statements, receipts, certificates or auditedreports which may not be furnished along with the return inelectronic form but shall be produced before the AssessingOfficer on demand;

(d) the computer resource or the electronic record to which thereturn in electronic form may be transmitted.

Scheme of filing returns by salaried employees (getting Form No.16AA) through employer

The scheme is optional and provides an additional mode offurnishing returns of income by persons deriving income from salaries.An eligible employee (having gross salary upto Rs 1,50,000) may at hisoption furnish his return through he employer under the Scheme, asfollows:

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CHAPTER – 6

HOW TO FILL ‘PAN FORM’

WHO HAS TO APPLY FOR PAN?

The following persons should apply for allotment of PAN inForm 49A-

l Every person whose assessable income exceeds the maximumamount which is not chargeable to tax or any person carryingout business or profession whose total sales/turnover is likelyto exceed Rs 5,00,000 in a year.

l A person who is required to furnish return under sub-section(4A) of section 139.

l An employer who is required to furnish return of fringebenefits tax.

l The Central Government has power to specify by notificationany class or classes of persons by whom tax is payable underthe Income-tax Act or any tax or duty is payable under anyother law for the time being in force.

WHAT ARE THE IMPORTANT POINTS TO REMEMBERWHILE FILLING THE ‘PAN’ FORM (FORM NO. 49A) ?

The PAN form should be filled in by the assessee with due careand caution. There should be no corrections or overwriting and itshould be properly signed and verified by the persons who is authorizedto do so, under the provisions of IT Act. The following importantpoints may be taken care of while filling up the form :

NAME & ADDRESS :

The name and address must be written in block letters and whilefilling up the same, one cage may be left blank after each word. Noinitials are allowed to be used while filling in the same. Full name hasto be given.

STATUS

Correct code number of the assessee’s status/residential statusmay be filled in.

(1) On receipt of TDS in Form 16AA from the employer, he shallverify the information given and furnish the same aftersigning and verifying to the employer before the due date.

(2) On receipt of the duly signed and verified Form 16 AA, theemployer shall furnish the return of i9ncome to the income-tax department and receive an acknowledgement.

(3) The employer shall ensure that the return is furnished beforethe due date and distribute the acknowledgement to therespective eligible employees and the date on which theemployer furnished the return shall be treated as the date offiling of return by the eligible employee.”

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DATE OF BIRTH :

Date of birth is very important and should be filled correctly.

FATHER’S NAME :

Father’s name has to be given even in case of married ladies.

SOURCES OF INCOME :

A person should have at least one source of income to apply forPAN. So the relevant box should be checked in the form.

IN CASE OF COMPANIES, THE FOLLOWING ADDITIONALDETAILS HAVE TO BE FILLED IN THE FORM

l The ROC registration number of the company.l The date of incorporation of the company.l The date of commencement of business by the company.l In which business activity the company is engaged in.

VERIFICATION :

The verification must be signed by the authorized person, andother particulars viz. Name, Assessment Year, Capacity, Place and Dateshould be correctly filled therein. Please note that any person makinga false statement is liable-to be prosecuted under Section 277 of theIncome-Tax Act.

WHO CAN VERIFY AND SIGN THE ‘PAN’ FORM ?

Individual : The individual filling his PAN form has to sign it. Incase the individual is mentally incapable, then the PAN form may besigned by his Guardian or by any other person competent to sign on hisbehalf.

Incase the individual is absent from India or because of any otherreason, he is not able to sign and verify his PAN form, then any personduly empowered by him through valid Power of Attorney may sign onhis behalf. In such case, a certified copy of Power of Attorney mustaccompany the PAN form.

Hindu Undivided Family : By the Karta or where he is absentfrom India or he is mentally incapacitated from attending to his affairs,by any other adult member of such family.

Company : In this case by the following :-

i) Resident : The Managing Director or, where there is no ManagingDirector or he is not able to sign and verify the PAN form due toany unavoidable reason, by any director thereof.

ii) Non-Resident : The PAN form may be signed and verified by aperson holding a valid Power of Attorney from the Non-Resident,which should be attached to the PAN form.

iii) W ound up/taken over by the Govt.: The PAN form should besigned and verified by the Liquidator or the Principal Officer asthe case may be.

iv) Firm : Managing Partner, or, where there is no Managing Partneror due to some unavoidable reasons, he is not able to sign andverify the PAN form, by any partner thereof, not being a minor.

v) Local Authority : By the Principal Officer

vi) Association of Persons : By any member of the Association or thePrincipal Officer thereof.

WHERE TO FILE THE PAN FORM ?

Presently, the Pan application may be submitted at the UTIISLcounters along with the following.

a) Two photographs of stamp size in case of Individual.

b) Proof of identity and proof of residence & date of Birth

c) Payment of fee of Rs. 60/- + Rs. 5/- (application form cost)

The tamper proof high security PAN card will be issued within15 days from the date of filing of the application.

There is a Tatkal Scheme under which the PAN card will be issuedwithin 2 days on payment of D.D of Rs. 150/- in case of urgency.

To know the position of allotment, one may enquire with PANquery centre or PRO in Income Tax Offices. Further, there is a websiteavailable - www.incometaxindia.gov.in.

In case of transfer of an assessee from one Region to another, thefact of transfer has to be informed at the old station with a request for

CHAPTER – 7

HOW TO FILL UP A TAXCHALLAN

All the columns in the challans form should invariably be filled insuch as PAN No., assessment year, Assessing Officer, and his code,status and full address of the assessee in capital letters. The relevantcolumns of tax, interest etc. should also be filled in properly.

‘‘ONLINE TAX ACCOUNTING SYSTEM (OLTAS)’’

The Department and the RBI with the participation of 31 commercialbanks have introduced the OLTAS, for simplifying the payment of taxesfrom 1st June 2004. The new simplified single copy challan for thispurpose is available with Income-tax offices. The counterfoil will bereturned to the taxpayer after stamping the ‘Challan IdentificationNumber (CIN)’. The CIN is to be quoted in the return.

For payment of Advance-tax or self assessment tax, taxpayers willfill in challan form ITNS 280 specifying the type of payment i.e.Advance-tax or Self assessment tax.

For depositing TDS or tax collection at source tax-payers will fillthe challan form ‘‘ITNS 281’’.

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transfer of PAN to the present Region.

WHEN CAN ASSESSING OFFICER ALLOT PAN SUO MOTO?

The Assessing Officer may allot PAN to any person by whom taxis payable (or with effect from June 1, 2006 tax not payable). Besides,persons who are registered under the Central Sales Tax Act (CST) orgeneral sales tax law or register after 11th Dec, 2001, then before makingan application under the CST Act or general sales tax law should applyfor PAN.

CHAPTER – 8

EXEMPTIONS FROM INCOME

For the sake of guidance, brief details of certain exemptions arediscussed as under:-

GRATUITY – SECTION 10(10)

a) Any Death-cum-Retirement gratuity to Govt. Employees : Whollyexempt.

b) Any gratuity received by the employees covered under Paymentof Gratuity Act, 1972. Least of the following is exempt:-

l 15 days salary (7 days in case of seasonal employment) for eachcompleted year of service or part in excess of 6 months.

l Rs. 3,50,000.

l Amount of gratuity actually received

c) Any other gratuity, (not covered under (a) or (b)):

Least of the followings is exempt:-

l Rs 3,50,000

l Half month’s salary for each completed year of service

l Amount of gratuity actually received.

COMMUTED PENSION – SECTION 10 (10A)

a) Government Employees : Wholly exempt.

b) Non-Govt. Employees :

i) Where the employee receives gratuity, amount not exceedingthe commuted value to the extent of 1/3rd of the pension isexempt.

ii) In other cases : the commuted value of ½ of pension isexempt.

LEAVE ENCASHMENT ON RETIREMENT WHETHER ONSUPERANNUATION OR OTHERWISE – SEC, 10 (10AA)

a) Govt. Employees : wholly exempt.

b) Non-government Employees : Exemption is available in respect ofthe least of the following :

l Cash equivalent of the leave salary in respect of the periodof earned leave to the credit of the employee at the time ofretirement but not exceeding 30 days for each year of actualservice and also not exceeding for a period of ten months;

l The Amount calculated on the basis of 10 months averagesalary immediately preceding his retirement;

l Rs. 3,00,000 if date of retirement is on or after 1.4.98;

l Leave encashment actually received.

RETRENCHMENT COMPENSATION – SECTION 10 (10B) :

The retrenchment compensation received by a workman is exemptprovided that in general it does not exceed the sum calculated on thebasis provided in Section 25F(b) of Industrial Disputes Act, 1947 or anysuch amount as is specified by the Central Govt. by a Notification,whichever is less. The maximum exemption is Rs. 5 lakhs whereretrenchment is on or after 1-1-1997.

PAYMENT RECEIVED ON VOLUNTARY RETIREMENT SECTION 10(10C):

Any amount received by an employee of a Public Sector Companyor of any other company at the time of voluntary retirement is exemptto the extent such amount does not exceed Rs. 5 lacs, provided thescheme of such voluntary retirement is in accordance with the guidelinesprescribed under rule 2BA of Income Tax Rules 1962. If an exemptionhas been allowed under this section for any assessment year, noexemption there under is allowable in relation to any other assessmentyear. Further, the benefit of the exemption has been extended toemployees of an authority established under a Central, State or ProvincialAct, or a local authority or to employees of a Co-operative society,university, Indian institute of Technology and notified Institute ofManagement.

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SPECIAL ALLOWANCE/BENEFIT – SEC. 10 (14) :

Any special allowance or benefit specifically granted to theemployee to meet the expenses in the performance of duties of an officeor employment of profit (as is prescribed in the I.T. Rules, 1962) isexempt to the extent of actual expenditure incurred.

ANNUAL ACCRETION TO PROVIDENT FUND ACCOUNT –

Schedule – IV : Part - A Rule 6 :

a) Employer’s contribution to the extent of 12% of the salary

b) Interest on the credit balances at the notified rate of 12%.

HOUSE RENT ALLOWANCE – SEC 10 (13A) READ WITH RULE 2A:

When the employee is occupying a rented residentialaccommodation, the amount of house rent allowance received by himis exempt to the extent of least of the following amounts:

a) 50% of the salary where residential house is situated at Bombay,Calcutta, Madras or Delhi and 40% of the salary where residentialhouse is situated at any other place.

b) House Rent Allowance actually received by the Employee inrespect of the period during which the residential accommodationis occupied by him during the year.

c) Amount of rent paid in excess of 10% of the salary.Besides the above, there are certain other incomes also, which aretotally exempt or exempt subject to fulfillment of certain conditions.A list of such incomes is given below:-

l Agricultural income. Section 10 (1).

l Sums received from family income by a member of a Hinduundivided family. Section 10 (2).

l Payment by way of compensation received by victims ofBhopal gas leak disaster. Section 10 (10BB).

l Scholarship granted to meet the cost of education. Section10 (16).

l Any income by way of rewards/awards given by the Centralor State government. Section 10 (17A).

l Annual value of any one palace occupied by a former ruler.Section 10 (19A).

l Income of a local authority. Section 10 (20).

l Any income of an authority whether known as Khadi andvillage Industries Board or by any other name for thedevelopment of Khadi or village industries. Section10 (23BB).

l Any income by way of property income and income fromother sources of a registered trade union or an association ofregistered trade unions. Section 10(24).

l Income received by a person on behalf of statutory providentfund, recognized provident fund, approved superannuationfund, approved gratuity fund etc. Section 10(25).

l Income of Employees State Insurance Fund. Section 10(25A).

l Any Income of National Minorities Development and FinanceCorporation. Section 10(26BB).

(whether Central or State).

There are certain other incomes which are also exempt but subjectto fulfilment of given conditions. Some of these are listed herein below:

l Interest received by a non-resident from specified securitiesor bonds. Section 10(4)(i).

l Interest received by a person who is resident outside Indiaon amounts credited in ‘‘Non-resident (External) Account.’’Sec. 10(4)(ii).

l In the case of an Indian citizen or a person of Indian originbeing a non-resident, the interest from notified SavingsCertificates subscribed in, foreign currency or other foreignexchange remitted from outside through official channels(issued before 1-6-2002). Section 10 (4B).

l The value of leave travel concession provided by an employerto his Indian citizen employee. Section 10(5).

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l Remuneration received by foreign diplomats of all categories.Section 10(6)(ii).

l Remuneration received by a non-resident foreign citizen inIndia as an employee of a foreign enterprise, provided hisstay in India does not exceed 90 days. Section 10(6)(vi).

l Income by way of salary received by a non-resident foreigncitizen as a member of ship’s crew provided his total stay inIndia does not exceed 90 days. Section 10 (6) (viii).

l Remuneration received by an employee, who is a foreignnational, of a foreign government deputed in India fortraining in a Government concern or Public Sectorundertaking. Section 10(6)(xi).

l Tax paid on behalf of foreign companies drawing income byway Royalty or technical services with effect from theassessment year 1984-85 received before 1-6-2002. Section10(6A).

l In the case of non-resident/foreign company, tax paid byGovernment or Indian concern before 1-6-2002. Section 10(6B).

l Income arising to certain foreign companies by way ofroyality or fees for technical services provided in or outsideIndia, in respect of projects connected with security of India.Section 10(6C).

l Foreign allowance or perquisites granted by the Governmentof India to its employees rendering services outside India.Sec. 10(7).

l Sums by way of remuneration received from a foreignGovernment by an individual who is in India in connectionwith any sponsored co-operative technical assistance programwith Govt. of a foreign state and income of family membersof such employee out side India. Section 10(8) & 10(9).

l Remuneration/fees received by non-resident consultants andtheir employers. Sections 10(8A)/10(8B).

l Any sum (including bonus) on life insurance policy (subjectto certain exceptions). Section 10 (10D)

l Any amount from provident fund paid to retiring employee.Section 10(11).

l Accumulated balance of a recognized Provident Fund subjectto Rule 8 of Part A of the Fourth Schedule. Section 10(12).

l Amount from an approved superannuation fund to legalheirs of the employee, who is beneficiary of the fund. Section10(13).

l House rent allowance subject to certain limits. Section 10(13A).

l Special allowance or benefit granted to an employee. Section10(14).

l Interest from certain exempted securities prescribed in Section10(15).

l Any payment made by an Indian company, engaged in thebusiness of operation of aircraft, to acquire an aircraft onlease from a foreign government or foreign enterprise, underapproved agreement. Section 10(15A).

l Any income by way of daily allowance of a Member ofParliament or State Legislature (entire amount is exempt). Incase of a member of parliment any other allowance receivedis also exempt. Section 10(17).

l Any income of an approved scientific research association.Section 10(21).

l Income of a notified news agency subject to fulfillment ofcertain conditions. Section 10(22B).

l Any income (other than income from property, income receivedfor rendering any specific services and income by way ofinterest or dividends) of professional bodies, approved bythe Central Govt. by notification. Section 10(23A).

l Income received by any person on behalf of any RegimentalFund or non-public fund established by the armed forces ofthe Union for the welfare of the past and present membersof such forces or their dependents. Section 10(23AA).

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l Any income of pension fund setup by LIC. or any otherinsurer approved by the Controller of Insurance or byInsurance Regulatory Development Authority (IRDA). Section10(23AAB).

l Income of fund established for welfare of employees. Section10(23AAA).

l Any business income of a public charitable trust or a societyapproved by Khadi and Village Industries Commission.Section 10(23B).

l Income of the European Economic Community derived inIndia by way of, interest, dividends or capital gains in certaincases. Section 10(23BBB).

l Any income arising to anybody or authority established,constituted or appointed under any enactment for theadministration of public religious or charitable trusts orendowments or societies for religious or charitable purposes.Section 10(23BBA).

l Income of SAARC Fund for Regional Projects, set up byColombo Declaration. Section 10(23BBC).

l Any income of Secretariat of Asian Organisation of SupremeAudit Institutions. Section 10(23BBD).

l Any income received by any person on behalf of specifiednational funds and approved public charitable trust orinstitution. Section 10(23C).

l Income of Mutual Fund set up by — a public sector bankor a public financial institution. Section 10(23D).

l Any income by way of dividend, or long term capital gainsof venture capital funds and venture capital companies.Section 10(23F).

l Income of a member of Scheduled Tribe, living in Nagaland,Manipur, Tripura, Arunachal Pradesh and Mizoram from anysource arising by reason of his employment therein and

income by way of dividend and interest on securities. Section10(26).

l Any income accruing or arising to any resident of Ladakhfrom any source therein or out of India before the assessmentyear 1989-90, provided that such person was resident inLadakh in the previous year relevant to the assessment year1962-63. Section 10(26A).

l Any income of a statutory Central or State corporation or ofa body/institution, financed by the Government formed forpromoting the interest of Scheduled Castes/Tribes. Section10(26B).

l Income of co-operative society formed for promoting interestsof members of Scheduled Castes/Scheduled Tribes. Section10(27).

l Income by way of subsidy from Tea Board for replanting orreplacement of tea bushes or for the purpose of rejuvenationor consolidation of areas used for cultivation of tea in India.Section 10(30).

l Subsidy received by planters of Rubber, Coffee, Cardamon.Section 10(31).

l Income of a minor child up to Rs. 1,500 in respect of eachminor child whose income is includible under section 64(1A).Section 10(32).

l Any income by way of Capital gains on transfer of US-64units. Section 10(33).

l Dividend on or after April, 2003 from domestic companies.Section 10(34).

l Income on units of Mutual Funds on or after April 1, 2003.Section 10(35).

l Long term Capital gains on transfer of listed Equity Sharespurchased during 1-3-2003 to 29-2-2004. Section 10(36).

l Capital gain to individual/HUF on compensation received oncompulsory acquisition of urban agriculture land. Section10(37).

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l Long term capital gain in some cases. Section 10(38).

l Sum received without consideration from internationalsporting event held in India. Section 10(39).

l Income of Industrial Units situated in trade-free zones,specified technology parks etc. Section 10A.

l Income from specified 100% export oriented undertakingsSection 10B.

l Income from property held for approved charitable orreligious purposes. Section 11.

l Specified Income of Registered political parties. Section13A.

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CHAPTER – 9

INCOME FROM SALARY AT AGLANCE

‘‘Salary’’ is the remuneration received/or accruing periodically by/to an individual for service rendered as a result of expressed or impliedcontract. The Income-Tax Act has stipulated that salary includes:

Salary, including advance salary and arrears of salary;

Wages,

Fees;

Commission;

Pension or Annuity;

Perquisite or Profits in lieu of Salary;

Receipt from Provident Fund;

Retrenchment compensation;

Compensation as a result of variation in service contract;

Contribution of employer to Recognised Provident Fund in excessof notified rates;

Encashment of leave;

Value of any prescribed fringe benefit or amenity;

Contribution by Central Government towards pension fund.

The definition of ‘‘Salary’’ is inclusive and not exclusive.

“ Income from salaries is computed after making the following deduc-tions:

(a) Eliminitation of Standard Deduction for Salaried Employees:

Standard deduction u/s 16(i) is not available from A.Y 2006-07

(b) Entertainment Allowance [Under Section 16(ii)]

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CHAPTER – 10

INCOME FROM HOUSEPROPERTY AT A GLANCE

CHARGEABILITY UNDER THE HEAD INCOME FROM HOUSEPROPERTY:

Under the Income-tax Act, the owner of a house property(consisting of any building or land appurtenant thereto) is taxed on theincome in the form of its annual value under the head “Income fromhouse property”.

It is therefore clear that following conditions must be satisfiedbefore the rental income from property can be taxed under this head-

(1) The property must consist of buildings or lands appurtenantthereto;

(2) The assessee must be the owner of such property;

(3) The property may be used by the owner for any purpose butany portion of such property shall not be used by the ownerfor the purposes of business or profession carried on by him,the profits of which are chargeable to tax.

BASIS OF COMPUTATION OF INCOME FROM HOUSE PROPERTY

1. Gross Annual Value (Section 23):

(a) Reasonable expected rent and is deemed to be the sum forwhich the property might reasonably be expected to be letout from year to year;

(b) Rent actually received or receivable, if this sum is in excessof the sum referred to in clause (a), then the amount soreceived or receivable;

(c) If due to vacancy during the whole or part of the year, theactual rent received or receivable is lower than the reasonableexpected rent, then such rent is taken as the Gross annualvalue.

37

The entertainment allowance received is first included in theemployee’s income and then a deduction is allowed in case of Govern-ment servants only, for a sum equal to 1/5th of the salary (exclusive ofany allowance, benefit or other perquisite), or Rs.5,000, or actual allow-ance received, whichever is less.

Other assesses (i.e., assessees who are not in receipt of salaryfrom the Government)- No deduction from AY 2002-03.

(c) Tax on Employment (Profession Tax) [Section 16(iii)]

Where an employee has paid tax on employment under therelevant State Law, the tax so paid or recovered from his salary isdeductible from his gross salary income. The deduction is available inthe year in which the tax is actually paid by the employee.

Perquisites- is gain or profit incidentally made from employmentin addition to regular salary or wages. It is defined in section 17(2) ofthe Act. Perquisites can be broadly divided in following three categories:-

(i) Rent-free accommodation -section 17(2)(i)

(ii) Concession in rent –section 17(2)(ii)

(iii) Benefit or amenity given to a specified employee-section17(2)(iii).

The valuation of perquisites is provided in Rule 3 of the Income-tax Rules.

With effect from A.Y. 2006-07 the Fringe Benefits prescribed forthe purpose of Section 17(2)(vi) exclude the Fringe Benefits chargeableto tax under Chapter XII-H. The Fringe benefits prescribed u/s 17(2)(vi)include - (i) interest free or concessional loan. (ii) Use of moveable asset(iii) Transfer of moveable asset. (Detailed Provisions of Fringe BenefitTax introduced by the Finance Act, 2005 have been given in a separatechapter).

Unrealized rent (which the owner could not realize) shall beexcluded from rent received or receivable in clauses (a)&(b),above.[Expln. To section 23(1)]

However, if the owner is in self occupation of the house propertyfor his residential use, or cannot actually occupy it owing to hisemployment, business or profession carried on at any other place andhe has to reside in a building not owned by him, then the annual valueof such house shall be taken to be Nil.

2. Deduct municipal taxes- From the Gross annual value, deductmunicipal taxes (including service tax) levied by any local authority,only if these taxes are borne by the owner and actually paid by himduring the previous year.

3. Deduction under section 24-

The following two deductions are available u/s 24:

(a) Standard deduction- 30% of the net annual value irrespectiveof any expenditure incurred by the taxpayer; and

(b) Interest on borrowed capital is allowed as deduction onaccrual basis, if capital is borrowed for the purpose ofpurchase, construction, repair, renewal or reconstruction ofhouse property. For self-occupied house, deduction allowableis of Rs 30,000, if the capital is borrowed prior to 01.04.1999,the maximum ceiling of deduction is Rs1,50,000, if the capitalis borrowed after 01.04.1999 for acquiring or constructing ahouse property, and the construction, acquisition is completedwithin 3 years from the end of the financial year in which thecapital was borrowed and further that the person extendingthe loan certifies that such interest was advanced foracquisition or construction of the house property or re-finance of the principal amount outstanding under an earlierloan.

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CHAPTER – 11

INCOME FROM CAPITAL GAINSAT A GLANCE

Any profit or gain arising from sale or transfer of a Capital Assetis chargeable to tax under the head ‘‘Capital Gains’’. The income underthis head is deemed to be the income of the year in which the transfertakes place.

Capital gains are chargeable to tax on accrual basis whether theconsideration is received or not, especially in the case of gains fromsale of shares and securities.

Capital gains are of two kinds, namely:

l Short term Capital gains, if the assets like shares and securities,are held by the assessee for a period not exceeding 12 months or36 months in the case of other assets.

l Long term Capital gains, if the assets like shares and securities,are held by the assessee for a period exceeding 12 months or 36months in the case of other assets. Units of UTI and specifiedmutual funds will now be eligible for treatment as long termcapital assets if they are held for a period exceeding 12 months.

Long term Capital gains are computed by deducting from the fullvalue of consideration for the transfer of a capital asset thefollowing :

l Expenditure connected exclusively with the transfer;

l The indexed cost of acquisition of the asset, and

l The indexed cost of improvement, if any, of that asset.

In the case of shares, expenditure in connection with the transferincludes the stock broker’s commission but the salary of an employeeis not deducted in computing capital gains though the employee mayhave helped in the transfer of the shares.

40 41

Cost of acquisition, in such cases includes the price-paid, costof share transfer stamps, cost of postage for sending the shares fortransfer to the transfer-agents of the company, legal expenses etc.

‘‘Indexed cost of acquisition’’ means an amount which bears tothe cost of acquisition the same proportion as Cost Inflation Index forthe year in which the asset is transferred bears to the Cost InflationIndex for the first year in which the asset was held by the assessee.

CHAPTER – 12

INCOME FROM BUSINESS ORPROFESSION AT A GLANCE

Income from business, profession or vocation is taxed under thishead. It includes the following:-

l Profits or gains of a business;

l Any compensation or such payment due/received by any personin connection with modification/termination of his management;etc.

l Income derived by a trade, professional association from specificservices for its members;

l Export incentives;

l Value of any benefit arising during carrying out of business;

l Any interest, salary, bonus, commission or remuneration due/received by a partner from the firm in which he is partner;

l Any sum received under Keyman insurance Policy;

l Income from speculation business, etc.

HOW IS INCOME FROM BUSINESS OR PROFESSION COMPUTED ?

Income chargeable to tax is computed after deducting the following:-

1. Expenditure incurred during the previous year wholly andexclusively for the purpose of the business;

2. After deducting allowances and deductions provided in Sections30 to 43D of the I.T. Act. 1961;

3. The following expenses are not alloweable:-

l Expenditure relating to a discontinued business;

l Expenditure incurred before setting up of a business;

l Provisions, anticipated losses, reserves or contingentliabilities, bad debts etc. which have not arisen during theprevious year.

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CHAPTER – 13

INCOME FROM OTHERSOURCES AT A GLANCE

It is residuary head of Income which must satisfy the followingconditions:-

1. There must be an income;

2. This income is NOT exempt under the IT Act 1961; and

3. This income is not chargeable to tax under the other headsof income viz. ‘‘Salary’’, ‘‘House property’’, ‘‘Business orProfession’’ and ‘‘Capital Gains’’.

WHAT ARE SOME EXAMPLES OF THIS SOURCE ?

Some examples of certain incomes normally taxed under this headare given below:-

l Interest on bank deposits, loans or company deposits,

l Dividend;

l Family pension (received by legal heirs of an employee),

l Income from sub-letting of house property by a tenant,

l Agricultural income from agricultural land situated outsideIndia,

l Interest received from IT Dept. on delayed refunds,

l Remuneration received by Members of Parliament,

l Casual receipts and receipts of non-recurring nature,

l Insurance commission,

l Examiner-ship fees received by a teacher (not fromemployer),

l Income from royalty,

l Director’s commission for standing as guarantor to bankers,

l Winnings from Lotteries, Crossword Puzzles, Horse Racesand Card Games,

l Interest on securities,

l Income from letting out of machinery, plant or furniture, etc.

l From A.Y. 2007-08 onwards, any sum of money exceeding inaggregate Rs. 50,000 received without consideration on orafter 1-4-2006. Some exception are mentioned in section 56(2)(vi).

On or after 1st April, 2006, any sum exceeding Rs. 50,000/- receivedwithout consideration shall be treated as income provided that thesum of money is not received from any relative or on the occasionof marriage of the individual or under a will or inheritance etc.

HOW IS INCOME FROM ‘OTHER SOURCES COMPUTED ?

Income from this source is computed after deducting the following:-

1. Expenditure incurred during the previous year;

2. Expenditure incurred wholly and exclusively for the purposeof earning the said income;

3. After deducting allowances and deduction provided in Section57 of the IT Act 1961;

And after disallowing the following:-

A) expenditure relating to personal expenses

B) interest, salary payable outside India on which TDS notmade,

C) Income/Wealth Tax paid, excessive-payments to relativesetc.

D) Expenditure in respect of royalty and technical fees receivedby a foreign company;

E) expenditure in respect of winning from lottery.

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CHAPTER – 14

DEDUCTIONS FROM TOTALINCOME

WHAT DEDUCTIONS FROM TOTAL INCOME ARE AVAILABLE TOTAXPAYERS ?

Some of the various deductions available to a taxpayer areenumerated below:

DEDUCTION IN RESPECT OF LIFE INSURANCE PREMIA,DEFERRED ANNUITY, CONTRIBUTIONS TO PROVIDENTFUND, SUBSCRIPTION TO CERTAIN EQUITY SHARES ORDEBENTURES, ETC. [SEC. 80C, APPLICABLE FROM THEASSESSMENT YEAR 2006-07]

1. Under section 80C, deduction would be available from gross totalincome.

2. Only an individual or a Hindu undivided family can claimdeduction under section 80C.

3. Qualifying investment - The investments eligible for deductionunder section 80C are largely the same as those which were earlierentitled for rebate under section 88. These include life insurancepremia, contributions to provident fund or schemes for deferredannuities, purchase of infrastructure bonds, payment of tuitionfees, repayment of principal amount of housing loans, contributiontowards NSC VIII issue (including accrued interest for first 5years), etc. However, in order to minimize distortions, there are nosectoral caps in the new section and the assessee is free to investin any one or more of the eligible instruments within the overallceiling specified.

4. Investment may or may not be out of chargeable income - Amountinvested in these investments would be allowed as deductionirrespective of the fact whether (or not) such investment is madeout of income chargeable to tax.

5. Amount deductible under section 80C - Amount deductible undersection 80C is equal to (a) 100 per cent of the ‘‘qualifyinginvestment’’, or (b) Rs. 1 lakh, whichever is lower.

46 47

Rs. 15,000/- to an individual or HUF to keep in force an insurance onthe health of the assessee or spouse or dependent parents or dependentchildren of the assessee provided the payment for the insurance is madethrough a mode other than cash and out of the taxable income of theassessee. This deduction is allowed upto Rs.20,000/- in case of healthinsurance for senior citizens.

Now it has been provided in the Finance Act, 2008 to allow anadditional deduction of Rs. 15,000/- to an individual on the paymentmade to keep in force an insurance on the health of parent(s). The earlierexisting condition of ‘dependent’ with respect to parent(s) has beendispensed with. In case of senior citizens, the same shall be allowedupto Rs, 20,000/-. This deduction shall be in addition to existingdeduction available to the individual on medical insurance for himself,spouse and dependent children.

This amendment shall take effect from 1st April, 2009 and willaccordingly apply to assessment year 2009-10 and subsequentassessment years.

DEDUCTION FOR PHYSICALLY HANDICAPPED & DISABLEDDEPENDENT

Till A.Y. 2003-04, a deduction of Rs. 40,000 u/s 80DD was allowedto an Individual or HUF in respect of expenditure incurred on medicaltreatment of a handicapped dependent.

Now, w.e.f. 1.4.04 i.e. for A.Y. 2004-05 and subsequent years, a totaldeduction of Rs. 50,000 will be available to the parents, spouse,Children, brothers & sisters or any one of such dependents in respectof either medical expenditure incurred on medical treatment of or for thedeposits for future needs of the disabled or handicapped dependent.However in case of 80% or more of disability a sum of Rs. 75,000 isallowed. For details, section 80 DD may be referred to.

DEDUCTION FOR MEDICAL TREATMENT OF SERIOUS AILMENTSU/S 80DDB

With effect from assessment year 2004-05, section 80DDB providesthat if a resident individual or HUF actually pays any amount for themedical treatment of a specified disease or ailment for himself ordependent or a member of HUF (in case of HUF assessee), then the

6. Maximum amount deductible under sections 80C, 80CCC and80CCD - The maximum amount deductible under sections 80C,80CCC and 80CCD cannot exceed Rs. 1 lakh.

Finance Act, 2006 has included

1) term deposits for five years or more with scheduled banks inSection 80C.

2) investment ceiling in respect of annuity plan (Section 80CCC)increased to Rs. 1,00,000/-. Overall limit for Sections 80C, 80CCCand 80CCD to be Rs. 1,00,000/-

Changes made as per Finance Act, 2008:

The Finance Act, 2008 has enlarged the scope of eligible savinginstruments u/s 80C of the Act by including the following investmentswithin the qualifying investments subject to the overall ceiling ofRs. 1,00,000/-

i) 5 year time deposit in an account under Post Office TimeDeposit Rules, 1981 and

ii) Deposit in an account under the Senior Citizens SavingsScheme Rules, 2004

Further, it has also been provided that where any amount iswithdrawn by the assessee from such account before the expiry of aperiod of 5 years from the date of its deposit, the amount so withdrawnshall be deemed to be income of the assessee of the previous year inwhich the amount is withdrawn and shall be liable to tax. If such amounthas suffered taxation in any of the earlier years, such amount shall notbe taxed again.

The amendment shall apply to investments made during theFinancial Year 2007-08 and subsequent years.

Deduction in respect of medical insurance premia

The Finance Act, 2008 has amended section 80D of the Act andsubstituted it with a new section 80D providing for the following :

The provisions of section 80D provide for a deduction of

amount actually paid or Rs. 40,000/- (Rs.60,000/- if the patient is a seniorcitizen), whichever is less shall be allowed as deduction. For availingthis deduction, a certificate in prescribed form has to be furnished alongwith return of income from the concerned specialist working in a govthospital.

DEDUCTION U/S 80CCC FOR NEW PERSONAL CUM-FAMILYPENSION SCHEME

Section 80CCC provided that if an assessee being an individualpays or deposits any amount out of his income chargeable to tax toeffect or keep in force a contract for any annuity plan of Life InsuranceCorporation of India or any other insurer for receiving pension from thefund referred to in section 10(23 AAB), he shall be allowed a deductionof the amount equal to the deposit or Rs. one lakh whichever is less.

The amount of pension received in the hands of the contributoror the nominees shall be taxable.

Section 80CCC has been amended with effect from A.Y. 2006-07 soas to provide that where any amount paid or deposited by the assessee,has been allowed as a deduction u/s 80CCC, then a deduction of suchamount shall not be allowed u/s 80C.

DEDUCTION IN RESPECT OF INTEREST ON LOAN TAKEN FORHIGHER EDUCATION [SEC. 80E. AS SUBSTITUTED FROM THEASSESSMENT YEAR 2006-07]

Section 80E has been substituted by a new Section with effectfrom the A.Y. 2006-07. The provisions of new Section are given below-

Conditions - The following conditions should be satisfied -

1. The taxpayer is an individual.

2. He had taken a loan for the purpose of pursuing his highereducation. ‘‘Higher education’’ for this purpose means full-timestudies for any graduate or post-graduate course in engineering,medicine, management or for post-graduate course in appliedsciences or pure sciences including mathematics and statistics.

3. The aforesaid loan was taken from any bank, an approved charitableinstitution or a financial institution notified by the Government.

4. During the previous year, the taxpayer has paid interest on suchloan.

5. Such interest is paid out of his income chargeable to tax.

Amount deductible - If the above conditions are satisfied, the entireamount paid by way of interest is deductible under section 80E.However, the following points should be noted-

1. The above deduction is allowed in computing the taxable incomeof the initial assessment year (i.e., the assessment year relevant tothe previous year in which the assessee starts paying the intereston the loan) and 7 immediately succeeding assessment years (oruntil the above interest is paid in full, whichever is earlier).

2. From the assessment year 2006-07, no deduction will be availableunder section 80E in respect of repayment of principal amount.

3. From assessment year 2008-09 onwards, deduction under thissection is also allowable for interest or Loan for higher educationof assessee’s relative

DEDUCTION FOR DONATIONS MADE TO NATIONAL SPORTSFUND

Besides other funds, hundred percent deduction for donationsmade to National Sports Fund is now available u/s 80-G.

DEDUCTION OF RENTS PAID U/S 80GG

A deduction in respect of any expenditure incurred by an assessee,who is not in receipt of any income falling within clause (13A) of Section10 of the Act, in excess of 10% of his total income towards payment ofrent in respect of any furnished or unfurnished accommodation occupiedby him for the purpose of his own residence to the extent of Rs. 2,000per month or 25% of his total income, whichever is less, will be allowedunder Section 80GG. This deduction is allowable to only those assesseeswho do not own any residential accommodation.

DEDUCTION U/S 80JJA

Section 80JJA provides a deduction of whole of profits to anassessee in business of collecting, processing and treating biodegradablewaste for the specified purpose for a period of 5 consecutive assessmentyears from the year of commencement of business.

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50 51

CHAPTER – 15

INCOME-TAX ON FRINGEBENEFITS

INCOME-TAX ON FRINGE BENEFIT (SEC. 115W TO 115 WL,APPLICABLE FROM THE A.Y. 2006-07 ONWARDS]

Employees enjoy many fringe benefits at the cost of the employers.In some cases, the entire expenditure incurred by the employer is taxablein the hands of the employees. In some other cases, these perquisitesare taxable in the hand of the employees at concessional mode ofvaluation provided by rule 3. Some of them are exempt and notchargeable to tax because of specific provisions under rule 3 or becauseof executive instructions.

The new provisions of Fringe Benefit tax with the amendments inthe Act are as below:

Amendment of section 17 and rule 3(7) - Section 17 (2) definesperquisite. Sub-clause (vi) of this section has been amended with effectfrom the A.Y. 2006-07. Rule 3(7) has also been amended. The cumulativeimpact of these changes as applicable for the assessment year 2008-09is as under:

Section 17(2) (vi) - It includes “the value of any other fringebenefit or amenity (excluding the fringe benefits chargeable to tax underChapter XII-H) as may be prescribed.”

Fringe benefits prescribed for the purpose - The following fringebenefits have been prescribed:

1. Interest free or concessional loan (except some specifiedexemptions)

2. Travelling, touring, accommodation and any other expenses forany holiday availed of by employee or his family member(except some specified exemptions)

3. Free food or non-alcoholic beverages (except some specifiedexemptions)

4. Gift, voucher or token (except some specified exemptions)5. Credit card (except some specified exemptions)6. Club expenditure (except some specified exemptions)

DEDUCTION U/S 80JJAA

Section 80JJAA provides a deduction to Indian companies onemploying new regular workmen. This section is applicable fromassessment year 1999-2000 onwards. This deduction is allowable of 30%of additional wages paid to the new regular workmen employed by theassessee for 3 assessment years, including the assessment year inwhich such employment is provided.

DEDUCTION IN RESPECT OF INTEREST ON CERTAIN SECURITIESAND DIVIDENDS- SECTION 80L

No deduction under section 80L is admissible from A.Y. 2006-07,as it is omitted vide Finance Act, 2005, w.e.f.1-4-2006.

DEDUCTION IN CASE OF A PERSON WITH DISABILITY- SECTION80U

Deduction is available to a resident individual with disability ofRs 50,000 and in cases of severe disability the deduction available isRs 75,000/-.”

DEDUCTION FOR DONATION FOR ‘‘NATIONAL URBAN POVERTYERADICATION FUND’’

The government is setting up a fund called ‘National UrbanPoverty Eradication Fund’. Donations made to this fund would qualifyfor 100% deduction u/s 80-GGA. This deduction is only available to taxpayers other than those deriving income from business or profession.

DEDUCTION FOR PROFITS FROM INDUSTRIAL UNDERTAKINGOR ENTERPRISE ENGAGED IN INFRASTRUCTURE DEVELOPMENT

A deduction of 100% of profits and gains derived from suchbusiness is allowable for 10 consecutive assessment years. If theassessee develops, or operates and maintains, or develops, operatesand maintains any specified infrastructure facility then the deduction of100% of profits and gains derived from such business is allowable forany ten consecutive assessment years out of 20 years beginning withthe year in which the undertaking or enterprise developes and begin tooperate the infrastructure facility. (for details section 80 IA may berefereed to).

7. Any other benefit or amenity, service, right or privilege exceptexpenses on telephones and a mobile phone actually incurredby the employer.

Definition of “employer” as given in Section 115W - For the purposeof fringe benefit tax, the term “employer” means –

a. a company;b. a firm;c. an association of persons or a body of individuals, whether

incorporated or not [but it does not include any fund or trustor institution which is eligible for exemption under Section10(23C) or registered under section 12AA];

d. a local authority; ande. every artificial juridical person, not falling within any of the

above.l The following points should be noted –

1. A company, firm, local authority and an artificial juridicalperson are liable for fringe benefit tax even if they do not haveany income which is chargeable to income-tax. For instance,a company having only agricultural income (which is exemptunder Section 10) is liable for payment of fringe benefit tax ifother conditions are satisfied.

2. The following cannot be “employers” for the purpose offringe benefit tax (in other words, fringe benefit tax is notapplicable in the case of following employers) -a. an individual (whether or not books of account are

audited);b. a Hindu undivided family (whether or not books of account

audited);c. an AOP/BOI whose income is eligible for exemption under

Section 10(23C) or which is registered under Section12AA;

d. Central Government;e. a State Government.

Basis of charge as given under Section 115WA - As per Section115WA, fringe benefit tax is applicable if the following conditions aresatisfied–

1. Fringe benefits are provided (or deemed to be provided) by an“employer”.

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2. These benefits are provided to his/its employees.3. These benefits are provided during the previous year.If these conditions are satisfied, the employer would be liable for

fringe benefit tax with effect from the A.Y. 2006-07. The tax will becalculated at the rate of 30 percent (+SC+EC) on the “value” of fringebenefits. This is in addition to regular income-tax. Fringe benefit tax isnot applicable if a person does not have any employee during theprevious year.Meaning of “fringe benefits” and “value of fringe benefits” as givenin Section 115WB and 115WC - Section 115WB(1) defines “fringebenefits” which are narrated in Column 1 of Part A of the table givenbelow. Section 115WB(2) defines “deemed fringe benefits” which aregiven in Column 1 of Part B of the table. Section 115WC defines “valueof fringe benefits”. These values are given in Column 2 of Parts A andB of the table. Fringe benefit tax liability is calculated at the rate of 30percent (+ SC + EC) of the value given in Column 2–

Part A

“ Fringe benefits”, as per Section115WB(1), means any considerationfor employment provided by way of–

Any privilege, service, facility oramenity, directly or indirectly, providedan employer, whether by way ofreimbursement or otherwise, to hisemployees (including formeremployees) [not being expensesmentioned in Note 1]

Any free or concessional ticketprovided by the employer for privatejourneys of his employees or theirfamily members

Any contribution by the employer toan approved superannuation fund foremployees

Any specified security or sweat equityshares allotted or transferred, directlyor indirectly, by the employer free of

Value as per section

115WC

No value given.

100% (cost at which the samebenefit is provided to thegeneral public) minus anyrecovery from the employee

The amount of contributionwhich exceeds Rs 1 lac inrespect of each employee.

The fair market value of thespecified security or sweatequity shares on the date of

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Deemed fringe benefits [the followingshall be deemed to have beenprovided by the employer to hisemployees if the employer has in thecourse of his business and profession(whether or not such activity iscarried on with the object of derivingincome) incurred these expenses] asper section 115WB(2)

Entertainment

Provision of hospitality of every kindby the employer to any person,whether by way of provision of foodor beverages or in any other mannerwhatsoever and whether or not suchprovision is made by reason of anyexpress or implied contract or customor usage of trade (but does not includeany expenditure on, or payment for,food or beverages provided by theemployer to his employees in office orfactory and any expenditure on orpayment through paid vouchers whichare not transferable and usable onlyat eating joints or outlets)

Conference (not being fee forparticipation by the employees in anyconference)[Any expenditure on conveyance, tour

Value as per section 115WC

20%

20% (hotels 5%, carriage ofpassengers or goods byaircraft and ship 5%)

20%

and travel (including foreign travel),on hotel, or boarding and lodging inconnection with any conference shallbe deemed to be expenditure incurredfor the purposes of conference]Sales promotion including publicity(not being the expenditure mentionedin Note 2)Employees’ welfare (not being anyexpenditure incurred or payment madeto fulfil any statutory obligation ormitigate occupational hazards orprovide first aid facilities in the hospitalor dispensary run by the employer)Conveyance

Use of hotel, boarding and lodgingfacilities

Repair, running (including fuel),maintenance of motorcars and theamount of depreciation thereon

Repair, running (including fuel),maintenance of aircrafts and theamount of depreciation thereon

Use of telephone (including mobilephone) other than expenditure onleased telephone lines

Maintenance of any accommodation

20%

20%

20% (construction business5%, business of manufacture/production of pharmaceuti-cals 5%, manufacture/produc-tion of computer software5%)

20% (business of manufac-ture/production of pharma-ceuticals 5%, manufacture/production of computer soft-ware 5%, carriage of passen-gers and goods by aircraftand ship 5%20% (business of carriage ofpassengers or goods by aircraft : Nil)

20% (business of carriage ofpassengers or goods by air-craft

20%

20%

cost or at concessional rate to hisemployees (including former employeeor employees)

vesting of option with theemployees as reduced by theamount actually paid by, orrecovered from the employeein respect of such security orshares

Part B

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in the nature of guest house (otherthan accommodation used for trainingpurpose) (Not applicable w.e.f. A.Y.2009-10

Festival celebrations

Use of health club and similar facilities

Use of any other club facilities

Gifts

Scholarships

Tour, Travel, foreign travel (fromA.Y. 2007-08)

50%

50%

50%

50%

5%

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h. the expenditure by way of payment to any person of repute forpromoting sale of goods or services of the business of theemployer.

Return of fringe benefits - Every employer who has paid (or madeprovisions for payment) fringe benefits to his employees during theprevious year shall submit the return of fringe benefits to the AssessingOfficer on or before the due dates given below–

Different employers Due date of theassessment year

If the employer is a company September 30If the employer is a person other September 30than company and books of accountare required to be auditedIf the employer is a person other than July 31company and books of account are notrequired to be audited

The due date for filing of return of fringe benefits provided insection 115WD(1) of the Act has also been advanced from 31st Oct. ofthe assessment year to 30th Sept. of the assessment year in the caseof following categories of assessees :

i) a Company;ii) a person (other than a company) whose accounts are to be

audited;This amendment has taken effect from 1st April, 2008.

Note: Notice can be issued by the Assessing Officer if return is not submitted.

Belated return and revised return - Belated return and revisedreturn can be submitted within the following time-limit–

1. Within one year from the end of the relevant assessment year;or

2. Before the completion of the assessment, whichever is earlierAssessment – The provisions of summary assessment, regularassessment, reassessment, notice for reassessment are given in sections115WE, 115WF, 115WG and 115WH. These provisions have beenincorporated on similar lines as given in sections 139, 143, 144, 147 and148.Advance payment of fringe benefits tax:

(a) All companies who are liable to pay advance tax on current

Note 1 - The privilege, service, facility or amenity does not includeperquisites in respect of which tax is paid or payable by theemployee.

Note 2 - The following expenditure on advertisement shall not betaken as “deemed fringe benefit” -

a. the expenditure (including rental) on advertisement of any formin any print (including journals, catalogues or price lists) orelectronic media or transport system.

b. the expenditure on the holding of, or the participation in, anypress conference or business convention, fair or exhibition;

c. the expenditure on sponsorship of any sports event or any otherevent organized by any Government agency or trade associationor body;

d. the expenditure on the publication in any print or electronicmedia of any notice required to be published by or under anylaw or by an order of a court or tribunal.

e. the expenditure on advertisement by way of signs, art work,painting, banners, awnings, direct mail, electric spectaculars,kiosks, hoardings, bill boards or by way of such other mediumof advertisement; and

f. the expenditure by way of payment to any advertising agencyfor the purposes of (a) to (e) above;

g. the expenditure on distribution of samples either free of cost orat concessional rate; and

fringe benefits have to pay the same in four instalments asbelow:

Due date of installment Amount payable(Progressive)

On or before 15th June 15%On or before 15th September 45%On or before 15th December 75%On or before 15th March 100%

(b) In the case of other assesses (other than companies), thesame has to be paid in three instalments, i.e; Before 15th

September(30%), Before 15th December (60%), and before 15th

March (100%).Interest for short/non payment of advance tax - If an assesseedoes not pay or pays less than ninety percent of the assessed tax asadvance tax on fringe benefits during the relevant financial year, he shallbe liable to pay simple interest at the rate of one percent for every monthor part of a month from 1st April of the assessment year to the date ofassessment.Interest for deferment of advance tax - If an assessee does not pay orpays less than the required progressive amount of advance tax on fringebenefits to be paid by each of the specified dates of 15th June/ 15thSept./15th December in the case of a company and 15th Sept./ 15thDecember in other cases during a financial year, he shall be liable to paysimple interest at the rate of three percent on the amount of shortfall inrespect of each such progressive amount of payment required to bemade on each such date.Further, If an assessee does not pay or pays less than the total amountof advance tax on fringe benefits required to be paid by 15th Marchduring a financial year, he shall be liable to pay simple interest at therate of one percent on the amount of shortfall in required payment.Interest for default in furnishing return of fringe benefits -Where the return of fringe benefits for any assessment year undersection 115WD is furnished after the due date, or is not furnished, theemployer shall be liable to pay simple interest at the rate of one percentfor every month or part of a month. Interest is payable for the periodcommencing on the date immediately following the due date and endingon the date of furnishing of the return or where no return is furnishedending on the date of completion of the assessment. Interest is payableon the amount of fringe benefit tax determined on regular/ summaryassessment as reduced by the advance tax paid.

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Changes made as per Finance Act, 2008 :The earlier existing provisions of section 115WB(2) of the Income-taxAct provided that wherein employer incurs any expenditure, inter-aliafor the purpose of entertainment, hospitality, conference and salepromotion, such employer shall be deemed to have provided FringeBenefits to its employees.1. The Finance Act, 2008 has made following amendments to section115WB(2):-

i) any expenditure on or payment through prepaid electronic MealCard shall be excluded from the hospitality expenditure forcalculation of the value of fringe benefit. Such electronic mealcard should not be transferable and should be useable only ateating joints or outlets.

ii) Explanation to Clause (E) has been amended to provide that anyexpenditure incurred or payment made to -

l Provide creche facility for the children of the employee;l Sponsor a sportsman, being an employee;l Organize sports events for the employees, shall not be considered as expenditure for employees welfare for the

purpose of calculation of the fringe benefits.iii) Clause (K) has beeen omitted. Hence any expenditure on or

payment made for maintenance of any accommodation in thenature of guest house shall not be included in fringe benefit.

Further, amendment has been made in section 115WC(1)(c)(d) toprovide that value of fringe benefits on account of expenditure onfestival celebration shall be 20% against the existing rate of 50%.

These amendments shall take effect from 1st April, 2009.II. A new section 115WKB has also been inserted to provide that

where fringe benefit tax (with respect to allotment or transfer of specifiedsecurity or sweat equity shares) has been paid by the employer andsubsequently recovered from the employee, the recovery of fringebenefit tax shall be deemed to be the tax paid by such employee inrelation to value of fringe benefits provided to him. The deemingprovisions shall apply only to the extent to which the amount ofrecovery relates to the value of the fringe benefits provided to suchemployee and the employee shall not be entitled to any refund for suchdeemed payment of tax and shall also not be entitled to claim any creditof such deemed payment of tax against tax liability on other income oragainst any other tax liablity

This amendment has taken effect from 1st April,2008.

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CHAPTER – 16

SOME HELPFUL TIPS FORFILING WEALTH TAX RETURNS

Besides the precautions to be taken for filing Income Tax Returnsgiven in Chapter-4 of this book, other specific points to be kept in mindare given here-in-below:-

The W.T. return for Individuals, Hindu Undivided Families andCompanies is to be filed in Form BA. Value of an asset for anassessment year is to be declared as on the relevant Valuation Date i.e.31st March of each year. Thus, for the assessment year 2002-03, thevaluation date will be 31.3.2002, while for the A.Y. 2003-04, thevaluation date will be 31.3.2003 & for A.Y. 2004-05, it will be 31.3.04.

Value of an asset, other than cash, is to be determined on thebasis of the rules of Schedule III. The details of calculation of the valueof each asset under the relevant rule of this schedule should be attachedwith the return. Also, Wherever any rule of this schedule prescribes thata particular document in support of the valuation is to be attached withthe return, the same must be so attached.

The assessee must sign all attached documents.

IMMOVABLE PROPERTY

Furnish in the given columns the details of all immovableproperties held by the assessee, including agricultural land whetherlocated in or outside India, and whether assessable or exempt.

Details of similar assets belonging to any other person butincludible in net wealth of the assessee should be given.

Value of immovable property should be declared as per rule 3 to8, 20 and 21 of Schedule III. Where the assets are held as assets ofbusiness for which accounts are maintained regularly, the valuationshould be done as per rule 14 of this Schedule.

MOVABLE PROPERTY

Furnish in the given columns the details of all movable propertyheld by the assessee, including those mentioned in, Section 2(e) whichare not assets for purposes of the Wealth tax Act, whether located inIndia or outside India, whether assessable or exempt under section 5.

Details of similar assets belonging to any other person butincludible in the net wealth of the assessee under section 4.

Value of movable property should be declared as per rules 1, 2and 17 to 21 of Schedule III. Where the assets are held as assets ofbusiness for which accounts are maintained regularly, the valuationshould be done as per rule 14 of Schedule III.

HELD AS ASSETS OTHER THAN IN BUSINESS ORPROFESSION

Indicate amount of cash in hand.

Indicate the form of gold, silver, platinum or other preciousmetal, its gross and net weight in grams and its value as per rule 20 ofSchedule III. Valuation of jewellery is to be done as per rules 18 and19 of Schedule III. In support of the valuation of jewellery; theprescribed form to be attached with the return is:-

l Where the value of the jewellery on the valuation date is upto Rs.5 lakhs, a statement in Form No. 0-8A as prescribed by rule 13(c), signed by the assessee, or

l Where the value of the jewellery on the valuation date exceedsRs. 5 lakhs, a report of Registered Valuer in Form 0-8, as prescribedby rule 8D.

HELD AS ASSETS OF BUSINESS OR PROFESSION

Indicate in the given column details of movable properties held asassets of business or profession carried on by the assessee as proprietor.

Indicate here the value of each asset as calculated on the basisof the provisions of the relevant rule of Schedule III.

A copy of the balance sheet or trial balance as on the valuationdate and a copy of the auditor’s report if any, must be attached.

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Where the assets are held as assets of business for whichaccounts are maintained regularly, rule 14 of Schedule III will apply forpurposes of valuation. Give the description of movable property andalso of claimed exemptions.

After showing such assets, if any as the case may be, theseshould be claimed as exempt.

The amount of tax, penalty or interest payable in consequence ofany order passed under certain Direct Taxes Acts, which is outstandingon the valuation date, and

l If the amount is disputed in appeal, revision or other proceedings,or

l Though not disputed as above, if the amount is outstanding formore than 12 months on the valuation date, it should be clearlyindicated.

l Indicate the net amount of debt, which is deductible in thecomputation of net wealth. Indicate in the given columns details,in respect of the following debts:-

a) Those which are secured or incurred in relation to assetsother then assets of business of profession carried on by theassessee, and

b) Those which are not related to any asset, e.g. a loan takenfor purposes of marriage or education of children or anyother personal loans.

OTHER GENERAL POINTS TO BE REMEMBERED ARE :

There should be no corrections or overwriting and it should beproperly signed and verified by the person who is authorized to do sounder the provisions of I.T. Act.

The permanent Account Number (PAN) given to the taxpayerand under the Income-tax Act, 1961 and Ward/Circle/Range are to bequoted here.

All parts and Columns must be filled in. If any part or column doesnot apply, please mention NA (Not Applicable) and do not put anyother mark or symbol.

In case space provided under any item of the Return Form isfound insufficient, then give computation in respect of such item onseparate sheet (s) using the columns indicated for that purpose underthe said item in the return Form and attach that to the return. The sumtotals of such computation done should be indicated in the columnsprovided under the relevant item in the Return Form.

Similarly, any other information asked for in the, Form, whichcannot be completely furnished on account of paucity of space, maybefurnished on a separate, sheet.

STATEMENT OF TAXES

Wealth-tax payable on the net wealth arrived at is to be indicated.The tax should be calculated according to the rates specified in Part Iof Schedule I. Indicate interest chargeable for late filing of return. Thenet tax/interest payable or refund due, as the case may be, is to beindicated.

LIST OF DOCUMENTS/STATEMENTS ATTACHED

Please give complete particulars of documents attached to thereturn of Wealth.

WHY HAS INTEGRATION OF THE RETURNS OF INCOMEAND WEALTH IN A SINGLE FORM NOT BEEN CONSIDERED?

The question of integrating in a single Form, was duly consideredbut found not feasible for the following reasons:-

I) The number of Income tax assessees is far larger than thenumber of Wealth Tax assessees. Therefore, an integratedForm will mean unnecessary and redundant space in thereturn, resulting in wastage of stationery and storage space,besides causing inconvenience to majority of taxpayers whomay be liable to Income Tax only;

II) Major amendment would be needed in IT & WT Act and

III) The purpose of better enforcement through simultaneousscrutiny of Returns of income and wealth was achieved bymaking it mandatory for taxpayers who are liable to bothIncome & Wealth Taxes, to file their Returns of income andwealth together.

CHAPTER – 17

IMPORTANT PRESCRIBEDFORMS UNDER I.T. RULES 1962

Subject PrescribedRefer

Form No. I.T. Rules

I. Charitable &Religious trusts etc.:

(a) Notice for accumulation of income to be 10 17given to the Assessing Officer/theprescribed authority u/s 11(2) orunder the said provisions as applicable tosections10(21)

(b) An application u/s 12A (1)(aa) for registration 10A 17Aof charitableor religious trusts etc.

(c) The auditor’s report u/s 12A(b) 10B 17B(d) Application for approval/continuance 10G 11AA(1)

u/s 80G(5)(vi)[in triplicate]

(e) Application for approval/continuance 9 16C(3)u/s 10(23AAA)[in triplicate]

(f) Application for grant of exemp./conti. 56D 2CA(2)thereof u/s 10(23C)(vi)/(via) [in quatraplicate]

(g) Application for approval u/s 10(23G) by 56E 2E(1)an enterprise[in duplicate]

II. Salary:

(a) Furnishing of particulars of -1. Income u/s 192(2A) for claiming 10E 21AA

relief u/s 89 byan employee.

2. ‘‘Salaries’’ received from other employer 12B 26A(1)or employers to the person responsiblefor deduction of tax at source (i.e.present employer) [Sec. 192(2)]

3. Perquisites and/or profits in lieu of salaryprovided to the employee, where theamount of salary paid/payable.

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(a) is not more than Rs. 1,50,000 16 26A(2)(a)[Sec. 192(2C)(b) is more than Rs. 1,50,000 12BA 26A(2)(b)[Sec. 192 (2C)]Form No. 12BA should accompany the return of income of theemployees

4. Income under the heads of income Not 26Bother than ‘‘Salaries’’ for deduction prescribedof tax at source [Section 192(2B)]

(b) Certificate of (1) deduction of tax atsource: & (2) payment of tax u/s192(1A) by the employer on behalfof the employee, u/s 203 16 31(1)(a)

(c) Annual return of deduction of tax form 24 37‘‘Salaries’’ u/s 206

III. Business/profession :(a) Report of audit of the accounts:-

1 u/s 33AB(2) 3AC 5AC2 u/s 33ABA(2) 3AD 5AD3 u/s 35D(4)/35E(6) [for assessee other

than a company & co-operative society] 3AE 6AB4 u/s 44AB [Tax audit], in the case of

a person who carries on business orprofession:-A. Who is required by or under any

other law to get accounts audited 3CA 6G(1)(a)B. Who is not required by or under

any other law to get accounts 3CB 6G(1)(b)The particulars to be furnished u/s 44AB 3CD 6G(2)

5 u/s 142(2A) 6B 14A6 u/s 80HHB(3)(i) [For assessee other

than a company & co-operative society]10CCA 18BBA(I)7 u/s 80HHBA(2)(i) [For assessee other

than a company & co-operative society] 10CCAA 18BBA(1A)8 u/s 80HHC (4), 80HHC(4A)(a) 10CCAC 18BBA(3)9 u/s 80HHD(6) 10CCAD 18BBA(4)10 u/s 80HHE(4)80HHE(4A)(i) 10CCAF 18BBA(7)11 u/s. 80-I(17) or 80-IA(7) [Other than u/s.

80-IB(7A), 80-IB(7B) and 80-IB (11B) 10CCB18BBB(1)12 80JJAA(2)(b) 10DA 19AB

(b) Report from an accountant certifying thatthe deduction has been correctly claimed-1 u/s. 10A(5) 56F 16D2 u/s 10(B)(5) 56G 16E3 u/s 32(I)(iia)[i.e. additional depreciation] 3AA 5A4 u/s. 80HHF(4) 10CCAI 18BBA(9)5 u/s. 80-IB(7A) 10CCBA18DB(2)

(c) Report from an accountant u/s. 115JB(4)certifying that the book profit has beencomputed in accordance with the 29B 40Bprovisions of section 115JB

(d) Report of accountant u/s. 50B(3) certifyingthat ‘net worth’ has been correctly arrived 3CEA 6H

(e) Report from an accountant to be furnishedu/s 92E relating to international transaction(s)3CEB 10E

(f) Certificate from the Export/trading Housewhich is required to be furnished by thesupporting manufacturer u/s. 80HHC(4A)(b) 10CCAB18BBA(2)

(g) Certificate from the person making payment10CCAE 18BBA(6)to an assessee, engaged in the business ofa hotel or of a tour operator or of a travelagent u/s. 80HHD(2A)

(h) Certificate from the exporting company whichis required to be furnished by the supporting10CCAG 18BBA(8)software developer u/s. 80 HHE(4A)(ii)

(i) Certificate referred to in section 80 HHB(3)(ia)from an accountant certifying that deduction 10CCAH 18BBA(1B)has been correctly claimed u/s. 80HHB

(j) Certificate from an accountant u/s. 80-1A(6), 10CCC18BBE(3)specifying the amount credited to reserveaccount and the amount utilised during theprevious year for the highway project.

(k) A person carrying on medical profession to 3C 6F(3)(i)keep and maintain ‘a daily case register’

IV. Deduction of tax at source on payment of incomeother than ‘‘Salaries’’:(a) Application to the Assessing Officer for 13 28(I)

certificate for deduction of tax at lowerrates by a person u/s 197 (I)

(b) Application by non-resident/foreigncompany for certificate authorizingreceipt of interest or other sums (not 15C/15D 29B(3)being salary)without deduction of tax

(c) Declaration in duplicate u/s. 197A (1),to be made by a resident individualclaiming receipt of1 ‘‘Dividends’’ without deduction of tax 15G 29C(1)2 Payment of any amount referred to in

section 80CCA(2)(a) [i.e. NationalSavings Scheme, 1987] without 15-G 29C(1)deduction of tax

(d) Declaration in duplicate u/s. 197A (1C)to be made by an Individual for payment,without deduction of tax at source of

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interest on securities [Section 193]or interest other than ‘‘interest onsecurities’’ [Section 15H 29C(1A)194A] or income in respect of units[Section 194K]

(e) Certificate for deduction of tax at sourceu/s. 203 in respect of payment of incomeby way of : ‘‘Interest on securities’’ [Sec.193], dividend [Sec. 194A], winningfrom any lottery or crossword puzzle orany card game/other game of any sort[Sec. 194B], winnings from horse race[Sec. 194BB], contractors/sub-contractors [Sec. 194C], insurancecommission [Sec. 194D], withdrawalsfrom National Savings Scheme, 1987[Sec. 194EE], repurchase of unitsreferred to in section 80CCB [Sec.194F], commission etc. on sale of lotterytickets [Sec. 194G], commission or 16A 31(1)(b)brokerage [Sec. 194H], rent [Sec. 194-I],fees for professional or technicalservices [Sec. 194J] & income in respectof units [Sec. 194K]

(f) Application in duplicate for allotment of 49B 114A(I)tax deduction account number u/s. 203A

V. Annual return of deduction of tax at sourceto be furnished u/s. 206 from:(a) Annual return of deduction 24 37

u/s 192 from Salaries(b) In cases other than salaries 26 37

VI. Collection of tax at source u/s 206C :(a) Application in duplicate for allotment of a 49B 114AA(I)

tax collection account number u/s. 206CA(I)(b) Declaration for no collection of tax at 27C 37C(I)

source under section 206C (IA)(c) Certificate for collection at source to be given 27D 37D

by the person collecting tax u/s. 206C(5)(d) Application by a buyer for certificate for 13 37G

Collection of tax at lower rate u/s. 206C(9)(e) Certificate to be issued by AO in lieu of -- 37H

application made by the buyer underrule 37G

(f) Annual return of tax collection at 27E 37Esource u/s 206C

VII. Deduction from gross total income underChapter VI A:

(a) U/s. 80DDB-Furnishing of certificate from the 10I 11DD(2)prescribed authority i.e. doctor registered withthe Indian Medical Association with post-graduate qualification

(b) U/s. 80G(5C)(V)-Report of audit in respect10AA 18AAAA(2)of details of accounts u/s. 80G(5C)(v)

(c) U/s 80GG-Declaration to be filed by the 10BA 11Bassessee claiming deduction u/s. 80GG

VIII. Return of income for A.Y.2008-09

Returns as prescribed in Income Tax Rule12(1) for A.Y.2008-09 are as below:

FORM FOR WHOM

ITR-1 Individuals having salary, pension, family pension orinterest income.

ITR-2 Individuals and Hindu undivided family (HUFs) nothaving income from business or profession.

ITR-3 Individuals and HUFs who is a partner in partnershipfirm but does not carry on a proprietary business or profession.

ITR-4 Individuals and HUFs carrying on a proprietory business orprofession.

ITR-5 Partnership firms, Association of Persons (AoP) and Bodyof Individuals (BoI).

ITR-6 Companies other than companies claiming exemption undersection 11.

ITR-7 Persons including companies which are charitable orreligious trust, political party, scientific research association,news agency, hospital, trade union, university, college orother institution specified in sub-section (4A), (4B), (4C)and (4D) of section 139 of the Act.

ITR-8 Persons not liable to file return of income but are liable tofile return of fringe benefits.

ITR-V Where the data of the return of income or Fringe benefits inForms ITR-1, ITR-2, ITR-3, ITR-4 ITR-5, ITR-6 &ITR-8is transmitted electronically without digital signature.

IX Payment of advance tax :(a) Notice of demand u/s 156 to be served 28 38

upon the assessee in pursuance of an orderu/s 210(3)/(4)

(b) Intimation which an assessee has to send to28A 39the Assessing Officer u/s 210(5) in pursuanceof an order received u/s 210(3)/(4)

X RefundsA claim for refund of tax under section 239 30 41(1)

XI Appeals:(a) To the Commissioner (Appeals) in duplicate35 45(1)(b) To the Appellate Tribunal (in triplicate)

(with challan for fees paid) 36 47(1)(c) A memorandum of cross-objections

u/s 253(4) to the Appellate Tribunal 36A 47(2)(in triplicate)

The Forms prescribed under the I.T Rules are available at the sitewww.incometaxindia.gov.in

68 69

Tax Payers Information Series 31

Taxation ofSalaried Employees

Pensionersand

Senior Citizens

INCOME TAX DEPARTMENTDirectorate of Income Tax (PR, PP & OL)

6th Floor, Mayur Bhawan, Connaught CircusNew Delhi-110001

PREFACE

Lack of awareness amongst taxpayers is often cited as themain reason for low level of compliance towards tax laws. It hasbeen a constant endeavour of the Directorate of Income Tax (PR,PP & OL) to increase the awareness of the taxpayers about theprovisions of tax laws and the steps taken by the government toreduce the complexities of tax laws and improve Tax Payer Service.The booklets published under the Tax Payers Information Serieshave proved to be an effective and convenient tool to educate thetax payers in discharging their tax liabilities relating to Direct Taxes.

“Taxation of Salaried Employees, Pensioners and SeniorCitizens” is one of the most popular booklets among the taxpayers.Its last edition was brought out in the year 2008. The present editionincorporates further amendments made upto the Finance Act, 2010?This edition has been updated by Smt. Garima Bhagat, Add. CIT,New Delhi.

It is hoped that this publication will prove to be more usefulfor the readers. The Directorate of Income Tax (Public Relations,Printing & Publications and Official Language) would welcomeany suggestion to further improve this publication.

New DelhiDated : November 11, 2010

(Amitabh Kumar)Director of Income Tax (PR, PP & OL)

This publication should not be construed as anexhaustive statement of the Law. In case of doubt,reference should always be made to the relevantprovisions of the Income Tax Act, 1961, Income TaxRules, 1962, Wealth Tax Act, 1957 and Wealth TaxRules, 1957, and, wherever necessary, to Notificationsissued from time to time.

CHAPTER 1

AN INTRODUCTION TO TAXATION

1.1 INTRODUCTION

Income tax is an annual tax on income. The Indian IncomeTax Act (Section 4) provides that in respect of the total income ofthe previous year of every person, income tax shall be chargedfor the corresponding assessment year at the rates laid down bythe Finance Act for that assessment year. Section 14 of the Income-tax Act further provides that for the purpose of charge of incometax and computation of total income all income shall be classifiedunder the following heads of income:

A. Salaries

B. Income from house property

C. Profits and gains of business or profession.

D. Capital gains

E. Income from other sources.

The total income from all the above heads of income iscalculated in accordance with the provisions of the Act as theystand on the first day of April of any assessment year.

In this booklet an attempt is being made to discuss the variousprovisions relevant to the salaried class of taxpayers as well aspensioners and senior citizens.

1.2 FILING OF INCOME TAX RETURN

Section 139(1) of the Income-tax Act, 1961 provides thatevery person whose total income during the previous yearexceeded the maximum amount not chargeable to tax shall furnisha return of income. The Finance Act, 2003 has introduced Section139(1B) which provides for furnishing of return of income oncomputer readable media, such as floppy, diskette, magnetic

CONTENTS

Topic Page No.

Chapter 1 An Introduction to Taxation 1

Chapter 2 Salary Income, Perquisites & Allowances 13

Chapter 3 Overview of Income from House Property 27

Chapter 4 Overview of Capital Gains 30

Chapter 5 Deductions under Chapter VIA 36

Chapter 6 Tax Rebate & Relief 46

Chapter 7 Permanent Account Number 50

Chapter 8 Taxability of Retirement Benefits 52

Chapter 9 Pensioners & Senior Citizens 58

Chapter 10 Taxation of Expatriates 61

Chapter 11 Income tax on Fringe Benefits 67

Chapter 12 Some relevant Case laws 70

32

cartridge tape, CD- ROM etc., in accordance with the e-filingscheme specified by the Board in this regard.

The return of income can be submitted in the following manner:

(i) a paper form;

(ii) e-filing

(iii) a bar-coded paper return.

Where the return is furnished in paper format,acknowledgement slip attached with the return should be duly filledin. Returns in new forms are not required to be filed in duplicate.

Returns can be e-filed through the internet. E-filing of returnis mandatory for companies and firms requiring statutory audit u/s44AB. From A.Y. 2011-12, it is now also mandatory for all businessentities (including individuals/HUF) liable to tax audit to e-file theirreturn of income. E-filing can be done with or without digital signature-

a) If the returns are filed using digital signature, then nofurther action is required from the tax payers.

b) If the returns are filed without using digital signature,then the tax payers have to file ITR-V with thedepartment within 15 days of e-filing.

c) The tax payer can e-file the returns through ane-intermediary also who will e-file and assist him in filingof ITR-V within 15 days.

Where the return of income is furnished by using bar codedpaper return, then the tax payers need to print two copies of FormITR-V. Both copies should be verified and submitted. The receivingofficial shall return one copy after affixing the stamp and seal.

The Finance Act, 2005 has provided that w.e.f. 01.04.2006every person shall file a return of income on or before the relevantdue date even if his total income without giving effect to theprovisions of Chapter VI-A (please see Chapter 5 of thisbooklet) exceeds the maximum amount not chargeable to tax.

1.3 DUE DATES FOR PAYMENT OF ADVANCE TAX &FILING OF RETURN

Liability for payment of advance tax arises where the amountof tax payable by the assessee for the year is Rs.10,000/- or more.The due dates for various instalments of advance tax are givenbelow:

DUE DATE AMOUNT PAYABLE

(i) On or before 15th September Amount not less than 30%of the previous year of such advance tax payable

(ii) On or before 15th December Amount not less than 60%of the previous year of such advance tax payable

(iii) On or before 15th March of Entire balance amount ofthe previous year such advance tax payable

Also, any amount paid by way of advance tax on or before31st March is treated as advance tax paid during the financial year.

The due date of filing of return of income in case of salariedemployees is 31st of July. If the return of income has not beenfiled within the due date, a belated return may still be furnishedbefore the expiry of one year from the end of the assessment yearor completion of assessment, whichever is earlier.

1.4 FORMS TO BE USED:- The forms to be used for filing thereturn of income from A.Y. 2009-10 onwards are mentioned below:-

Form No.

A.Y. A.Y. Heading2009-10 2010-11

ITR 1 ITR 1 For A.Y. 2009-10 - For individuals having(SARAL 2) income from salary, pension, family pension

and interest.For A.Y. 2010-11 - For individuals havingincome from salary, pension, income from

one house property excluding b/f losses/income from other sources excludingwinning from lottery or income from racehorses.

ITR 2 ITR 2 For individuals and HUFs not having incomefrom Business or Profession.

ITR 3 ITR 3 For Individuals and HUFs being partners infirms and not carrying out business orprofession under any proprietorship.

ITR 4 ITR 4 For individuals & HUFs having income froma proprietary business or profession

ITR 5 ITR 5 For firms, AOPs and BOIsITR 6 ITR 6 For Companies other than companies

claiming exemption under section 11ITR 7 ITR 7 For persons including companies required

to furnish return under Section 139 (4A) orSection 139 (4B) or Section 139 (4C) orSection 139 (4D).

ITR 8 N.A. Return for Fringe BenefitsITR V ITR V Where the data of the Return of Income/

Fringe Benefits in Form ITR-1, ITR-2,ITR-3, ITR-4, ITR-5, ITR-6, ITR-7 &ITR-8 is transmitted electronically withoutdigital signature.

Acknow Acknowl- Acknowledgement for e-Return and nonledge ledge e-Return.ment ment

CHALLAN FORMS:- The following are the new computerizedchallan forms:-Challan No. Nature of PaymentITNS 280 (0020) Income Tax on Companies

(Corporation Tax)(0021) Income Tax (Other than Companies)

ITNS 281 (0020) Tax Deducted/Collected at Source fromCompany Deductees(0021) Non-Company Deductees

ITNS 282 (0034) Securities Transaction Tax(0023) Hotel Receipts Tax(0024) Interest Tax(0028) Expenditure/other Tax(0031) Estate Duty(0032) Wealth Tax(0033) Gift Tax

ITNS 283 (0036) Banking Cash Transaction Tax(0026) Fringe Benefits Tax

All the columns in the challan form should invariably befilled in, details such as PAN, assessment year, Assessing Officerand his code, status and full address of the assessee in capitalletters, the relevant columns of tax, interest etc., should also befilled in properly.

1.5 RATES OF INCOME TAX :-

(A) The rates for charging income tax for A.Y. 2010-11 shallbe as follows :-

I. In the case of every individual other than those covered underII and III below:-

Rates of Income Tax

(1) Where the total income Nildoes not exceedRs. 1,60,000

(2) Where the total income 10 per cent of the amount byexceeds Rs. 1,60,000 but which the total incomedoes not exceed exceeds Rs. 1,60,000/-.Rs. 3,00,000

54

(3) Where the total income Rs. 14,000 plus 20 per cent ofexceeds Rs. 3,00,000 but the amount by which the totaldoes not exceed income exceeds Rs. 3,00,000.Rs. 5,00,000

(4) Where the total income Rs. 54,000 plus 30 per cent ofexceeds Rs. 5,00,000 the amount by which the total

income exceeds Rs. 5,00,000.

II. In the case of every individual, being a woman resident ofIndia, and below the age of sixty five years at any time during theprevious year:-

Rates of Income Tax

(1) Where the total income Nildoes not exceedRs. 1,90,000

(2) Where the total income 10 per cent of the amount byexceeds Rs. 1,90,000 but which the total income exceedsdoes not exceed Rs. 1,90,000/-.Rs. 3,00,000

(3) Where the total income Rs. 11,000 plus 20 per cent ofexceeds Rs. 3,00,000 but the amount by which the totaldoes not exceed income exceeds Rs. 3,00,000.Rs. 5,00,000

(4) Where the total income Rs. 51,000 plus 30 per cent ofexceeds Rs. 5,00,000 the amount by which the total

income exceeds Rs. 5,00,000.

III. In the case of every individual, being a resident in India, whois of the age of sixty-five years or more at any time during theprevious year:-

Rates of Income Tax

(1) Where the total income Nildoes not exceedRs.2,40,000

(2) Where the total income 10 per cent of the amount byexceeds Rs. 2,40,000 which the total incomebut does not exceed exceeds Rs. 2,40,000/-.Rs. 3,00,000

(3) Where the total income Rs. 6,000 plus 20 percent ofexceeds Rs. 3,00,000 the amount by which the totalbut does not exceed income exceeds Rs. 3,00,000.Rs. 5,00,000

(4) Where the total income Rs. 46,000 plus 30 percent ofexceeds Rs. 5,00,000 the amount by which the total

income exceeds Rs. 5,00,000.

Further, No surcharge on income tax is now leviable in caseof individual/HUF. However, Education cess and higher educationcess is leviable @ 2% and 1% respectively on tax.

(B) The rates for charging income tax for F.Y. 2010-11 i.e.A.Y. 2011-12 will be as follows:-

Upto Rs. 1,60,000/- NILRs. 1,60,001/- to Rs. 5,00,000/- 10 per cent.Rs. 5,00,001/- to Rs. 8,00,000/- 20 per cent.Above Rs. 8,00,000/- 30 per cent.

In the case of every individual, being a woman resident inIndia, and below the age of sixty-five years at any time during theprevious year, the new rates of income-tax on total income in suchcases shall be as under:-

Upto Rs. 1,90,000/- NILRs. 1,90,001/- to Rs. 5,00,000/- 10 per cent.

76

Rs. 5,00,001/- to Rs. 8,00,000/- 20 per cent.

Above Rs. 8,00,000/- 30 per cent.

In the case of every individual, being a resident in India,who is of the age of sixty-five years or more at any time duringthe previous year, the new rates of income tax on total income insuch cases shall be as under:-

Upto Rs. 2,40,000/- NILRs. 2,40,001/- to Rs. 5,00,000/- 10 per cent.Rs. 5,00,001/- to Rs. 8,00,000/- 20 per cent.Above Rs. 8,00,000/- 30 per cent.

Education cess @ 2% and “Secondary and Higher EducationCess” @ 1% shall be levied on the amount of tax.

1.6 CALCULATION OF INTEREST

The Income Tax Act provides for charging of interest fornon- payment/short payment/deferment in payment of advancetax which is calculated as below:

(i) INTEREST U/S 234A:

For late or non furnishing of return, simple interest @ 1% forevery month or part thereof from the due date of filing of return tothe date of furnishing of return, on the tax as determined u/s 143(1)or on regular assessment as reduced by TDS/advance tax paid ortax reliefs, if any, under Double Tax Avoidance Agreements withforeign countries.

(ii) INTEREST U/S 234B:

For short fall in payment of advance tax by more than 10%,simple interest @ 1% per month or part thereof is chargeable from1st April of the assessment year to the date of processing u/s 143(1)or to the date of completion of regular assessment, on the tax asdetermined u/s 143(1) or on regular assessment less advance tax

paid/ TDS or tax reliefs, if any, under Double Tax AvoidanceAgreements with foreign countries.

(iii) INTEREST U/S 234C:

For deferment of advance tax. If advance tax paid by 15th

September is less than 30% of advance tax payable, simple interest@ 1% is payable for three months on tax determined on returnedincome as reduced by TDS/TCS/Amount of advance tax alreadypaid or tax relief, if any, under Double Tax Avoidance Agreementwith forgiving contribution. Similarly, if amount of tax paid onor before 15th December is less than 60% of tax due on returnedincome, interest @ 1% per month is to be charged for 3 monthson the amount stated as above. Again, if the advance tax paidby 15th March is less than tax due on returned income, interest@ 1% per month on the shortfall is to be charged for one month.

(iv) INTEREST U/S 234D:

Interest @ 0.5% is levied under this Section when any refundis granted to the assessee u/s 143(1) and on regular assessment itis found that either no refund is due or the amount already refundedexceeds the refund determined on regular assessment. The saidinterest is levied @ 0.5% on the whole or excess amount so refundedfor every month or part thereof from the date of grant of refund tothe date of such regular assessment.

1.7 IMPORTANT CONCEPTS & PROCEDURESUNDER THE INCOME TAX ACT

1.7.1 Assessee (Section 2(7)): An assessee is a personby whom any tax or any other sum of money ispayable under the Act.

1.7.2 Assessment Year (Section 2(9)): Assessment yearmeans the period of 12 months starting from 1stApril of every year and ending on 31st March ofthe next year.

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1.7.3 Previous year (Section 3): Income earned in a yearis taxable in the next year. The year in whichincome is earned is known as the previous yearand the next year in which income is taxable isknown as the assessment year.

1.7.4 Receipt Vs. accrual of income: Income is said tohave been received by a person when payment hasbeen actually received whereas income is said tohave accrued to a person if there arises in theperson a fixed and unconditional right to receivesuch income.

1.7.5 Belated Return: Section 139(4) provides that areturn which has not been furnished by the duedate may still be furnished as a belated returnbefore the expiry of one year from the end of theassessment year or before the completion ofassessment, whichever is earlier. However, on anyreturn of income that has not been filed by the endof the relevant assessment year, penalty ofRs.5000/- u/s 271F shall be levied.

1.7.6 Revised Return: If a person having filed his returnwithin the due date, discovers any omission orwrong statement therein, he may file a revisedreturn before the expiry of one year from the endof the assessment year or completion ofassessment whichever is earlier.

1.7.7 Processing u/s 143(1): The Finance Act 2008 hasreintroduced provisions in respect of correctingarithmetical mistakes or internal inconsistencies atthe stage of processing of returns. It has, thusbeen provided that, during the stage of processing,the total income shall be computed after makingadjustments in respect of any arithmetical error in

the return or any incorrect claim apparent frominformation in the return and if on suchcomputation, any tax or interest or refund is founddue on adjustment of TDS or advance tax or selfassessment tax, then an intimation specifying theamount payable shall be prepared/generated orissued to the assessee. If any refund is found due,it is to be sent along with an intimation to sucheffect. If no demand or no refund arises, theacknowledgement of the return is deemed to bean intimation. Such intimation is to be sent withinone year from the end of the financial year in whichthe return is filed.

1.7.8 Assessment u/s 143(3): If the Assessing Officer,on the basis of the return filed by the assessee,considers that it is necessary to ensure that theassessee has not understated his income, he shallserve on the assessee a notice u/s 143(2) and, afterobtaining such information as he may require,complete the assessment ( commonly referred asscrutiny assessment) u/s 143(3).

1.7.9 Rectification of mistake u/s 154: If any order passedby an income tax authority suffers from a mistakeapparent from record, the assessee may make anapplication for rectifying the same before the expiryof four years from the end of the financial year inwhich the above order was passed. The FinanceAct 2001 has provided that where an applicationfor rectification under this Section is made by theassessee on or after 1.6.2001, the same shall haveto be acted upon by the income tax authority withina period of six months from the end of the monthin which the application is received.

1110

1.7.10 Interest on refunds u/s 244A: If the refund due tothe assessee is more than 10% of the tax payableby him, he shall be entitled to receive simpleinterest thereon at rate of 0.5% per month(substituted in place of 0.67% per month w.e.f.8.9.2003) or part thereof, from 1st April of theassessment year to the date on which the refund isgranted.

1.7.11 Tax Return Preparers Scheme:- For enablingspecified classes of tax payers in preparing andfurnishing income tax returns, the Board hasnotified the ‘Tax Return Preparer Scheme’ underwhich specially trained and authorized Tax ReturnPreparers will provide assistance to tax payers inthis regard. Details of the Scheme may be viewedat www.incometaxindia.gov.in.

CHAPTER-2

SALARY INCOME, PERQUISITES& ALLOWANCES

2.1 WHAT IS “SALARY”

Salary is the remuneration received by or accruing to anindividual, periodically, for service rendered as a result of anexpress or implied contract. The actual receipt of salary in theprevious year is not material as far as its taxability is concerned.The existence of employer-employee relationship is the sine-qua-non for taxing a particular receipt under the head “salaries.” Forinstance, the salary received by a partner from his partnershipfirm carrying on a business is not chargeable as “Salaries” but as“Profits & Gains from Business or Profession”. Similarly, salaryreceived by a person as MP or MLA is taxable as “ Income fromother sources”, but if a person received salary as Minister of State/Central Government, the same shall be charged to tax under thehead “Salaries”. Pension received by an assessee from his formeremployer is taxable as “Salaries” whereas pension received onhis death by members of his family (Family Pension) is taxed as“Income from other sources”.

2.2 WHAT DOES “SALARY” INCLUDE

Section 17(1) of the Income tax Act gives an inclusive andnot exhaustive definition of “Salaries” including therein (i) Wages(ii) Annuity or pension (iii) Gratuity (iv) Fees, Commission,perquisites or profits in lieu of salary (v) Advance of Salary (vi)Amount transferred from unrecognized provident fund torecognized provident fund (vii) Contribution of employer to aRecognised Provident Fund in excess of the prescribed limit (viii)Leave Encashment (ix) Compensation as a result of variation inService contract etc. (x) Contribution made by the Central

1312

Government to the account of an employee under a notifiedpension scheme.

2.3 DEDUCTION FROM SALARY INCOME

The following deductions from salary income are admissibleas per Section 16 of the Income-tax Act.

(i) Professional/Employment tax levied by the State Govt.

(ii) Entertainment Allowance- Deduction in respect of thisis available to a government employee to the extent of Rs.5000/- or 20% of his salary or actual amount received,whichever is less.

It is to be noted that no standard deduction is availablefrom salary income w.e.f. 01.04.2006 i.e. A.Y.2006-07onwards.

2.4 PERQUISITES

“Perquisite” may be defined as any casual emolument orbenefit attached to an office or position in addition to salary orwages.

“Perquisite” is defined in the section17(2) of the Income taxAct as including:

(i) Value of rent-free/concessional rent accommodation providedby the employer.

(ii) Any sum paid by employer in respect of an obligation whichwas actually payable by the assessee.

(iii) Value of any benefit/amenity granted free or at concessionalrate to specified employees etc.

(iv) The value of any specified security or sweat equity sharesallotted or transferred, directly or indirectly, by the employer,or former employer, free of cost or at concessional rate tothe assesssee.

(v) The amount of any contribution to an approved superannuationfund by the exployer in respect of the assessee, to the extentit exceeds one lakh rupees; and

(vi) the value of any other fringe benefit or amenity as may beprescribed.

2.5 VALUATION OF PERQUISITES

As a general rule, the taxable value of perquisites in the handsof the employees is its cost to the employer. However, specificrules for valuation of certain perquisites have been laid down inRule 3 of the I.T. Rules. These are briefly given below.

2.5.1 Valuation of residential accommodation providedby the employer:-

(a) Union or State Government Employees- Thevalue of perquisite is the license fee as determinedby the Govt. as reduced by the rent actually paidby the employee.

(b) Non-Govt. Employees- The value of perquisiteis an amount equal to 15% of the salary in citieshaving population more than 25 lakh, (10% ofsalary in cities where population as per 2001 censusis exceeding 10 lakh but not exceeding 25 lakh and7.5% of salary in areas where population as per2001 census is 10 lakh or below). In case theaccommodation provided is not owned by theemployer, but is taken on lease or rent, then thevalue of the perquisite would be the actual amountof lease rent paid/payable by the employer or15% of salary, whichever is lower. In both ofabove cases, the value of the perquisite would bereduced by the rent, if any, actually paid by theemployee.

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2.5.2 Value of Furnished Accommodation- The valuewould be the value of unfurnished accommodationas computed above, increased by 10% per annumof the cost of furniture (including TV/radio/refrigerator/AC/other gadgets). In case suchfurniture is hired from a third party, the value ofunfurnished accommodation would be increasedby the hire charges paid/payable by the employer.However, any payment recovered from theemployee towards the above would be reducedfrom this amount.

2.5.3 Value of hotel accommodation provided by theemployer- The value of perquisite arising out ofthe above would be 24% of salary or the actualcharges paid or payable to the hotel, whichever islower. The above would be reduced by any rentactually paid or payable by the employee. It maybe noted that no perquisite would arise, if theemployee is provided such accommodation ontransfer from one place to another for a period of15 days or less.

2.5.4 Perquisite of motor car provided by theemployer- W.e.f. 1-4-2008, if an employerproviding such facility to his employee is not liableto pay fringe benefit tax, the value of such perquisiteshall be :

a) Nil, if the motor car is used by the employeewholly and exclusively in the performance ofhis official duties.

b) Actual expenditure incurred by the employeron the running and mainenance of motor car,including remuneration to chauffeur asincreased by the amount representing normal

wear and tear of the motor car and as reducedby any amount charged from the employeefor such use (in case the motor car isexclusively for private or personal purposesof the employee or any member of hishousehold).

c) Rs. 1800- (plus Rs. 900-, if chauffeur is alsoprovided) per month (in case the motor car isused partly in performance of duties and partlyfor private or personal purposes of theemployee or any member of his household ifthe expenses on maintenance and running ofmotor car are met or reimbursed by theemployer). However, the value of perquisitewill be Rs. 2400- (plus Rs. 900-, if chauffeuris also provided) per month if the cubiccapacity if engine of the motor car exceeds1.6 litres.

d) Rs. 600- (plus Rs. 900-, if chauffeur is alsoprovided) per month (in case the motor car isused partly in performance of duties and partlyfor private or personal purposes of theemployee or any member of his household ifthe expenses on maintenance and running ofmotor car for such private or personal useare fully met by the employee). However, thevalue of perquisite will be Rs. 900- (plusRs. 900-, if chauffeur is also provided) permonth if the cubic capacity of engine of themotor car exceeds 1.6 litres.

If the motor car or any other automotive conveyance is ownedby the employee but the actual running and maintenance chargesare met or reimbursed by the employer, the method of valuationof perquisite value is different. (See Rule 3(2)).

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2.5.5 Perquisite arising out of supply of gas, electricenergy or water: This shall be determined as theamount paid by the employer to the agencysupplying the same. If the supply is from theemployer’s own resources, the value of theperquisite would be the manufacturing cost per unitincurred by the employer. However, any paymentreceived from the employee towards the abovewould be reduced from the amount [Rule 3(4)]

2.5.6 Free/Concessional Educational Facility: Value ofthe perquisite would be the expenditure incurredby the employer. If the education institution ismaintained & owned by the employer, the valuewould be nil if the value of the benefit per child isbelow Rs. 1000/- P.M. or else the reasonable costof such education in a similar institution in or nearthe locality. [Rule 3(5)].

2.5.7 Free/Concessional journeys provided by anundertaking engaged in carriage of passengers orgoods: Value of perquisite would be the value atwhich such amenity is offered to general public asreduced by any amount, if recovered from theemployee. However, these provisions are notapplicable to the employees of an airline or therailways.

2.5.8 Provision for sweeper, gardener, watchman orpersonal attendant: The value of benefit resultingfrom provision of any of these shall be the actualcost borne by the employer in this respect asreduced by any amount paid by the employee forsuch services. (Cost to the employer in respectto the above will be salary paid/payable).[Rule 3(3)].

2.5.9 Value of certain other fringe benefits:

(a) Interest free/concessional loans- The value of theperquisite shall be the excess of interest payableat the prescribed interest rate over, interest, if any,actually paid by the employee or any member ofhis household. The prescribed interest rate wouldbe the rate charged by State Bank of India as onthe 1st Day of the relevant Previous Year in respectof loans of the same type and for same purposeadvanced by it to general public. Perquisite to becalculated on the basis of the maximumoutstanding monthly balance method. However,loans upto Rs. 20,000/-, loans for medicaltreatment specified in Rule 3A are exemptprovided the same are not reimbursed undermedical insurance.

(b) Value of free meals- The perquisite value in respectof free food and non-alcoholic beverages providedby the employer, not liable to pay fringe benefittax, to an employee shall be the expenditureincurred by the employer as reduced by the amountpaid or recovered from the employee for suchbenefit or amenity. However, no perquisite valuewill be taken if food and non-alcoholic beveragesare provided during working hours and certainconditions specified under Rule 3(7)(iii) aresatisfied.

(c) Value of gift or voucher or token- The perquisitevalue in respect of any gift, or voucher, or takenin lieu of which such gift may be received by theemployee or member of his household from theemployer, not liable to pay fringe benefit tax, shallbe the sum equal to the amount of such gift,

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voucher or token. However, no perquisite valuewill be taken if the value of such gift, voucher ortaken is below Rs. 5000- in the aggregate duringthe previous years.

(d) Credit card provided by the employer- Theperquisite value in respect of expenses incurredby the employee or any of his household members,which are charged to a credit card provided by theemployer, not liable to pay fringe benefit tax,which are paid or reimbursed by such employerto an employee shall be taken to be such amountpaid or reimbursed by the employer. However, noperquisite value will be taken if the expenses areincurred wholly and exclusively for official purposesand certain conditions mentioned in Rule 3(7)(v)are satisfied.

(e) Club membership provided by the employer- Theperquisite value in respect of amount paid orreimbursed to an employee by an employer, notliable to pay fringe benefit tax, against the expensesincurred in a club by such employee or any of hishousehold members shall be taken to be suchamount incurred or reimbursed by the employer asreduced by any amount paid or recovered fromthe employee on such account. However, noperquisite value will be taken if the expenditure isincurred wholly any exclusively for businesspurposes and certain conditions mentioned in Rule3(7)(vi) are satisfied.

2.5.10 The value of any other benefit or amenity providedby the employer shall be determined on the basisof cost to the employer under an arms’ lengthtransaction as reduced by the employee’scontribution.

2.5.11 The fair market value of any specified security orsweat equity share, being an equity share in acompany, on the date on which the option isexercised by the employee, shall be determinedas follows:-

(a) In a case where,on the date of exercising of theoption, the share in the company is listed on arecognized stock exchange, the fair market valueshall be the average of the opening price and closingprice of the share on the date on the said stockexchange.

(b) In a case where, on the date of exercising of theoption, the share in the company is not listed on arecognized stock exchange, the fair market valueshall be such value of the share in the company asdetermined by a merchant banker on the specifieddate.

(c) The fair market value of any specified security,not being an equity share in a company, on the dateon which the option is exercised by the employee,shall be such value as determined by a merchantbanker on the specified date.

2.6 PERQUISITES EXEMPT FROM INCOME TAX

Some instances of perquisites exempt from tax are givenbelow:

Provision of medical facilities (Proviso to Sec. 17(2)): Valueof medical treatment in any hospital maintained by the Governmentor any local authority or approved by the Chief Commissioner ofIncome-tax. Besides, any sum paid by the employer towardsmedical reimbursement other than as discussed above is exemptupto Rs.15,000/-.

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Perquisites allowed outside India by the Government to acitizen of India for rendering services outside India (Sec. 10(7)).

Rent free official residence provided to a Judge of High Courtor Supreme Court or an Official of Parliament, Union Minister orLeader of Opposition in Parliament.

No perquisite shall arise if interest free/concessional loansare made available for medical treatment of specified diseases inRule 3A or where the loan is petty not exceeding in the aggregateRs.20,000/-

No perquisite shall arise in relation to expenses on telephonesincluding a mobile phone incurred on behalf of the employee bythe employer.

2.7 ALLOWANCES

Allowance is defined as a fixed quantity of money or othersubstance given regularly in addition to salary for meeting specificrequirements of the employees. As a general rule, all allowancesare to be included in the total income unless specifically exempted.Exemption in respect of following allowances is allowable to theexent mentioned against each :-

2.7.1 House Rent Allowance:- Provided that expenditureon rent is actually incurred, exemption availableshall be the least of the following :

(i) HRA received.

(ii) Rent paid less 10% of salary.

(iii) 40% of Salary (50% in case of Mumbai, Chennai,Kolkata, Delhi) Salary here means Basic +Dearness Allowance, if dearness allowance isprovided by the terms of employment.

2.7.2 Leave Travel Allowance: The amount actuallyincurred on performance of travel on leave to any

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place in India by the shortest route to that place isexempt. This is subject to a maximum of the aireconomy fare or AC 1st Class fare (if journey isperformed by mode other than air) by such route,provided that the exemption shall be available onlyin respect of two journeys performed in a block of4 calendar years.

2.7.3 Certain allowances given by the employer to theemployee are exempt u/s 10(14). All these exemptallowance are detailed in Rule 2BB of Income-tax Rules and are briefly given below:

For the purpose of Section 10(14)(i), following allowancesare exempt, subject to actual expenses incurred:

(i) Allowance granted to meet cost of travel on tour or ontransfer.

(ii) Allowance granted on tour or journey in connection withtransfer to meet the daily charges incurred by the employee.

(iii) Allowance granted to meet conveyance expenses incurredin performance of duty, provided no free conveyance isprovided.

(iv) Allowance granted to meet expenses incurred on a helperengaged for performance of official duty.

(v) Academic, research or training allowance granted ineducational or research institutions.

(vi) Allowance granted to meet expenditure on purchase/maintenance of uniform for performance of official duty.

Under Section 10(14)(ii), the following allowances havebeen prescribed as exempt.

Type of Allowance

(i) Special CompensatoryAllowance for hillyareas or high altitudeallowance or climateallowance.

(ii) Border area allowanceor remote areaallowance or a difficultarea allowance ordisturbed areaallowance.

(iii) Tribal area/Schedulearea/Agency areaallowance available inM.P., Assam, U.P.,Karnataka, WestBengal, Bihar, Orissa,Tamilnadu, Tripura

(iv) Any allowance grantedto an employeeworking in anytransport system tomeet his personalexpenditure during dutyperformed in the courseof running of suchtransport from oneplace to another place.

Amount exempt

Rs.800 common for variousareas of North East, Hilly areasof U.P., H.P. & J&K and Rs.7000 per month for Siachen areaof J&K and Rs.300 commonfor all places at a height of 1000mts or more other than theabove places.

Various amounts ranging fromRs.200 per month to Rs.1300per month are exempt forvarious areas specified inRule 2BB.

Rs.200 per month.

70% of such allowance upto amaximum of Rs.6000 permonth.

(v) Children educationallowance.

(vi) Allowance granted tomeet hostel expenditureon employee’s child.

(vii) Compensatory fieldarea allowanceavailable in variousareas of ArunachalPradesh, ManipurSikkim, Nagaland,H.P., U.P. & J&K.

(viii) Compensatory modifiedfield area allowanceavailable in specifiedareas of Punjab,Rajsthan, Haryana,U.P., J&K, H.P., WestBengal & North East.

(ix) Counter insurgencyallowance to membersof Armed Forces.

(x) Transport Allowancegranted to an employeeto meet his expenditurefor the purpose ofcommuting between theplace of residence &duty.

(xi) Transport allowancegranted to physicallydisabled employee forthe purpose of

Rs.100 per month per child uptoa maximum 2 children.

Rs.300 per month per child uptoa maximum two children.

Rs.2600 per month.

Rs.1000 per month

Rs.3900 Per month

Rs.800 per month.

Rs.1600 per month.

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commuting betweenplace of duty andresidence.

(xii) Underground allowancegranted to an employeeworking in under groundmines.

(xiii) Special allowance in thenature of high altitudeallowance granted tomembers of the armedforces.

(xiv) Any special allowancegranted to the membersof the armed forces inthe nature of specialcompensatory highlyactive field areaallowance

(xv) Special allowancegranted to members ofarmed forces in thenature of island dutyallowance.(in Andaman & Nicobar& Lakshadweep Groupof Islands)

Rs.800 per month.

Rs. 1060 p.m. (for altitude of9000-15000 ft.) Rs.1600 p.m.(for altitude above 15000 ft.)

Rs. 4,200/- p.m.

Rs. 3,250/- p.m.

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CHAPTER-3

OVERVIEW OF INCOME FROMHOUSE PROPERTY

3.1 INTRODUCTION

Under the Income Tax Act what is taxed under the head‘Income from House Property’ is the inherent capacity of theproperty to earn income called the Annual Value of the property.The above is taxed in the hands of the owner of the property.

3.2 COMPUTATION OF ANNUAL VALUE

(i) GROSS ANNUAL VALUE(G.A.V.) is the highest of

(a) Rent received or receivable

(b) Fair Market Value.

(c) Municipal valuation.

(If however, the Rent Control Act is applicable, the G.A.V.is the standard rent or rent received, whichever is higher).

It may be noted that if the let out property was vacant forwhole or any part of the previous year and owing to such vacancythe actual rent received or receivable is less than the sum referredto in clause(a) above, then the amount actually received/receivableshall be taken into account while computing the G.A.V. If anyportion of the rent is unrealisable, (condition of unrealisability ofrent are laid down in Rule 4 of I.T. Rules) then the same shall notbe included in the actual rent received/receivable while computingthe G.A.V.

(ii) NET VALUE (N.A.V.) is the GAV less the municipal taxespaid by the owner.

Provided that the taxes were paid during the year.

(iii) ANNUAL VALUE is the N.A.V. less the deductions availableu/s 24.

3.3 DEDUCTIONS U/S 24:- Are exhaustive and no otherdeductions are available:-

(i) A sum equal to 30% of the annual value as computed above.

(ii) Interest on money borrowed for acquisition/construction/repair/renovation of property is deductible on accrual basis.Interest paid during the pre construction/acquisition periodwill be allowed in five successive financial years startingwith the financial year in which construction/acquisition iscompleted. This deduction is also available in respect of aself occupied property and can be claimed up to maximumof Rs.30,000/-. The Finance Act, 2001 had provided thatw.e.f. A.Y. 2002-03 the amount of deduction available underthis clause would be available up to Rs.1,50,000/- in casethe property is acquired or constructed with capital borrowedon or after 1.4.99 and such acquisition or construction iscompleted before 1.4.2003. The Finance Act 2002 has furtherremoved the requirement of acquisition/ construction beingcompleted before 1.4.2003 and has simply provided thatthe acquisition/construction of the property must becompleted within three years from the end of the financialyear in which the capital was borrowed.

3.4 SOME NOTABLE POINTS

In case of one self occupied property, the annual value istaken as nil. Deduction u/s 24 for interest paid may still be claimedtherefrom. The resulting loss may be set off against income underother heads but can not be carried forward.

If more than one property is owned and all are used for selfoccupation purposes only, then any one can be opted as selfoccupied, the others are deemed to be let out.

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Annual value of one house away from workplace which isnot let out can be taken as NIL provided that it is the only houseowned and it is not let out.

If a let out property is partly self occupied or is self occupiedfor a part of the year, then the value in proportion to the portion ofself occupied property or period of self occupation, as the casemay be is to be excluded from the annual value.

From assessment year 1999-2000 onwards, an assessee whoapart from his salary income has loss under the head “Incomefrom house property”, may furnish the particulars of the same inthe prescribed form to his Drawing and Disbursing Officer whoshall then take the above loss also into account for the purpose ofTDS from salary.

A new section 25B has been inserted with effect fromassessment year 2001-2002 which provides that where theassessee, being the owner of any property consisting of anybuildings or lands appurtenant thereto which may have been letto a tenant, receives any arrears of rent not charged to income taxfor any previous year, then such arrears shall be taxed as the incomeof the previous year in which the same is received after deductingtherefrom a sum equal to 30% of the amount of arrears in respectof repairs/collection charges. It may be noted that the aboveprovision shall apply whether or not the assessee remains the ownerof the property in the year of receipt of such arrears.

3.5 PROPERTY INCOME EXEMPT FROM TAXIncome from farm house (Sec.2(1A)(c) read with sec. 10(1)).

Annual value of any one palace of an ex-ruler (Sec.10(19A)).Property income of a local authority (Sec.10(20)), university/educational institution (Sec.10(23C)), approved scientific researchassociation (Sec.10(21)), political party (sec.13A). Property usedfor own business or profession (Sec.22). One self occupiedproperty (sec.23(2)). House property held for charitable purposes(sec.11).

CHAPTER-4

OVERVIEW OF CAPITAL GAINS

4.1 CAPITAL GAINS

Profits or gains arising from the transfer of a capital assetduring the previous year are taxable as “Capital Gains” undersection 45(1) of the Income Tax Act. The taxability of capitalgains is in the year of transfer of the capital asset.

4.2 CAPITAL ASSET

As defined in section 2(14) of the Income Tax Act, it meansproperty of any kind held by the assessee except:

(a) Stock in trade, consumable stores or raw materials held forthe purpose of business or profession.

(b) Personal effects, being moveable property (excludingJewellery, archaeological collections, drawings, paintings,sculptures or any other work of art) held for personal use.

(c) Agricultural land, except land situated within or in area upto8 kms, from a municipality, municipal corporation, notifiedarea committee, town committee or a cantonment board withpopulation of at least 10,000.

(d) Six and half percent Gold Bonds, National Defence GoldBonds and Special Bearer Bonds.

4.3 TYPES OF CAPITAL GAINS

When a capital asset is transferred by an assessee after havingheld it for at least 36 months, the Capital Gains arising from thistransfer are known as Long Term Capital Gains. In case of sharesof a company or units of UTI or units of a Mutual Fund, theminimum period of holding for long term capital gains to arise is12 months. If the period of holding is less than above, the capitalgains arising therefrom are known as Short Term Capital Gains.

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4.4 COMPUTATION OF CAPITAL GAINS (Sec.48)

Capital gain is computed by deducting from the full value ofconsideration, for the transfer of a capital asset, the following:-

(a) Cost of acquisition of the asset(COA):- In case of Long TermCapital Gains, the cost of acquisition is indexed by a factorwhich is equal to the ratio of the cost inflation index of theyear of transfer to the cost inflation index of the year ofacquisition of the asset. Normally, the cost of acquisition isthe cost that a person has incurred to acquire the capital asset.However, in certain cases, it is taken as following:

(i) When the capital asset becomes a property of anassessee under a gift or will or by succession orinheritance or on partition of Hindu Undivided Familyor on distribution of assets, or dissolution of a firm, orliquidation of a company, the COA shall be the cost forwhich the previous owner acquired it, as increased bythe cost of improvement till the date of acquisition ofthe asset by the assessee?

(ii) When shares in an amalgamated Indian company hadbecome the property of the assessee in a scheme ofamalgamation, the COA shall be the cost of acquisitionof shares in the amalgamating company.

(iii) Where the capital asset is goodwill of a business,tenancy right, stage carriage permits or loom hours theCOA is the purchase price paid, if any or else nil.

(iv) The COA of rights shares is the amount which is paidby the subscriber to get them. In case of bonus shares,the COA is nil.

(v) If a capital asset has become the property of theassessee before 1.4.81, the assessee may choose eitherthe fair market value as on 1.4.81 or the actual cost ofacquisition of the asset as the COA.

(b) Cost of improvement, if any such cost was incurred. In caseof long term capital assets, the indexed cost of improvementwill be taken.

(c) Expenses connected exclusively with the transfer such asbrokerage etc.

4.5 SOME IMPORTANT EXEMPTIONS FROM LONGTERM CAPITAL GAINS

(a) Section 54: In case the asset transferred is a long term capitalasset being a residential house, and if out of the capital gains,a new residential house is constructed within 3 years, orpurchased 1 year before or 2 years after the date of transfer,then exemption on the LTCG is available on the amount ofinvestment in the new asset to the extent of the capital gains.It may be noted that the amount of capital gains notappropriated towards purchase or construction may bedeposited in the Capital Gains Account Scheme of a publicsector bank before the due date of filing of Income TaxReturn. This amount should subsequently be used forpurchase or construction of a new house within 3 years.

(b) Section 54F: When the asset transferred is a long term capitalasset other than a residential house, and if out of theconsideration, investment in purchase or construction of aresidential house is made within the specified time as insec. 54, then exemption from the capital gains will beavailable as:

(i) If cost of new asset is greater than the net considerationreceived, the entire capital gain is exempt.

(ii) Otherwise, exemption = Capital Gains x Cost of newasset/Net consideration.

It may be noted that this exemption is not available, if on thedate of transfer, the assessee owns any house other than the newasset. It may be noted that the Finance Act 2000 has provided that

with effect from assessment year 2001-2002, the above exemptionshall not be available if assessee owns more than one residentialhouse, other than new asset, on the date of transfer. Investment inthe Capital Gains Account Scheme may be made as in Sec.54.

(c) Section 54EA: If any long term capital asset is transferredbefore 1.4.2000 and out of the consideration, investment inspecified bonds/debentures/shares is made within 6 monthsof the date of transfer, then exemption from capital gains isavailable as computed in Section 54F.

(d) Section 54EB: If any long term capital asset is transferredbefore 1.4.2000 and investment in specified assets is madewithin a period of 6 months from the date of transfer, thenexemption from capital gains will be available as :-

(i) If cost of new assets is not less than the Capital Gain, theentire Capital Gain is exempt.

(ii) Otherwise exemption = Capital Gains x Cost of New asset

Capital Gains

(e) Section 54EC: This section has been introduced fromassessment year 2001-2002 onwards. It provides that if anylong term capital asset is transferred and out of theconsideration, investment in specified assets (any bond issuedby National Highway Authority of India or by RuralElectrification Corporation redeemable after 3 years), is madewithin 6 months from the date of transfer, then exemptionwould be available as computed in Sec. 54EB.

The Finance Act, 2007 has laid an annual ceiling of Rs. 50lakh on the investment made under this section w.e.f. 1.4.2007.

(f) Section 54ED: This section has been introduced fromassessment year 2002-03 onwards. It provides that if a longterm capital asset, being listed securities or units, is transferredand out of the consideration, investment in acquiring equity

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shares forming part of an eligible issue of capital is madewithin six months from the date of transfer, then exemptionwould be available as computed in Sec. 54EB. As per theFinance Act 2006 it has been provided that with effect fromassessment year 2007-08, no exemption under this Sectionshall be available.

4.6 LOSS UNDER CAPITAL GAINS

Can not be set off against any income under any other headbut can be carried forward for 8 assessment years and be set offagainst capital gains in those assessment years.

4.7 EXEMPT INCOME

The Finance Act 2003 has introduced S.10(33) w.e.f.01.04.2003 which provides that income arising from certain typesof transfer of capital assets shall be treated as exempt income.S.10(33) provides for exemption of income arising from transferof units of the US 64 (Unit Scheme 1964). S.10(36) inserted bythe Finance Act, 2003 w.e.f. 1.4.2004 provides that income arisingfrom transfer of eligible equity shares held for a period of 12months or more shall be exempt.

The Finance Act, 2004 has introduced section 10(38) of theI.T. Act which provides that no capital gains shall arise in case oftransfer of equity shares held as a long term capital asset by anindividual or HUF w.e.f. 01.04.2005 provided such transaction ischargeable to ‘securities transaction tax’.

COST INFLATION INDEX:

The Central Government has notified the Cost InflationIndex for the purpose of long term Capital Gain as follows:

Financial Year Cost Inflation Index

1981-82 1001982-83 1091983-84 1161984-85 1251985-86 1331986-87 1401987-88 1501988-89 1611989-90 1721990-91 1821991-92 1991992-93 2231993-94 2441994-95 2591995-96 2811996-97 3051997-98 3311998-99 351

1999-2000 3892000-2001 4062001-2002 4262002-2003 4472003-2004 4632004-2005 4802005-2006 4972006-2007 5192007-2008 5512008-2009 5822009-2010 632

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CHAPTER-5

DEDUCTIONS UNDER CHAPTER VIA

5.1 INTRODUCTION

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

5.2 The chart given below describes the deductions allowableunder chapter VIA of the I.T. Act from the gross total income ofthe assessees having income from salaries.

SECTION

80CCC

NATURE OFDEDUCTION

Payment of premium forannunity plan of LIC orany other insurerDeduction is availableupto a maximum ofRs.10,000/-

REMARKS

The premium must bedeposited to keep inforce a contract for anannuity plan of the LICor any other insurer forreceiving pension fromthe fund.The FinanceAct 2006 has enhancedthe ceiling of deductionunder Section 80CCCfrom Rs.10,000 toRs.1,00,000 with effectfrom 1.4.2007.

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80CCD

80CCF

80D

Deposit made by anemployee in his pensionaccount to the extent of10% of his salary.

Subscription to long terminfrastructure bonds

Payment of medicalinsurance premium.Deduction is availableupto Rs.15,000/ for self/family and also upto Rs.15,000/- for insurance in

Where the CentralGovernment makes anycontribution to thepension account,deduction of suchcontribution to theextent of 10% of salaryshall be allowed.Further, in any yearwhere any amount isreceived from thepension account suchamount shall be chargedto tax as income of thatprevious year. TheFinance Act, 2009 hasextended benefit to anyindividual assesse, notbeing a CentralGovernment employee.

Subscription made byindividual or HUF to theextent of Rs. 20,000 tonotified long terminfrastructure bonds isexempt from A.Y. 2011-12 onwards.

The premium is to bepaid by any mode ofpayment other than cashand the insurancescheme should beframed by the General

Insurance Corporationof India & approved bythe Central Govt. orScheme framed by anyother insurer andapproved by theInsurance Regulatory &Development Authority.The premium should bepaid in respect of healthinsurance of theassessee or his familymembers. The FinanceAct 2008 has alsoprovided deduction uptoRs. 15,000/- in respect ofhealth insurancepremium paid by theassessee towards hisparent/parents. W.e.f.01.04.2011, contributionsmade to the CentralGovernment HealthScheme is also coveredunder this section.

The handicappeddependant should be adependant relativesuffering from apermanent disability(including blindness) ormentally retarded, ascertified by a specifiedphysician or psychiatrist.

respect of parent/parents of the assessee.

Deduction of Rs.40,000/- in respect of (a)expenditure incurred onmedical treatment,(including nursing),training andrehabilitation ofhandicapped dependantrelative. (b) Payment or

80DD

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deposit to specifiedscheme for maintenanceof dependanthandicapped relative.W.e.f. 01.04.2004 thededuction under thissection has beenenhanced to Rs.50,000/-. Further, if thedependant is a personwith severe disability adeduction ofRs.1,00,000/- shall beavailable under thissection.

Deduction of Rs.40,000in respect of medicalexpenditure incurred.W.e.f. 01.04.2004,deduction under thissection shall beavailable to the extent ofRs.40,000/- or theamount actually paid,whichever is less. Incase of senior citizens, adeduction uptoRs.60,000/- shall beavailable under thisSection.

Deduction in respect ofpayment in the previousyear of interest on loan

Note: A person withsevere disability meansa person with 80% ormore of one or moredisabilities as outlined insection 56(4) of the“Persons withDisabilities (Equalopportunities, Protectionof Rightsand Full Participation)Act.,”

Expenditure must beactually incurred byresident assessee onhimself or dependentrelative for medicaltreatment of specifieddisease or ailment. Thediseases have beenspecified in Rule 11DD.A certificate in form 10I is to be furnished bythe assessee from aspecialist working in aGovernment hospital.

This provision has beenintroduced to providerelief to students taking

80DDB

80E

loans for higher studies.The payment of theinterest thereon will beallowed as deductionover a period of upto 8years. Further, byFinance Act, 2007deduction under thissection shall be availablenot only in respect ofloan for pursuing highereducation by self butalso by spouse orchildren of the assessee.W.e.f.01.04.2010 highereducation means anycourse of study pursuedafter passing the seniorsecondary examinationor its equivalent fromany recognized school,board or university.

The various donationsspecified in Sec. 80Gare eligible fordeduction upto either100% or 50% with orwithout restriction asprovided in Sec. 80G

(1) Assessee or hisspouse or minorchild should notown residential

taken from a financialinstitution or approvedcharitable institution forhigher studies.

Donation to certainfunds, charitableinstitutions etc.

Deduction available isthe least of(i) Rent paid less 10% oftotal income

80G

80GG

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80U

80RRB

(ii) Rs.2000 per month(iii) 25% of total income

Deduction of Rs.50,000/- to an individual whosuffers from a physicaldisability (includingblindness) or mentalretardation.Further, if theindividual is a personwith severe disability,deduction of Rs.75,000/- shall be available u/s80U. W.e.f. 01.04.2010this limit has been raisedto Rs. 1 lakh.

Deduction in respect ofany income by way ofroyalty in respect of apatent registered on orafter 01.04.2003 underthe Patents Act 1970shall be available as :-Rs.3 lacs or the incomereceived, whichever isless.

accommodation at theplace of employment.(2) He should not be inreceipt of house rentallowance.(3) He should not havea self occupiedresidential premises inany other place.

Certificate should beobtained on prescribedformat from a notified‘Medical authority’.

The assessee who is apatentee must be anindividual resident inIndia. The assessee mustfurnish a certificate inthe prescribed form dulysigned by the prescribedauthority alongwith thereturn of income.

The following investments/payments are inter alia eligiblefor deduction u/s 80C:-

NATURE OFINVESTMENT

Life Insurance Premium

Sum paid under contract fordeferred annuity

Sum deducted from salarypayable to Govt. Servant forsecuring deferred annuity forself, spouse or child

Contribution made underEmployee’s Provident FundScheme

Contribution to PPF

Contribution by employee to aRecognised Provident Fund.

Subscription to any notifiedsecurities/notified depositsscheme.

REMARKS

For individual, policy must bein the name of self or spouse orany child’s name. For HUF, itmay be on life of any memberof HUF.

For individual, on life of self,spouse or any child of suchindividual.

Payment limited to 20% ofsalary.

—

For individual, can be in thename of self/spouse, any child& for HUF, it can be in thename of any member of thefamily.

—

—

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80QQB

80C

Deduction in respect ofroyalty or copyrightincome received inconsideration forauthoring any book ofliterary, artistic orscientific nature otherthan text book shall beavailable to the extentof Rs. 3 lacs or incomereceived, whichever isless.

This section has beenintroduced by theFinance Act, 2005.Broadly speaking, thissection providesdeduction from totalincome in respect ofvarious investments/expenditures/paymentsin respect of which taxrebate u/s 88 wasearlier available. Thetotal deduction underthis section is limited toRs.1 lakh only.

The assessee must bean individual resident inIndia who receivessuch income inexercise of hisprofession. To avail ofthis deduction, theassessee must furnisha certificate in theprescribed form alongwith the return ofincome.

Tuition fees paid at the time ofadmission or otherwise to anyschool, college, university orother educational institutionsituated within India for thepurpose of full time education.

Any term deposit for a fixedperiod of not less than fiveyears with the scheduled bank.

Subscription to notified bondsissued by NABARD

Payment made into an accountunder the Senior CitizensSavings Scheme Rules, 2004

Payment made as five year timedeposit in an account under thePost Office Time DepositRules, 1981

Available in respect of any twochildren.

This has been included inSection 80C by the Finance Act2006.

This has been included inSection 80C by the Finance Act2007 and has come into effectfrom 1.4.2008.

This has been introduced byFinance Act, 2008 and shallcome into effect from 1.4.2009.

This has been introduced byFinance Act, 2008 and shallcome into effect from 1.4.2009.

It may be noted that the aggregate amount of deductions undersections 80C, 80CCC and 80CCD are subject to an overall ceilingof Rs.1 lakh.

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Subscription to any notifiedsavings certificates.

Contribution to Unit LinkedInsurance Plan of LIC MutualFund

Contribution to notified depositscheme/Pension fund set up bythe National Housing Bank.

Certain payment made by wayof instalment or part paymentof loan taken for purchase/construction of residentialhouse property.

Subscription to units of aMutual Fund notified u/s10(23D)

Subscription to deposit schemeof a public sector companyengaged in providing housingfinance.

Subscription to equity shares/debentures forming part of anyapproved eligible issue ofcapital made by a publiccompany or public financialinstitutions.

e.g. NSC VIII issue.

e.g. Dhanrakhsa 1989

—

Condition has been laid that incase the property is transferredbefore the expiry of 5 yearsfrom the end of the financialyear in which possession ofsuch property is obtained byhim, the aggregate amount ofdeduction of income so allowedfor various years shall be liableto tax in that year.

—

—

—

CHAPTER-6

TAX REBATE & RELIEF

6.1 INTRODUCTION

The total income of an assessee is determined after deductionsfrom the gross total income are made as discussed in the previouschapter. It is on this total income that the tax payable is computedat the rates in force. The Income Tax Act further provides forrebate from the tax payable as computed above, if certaininvestments or payments are made. Rebate provided u/s 88 of theAct must be distinguished from deductions provided in ChapterVIA of the Act. While the latter reduces the gross total income,rebate is a reduction from the tax payable.

The Finance Act 2002 introduced some changes in the abovewhich came into effect from A.Y. 2003-2004. The rate of rebatehas been kept at 20% in case the gross total income, before givingeffect to the deductions under chapter VIA, is below Rs. 1.5 lacswhile the rate would be 15% if gross total income is higher thanRs. 1.5 lacs but lower than Rs. 5 lacs. On the other hand, if thegross total income exceeds Rs. 5 lacs, no rebate under this chapterwould be available. It has also been provided that an individualwhose income under the head ‘Salaries’ is below Rs. 1 lakh duringthe previous year and constitutes at least 90% of his gross totalincome, shall be entitled to rebate @ 30% on the investments/payments specified in Section 88. The maximum amount ofinvestment qualifying for rebate u/s 88 has been enhanced toRs.70,000, however, additional rebate on investment upto Rs.30,000 is available in respect of subscription to specifiedinfrastructure equity share/debentures.

Investment qualifying for rebate u/s 88 must be out of incomechargeable to tax in the relevant previous year. The above

requirement has, however, been deleted by the Finance Act 2002w.e.f. A.Y. 2003-2004.

With effect from assessment year 2001-2002 onwards a newsection 88C has been inserted. It provides that in case of assesseebeing a woman resident in India and below 65 years of age, taxrebate of an amount of Rs. 5,000 or 100% of tax, whichever isless, shall be available. The above rebate is to be allowed fromthe amount of Income Tax computed before allowing for tax rebateu/s 88 in respect of various investments expenditures, importantamong which are discussed below in paragraph 6.2.

6.2

NATURE OFINVESTMENT

Life Insurance Premium

Sum paid under contract fordeferred annuity

Sum deducted from salarypayable to Govt. Servant forsecuring deferred annuity forself, spouse or children

Contribution made underEmployee’s Provident FundScheme

Contribution to PPF

REMARKS

For individual, policy must bein self or spouse’s or any child’sname. For HUF, it may be onlife of any member of HUF.

For individual, on life of self,spouse or any child

Payment limited to 20% ofsalary.

—

For individual, can be in thename of self/spouse, any child& for HUF, it can be in thename of any member of thefamily.

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Contribution by employee to aRecognised Provident Fund.

Sum deposited in 10 year/15year account of Post OfficeSavings Bank

Subscription to any notifiedsecurities/notified depositsscheme.

Subscription to any notifiedsavings certificates

Contribution to Unit LinkedInsurance Plan of LIC MutualFund

Contribution to notified depositscheme/Pension fund set up bythe National Housing Bank.

Certain payment made by wayof instalment or part payment ofloan taken for purchase/construction of residentialhouse property.

Contribution to notified annuityPlan of LIC(e.g. Jeevan Dhara)or Units of UTI/notified MutualFund.

Subscription to units of aMutual Fund notified u/s10(23D)

—

—

—

e.g. NSC VIII issue.

e.g. Dhanrakhsa 1989

—

Qualifying amount limitedto Rs.10,000. The limit hasbeen raised to Rs.20,000w.e.f. assessment year2001-2002.

If in respect of suchcontribution, deduction u/s80CCC has been availed of,rebate u/s 88 would not beallowable.

—

Subscription to deposit schemeof a Public Sector Company/Authorised Authority providinglong term house financing.

Subscription to equity shares/debentures forming part of anyapproved eligible issue ofcapital made by a publiccompany or public financialinstitutions.

(w.e.f. 01.04.2004) Tuition feespaid at the time of admission orotherwise to any school,college, university or othereducational institution situatedwithin India for the purpose offull time education of any twochildren.

—

In respect of it, a higher limitof qualifying investment ofRs.70,000 (Rs.80,000 w.e.f.A.Y. 2001-2002) is available asagainst Rs.60,000 in case ofother investments.

The qualifying amount limitedto Rs.12,000/- in respect ofeach child.

It is important to note that no tax rebate u/s 88 shall beavailable from A.Y.2006-07 onwards. Similarly, sections 88B and88C providing special rebates to senior citizens and ladies, standomitted w.e.f. 01.04.2006.

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6.3 RELIEF UNDER SECTION 89 (1):-

It is available to an employee when he receives salary inadvance or in arrear or when in one financial year, he receivessalary of more than 12 months or receives ‘profits in lieu of salary’.W.e.f. 1.6.89, relief u/s 89(1) can be granted at the time of TDSfrom employees of all companies, co-operative societies,universities or institutions as well as govt./public sectorundertakings, the relief should be claimed by the employee inForm No. 10E and should be worked out as explained in Rule21A of the Income Tax Rules.

CHAPTER-7

PERMANENT ACCOUNT NUMBER

7.1 WHAT IS P.A.N.

P.A.N. or Permanent Account Number is a number allottedto a person by the Assessing Officer for the purpose ofidentification. P.A.N. of the new series has 10 alphanumericcharacters and is issued in the form of laminated card.

7.2 WHO SHALL APPLY FOR P.A.N.

Section 139A of the Income Tax Act provides that everyperson whose total income exceeds the maximum amount notchargeable to tax or every person who carries on any business orprofession whose total turnover or gross receipts exceed Rs.5 lakhsin any previous year or any person required to file a return ofincome u/s 139(4A) shall apply for PAN. Besides, any person notfulfilling the above conditions may also apply for allotment ofPAN. With effect from 01.06.2000, the Central Government mayby notification specify any class/classes of person includingimporters and exporters, whether or not any tax is payable bythem, and such persons shall also then apply to the AssessingOfficer for allotment of PAN.

W.e.f. 01.04.2006 a person liable to furnish a return of fringebenefits under the newly introduced section 115WD of the I.T.Act is also required to apply for allotment of PAN. Of course, ifsuch a person already has been allotted a PAN he shall not berequired to obtain another PAN.

The Finance Act, 2006 has provided that for the purpose ofcollecting any information, the Central Govt. may by way ofnotification specify any class or classes of persons for allotmentof PAN and such persons shall apply to the Assessing Officerwithin the prescribed time. Provision for Suo moto allotment of

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PAN has also been introduced w.e.f.1.6.2006 as per which theassessing officer may allot a Permanent Account No. to any personwhether or not any tax is payable by him having regard to thenature of transactions.

7.3 TRANSACTIONS IN WHICH QUOTING OF PAN ISMANDATORY

Purchase and sale of immovable property.

Purchase and sale of motor vehicles.

Transaction in shares exceeding Rs.50,000.

Opening of new bank accounts.

Fixed deposits of more than Rs.50,000.

Application for allotment of telephone connections.

Payment to hotels exceeding Rs.25,000.

Provided that till such time PAN is allotted to a person, hemay quote his General Index register Number or GIR No.

7.4 HOW TO APPLY FOR PAN

Application for allotment of PAN is to be made in Form 49A.

Following points must be noted while filling the above form:-

i) Application Form must be typewritten or handwritten in blackink in BLOCK LETTERS.

ii) Two black & white photographs are to be annexed.

iii) While selecting the “Address for Communication”, due careshould be exercised as all communications thereafter wouldbe sent at indicated address.

iv) In the space given for “Father’s Name”, only the father’sname should be given. Married ladies may note thathusband’s name is not required and should not be given.

v) Due care should be exercised to fill the correct date of birth.

vi) The form should be signed in English or any of the IndianLanguages in the 2 specified places. In case of thumbimpressions attestation by a Gazetted Officer is necessary.

CHAPTER-8

TAXABILITY OFRETIREMENT BENEFITS

8.1 INTRODUCTION

On retirement, an employee normally receives certainretirement benefits. Such benefits are taxable under the head‘Salaries’ as “profits in lieu of Salaries” as provided in section17(3). However, in respect of some of them, exemption fromtaxation is granted u/s 10 of the Income Tax Act, either wholly orpartly. These exemptions are described below:-

8.2 GRATUITY (Sec. 10(10)):

(i) Any death cum retirement gratuity received by Central andState Govt. employees, Defence employees and employeesin Local authority shall be exempt.

(ii) Any gratuity received by persons covered under the Paymentof Gratuity Act, 1972 shall be exempt subject to followinglimits:-

(a) For every completed year of service or part thereof,gratuity shall be exempt to the extent of fifteen daysSalary based on the rate of Salary last drawn by theconcerned employee.

(b) The amount of gratuity as calculated above shall notexceed Rs.3,50,000(w.e.f.24.9.97).

(iii) In case of any other employee, gratuity received shall beexempt subject to the following limits:-

(a) Exemption shall be limited to half month salary (basedon last 10 months average) for each completed year ofservice

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(b) Rs.3.5 Lakhs whichever is less.

Where the gratuity was received in any one or more earlierprevious years also and any exemption was allowed for the same,then the exemption to be allowed during the year gets reduced tothe extent of exemption already allowed, the overall limit beingRs. 3.5 Lakhs.

As per Board’s letter F.No. 194/6/73-IT(A-1) dated 19.6.73,exemption in respect of gratuity is permissible even in cases oftermination of employment due to resignation. The taxable portionof gratuity will quality for relief u/s 89(1).

Gratuity payment to a widow or other legal heirs of anyemployee who dies in active service shall be exempt from incometax(Circular No. 573 dated 21.8.90). Payment of Gratuity(Amendment) Bill, 2010 has proposed to increase the limit toRs. 10,00,000.

8.3 COMMUTATION OF PENSION (SECTION 10(10A)):

(i) In case of employees of Central & State Govt. LocalAuthority, Defence Services and Corporation establishedunder Central or State Acts, the entire commuted value ofpension is exempt.

(ii) In case of any other employee, if the employee receivesgratuity, the commuted value of 1/3 of the pension isexempt, otherwise, the commuted value of ½ of the pensionis exempt.

Judges of S.C. & H.C. shall be entitled to exemption ofcommuted value upto ½ of the pension (Circular No. 623 dated6.1.1992).

8.4 LEAVE ENCASHMENT (Section 10(10AA)):

(i) Leave Encashment during service is fully taxable in allcases, relief u/s 89(1) if applicable may be claimed forthe same.

(ii) Any payment by way of leave encashment received by Central& State Govt. employees at the time of retirement in respectof the period of earned leave at credit is fully exempt.

(iii) In case of other employees, the exemption is to be limited tothe least of following: (a) Cash equivalent of unutilized earnedleave (earned leave entitlement can not exceed 30 days forevery year of actual service) (b) 10 months average salary(c) Leave encashment actually received. This is furthersubject to a limit of Rs.3,00,000 for retirements after02.04.1998.

(iv) Leave salary paid to legal heirs of a deceased employee inrespect of privilege leave standing to the credit of suchemployee at the time of death is not taxable.

For the purpose of Section 10(10AA), the term‘Superannuation or otherwise’ covers resignation (CIT Vs. R.V.Shahney 159 ITR 160(Madras).

8.5 RETRENCHMENT COMPENSATION (Sec. 10(10B)):

Retrenchment compensation received by a workman underthe Industrial Disputes Act, 1947 or any other Act or Rules isexempt subject to following limits:-

(i) Compensation calculated @ fifteen days average pay forevery completed year of continuous service or part thereofin excess of 6 months.

(ii) The above is further subject to an overall limit of Rs.5,00,000for retrenchment on or after 1.1.1997 (Notification No. 10969dated 25.6.99).

8.6 COMPENSATION ON VOLUNTARY RETIREMENTOR ‘GOLDEN HANDSHAKE’(Sec. 10(10C)):

(i) Payment received by an employee of the following at thetime of voluntary retirement, or termination of service is exemptto the extent of Rs. 5 Lakh:

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(a) Public Sector Company.

(b) Any other company.

(c) Authority established under State, Central or ProvincialAct.

(d) Local Authority.

(e) Co-operative Societies, Universities, IITs and NotifiedInstitutes of Management.

(f) Any State Government or the Central Government.

(ii) The voluntary retirement Scheme under which the paymentis being made must be framed in accordance with theguidelines prescribed in Rule 2BA of Income Tax Rules.In case of a company other than a public sector companyand a co-operative society, such scheme must be approvedby the Chief Commissioner/Director General of Income-tax.However, such approval is not necessary from A.Y. 2001-2002 onwards.

(iii) Where exemption has been allowed under above section forany assessment year, no exemption shall be allowed inrelation to any other assessment year. Further, where anyrelief u/s 89 for any assessment year in respect of any amountreceived or receivable or voluntary retirement or terminationof service has been allowed, no exemption under this clauseshall be allowed for any assessment year.

8.7 PAYMENT FROM PROVIDENT FUND (Sec. 10(11),Sec. 10(12)):

Any payment received from a Provident Fund, (i.e. to whichthe Provident Fund Act, 1925 applies) is exempt. Any paymentfrom any other provident fund notified by the Central Govt. isalso exempt. The Public Provident Fund(PPF) established underthe PPF Scheme, 1968 has been notified for this purpose. Besides

the above, the accumulated balance due and becoming payable toan employee participating in a Recognised Provident Fund is alsoexempt to the extent provided in Rule 8 of Part A of the FourthSchedule of the Income Tax Act.

8.8 PAYMENT FROM APPROVED SUPERANNUATIONFUND (Sec.10(13)):

Payment from an Approved Superannuation Fund will beexempt provided the payment is made in the circumstancesspecified in the section viz. death, retirement and incapacitation.

8.9 DEPOSIT SCHEME FOR RETIRED GOVT/PUBLICSECTOR COMPANY EMPLOYEES:

Section 10(15) of the Income Tax Act incorporates a numberof investments, the interest from which is totally exempt fromtaxation. These investments may be considered as one of theoptions for investing various benefits received on retirement. Oneamong them, notified u/s 10(15)(iv)(i), is the DEPOSIT SCHEMEFOR RETIRED GOVT/PUBLIC SECTOR COMPANYEMPLOYEES which is a particularly attractive option for retiringemployees of Govt. and Public Sector Companies. W.e.f.assessment year 1990-91, the interest on deposits made under thisscheme by an employee of Central/State Govt. out of the variousretirement benefits received is exempt from Income-tax. Thisexemption was subsequently extended to employees of PublicSector companies from assessment year 1991-92 vide notificationNo. 2/19/89-NS-II dated 12.12.1990. Salient features of thescheme are discussed below:

Rate of Return Tax free interest @ 9% P.A. payable halfyearly on 30th June and 31st December

Limit of Investment Minimum Rs.1000.Maximum not exceeding the totalretirement benefits.

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Liquidity Entire balance can be withdrawn afterexpiry of 3 years from the date ofdeposit. Premature encashment can be,made after one year from the date ofdeposit in which case interest on amountwithdrawn will be payable @ 4% fromthe date of deposit to the date ofwithdrawal.

Other considerations: Only 1 account can be opened in ownname or jointly with spouse. Account isto be opened within 3 months ofreceiving retirement benefits. Schemeis operated through branches of SBI andits subsidiaries and selected branches ofnationalised banks.

[This scheme has been discontinued w.e.f. 10.07.2004 videnotification F. No.15-01/2004-NS-2, dated 09.07.2004.]

CHAPTER-9

PENSIONERS & SENIOR CITIZENS

9.1 PENSION

Pension is described in section 60 of the CPC and section 11of the Pension Act as a periodical allowance or stipend grantedon account of past service, particular merits etc. Thus monthlyallowance to the younger brother of a ruler was treated as amaintenance allowance and not pension (Raj Kumar BikramBahadur Singh Vs. CIT 75 ITR 227(MP)). There are threeimportant features of ‘pension’. Firstly, pension is a compensationfor past service. Secondly, it owes its origin to a past employer-employee or master-servant relationship. Thirdly, it is paid on thebasis of earlier relationship of an agreement of service as opposedto an agreement for service. This relationship terminates only onthe death of the concerned employee.

Pension received from a former employer is taxable as‘Salary’. Hence, the various deductions available on salary income,including relief u/s 89(1) for the arrears of pension received wouldbe granted to pensioners who received their pension from, anationalised bank and in other cases their present Drawing &Disbursing Officers. Similarly, deductions from the amount ofpension of standard deduction and adjustment of tax rebate u/s 88and 88B shall be done by the concerned bank, at the time ofdeduction of tax at source from the pension, on furnishing ofrelevant details by the pensioner. Instructions in above regard wereissued by R.B.I.’s Pension Circular (Central Service No. 7/C D.R./1992(Ref. No. DGBA:GA(NBS) No. 60/GA64-(II CVL-91-92dated 27.4.92).

Pension to officials of UNO is exempt from taxation. Section2 of the UN (Privilege & Immunities) Act, 1947 grants tax

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exemption to salaries/emoluments paid by U.N. The KarnatakaHigh Court had held that u/s 17 of the Income Tax Act, salary hasbeen defined as including pension, therefore, if salary receivedfrom U.N. is exempt, so shall be the pension. This decision wasaccepted by the CBDT vide circular No. 293 dated 10.02.1981.

9.2 FAMILY PENSION

Family pension is defined in Section 57 as a regular monthlyamount payable by the employer to a person belonging to thefamily of an employee in the event of death. Pension and familypension are qualitatively different. The former is paid during thelifetime of the employee while the latter is paid on his death tosurviving family members. However, in case of family pension,since there is no employer-employee relationship between thepayer and the payee, therefore, it is taxed as ‘Income from OtherSources’ in the hands of the nominee(s). In respect of familypension, deduction u/s 57(iia) of Rs.15000 or 1/3rd of the amountreceived, whichever is less, is available.

9.3 SENIOR CITIZEN

Under the Income Tax Act, a senior citizen is a person whoat any time during the previous year has attained the age of 65years or more. There are certain benefits available to senior citizenunder the Income Tax Act:-

(i) Tax rebate u/s 88B: Rebate under this section to the extentof Rs.20,000/- was available to all senior citizens whetherthey are pensioners or self employed or traders etc.

It may be noted that no rebate u/s 88B is available fromA.Y.2006-07 onwards. However, the maximum amount notchargeable to tax in respect of senior citizens has been increasedto Rs.2,40,000 w.e.f. A.Y. 2010-11. Thus, no tax is payable bya senior citizen if the total income is upto Rs.2.4 lacs for theA.Y. 2010-11.

(ii) Benefits provided by Finance Act 2007: The deductionavailable u/s 80D for medical insurance premium paid is tobe increased to Rs.20,000 for senior citizens. Secondly, thededuction available u/s 80DDB in respect of expenditureincurred on treatment of specified diseases is to be increasedto Rs.60,000 for senior citizens.

(iii) In order to resolve the tax issues arising out of the reversemortgage scheme introduced by the National HousingBank (NHB), the Finance Act 2008 has added a new clause(xvi) in Section 47 of the I.T. Act which provides that anytransfer of a capital asset in a transaction of reversemortgage under a notified scheme shall not be regardedas a transfer and shall, therefore, not attract capital gainstax. This ensures that the intention of a reverse mortgagewhich is to secure a stream of cash flow against themortgage is not contradicted by treating the same astransfer.

The second issue is whether the loan, either in lump sumor in instalments, received under a reverse mortgage schemeamounts to income. Receipt of such loan is in the nature of acapital receipt. However, with a view to providing certainty inthe tax regime pertaining to the senior citizens, the FinanceAct 2008 has amended section 10 of the Income Tax Act toprovide that such loan amounts will be exempt from incometax.

Consequent to these amendments, a borrower, under areverse mortgage scheme, will be liable to income tax (in thenature of tax on capital gains) only at the point of alienationof the mortgaged property by the mortgagee for the purposesof recovering the loan.

These amendments will take effect from the 1st day ofApril, 2008 and will accordingly apply in relation to assessmentyear 2008-09 and subsequent assessment years.

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CHAPTER-10

TAXATION OF EXPATRIATES

10.1 INTRODUCTION

With the globalisation of the world trade and liberalisationof the Indian economy, the number of persons moving in or out ofIndia in the exercise of their business, profession or employmentis on the increase. A brief discussion of the taxation of theseexpatriates is being attempted below:

10.2 RESIDENTIAL STATUS

As in most of the countries, the liability under the IndianIncome tax law is also co-related to the residential status of theconcerned tax payer. Section 6 of the Indian Income-Tax Actcreates 3 categories as far as residential status is concerned.

10.2.1 Resident An Individual is said to be resident inIndia in any previous year if he is inIndia for at least 182 days in that yearor during that year he is in India for aperiod of at least 60 days & has been inIndia for at least 365 days during the 4years preceding that year. However, theperiod of 60 days referred to above isincreased to 182 days in case of Indiancitizens who leave India as members ofthe crew of an Indian Ship or for Indiancitizens or persons of Indian origin who,being outside India, come to visit Indiain any previous year.

10.2.2 Non- Resident A person who is not a resident in termsof the above provisions is a non-resident.

10.2.3 Resident but Not A person who is otherwise resident asOrdinarily Resident defined in para 10.2.1 would be RNOR(RNOR) if he satisfies any of the following two

conditions:

(i) He has not been resident in India in 9out of 10 preceding previous years.

or

(ii) He has not been in India for an aggregateperiod of 730 days or more in thepreceding 7 previous years.

W.e.f. 01.04.2004, the status ‘RNOR’has been redefined as follows:-

An individual shall be said to be RNORif he has been a non-resident in India in9 out of 10 previous years preceding orperiod amounting to 729 days or lessduring the 7 previous years precedingthat year.

10.3 SCOPE OF TAXATION:

Based on the residential status of payer, his tax liability willbe as follows:-

Residential status Taxability of Income

(i) Resident All income of the previous year whereveraccruing or arising or received by himincluding incomes deemed to have accruedor arisen.

(ii)Non-Resident All income accruing, arising to or deemedto have accrued or arisen or received inIndia.

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(iii) Resident but All Income accruing or arising or deemednot ordinary to have accrued or arisen or received inResident India. Moreover, all income earned outside

India will also be included if the same isderived from a business or professioncontrolled or set up in India.

10.4 EXPATRIATES WORKING IN INDIA

In case of foreign expatriate working in India, theremuneration received by him, assessable under the head‘Salaries’, is deemed to be earned in India if it is payable to himfor service rendered in India as provided in Section 9(1)(ii) of theIncome Tax Act. The explanation to the aforesaid law clarifiesthat income in the nature of salaries payable for services renderedin India shall be regarded as income earned in India. Further, fromassessment year 2000-2001 onwards income payable for the leaveperiod which is preceded and succeeded by services rendered inIndia and forms part of the service contract shall also be regardedas income earned in India. Thus, irrespective of the residentialstatus of the expatriate employee, the amount received by him assalary for services rendered in India shall be liable to tax in Indiabeing income accruing or arising in India, regardless of the placewhere the salary is actually received. However, there are certainexceptions to the rule which are briefly discussed below:-

10.4.1 Remuneration of an employee of a foreign enterprise isexempt from tax if his stay in India is less than 90 daysin aggregate during the financial year [Sec.10(6)(vi)].This is subject to further relaxation under the provisionsof Double Taxation Avoidance Agreement entered intoby India with the respective country.

10.4.2 Remuneration received by a foreign expatriate as anofficial of an embassy or high commission or consulateor trade representative of a foreign state is exempt onreciprocal basis [Sec.10(6)(ii)].

10.4.3 Remuneration from employment on a foreign shipprovided the stay of the employee does not exceed 90days in the financial year [Sec. 10(6)(viii)].

10.4.4 Training stipends received from foreign government(Sec.10(6)(xi)).

10.4.5 Remuneration under co-operative technical assistanceprogramme or technical assistance grants agreements(Sec. 10(8) & (10(8B)).

10.5 SPECIAL PROVISIONS RELATING TO NON-RESIDENTS

Chapter XIIA of the Income Tax Act deals with specialprovisions relating to certain incomes of non-residents. Sec. 115Ddeals with special provisions regarding computation of investmentincome of NRIs. Section 115E relates to investments income andlong term capital gains of NRIs, such income being taxed atconcessional flat rates. As per section 115F, capital gain is notchargeable on transfer of foreign exchange assets under certaincircumstances. The NRIs need not file their return of income iftheir total income consist only of investment income or long termcapital gains or both and proper tax has been deducted from thisincome(Sec. 115G). Benefits under this chapter are available evenafter the assessee becomes a resident (Sec.115H). The provisionsof this chapter would not apply if the assessee so chooses (Sec.115I).

10.6 DOUBLE TAXATION AVOIDANCE AGREEMENT(DTAA)

The Central Government acting under the authority ofLaw(Sec. 90) has entered into DTAAs with more than 60 countries.Such treaties serve the purpose of providing protection to the taxpayers from double taxation. As per section 90(2), in relation toan assessee to whom any DTAA applies, the provisions of the Actshall apply only to the extent they are more beneficial to the

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assessee. The provisions of these DTAAs thus prevail over thestatutory provisions.

10.7 INDIAN RESIDENTS POSTED ABROAD

Indian residents who have taken up employment in countrieswith which India has got DTAA are entitled to the benefit of theDTAA entered into by India with the country of employment.Accordingly, their tax liability is decided.

Indian expatriates working abroad have been granted severalspecial tax concessions under the Act. Professors, teachers andresearch workers working abroad in any university or anyeducational institutions are entitled to deduction of 75% of theirforeign remuneration provided the same is brought into India inconvertible foreign exchange within a period of 6 months fromthe end of the previous year or such extended time as may beallowed(Sec. 80-R). Similarly, in case of an Indian Citizen havingreceived remuneration for services rendered outside India, 75%of his foreign remuneration is deductible from his taxable incomeprovided such remuneration is brought to India in convertibleforeign exchange within the time specified above (Sec. 80 RRA).

From assessment year 2001-2002 onwards, there has been achange in the amount of deduction available under sections 80R/80RRA. For details, reference may be made to the sectionsconcerned of the Income Tax Act. No deduction u/s 80R/80RRAshall be allowed in respect of A.Y. 2005-06 onwards.

It may also be mentioned here that as per section 9(1)(iii)income chargeable under the head ‘Salary’ payable by theGovernment to a citizen of India for services rendered outsideIndia is deemed to accrue or arise in India. However, allowancesor perquisites paid or allowed outside India by the Govt. to a citizenof India for rendering services abroad is exempt from taxationu/s 10(7).

10.8 INCOME TAX CLEARANCE CERTIFICATE

An expatriate before leaving the territory of India is requiredto obtain a tax clearance certificate from a competent authoritystating that he does not have any outstanding tax liability. Such acertificate is necessary in case the continuous presence in Indiaexceeds 120 days. An application is to be made in a prescribedform to the Income Tax Authority having jurisdiction forassessment of the expatriate to grant a tax clearance certificate.This is to be exchanged for final tax clearance certificate from theforeign section of the Income Tax Department. Tax Clearancecertificate is valid for a period of 1 month from the date of issueand is necessary to get a confirmed booking from an airline ortravel agency and may be required to be produced before thecustoms authorities at the airport.

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CHAPTER- 11

INCOME TAX ON‘FRINGE BENEFITS’

11.1 INTRODUCTION :-

The Finance Act 2005 has introduced a new tax called‘Income-tax on fringe benefits’ w.e.f. 01.04.2006. This shall bein the form of additional income tax levied on fringe benefitsprovided or deemed to have been provided by an employer to hisemployees during the previous year.

11.2 RATE OF TAX :-

The tax on fringe benefits shall be levied at the rate of 30%on the value of fringe benefits provided.

11.3 LIABILITY TO PAY :-

The liability to pay this tax is to be borne by the employerincluding

i) a company

ii) a firm

iii) an association of persons or body of individualsexcluding any fund or trust or institution eligible forexemption u/s 10(23C) or 12AA.

iv) a local authority

v) an artificial juridical person

11.4 WHAT IS INCLUDED IN ‘FRINGE BENEFITS’ :-

Fringe benefits have been defined as including anyconsideration for employment provided by way of

a) any privilege, service, facility or amenity provided by anemployer directly or indirectly including reimbursements.

b) any free or concessional ticket provided by the employer forprivate journeys of his employees or their family members.

c) any contribution by the employer to an approvedsuperannuation fund for employees.

d) any specified security or sweat equity shares allotted/transferred, directly or indirectly by the employers free ofcost or at concessional rate to his employees. The detailedprovisions in respect of this are included in Chapter XII H ofthe I.T. Act.

Further, fringe benefits shall be deemed to have beenprovided if the employer has incurred any expenses or made anypayments for various purposes namely, entertainment, provisionof hospitality, conference, sales promotion including publicity,employees welfare, conveyance, tour & travel, use of hotel,boarding & lodging etc.

Various provisions relating to income tax on ‘fringe benefits’have been modified by the Finance Act, 2006. Exceptions inrespect of certain expenditures have been introduced includingexpenditure incurred on distribution of free/concessional samplesand payments to any person of repute for promoting the sale ofgoods or services of the business of the employer. Similarly, ithas been proposed that expenditure incurred on providing free orsubsidized transport or any such allowance provided by theemployer to his employees for journeys from residence to the placeof work shall not be part of fringe benefits. Another significantamendment is regarding the contribution by an employer to anapproved superannuation fund to the extent of Rs.1 lakh peremployee which shall not be liable to fringe benefit tax. Further,in the case of some other expenses incurred such as expensesincurred on tour and travel, lower rates for valuation of fringebenefits @ 5% have been provided for. The Finance Act 2008has introduced further exemption in respect of certain expendituresfrom the purview of Fringe Benefit Tax. These include payments

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through non-transferable electronic meal cards, provision of crèchefacility, organizing sports events or sponsoring a sportsman beingan employee. These provisions shall come into effect from A.Y.2009-10 onwards.

The Finance act, 2009 has withdrawn the Fringe Benefit Tax.Thus, the FBT stands abolished w.e.f. A.Y. 2010-11 and now suchperquisites are taxable in hands of employees.

CHAPTER- 12

SOME RELEVANT CASE-LAWS

12.1 EMPLOYER-EMPLOYEE RELATIONSHIP:

The nature and extent of control which is the basic requisiteto establish employer- employee relationship would vary frombusiness to business. The test which is uniformly applied in orderto determine the relationship is the existence of a “right to control”in respect of the manner in which the work is to be done.

(Dharangadhra Commercial Works v State of Saurashtra 1957SCR 152)

12.2 LEAVE ENCASHMENT (S.10(10AA)):

“Retirement” includes resignation. What is relevant isretirement: how it took place is immaterial for the purpose of thisclause. Therefore, even on resignation, if an employee gets anyamount by way of leave encashment, S.10(10AA) wouldapply.(CIT v D.P. Malhotra (1997) 142 CTR 325(Bom)).

(CIT v R.J. Shahney(1986) 159 ITR 160(Mad))

12.3 HOUSE RENT ALLOWANCE (S.10(13A)):

When commission is paid to a person based upon fixedpercentage of turnover achieved by the employee it would amountto “Salary” for the purpose of Rule 2 (h) of part A of IV Schedule(Gestetner Duplicators v CIT 117 ITR 1 (SC)).

12.4 PERQUISITE (S. 17):

12.4.1 One can not be said to allow a perquisite to anemployee if the employee has no vested right tothe same.

(CIT v L.W. Russel (1964) 531 ITR 91 (SC)).

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12.4.2 Reimbursement of expenses incurred by theemployee has been intended to be roped in thedefinition of “ Salary” by bringing it as part of“Profit in lieu of salary.”

(I.E. I Ltd. v CIT (1993) 204 ITR 386(Cal)

12.5 RENT FREE ACCOMMODATION:

A rent free accommodation was provided to the assessee byhis employer but he never occupied it. Held that, unless theemployee expressly forgoes his right to occupying it, the perkvalue would be taxable even though he never occupies it.

(CIT v B.S. Chauhan 150 ITR 8(Del)).

12.6 DEDUCTION UNDER S.80G:

By the very nature of calculation required to be made u/s80G(4) it is necessary that all deduction under chapter VIA befirst ascertained and deducted before granting deduction u/s 80G

(Scindia Steam Navigation Co v CIT (1994) 75 Taxman495(Bom))

12.7 DEDUCTION U/S 80RRA:

Fees received by a consultant or technical for renderingservices abroad would also come within the purview of S. 80RRA

(CBDT v Aditya V. Birla (1988) 170 ITR 137(SC))

12.8 RELIEF U/S 89:

Where arrears of salary are paid under orders of court, theemployee would be entitled to relief u/s 89.

(K.C. Joshi v Union of India (1987) 163 ITR 597(SC).

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12.9 REVISED RETURN:

A belated return filed u/s 139(4) can not be revised u/s 139(5).

(Kumar J.C. Sinha v CIT (1996) (86 Taxman 122(SC)).

12.10 Return showing income below taxable limit is a valid return.

(CIT v Ranchhoddas Karosands (1959) (361 ITR 869 (SC)).

Chapter - 1

INTRODUCTION

1. The Indian Income Tax Act provides for chargeability of taxon the total income of a person on an annual basis. The quantum oftax determined as per the statutory provisions is payable as:

a) Advance Tax

b) Self Assessment Tax

c) Tax Deducted at Source (TDS)

d) Tax Collected at Source (TCS)

e) Tax on Regular Assessment

Tax deducted at source (TDS) and Tax collection at source(TCS), as the very names imply aim at collection of revenue at thevery source of income. It is essentially an indirect method of collectingtax which combines the concepts of “pay as you earn” and “collectas it is being earned.” Its significance to the government lies in thefact that it prepones the collection of tax, ensures a regular sourceof revenue, provides for a greater reach and wider base for tax. Atthe same time, to the tax payer, it distributes the incidence of taxand provides for a simple and convenient mode of payment.

The concept of TDS requires that the person on whomresponsibility has been cast, is to deduct tax at the appropriate rates,from payments of specific nature which are being made to a specifiedrecipient. The deducted sum is required to be deposited to the creditof the Central Government. The recipient from whose income taxhas been deducted at source, gets the credit of the amount deducted

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in his personal assessment on the basis of the certificate issued bythe deductor.

While the statute provides for deduction of tax at source on avariety of payments of different nature, in this booklet, an attempt isbeing made to discuss various provisions of TDS on payments ofnature other than salaries and of Tax collection at source. Chapter - 2

PAYMENTS SUBJECT TO T.D.S.

The statutory provision regarding deduction of tax at sourceis dealt in Chapter XVII of the Income-tax Act, 1961 which gives thedetails of the relevant provision of TDS, the rates and also theexemptions where no tax is to be deducted.

The following items of payment are subject to tax deduction atsource:-

i) Interest on securities (S.193),

ii) Dividends (S.194),

iii) Interest other than interest on securities (S.194A),

iv) Winnings from lottery or crossword puzzles (S.194B),

v) Winnings from horse race (S.194BB),

vi) Payments to contractors and sub-contractors (S.194C),

vii) Insurance Commission (S.194D),

viii) Payments to non-resident sportsmen or sports associations(S.194E),

ix) Payments in respect of deposits under National SavingsScheme etc. (S.194EE),

x) Payments on account of repurchase of units by a MutualFund or Unit trust of India (S.194F),

xi) Commission etc. On sale of lottery tickets (S.194G),

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xii) Commission or brokerage, etc. (S.194H),

xiii) Rent (S.194-I),

xiv) Fees for professional or technical services (S.194J),

xv) Payment of Compensation on acquisition of certain immovableproperty (S.194LA),

xvi) Other sums, for example, payment to a non-resident (not beinga company) or a foreign company, of any interest (not beinginterest on securities) or any other sum subject to Income-tax (non-salary)(S.195),

xvii) Income payable “net of tax” i.e. Where, under an agreementor arrangement the income-tax is borne by the person bywhom the income is payable to assessee. This amount ofincome-tax would be added to the income of the assesseeand the Income-tax would be deducted on that amount also(S.195A),

xviii) Income in respect of units, as referred in Section 115AB,payable to an Offshore Fund (S.196B),

xix) Income from foreign currency bonds or shares of Indiancompany, referred to in Section 115 AC. (Sec.196C),

xx) Income of Foreign Institutional Investors from securitiesreferred to in Section 115AD. However, if capital gain arisesfrom transfer of securities referred to in Section 115AD, notax is deductible on payment to a Foreign Institutional Investor(S.196D),

xxi) Section 206C prescribes collection of tax at source onspecified items.

Chapter - 3

TDS PROVISIONS APPLICABLE TONON-SALARY INCOMESECTION-WISE LIST

A very brief description of the various categories ofpayments(other than salaries) and the relevant sections are beinggiven below, while detailed discussion on the issues of TDS andTCS are included in the subsequent chapters.

Section 193 - TDS from interest on securities. TheExempted securities are listed in the relevantSection. Deduction is to be done as per rates inforce.

Section 194 - TDS from Dividend. Certain exemptions existas are provided for in the Section where theaggregate of Dividend during the financial yeardoes not exceed Rs.2500/- Deduction is to bemade as per the rates in force.

Section 194A - TDS from Interest other than interest onsecurities TDS is to be done on Interestexceeding Rs.5000/-. W.e,f. 01.06.2007, inrespect of deposit with a banking company or aco-operative society carrying on bankingbusiness, TDS is to be made if the interestexceeds Rs.10,000/-.

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Exempted categories are listed in the section.Deduction are to be done as per rates in force.

Section 194B - TDS from winnings from lotteries orcrossword puzzles or card game & othergame of any sort. TDS is to be done on paymentof an amount exceeding Rs.5000/-. TDS isdeductible on prize in kind also (w.e.f.1.6.1997).In cases where the winnings are wholly in kindor where they are partly in cash and partly inkind but the part in cash is not sufficient to meetthe liability for tax deduction in respect of thewhole of the winnings, the person responsiblefor paying shall, before releasing the winningseither in cash or in kind, ensure that tax has beenpaid in respect of the winnings.

Section 194BB - Winnings from horse races exceedingRs.2500/-

Section 194C- Payments to contractors and sub-contractors exceeding Rs.20,000/-. Forpayments to contractors, the rate of TDS is onepercent in case of advertising and two percentin other cases. Work includes advertising,broadcasting and telecasting includingproduction of programmes for such purpose,carriage of goods and passengers by any modeof transport other than by railways and catering.For payments made by Contractors to subcontractors rate of TDS is one percent. The provision is not applicable in case ofpayment made by individuals and HUF if thegross receipts or turnover from the business orprofession does not exceed the monetary limitsspecified u/s 44AB clause (a) or (b).

Section 194D - Insurance commission TDS on paymentsabove Rs.5,000/-

Section 194E- Non-resident Sportsmen or sportsassociations. TDS @ 10%.

Section 194EE- Payment in respect of NSS. TDS to be doneon payment above Rs.2,500/- @ 20%.

Section 194F - Payments for repurchasing units of MutualFund/UTI - @ 20%

Section 194G - Commission etc. on sale of lottery ticketsexceeding Rs.1,000/- - @10%

Section 194H - Commission, Brokerage etc. above Rs.2,500/-@ 10% N.A. when payments are made by Indl /HUF, if their business turnover does not exceedthe limits specified in section 44AB. If thepayment made for personal use, no deduction.

Section 194-I - Rental income TDS to be done on paymentexceeding Rs.1,20,000/- per annum. W.e.f.1.4.2007, the rate of TDS is to be 10% whereplant or machinery is rented out, 15% in case ofland or building and 20% where the payee is notan individual or HUF.

Section 194J - Payment to resident of fees for professionalor technical services exceeding Rs.20,000/-.Deduction at the rate of 10% . Not applicable, ifpayer is individual or HUF and if the businessturnover does not exceed the limits mentionedin Section 44AB clause (a) or (b) Not applicablewhen payment made or credited before 1stJuly,1995.

Section194 LA- Deduction of tax is to be done @ 10% frompayment to resident of compensation/consideration on account of compulsoryacquisition under any law of any immovableproperty (other than agricultural land) Nodeduction if payment is less than Rs.1 lakhduring the financial year.

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Section 195- Payments to Non-Resident (Non-company) orto a foreign Company of interest (other thaninterest on security) or any other sum (other thansalary). Deduction is to be done as per rates inforce.

Section 196B - Units referred to in Section 115AB (Units ofmutual fund/UTI owned by Off shore Fund) - 10%: includes long-term capital gain on transfer.

Section 196C - Interest or dividend payable for bonds andshares referred to in Section 115AC (foreigncurrency bonds or shares) and long-term capitalgains. Deduction @ 10% “bonds and shares”substituted by words “Bonds or GDR” with effectfrom 1st April 2002. No deduction shall bemade in respect of any dividends referred inSec.115-O.

Section 196D - Income in respect of securities referred undersection 115AD(1)(a) held by FII’s. Deduction atthe rate of 20%. No deduction shall be made inrespect of any dividends referred in Sec.115-O.

No TDS on capital gains.

Section 197 - Non-deduction or deduction at a lower rate inregard to Section 192, 193, 194, 194A, 194C,194D, 194G, 194H, 194-I, 194J, 194K, 194LAand 195.- Application to be filed beforeAssessing Officer in prescribed form. See Rule28(1) and 28 AA.

Section 197A - Non-deduction u/s 194 or 194EE on declarationfurnished by a resident individual to the personresponsible for deduction in prescribed form.

197A(1A) Non-deduction on application made by theperson to the person responsible for deductionin prescribed form in respect of Sections 193,194A or 194K.

Section 197A(1B) - The provisions of this Sec. shall not apply if thegross income credited or paid exceeds themaximum amount which is not chargeable toincome tax.

Section 197A(1C) - No deduction of tax from a resident individualwho is 65 years or more during the previous yearif such individual furnishes a declaration in writingto the effect that tax on his estimated total incomewill be nil.

Section 198 - TDS is also income received except taxes paidu/s. 192(1A).

Note : Surcharge as applicable in all the above sections.

Section 206C - The statute provides that the tax is to be collectedby the seller of the commodities specified at thetime of receipt of the sale proceeds either in cashor by cheque or draft or by any other mode or atthe time of debit of such amount to the accountof the buyer whichever is earlier. The provisionsof TCS apply to business of :

i) Alcoholic liquor for human consumption

ii) Tendu leaves,

iii) Timber obtained under a forest lease,

iv) Timber obtained by any mode other thanunder a forest lease,

v) any other forest produce not being timberor tendu leaves.

vi) Scrap

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Chapter - 4

PROVISIONS ENJOININGDEDUCTION OF TAX AT SOURCE

4.1 Interest on securities

Where any payment is made in the nature of “Interest onSecurities,” the person responsible for making such payment ofincome or credit has to make deduction of tax at source beforemaking such payment or crediting to the account of the payee. Thededuction is to be done as per rates in force on the amount of interestpayable. (Sec.193 of I. T. Act, 1961) However payments from certaincategories of bonds, debentures etc. is exempt from TDS. Theseinclude :.

i) National Defence Bonds 1972 (4.1/4%), ia) NationalDefence Loan 1968, or National Defence Loan 1972(4.3/4%), ib) National Development Bonds,

ii) 7 year (IV Issue) National Savings Certificates,

iii) Any interest payable on debentures issued by any institutionor authority or any Public Sector Company or any Co-operativesocieity, including a Co-operative Land Mortgage Bank or Co-operative Land Development Bank, as may be notified byCentral Government in Gazette,

iv) Gold Bonds, 1977 (6.1/2%), Gold Bonds 1980 (7%),

v) Interest on any Security of Central Government or StateGovernment,(However w.e.f. 1.6.07 exemption will not beavailable if interest payment exceeds rupees ten thousandduring the F.Y. on 8% savings(Taxable) Bonds 2003.

vi) Any interest payable to an individual, resident of India, ondebentures issued by a Public Limited Company where thedebentures are listed in a recognised stock exchange, if theinterest is paid by an account payee cheque and its amountdoes not exceed Rs. 2500/- during the financial year,

vii) Any interest payable to LIC,

viii) Any interest payable to GIC or any of its four companies,

(ix) Any interest payable on any security issued by a company,where the security is in dematerialized form and is listed inrecognized stock exchange in India(Inserted by Finance Act2008).

x) Any interest payable to any insurer in respect of any securitiesowned by it or in which it has full beneficial interest.

No TDS to be made from any Regimental Fund or non-publicfund established by any Armed forces since income of theseorganizations is exempt u/s 10(23AA).

4.2 Dividend income(Sec. 194) - where any amount ispayable in the nature of “Dividends” by an Indian Company or aCompany that has made arrangement for declaration and paymentof dividend within India (including dividend on preference shares ).The deduction has to be done of tax at source on such paymentsas per rates in force before the payment is made in cash or issue ofcheque or dividend warrant or before making any distribution orpayment to the share holder of any dividend u/s 2(22). Sec. 2(22)defines dividends as including inter alia distribution by a companyto its share-holder of various sums like accumulated profits (whetherCapitalized or not) by releasing all or part of company’s assets ordebentures, debenture stock, deposit certificates, or bonus sharesto preference share-holders to the extent of accumulated profits, orpayments by a Private Limited Company of any advance or loan toa share-holder being beneficial owner holding not less than 10% ofvoting power, or loan or advance to a concern in which such share-holder is a member or partner with substantial interest or paymentby company on behalf of or, for benefit of such share-holder, to theextent of accumulated profits.

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Exemption (a) -Exemption from T.D.S. is granted in case of a share-holder who is an individual and the company pays dividend ofRs.2500/- or less in one financial year and it is paid by accountpayee cheque (Rule 28). (b) Further If the Assessing Officer gives acertificate in writing that total income of the share-holder isbelow taxable limit then the person paying the dividend to shareholder is not to deduct tax at source (Rule 28 and Rule 29).(c) Further no TDS to be done in respect of dividends referred to inSection 115-O.

4.3 Interest Income other than interest on securities-The ‘Interest’ other than ‘Interest on Securities’ is subject to taxdeduction at source as per rates in force under Section 194A.However an individual or Hindu Undivided family is not obliged todeduct tax at source. But w.e.f. 1.6.2002, an HUF or an individualwhose total sales, gross receipts or turnover from the business orprofession ,carried on by him exceeded monetary limit specified inclause (a) or clause (b) of section 44AB(Rs. 40 lakh), are also liableto deduct tax under this Sections. However, any other person (i.ecompany,firm,Association of persons, Trust etc.) who is responsiblefor paying Interest (other than ‘Interest on Securities’) is responsiblefor deduction of tax at source. This tax is to be deducted, as usual,at the time of credit of interest to the account of payee (i.e. Assessee)or actual payment in cash or by issue of cheque, draft, or any othermode of payment, whichever is earlier. Even if the amount of interestis credited to any account whether called “interest payable account”or “Suspense Account”, or by any other name, in the books of theperson who is paying such income(i.e. “Payer” of the interest), theseprovisions of Section 194A will apply.

Exemption - Exemption from this section is allowed:

i) if interest, or aggregate of interest during the financial year,does not exceed Rs.5000/-. However where the payer is abanking company, a cooperative society engaged in thebusiness of banking or a post office the exemption limit shallbe Rs. 10,000 (applicable w.e.f. 1.6.2007).

ii) Such interest income is credited or is paid to a banking company

or co-operative Society engaged in banking, or a FinancialCorporation or, LIC, or UTI, or company or cooperative societycarrying on insurance business, or any other institution,association or body notified by the Central Government forreasons recorded in writing.

iii) The interest is paid, or credited by, the firm to its partner’saccount.

iv) Interest income credited, or paid, by co-operative society toits members account, or to another co-operative society.

v) Interest income on deposits under any scheme framed andnotified in Gazette by Central Government.

vi) Income credited or paid in respect of deposits other than timedeposits, such time deposits made on or after 1-7-1995, withbanking company including any bank nor banking institutionreferred to in Section 51 of the Banking Regulation Act,1949.

vii) Any interest credited or paid by the Central Government underthe Income-tax Act or other allied Acts like Wealth-Tax, Estate-Duty,Super Profits Tax, Companies (Profits) Sur-tax orInterest Tax Act.

viii) Interest earned on deposits with;

- a primary agricultural credit society.

- a primary credit society.

- a Co-operative land mortgage bank.

- a Co-operative land development bank

- a Co-operative society engaged in banking business (otherthan time deposits on or after 1-7-1995),

ix) Income credited or paid by way of interest on compensationawarded by the Motor Accidents Claims Tribunal. However,the aggregate amount of income paid/credited should not exceedfifty thousand rupees.

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x) Income paid/payable by infrastructure capital company /fundor public sector company in relation to zero coupon bond issuedafter1.6.05.

4.4 Lotteries etc. - Under Section 194B, winnings from lotteryor crossword puzzle or card game and other game of any sortexceeding Rs. 5000/- are also subject to deduction of tax at source,as per rates in force .

In cases where the winnings are wholly in kind or where theyare partly in cash and partly in kind but the part in cash is notsufficient to meet the tax liability for tax deduction in respect of thewhole of the winning, the person responsible for paying shall, beforereleasing the winning either in cash or in kind, ensure that tax is paidin respect of the winnings.

4.5 Horse Races - Section 194BB enjoins any person, whois a bookmaker, or a licensee for horse racing in a race course, orarranger for wagering or betting in any race course, and is responsiblefor paying to any person the winning from such horse race, to deductincome-tax at source. The deduction is to be done as per rates inforce. The only exemption is for winnings of Rs.2500/or below.

4.6 Contractor - Section 194C applies to a person who isresponsible for “paying any sum to a contractor or sub-contractor”.Such contractor or sub-contractor should be a resident.

Definition of residence is given in Section 6 of the Income-taxAct. It applies to an individual who is in India for 182 days or more ina financial year or has been in India for more than 365 days in thelast 4 years and for 60 days in the year under consideration. TheHUF, Firm and an AOP is resident in India in any previous yearunless the control and management of its affairs is situated whollyoutside India. A company is a resident if it is an Indian company orthe control and management is wholly situated in India. A person istermed as contractor if he is carrying out any work including supplyof labour for carrying out any work, in pursuance of a contract withCentral Government/ State Government/ Local Authority/ Corporation/

Company /any authority in India engaged in housing or co-operativesociety /trust / University or any firm etc. ‘Work’ includes advertising,broadcasting and telecasting and production of programmes in suchconnection, carriage of goods and passengers by any mode otherthan by railway, and catering. These are the persons who are enjoinedto deduct tax at source at the time of credit of any sum to the accountof contractor or at the time of payment either in cash or by cheque ordraft or any other mode. The deduction is to be made @ 2% ofthe total payment. In case of advertising, the contract rate ofTDS is 1%.

A contractor who is a resident and is not an individual/HUFand makes payments to a sub-contractor who is also a resident andengaged in carrying out or supplying labour for carrying out, whole orpart of the work undertaken by the contractor, is also liable todeduct tax at source from the payments or credits of the paymentto such sub-contractor @1%. An individual or an HUF whose totalsales/gross receipts/turnover from business and profession carriedon by him exceeded the monetary limits specified under clause (a)or (b) of section 44AB is liable to deduct income-tax under thisSection.

Even where the credit is made in any account called “SuspenseAccount” or in the books of account of the person liable to pay suchincome, such credit will be deemed to be in the account of payee(contractor or sub-contractor as the case may be) and deduction oftax will have to be made.

Exemption - If the credit or the payment in pursuance of the contractdoes not exceed Rs.20,000/-, no deduction has to be made at source.No TDS to be done by an Individual or an HUF on a contractualpayment of work which is for personal purposes of the individual orthe HUF.

If the Assessing Officer is satisfied that the total income ofthe contractor or the sub-contractor justifies deduction at lower rateor justifies no deduction of income-tax, then on an application to befiled by the contractor or sub-contractor in this behalf, the AssessingOfficer can give such certificate as may be appropriate i.e. Deduction

14 15

at a lower rate or no deduction at all. Hence, when such a certificateis produced before the person responsible for payment he will deducttax at the specified rate, or will not deduct any tax, as the casemay be.

4.7 Insurance Commission (Section 194D)

Any person, who is responsible for paying to a resident anyremuneration or reward, whether called commission or by any othername, for soliciting or procuring insurance business (includingcontinuance, renewal or revival of policies of insurance), is enjoinedupon to deduct tax at source at the time of credit of such income tothe account of the payee or at the time of payment thereof in cash orby issue of a cheque or draft or any other mode, whichever is earlier.Deduction is to be done as per rates in force. However, if the aggregateof such account, credited or paid during one financial year is Rs.5000/- or less, then no tax is required to be deducted at source.

4.8 Payments to Non-resident sportsmen or sportsassociations u/s.194E

If a payment is to be made to a non-resident sportsman(including an athlete) who is not a citizen of India or non residentsports association and the income is covered by Section 115BBA,then income-tax is to be deducted at source @ 10% of such payment.Section 115BBA applies to any tax-payer (assessee) who is not acitizen of India and who is a non-resident and income is received, orreceivable, for participation in India in any game or sport or incomefrom advertisement or income form contribution of articles in IndianNewspapers, magazines and journals or a non-resident sportsassociation or institution which receives guarantee money for gamesor sports played in India.

4.9 Deduction of tax from payment in respect ofNational Savings Scheme (Sec. 194EE)

“Sec. 194EE has been inserted with effect from 1-10-91. Whereany payment is made by a person of an amount referred to in clause

(a) of sub section (2) of sec. 80CCA, then such person will deducttax @20% there on at the time of making such payment. The amountstanding to the credit of an assessee under National Saving Scheme1987 and the interest accrued thereon is covered under this provision.However in following cases no tax is deductible:

a) where amount so payable in a financial year is less thanRs.2500/- or

b) where payment is made to heirs of a deceased assessee or

c) where in case of resident individual, tax on his estimated totalincome of the previous year including such withdrawal wouldbe nil and a declaration by him is furnished to that effect inform 15-G and verified in prescribed manner by the personresponsible for such payment.”

4.10 Sec. 194F Payment on account of repurchaseof units of mutual fund or UTI. Deduction of tax atsource is to be done on payment on account of repurchase ofunits by mutual fund or UTI @20% at the time of making anypayment, by the person responsible for paying any amount referredto in Sec. 80 CCB to any person.

4.11 Sec.194G Deduction of tax from commission etc.on sale of lottery tickets.

The person responsible for paying any income by way ofcommission, remuneration or Prize on lottery ticket has to deducttax @ 10% at the time of credit to the recipient account, or at thetime of payment in cash or issue of cheque/draft any other mode,whichever is earlier. However no tax is to be deducted ,if the amountdoes not exceed Rs.1000/-.

Further assessee can make an application in Form 13 to theAssessing Officer, who shall after satisfying himself, issue acertificate that total income of the person who is or has been stocking,distributing, purchasing or selling lottery tickets justifies the deductionof tax at a lower rate or no deduction of tax at all.

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4.12 Sec. 194H Tax deduction from commission orbrokerage.

With effect from 1-6-2001 any person (other than Individualand HUF whose accounts are not auditable under clauses (a) or (b)of section 44AB) responsible for paying any commission or brokerageto the account of payee or at the time of payment in cash or bycheque/draft any other mode, whichever is earlier, is to deduct tax@ of 10%. Where any income is credited to any account whethercalled “Suspense Account” or by any other name in books of theperson liable to pay such income, such crediting shall be deemed tobe credit of such income to the account of the payee.

However no tax is deductible if the amount during the financialyear does not exceed Rs.2500/-. Commission & Brokerage includesany payment (other than commission referred to in section 194D)received/receivable directly or indirectly by a person acting on behalfof another person for services other than professional servicesnotified by board u/s 44AA or for any services in the course of buyingor selling of the goods or in relation to any transaction relating toany asset, valuable article or thing, not being Securities. W.e.f.1.4.2007 no deduction is to be made on any commission orbrokerage payable by M/s. BSNL or M/s. MTNL to their publiccall office franchises.

Recipient may apply in Form 13 to get a certificate of lowerTDS or no TDS u/s 197.

4.13 Sec. 194I Deduction of tax from income by wayof Rent.

Any person (not being an individual / HUF whose accounts arenot auditable u/s 44AB, clause (a) or (b), responsible for paying renthas to deduct tax at source @20%. However where payment is toan individual or HUF, TDS is to be made @ 15%. TDS is to be doneat the time of credit of such income into payee’s a/c or at the time ofpayment in cash or by chq /draft or any other mode, whichever isearlier.Credit in payers books to a account called suspense a/c orby any other name shall be deemed to be credited to payees’ a/c.

However in case where the rent paid/credited does not exceed Rs.1,20,000/- during the year, no tax is deductible .W.e.f. 1.4.07 therate of TDS shall be (a) 10% where any machinery plant orequipment is let out (b) 15% in case of let out of building orland appurtenant thereto(including factory building) where thepayee is an individual or HUF. (c) The rate will be 20% in (b)above in case the payee is not an individual or HUF.

Essential features of rent are that –

1) Payment is made under any lease, sub-lease tenancy, or anyother agreement or arrangement.

2) Payment is made either for use of land or building (includingfactory building) (together or separately) with or withoutfurniture, fittings & land appurtenant thereto.

3) Immaterial whether land or part of such building is owned bythe person to whom rent is paid.

Following points require consideration :

1) If building is let out with furniture & fittings & rent is payableunder two separate agreements, composite rent is subject totax.

2) If a non-refundable deposit is made by tenant, then TDS isapplicable.

3) If refundable deposit is paid no TDS to be done, but if depositcarries interest TDS on interest will be governed by Sec. 194A.

4) If municipal taxes, ground rent etc. are borne by tenant noTDS on such sum.

5) Hotel accommodation taken on regular basis by any personother than Individual/HUF will be in the nature of rent and TDSis to be done.

6) No TDS, if payee is Government or local authorities referred toin section 10(20).

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7) Payee can make application to the Assessing Officer in Form13 for a certificate for deduction of tax at lower rate or to deductno tax.

Deduction of Tax on Service Tax component of rental incomevide circular No. 4/2008 of CBDT dt. 28.4.2008 it has been clarifiedthat deduction u/s. 194 I would be required to be made on the amountof rent paid/payable without including the Service Tax. This is so, asService Tax does not partake the nature of income of the landlord.

4.14 TDS From Profession fee : (Sec. 194J) W.e.f. 1.6.07TDS has to be done at the rate of 10% on payments made to aresident of fees for professional or technical services, of royaltyor any sum referred in clause (va) of Section 28 where aggregateof such payment exceeds Rs.20,000/- in a financial year. However,it is not applicable to a payer who is an individual or a HUF. Butwhere the gross sales/turn over from business or profession of suchpayers exceeds the monetary limit specified in section 44AB(Rs. 40,00,000/-) then such individual /HUF is also required to deducttax at source as per provisions of this section. Payments made orcredited before 1.7.95 are not covered by this provision.

Professional service means service rendered by a person inthe course of carrying on any of the following professions :

Legal

Medical

Architectural

Engineering

Profession of accountancy

Technical consultancy

Interior Decoration

Advertising

Any other profession notified by the Board for purposes ofSection 44AA or of this section. Technical services has the same

meaning as in Explanation 2 to section 9(1) (vii). On satisfaction,the Assessing Officer shall issue a certificate for tax deduction at alower rate or for no deduction.

4.15 Sec. 194LA : Payment of compensation ofacquisition of certain immovable property

Where any person is paying to a resident any sum which is inthe nature of compensation, enhanced compensation, consideration,or enhanced consideration on account of compulsory acquisition ofany immovable property (under any law), then deduction of tax atsource @ 10% on such sum is to be done at the time of payment orby issue of a cheque/draft or by any other mode, which ever is earlier.The immovable property specified here should not be agriculturalland. Deduction is to be done where the aggregate amount of suchpayment during the F.Y. exceeds one hundred thousand rupees.

4.16 Sec. 195 - Other sums

This section deals with TDS on payments being made to nonresidents.

Deduction of tax u/s 195 is to be done at rates in force onpayment made to any non-resident not being a company, or to aforeign company on payment of any interest or any sum chargeableunder the provisions of IT Act which is not in nature of salaries.

Tax is to be deducted at the time of payment or at the time ofcredit to the a/c of payee or interest payable a/c or suspense a/c,whichever is earlier.

(However TDS is to be done only at the time of payment incash or issue of cheque/draft or any other mode, in case of interestof mutual fund, or interest payable by Govt / public sector bank or apublic financial institution). However no tax to be deducted in caseof payment of dividend referred in sec. 115(O). Further payee canmake application in Form no. 15C and 15D to Assessing Officerto obtain certificate for non-deduction or deduction at lower rate oftax.

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4.17 Section 196 - TDS from interest or Dividend orany sum payable to Government/RBI/CertainCorporations

Section 196 provides that no deduction of tax is to be donefrom interest or Dividend or any sum payable to Govt. / RBI / certainCorporations or Mutual Funds. No TDS from any sum payable toGovernment or RBI or corporation established by or under anyCentral Act which is exempt from income-tax on its income or aspecified Mutual Fund, provided such sum is payable by way ofinterest or any other income accruing or arising to it or as dividendin respect of securities or shares owned by it or in which it has fullbeneficial interest.

4.18 Section 196-B - Income from units - This sectionenjoins the payer to deduct tax @ 10% from payments to an offshore fund in respect of units referred to in section 115AB orpayments by way of long term capital gains arising from transfer ofsuch units. The deduction is to be done at the time of credit in theaccount or at the time of payment in cash, through cheque or draftor any other mode, whichever is earlier.

4.19 Section 196C - Income from foreign currency bondsor shares of Indian Company where any income by way of interestor dividends in respect of Bonds or Global Depository receiptsreferred to in Section 115AC or by way of long term capital gainsarising from their transfer is payable to a non-resident, then TDS @10% is to be done on such payments, at the time of credit of incomein account or any payment through cash/cheque/draft/any othermode, which ever is earlier.

4.20 Section 196D : - This section applies to payments inrespect of securities referred to in clause (a) of sub-section(1) ofSection 115AD payable to foreign Institutional Investor. The payer isrequired to deduct tax @ 20% of the income when the same iscredited to the account or paid in cash, through cheque or draft etc.which ever is earlier. No deduction is to be done in respect of dividendsreferred in section 115-O.

4.21 Sale of Liquor / Timber

Section 206C has been introduced w.e.f.1.4.1992 prescribingcollection of tax at source. It applies to business of (i)Alcoholic liquorfor human consumption, (ii) Tendu leaves (iii) Timber obtained undera forest lease, timber obtained by any mode other than under aforest lease (iv) Any other forest produce not being timber or tenduleaves and also on (vi) Scrap.

It enjoins on every person who is a seller of any of the abovesix types of items to collect from the buyer of such goods a sumequal to the following percentage of the amount payable by the buyerto the seller : -

i) Alcoholic liquor 1%

ii) Tendu leaves 5%

iii) Timber obtained under forest lease 2.5 %

iv) Timber obtained by any other mode 2.5%(other than under a forest lease)

v) Any other forest produce not beingTimber or tendu leaves 2.5 %

vi) Scrap 1%

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Chapter - 5

TAXATION OF FOREIGN COMPANIES

Since post assessment collection of taxes is difficult from anon-resident assessee by virtue of his residence and businessactivities being outside India, TDS is an imperative mode of taxcollection. In such cases the rate of TDS also equates the tax rate.The estimated income approach in Section 44B to 44BBB relatingto taxation of certain categories of income in case of foreigncompanies is lined with TDS as a mode of collection.

Section 195 provides for deduction of tax at source as perrates in force which are specified in Annexure-1.

Following are the sections dealing with presumptive rate oftaxation in regard to income of foreign company. The tax payableis deducted at the time of remittance.

Section Nature of Income % of gross receiptChargeable as Taxand liable for TDS

115A Non-residents (Not a company) 20%and foreign company : Dividends/Interest/income from units

Foreign company : Royalty/fees for 30%Technical services.

Note 1 : Lower rate provided in Double Taxation Avoidanceagreement would prevail over these rates wherever they exist.

Note 2 : The rate of 30% is reduced to 20% or 10% in respect ofroyalty or fees for technical services depending on whether thefees is received pursuant to an agreement made after 31.5.1997but before 1.6.2005 or whether it is made on or after 1.6.2005. Now,a foreign company deriving royalty and fees for technical serviceshave to bifurcate its royalties and fees into 3 parts as follows :-

a) Royalty and fees received pursuant to an agreement made onor before 31.5.1997 and

b) Royalty and fees received pursuant to an agreement madeafter 31.5.1997 but before 1.6.2005.

c) Royalty and fees received pursuant to an agreement made onor after 1.6.2005.

On the first part, tax would be payable @30%; on the secondpart, tax would be payable @ 20% and on the third part, tax wouldbe payable @10%.

Section Nature of Income % of gross receipts

44B Receipt from shipping business 7.5%

44BB Business of exploration of Mineral oils 10%

44BBA Business of operation of Air-craft 5%

44BBB Approved turn-key Power project 10%

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Chapter - 6

EXEMPTIONS

6.1 Lower deduction/non-deduction of tax

(a) Section 197 : - Section 197 gives a right to the assessee toobtain a certificate from the Assessing Officer that tax may bededucted at a lower rate than prescribed in Sections192,193,194,194A,194C,194D,194G,194H,194I, 194J,194K,194LA, and 195, by making an application. He can evenapply for no deduction of income- tax at source. Income-taxrules have prescribed Form No. 13, under Rule 28 for suchapplication.

(b) Section 197A : - Section 197A provides that no deduction ofincome-tax at source is to made u/s 194 or194EE in case ofan individual resident of India if the individual gives thedeclaration to the person responsible for paying the incomecovered by these sections in duplicate in prescribed proformaand verified showing that the tax, on his estimated total incomeof the year, including the income from which tax is to bededucted will be nil. Form No. 15G under Rule 29C has beenprescribed for such application.

(c) Section 197A(1A) : - Similarly, for sections 193, 194A andSection 194K, exemption u/s 197A, from deduction of tax, canbe obtained by any person (except a company or a firm ) onfurnishing a declaration in duplicate and in prescribed proformain a similar manner. Similarly for sections 193, 194 ,194A,194 EE or 194K, exemption from TDS u/s 197A can be obtained

by an individual resident in India who is of age of 65 years ormore during the previous year.

(d) Section 197A(1B) : - The provisions of this section shall notapply when the gross total income of the assessee from allsources exceeds the maximum amount which is notchargeable to Income Tax.

The person responsible for paying the income withoutdeduction of tax is duty-bound to deliver to the ChiefCommissioner of Income-tax or Commissioner of Income-tax,one copy of such declaration before the 7th day of monthfollowing the month in which the declaration has been furnishedto the payer by payee (i.e. Assessee).

6.2 Interest to Government etc.

Interest or dividend or any other sum payable to theGovernment, or Reserve Bank of India or a Corporation establishedunder a Central Act, or a Mutual Fund specified u/s 10(23D), payableto it by way of interest or dividend in respect of securities or sharesowned by it or any other income accruing to it, is not subject todeduction of tax at source (S.196).

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Chapter - 7

DEPOSIT OF TAX ANDCREDIT OF TDS

7.1 Deposit of Tax

Where tax has been deducted under Sections193,194,194A,194B,194BB, 194C, 194D, 194E,194EE, 194F, 194G,194H, 194I, 194J, 194K, 194LA, 195, 196A, 196B, 196C and 196D,it is duty of the person deducting tax at source to deposit the amountof tax so deducted within the prescribed time in any branch ofReserve Bank of India or State Bank of India or any authorisedbank accompanied by prescribed Income-tax challans as per thetime limit and mode specified in Rule 30.

7.2 Credit of TDS

Where taxes have been deducted at source from any paymentof income receivable by an assessee, the amount of tax deductedat source would be included in the income of the assessee whilecomputing the income of the assessee and would be deemed to bethe income received (S.198). Further, credit will be given to theassessee while calculating the net tax payable by him and the taxdeducted at source will be treated as a payment of tax on hisbehalf.(i.e. to the Central Government by the payer who has deductedthe tax at source) (S.199).

7.3 TDS Certificate

A certificate is prescribed u/s 203, which is to be issued byperson deducting tax at source. Every person deducting tax is duty

bound to furnish this certificate to the person from whose income/payment the tax has been deducted. The certificate should specifythe amount of tax deducted and rate at which it is deducted.(FormNo. 16A, under Rule 31). On production of this certificate, credit u/s199, for tax paid, will be given to the person, from whose incomethe tax has been deducted, in his income-tax assessment for theassessment year in which the income (or payment) is assessable.

However where tax has been deducted or paid on or after1.4.2010 there shall be no requirement to furnish such acertificate.

7.4 Tax Deduction Account Number (TAN)

A person deducting tax at source, if not already allotted aTAN(or a tax deducation and collection account number) shouldapply for allotment of TAN in Form No. 49B. The application has tobe made in duplicate to the Assessing Officer (AO) or to anyparticular Assessing Officer where this duty is assigned by the ChiefCommissioner or the Commissioner to that A.O. The applicationshould be made within one month from the end of the month inwhich the tax is deducted for the first time.

TAN should be quoted in all the TDS Certificates, challans,quarterly statements, correspondence, etc. Non compliance withthe provisions of Section 203A may lead to rigorous imprisonmentfor a term not less than 3 months but which may extend to 7 yearsand with a fine of Rs.10,000/-.

Reference Section 203 A, Rule 114 A and Rule 114AA.

7.5 Time Limit for Deposit of Tax

Section 200 provides that any person, who has deducted anysum at source as provided in Sections 192 to 196D, is obliged topay the tax deducted at source to the credit of Central Government.

Rule 30 of the Income-tax rules lays down the time and themode of the payment of the tax deducted at source to theGovernment Account. Wherein the deduction is by or on behalf of

28 29

Within one week from thelast day of the month inwhich the deduction ismade. However, if thesame is credited by thedeductor to the accountof the payee as on thedate up to which theaccounts of the payer

are made, within twomonths of the expiry of themonth in which that datefalls.

Within one week from thelast day of the month inwhich the deduction ismade(In case of tax paidunder section 192(1A),within one week from thelast day of each month onwhich tax is due undersection 192(1B).

30 31

the Government, it has to be credited to the Central Govt. Accounton the same day.

In other cases as per provisions as under :

i) In respect of sums deducted u/s.193,194A (interest onsecurities), S.194C (payment to contractors and sub-contractors),Sections 194D,194E, 194G, 194H,194I,194J,195,196A,196B,196C, and 196D it has to be creditedwithin one week from the last day of the month in whichdeduction is made. However if the income/sum is credited tothe account of the payee as on the date up to which accountsof the payers are made, then within two months of the expiryof the month on which the date falls

ii) In any other case the sum deducted at source is to be creditedto the Central government account within a week from the lastday of the month in which deduction is made.

Time limit for Deposit of Tax at Source

Nature of payment Relevant Section Due date of deposit

(1) (2) (3)

Interest on securities 193Interest other than ‘Interest onsecurities’ 194APayments to contractors and sub-contractors 194CInsurance Commission 194DPayment to non-resident sports menor sports association 194ECommission, remuneration or prizeon lottery tickets 194GCommission, brokerage, etc. 194HRent 194-IFee for professional or technical services, 194Jroyalty, sum under section 28(va)Interest or other sum referred to in 195Section 195Income in respect of units of mutual 196Afund or of the Unit Trust of India payable

to non-residentIncome on units referred to in section 196B115AB or by way of long-term capitalgains arising on transfer of such unitsIncome from foreign currency bondsor shares of Indian Companies 196C

Income on securities referred in 196Dsection 115AD(1)(a)Salaries 192Dividends 194Winnings from lottery or crossword puzzle 194BWinnings from horse race 194BBPayments in respect of deposit 194EE/80CCA(i)made under National Savings SchemeRepurchase of units by mutual fund or 194FUnit Trust of IndiaIncome in respect of units 194KCompensation on acquisition of 194LAimmovable property

* In the case of deduction by or on behalf of the Government, tax deductedshould be deposited on the same day.

* The Assessing Officer may, in special cases, and with the approval of theJoint Commissioner, -

(a) permit any person to deposit the income-tax deducted from any paymentunder section 194A or section 194D or section 194H quarterly on July 15,October 15, January 15 and April 15, and

(b) permit an employer to deposit income-tax deducted from salaries quarterlyon June 15, September, 15, December 15 and March 15.

Chapter - 8

Duties of PersonDeducting Tax at Source

8.1 Deduct Tax at Correct Rate and deposit inGovernment Account

Every person responsible for deducting tax at source shall atthe time of payment or credit of income, whichever is earlier, verifywhether the payment being made is to be subject to deduction oftax at source. If it is so, he must deduct such tax as per the prescribedrates. Further he is required to deposit such tax deducted in theCentral Government Account within the prescribed time as specifiedin Rule 30.

Electronic payment of taxes

An optional scheme of electronic payment of taxes for income-tax was introduced in 2004. However with a view to expand thescope of electronic payment of taxes, the scheme of electronicpayment of taxes has been made mandatory for the followingcategories of tax-payers(vide notification No. 34/2008 dt. 13.3.2008of CBDT).

(i) All corporate assessees;

(ii) All assessees(other than company) to whom provisionsof section 44AB of the Income Tax Act are applicable.

2. The scheme of mandatory electronic payment of taxes forincome-tax payers is to be made applicable from 1st April, 2008

and shall also be applicable to payment of taxes to Governmentaccount where tax has been deducted at source.

3. Tax-payers can make electronic payment of taxes throughthe internet banking facility offered by the authorized banks. Theywill also be provided with an option to make electronic payment oftaxes through internet by way of credit or debit cards.

8.2 Issue a TDS certificate

Further, such person is required to issue a certificate of taxdeduction at source to the person from whose income the TDS hasbeen done, in the prescribed proforma i.e. Form No.16A, within onemonth from the end of the month during which the credit has beengiven or the sums have been paid or a cheque/warrant for paymentof any dividend has been issued to a shareholder.

8.3 File Return/Quarterly Statement

Finally, Sec.206 prescribes that every person, e.g. PrincipalOfficer in the case of a company, prescribed person in case ofGovernment Office and local authority or public body, and everyother person responsible for deducting tax at source, within aprescribed time after the end of Financial Year, shall prepare anddeliver or cause to be delivered, a prescribed return in prescribedform, verified and containing prescribed particulars. This return iscommonly referred as the annual return of TDS. However theFinance Act 2006 provides that annual return of TDS is to befurnished only for deductions made before 1st of April 2005.

The law also provides for filing of annual return in computerreadable media, referred as e-filing of annual return.The provisionsof e-filing of annual return of TDS are being given below.

8.4 Filing of Annual Return on Computer ReadableMedia

Section 206(2) permits the deductor to file the annual returnof TDS on computer readable media including a floppy, diskette,magnetic cartridge tape or CD ROM. However, the Finance Act 2003

32 33

has provided that w.e.f. 01.06.2003, a return in computer readablemedia is to be filed only in accordance with such scheme and subjectto such conditions and manner, as may be specified by the Boardby notification in official gazette.

Further where the assessing officer considers a return filedu/s 206(2) to be defective, then he may intimate the defect to thedeductor/employer filing the return, giving him an opportunity torectify the defect. This must be rectified within a period of 15 daysfrom the date of intimation or within such further period which theassessing officer allows, on an application made by the employer/deductor. However, on failure to rectify the defect within the periodspecified above, the return shall be treated to be invalid and theprovisions of the Act shall apply as if the person had failed to deliverthe return.

As per proviso to section 206(2) , w.e.f. 1.4.2005,theprescribed person in the case of every office of the governmentand the principal officer in the case of every company,responsible for deducting tax , is mandatorily required to deliversuch returns on the computer readable media, after the end ofeach financial year and within the prescribed time.

The scheme of electronic filing of return of the Tax Deductedat Source (e-TDS) has been notified vide notification no. S.O.974(e)dt. 26.08.03. Now the Government and the Corporatedeductors are required to file the annual TDS return in electronicform only with the e-TDS intermediary at any of the TIN FacilitationCentres (par ticulars available at the websites,www.incometaxindia.gov.in and http://www.tin-nsdl.com

Vide Notification No.238/2007, dated 30.08.2007 of CBDTthe scope of mandatory filing of e-TDS returns has been expanded.This notification comes into force w.e.f. 1.9.2007. Hence it isapplicable from the second quarter of the F.Y. 2007-08 and for allsubsequent quarters. As per this notification the following classesof deductors are required to furnish quarterly statements in computerreadable media(e-tds) where the deductor is;

(a) An office of the Government

(b) A company

(c) A person required to get its accounts audited u/s. 44AB in theimmediately preceding financial year.

(d) Where the number of deductees records in quarterly statementfor any quarter during the immediately preceding financial yearis equal to or more than fifty.

8.5 Quarterly statement of TDS

The provisions of quarterly statements of TDS have beenintroduced in the statute vide section 200(3) w.e.f. 01/04/2005. Everyperson responsible for deducting tax is required to file quarterlystatements of TDS for the quarters ending on 30th June, 30th

September, 31st December and 31st March in each Financial Year.This statement is to be prepared in Form No.26 Q for TDS otherthan salaries,Form No.27 EQ ( for Tax collection at source) and24Q( for salaries) (relevant rule 31A and 31AA) and is to be deliveredwith prescribed income-tax authority or the person authorized bysuch authority on or before the 15th July, the 15th October and the15th January in respect of the first 3 quarters of the Financial Yearand on or before the 15th June following the last quarter of the FinancialYear. However the statement of last quarter in form 27EQ is to befurnished by 30th April.

With respect to the quarterly statements of TDS, thefollowing points are noteworthy : -

Every deductor is required to file the quarterly statement ofTDS in prescribed form for each quarter as per the datesspecified above.

In case of every Government and Corporate deductor, thequarterly statements are to be delivered on computer readablemedia (3.5”, 1.44 MB floppy diskette or CD-Rom of 650 MBcapacity). The statement in computer readable media is to beprepared as per data structure provided by the e-filingAdministrator(DGIT Systems) designated by the Board forpurposes of e-TDS Scheme : 2003. Further, a declaration in

34 35

Form 27A or 27B is also to be submitted in paper format. Thisscheme has been extended to apply to categories of entities/persons mentioned earlier at para 8.4.

A person other than a corporate or government deductor orthat specified in para 8.4 may at his option deliver the quarterlystatements in computer readable media as specified above.However, it is not mandatory for him to do so.

The quarterly statements are to be furnished in accordancewith the provisions of rule 31A and rule 31AA.

The persons referred to in Rule 37A (who are making paymentto a non-resident or a foreign company) are required to filequarterly statements in accordance with provisions of rule 37Aand rule 37B.

It is mandatory for the deductor to quote TAN and PAN in thequarterly statements. However, where the deduction has beenmade by or on behalf of the Government, PAN shall not berequired to be quoted in the quarterly statement.

In the quarterly statements, the deductor is also required toquote the Permanent Account Number (PAN) of all persons inrespect of whom Income-tax has been deducted. However,PAN of those persons is not required to be quoted who arespecified under second proviso to sub section (5B) to section139A. These persons include those who are not required toobtain PAN under any provisions of this Act or those whosetotal income is not chargeable to Income-tax.

The deductor is also required to furnish the particulars of taxpaid to the Central Government in the quarterly statements.

Quarterly statement of collection of tax under sub-section( 3) of section 206C

Every person, being a person responsible for collecting taxunder section 206C shall, in accordance with the proviso tosub-section(3) of Section 206C, deliver or cause to be deliveredto [the Director General of Income-tax(Systems) or the person

authorized by the Director General of Income-tax(Systems)],quarterly statement in Form No. 27EQ on or before the 15th

July, the 15th October, the 15th January in respect of the firstthree quarters of the financial year and on or before the 30th

April following the last quarter of the financial year :

The person responsible for collecting tax at source on behalfof Government and the principal officer in the case of everycompany responsible for collecting tax at source shall deliveror cause to be delivered such quarterly statements oncomputer media(3.5” 1.44 MB floppy diskette or CD-ROM of650 MB capacity):

It is pertinent to note that for quarter ending 30.9.2007 andthereafter form No. 26Q and 27Q with less than 70% of correct PANdata will not be accepted and penal consequences under the I.T.Act will follow(circular No. 8/2007 dt. 15/12/2007). This limit has beenfurther increased to 85%(from 70%) for and from quarter ending31.3.2008.

A person other than a person referred to in the first proviso,responsible for collecting tax at source, may at his option,deliver or cause to be delivered the quarterly statements oncomputer media(3.5” 1.44 MB floppy diskette or CD-ROM of650 MB capacity).

The person responsible for collecting tax at source andpreparing quarterly statements shall, -

(i) quote his tax deduction and collection accountnumber(TAN) and permanent account number(PAN) inthe quarterly statement.

(ii) provided that the permanent account number shall notbe required to be quoted where tax has been collectedby or on behalf of the Government ;

(iii) furnish particulars of the tax paid to the CentralGovernment;

The person responsible for collecting tax at source and

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preparing quarterly statements on computer media shall, inaddition to the provisions in sub-rule(2), - prepare the quarterlystatement as per the data structure provided by the e-filingadministrator designated by the Board for the purposes ofadministration of Electronic Filing of Returns of Tax collectedat Source Scheme, 2005 supported by a declaration in FormNo. 27A in paper format; Provided that in case any compressionsoftware has been used for preparing the quarterly statementon computer media, such compression software shall befurnished on the same computer media.

Chapter - 9

RIGHTS OF TAX-PAYER

If tax has been deducted at source in accordance with theprovisions of Chapter XVII-B of Income Tax Act, 1961, the personfrom whose income (payment) the tax has been deducted i.e. Payeeor assessee shall not be asked upon to pay the tax himself to theextent tax has been deducted(Sec.205). Moreover u/s.199 such taxdeducted at source shall be treated as payment of tax on behalf ofthe payee (assessee).

U/s. 203, payee (tax-payer) is entitled to obtain a certificatefrom the payer (tax deductor) specifying the amount of taxdeducted and other prescribed particulars. As per the subsection 203(3) , where the tax has been deducted or paid on orafter the 1st day of April, 2010 there shall be no requirement tofurnish a TDS Certificate as required by section 203 (1) or 203(2).

Further, as per section 203AA the prescribed income taxauthority or the person authorized by such authority (asreferred in section 200(3))will be required to deliver to theperson from whose income the tax has been deducted/paid, astatement of deduction of tax in the prescribed form. Suchstatement as per rule 31AB will be required to be furnished inForm no.26AS by the 31st July following the financial yearduring which the taxes were deducted/paid ( also referNotification no. 928 E dt. 30.6.2005 of CBDT )

Form 16A: This form is certificate of deduction of tax under section193 from “Interest on securities”, under section 194from “Dividends”, under section 194A from “Interest

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other than interest on securities”, under section 194Bfrom “Winnings from lotteries or crossword puzzles”,under section 194BB from “Winnings from horseraces”, under section 194C from “Payments to anycontractor or sub-contractor”, under section 194D from“Insurance commission”, under section 194E from“Payments to non-resident sportsmen or sportsassociations”, under section 194EE from “Paymentsin respect of deposits under the National SavingsScheme, etc.”, under section 194F from “Payments onaccount of repurchase of units by Mutual Fund or UnitTrust of India”, under section 194G from “Commission,etc., on sale of lottery tickets”, under section 194H from“Commission or brokerage”, under section 194-I from“Rent”, under section 194J from “Fees for professionalor technical services”, under section 194K from“Income in respect of units” and under section 194LAfrom “Payment of compensation on acquisition ofcertain immovable property” etc.

Chapter - 10

PENALTY, PROSECUTION ANDOTHER CONSEQUENCES OF NON

DEDUCTION AT SOURCE

10.1 Prosecution etc. : U/s. 276B If a person deducts tax atsource etc. but fails to pay the same to the credit of CentralGovernment as prescribed, he can be sentenced to rigorousimprisonment for a term not less than 3 months and extendableupon 7 years with fine as well. Moreover, u/s 276BB, similarpunishment is provided for a person who fails to pay to thecredit of Central Government taxes collected at source u/s. 206Cbeing a seller of alcoholic liquor for human consumption, Tenduleaves, timber merchant, dealer in forest produce and dealer inscrap etc.

If a person fails to collect tax, he shall be liable to pay the taxto the Central Government account and also required to pay simpleinterest @ 1% per month from the date of such amount of tax wascollectable to the date on which the tax was actually paid. Moreover,the tax and interest thereon shall be a charge upon the assets ofthe seller.

Rule 37E prescribes return regarding tax collected at source.Like T.D.S, the tax collected at source will also be deemed aspayment on behalf of the person (assessee) from whom the amounthas been collected and certificate will be given by the person (seller)who has collected the tax at source to the assessee (buyer) fromwhom the tax has been collected at source within one month fromand of the month during which buyer’s account is debited or paymentis received by him.

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A person collecting any amount under this provision is requiredto pay the same within 7 days from the last day of the month to thecredit of Central Government after the same has been collectedfrom the buyer.

10.2 Penalty on Default : In case a person fails to deduct taxat source or after deducting fails to pay the tax to the CentralGovernment account as prescribed by the Income-tax Act, he maybe deemed to be an assessee in default in respect of this tax. Incase of a Company, the Principal Officer shall also be treated to bean assessee in default.

10.3 Penalty : U/s. 221 of the Income-tax Act in suchcircumstances can be levied on such defaulter. Of course beforelevying any such penalty the defaulter will be given a reasonableopportunity of being heard and no penalty shall be charged, if suchperson/Principal Officer/Company satisfies the Assessing Officerthat the failure to deduct the tax, or pay the same, was not withoutgood and sufficient reason.

The penalty leviable shall not exceed the amount of tax inarrears i.e. Tax which was deductible at source as per prescribedrate of tax so deducted but not paid to the credit of CentralGovernment Account.

If a person responsible for making TDS fails to deduct eitherwhole or part of the tax required to be deducted under sections 192to 195, or fails to furnish appropriate returns of TDS within prescribedtime or fails to issue the TDS certificate to the person from whoseincome TDS is made within prescribed time, he will be liable to thefollowing penalties :

10.4 Section Nature of Minimum Maximum Default Penalty Penalty

271C Failure to deduct or Amount of tax which *pay the whole or any such person haspart of tax as required failed to deduct orby or under chapter pay.XVIIB or section 115-Oor section 194B.

272A(2)(C) Failure to furnish Rs.100/- for every (the amount ofappropriate return of day during which penalty shallTDS within default continues. not exceed theprescribed time. amount of tax

Deductible orcollectibleat source )

272A(2)(g) Failure to issue the -do- -do-TDS certificate to theperson from whoseincome TDS is madewithin prescribed time.

272A(2)(K) Failure to deliver the -do- -do-statement u/s 200(3)or the proviso tosub-section 3 of section206C within prescribedtime (quarterly statement of tax collection anddeduction)

272A(2)(L) Failure to deliver the -do- -do-statement u/s 206A(i)within prescribedtime. (quarterly return inrespect of payment ofinterest to residents withoutdeduction of tax )

10.5 U/s. 203A, every person making TDS shall obtain TaxDeduction Account No. (TAN) from his/her Assessing Officer bymaking an application in duplicate in Form No.49B within one monthfrom the end of the month in which the tax is first deducted. Failureto comply with this provision entails penalty u/s. 272 BB of Rs.10,000.

In addition to the penalty, the failure to deduct the tax or failureto pay the same after deduction also invites payment of simpleinterest @ 12% per annum on the amount of such tax from the dateit was deductible to the date on which it is actually paid (Sec.201(A)).

The tax which has not been paid after it has been deducted,alongwith the amount of simple interest thereon shall be a chargeupon all the assets of the person/company who has failed to deduct

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or failed to pay the same to the credit of Central Government afterdeduction.

It has also been clarified that in addition to deduction at sourcethe power to recover the taxes extends to any other mode of recoveryprovided under the Act. It means deduction at source is only one ofthe several modes of collection and recovery of taxes (Section 202).

Other consequences of non deduction

10.6 Interest on borrowed capital : In computing BusinessIncome any expenditure laid out exclusively and wholly for thepurposes of business or profession is allowed as a deduction againstthe profit and gain from business or profession. This may coverRoyalties, technical fees or other sums.

Moreover, U/s.36(1)(iii) specific provision is made to allowdeduction in computing the income, of the amount of interest paidin respect of capital borrowed for purposes of business or profession.This also includes recurring subscription paid periodically byshareholders or subscriber in Mutual benefit Societies.

10.7 Disallowance of deduction : But if such interest,royalty, technical fees or other sums are payable outside India andthe assessee has failed to deduct tax on it under Chapter XVII-B,the assessee shall not be allowed to deduct such payment whilecomputing his own income. However if such tax is deducted andpaid in any subsequent year then, in that year while computing hisincome the assessee can claim deduction.

Further as per Sec.40(a)(i), any interest, royalty, commissionor brokerage, fees for professional service or fees for technicalservices payable to a resident, or amounts payable to a contractoror sub-contractor, being resident for carrying out any work (includingsupply of labour for carrying out any work), on which tax is deductibleat source and such tax has not been deducted or, after deduction,has not been paid during the previous year, or in the subsequentyear before the expiry of the time prescribed under sub-section (1)of Section 200, shall not be allowed to deduct such payment whilecomputing his own income.

Provided that where in respect of any such sum, tax has beendeducted in any subsequent year or, has been deducted in theprevious year but paid in any subsequent year after the expiry ofthe time prescribed under sub-section (1) of Section 200, such sumshall be allowed as a deduction in computing the income of theprevious year in which such tax has been paid.

Similarly for computing income under the Head “ other sources”u/s.56 and 57 - interest and salaries payable outside India shall bedisallowed if tax at source has not been deducted(Sec.58(1)(a)(ii)(iii)). It may also be clarified that income of a non-resident by way of interest on notified securities or bonds includingpremium on redemption of bonds is not taxable. Same applies tointerest income on Non-resident (External) account in any bank inIndia.

10.8 The Finance Act, 2008 has introduced an amendment inSection 201(w.e.f. 1.6.2002) which clarifies that, in case any employeror a principal officer of a company

(a) does not deduct,

(b) or does not pay

(c) or after so deducting fails to pay the whole or any part of thetax, then such person shall be deemed to be an assessee indefault. Further penalty to be charged u/s. 221 shall not belevied by the assessing officer unless he is satisfied that suchfailure to deduct and pay tax was without good and sufficientreasons.

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Chapter - 11

e-TDS & QUARTERLY STATEMENTSOF TDS

11.1 Introduction

e-TDS implies, filing of the TDS return in electronic media asper prescribed data structure in either a floppy or a CD ROM.

The aforesaid requirement is essentially a part of the processof automation of collection, compilation and processing of TDSreturns. Preparation of returns in electronic forms or e-TDS willeventually be beneficial to the deductor, by cutting down the returnpreparation time, reducing the volume of documentation and therebyeconomizing the compliance cost. At the same time, it will alsofacilitate the Government in better co-relation of taxes deductedwith the taxes finally deposited in the banks and credits of TDSclaimed by the deductees.

11.2 Statutory Requirement of Preparation of e-TDS

As per proviso to section 206(2), w.e.f. 01/04/2005, a deductoris required to prepare the return of TDS in electronic form. Thecomprehensive scheme of e-TDS has been notified vide NotificationNo. S.O. 974 (E) dated 26/08/2003. The present statutory provisionsmandate the Government and Corporate deductors to file the TDSreturns in electronic form with the designated e-TDS Intermediaryat any of the TIN facilitation centres. However, for the other deductorsfiling of e-TDS is optional.

11.3 e-Administrator, e-Intermediary, TIN FacilitationCentres

For the purpose of administering the scheme of e-TDS, theCentral Board of Direct Taxes has appointed Director-General ofIncome-tax (Systems) as the e-Filing Administrator. The e-TDSreturn is mandatorily to be prepared in data format issued by the e-Administrator.

The e-Returns are to be submitted at Centres referred as TINFacilitation Centres (or TIN FCs) which have been opened byNational Security Depository Ltd. (NSDL) which has also beendesignated as e-Intermediary.

11.4 Data Structure of e-TDS, Procedure for filing

The e-TDS return has to be prepared in the data format issuedby the e-Filing Administrator. This format/software is available onthe website of the Income-tax Depar tment at http:\\www.incometaxindia.gov.in and that of NSDL at http:\\ www.tin-nsdl.com

There is also a validation software which is available alongwith the data structure. This is required to be used to validate thedata structure of the e-TDS return prepared. Each e-TDS returnfiled should also be accompanied by a control chart which shouldbe in the newly prescribed form 27A or 27B (for tax collection atsource) . The same has to be duly signed by the deductor andsubmitted alongwith e-TDS to the e-Intermediary. The followingspecific points must also be noted in filing of e-TDS returns.

(a) Reformatted TAN : All deductors required to e-File TDSreturns have to quote their reformatted Tax DeductionAccount Number (TAN) in their respective TDS returns.Wherever, reformatted TANs have not been allotted,application in form 49B should be filed with NSDL forobtaining the same.

(b) Each e-TDS return file should be in a separate CD orfloppy and should not span across multiple floppies.

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Further, label must be affixed on each CD/floppymentioning the name of the deductor, his stamp, formnumber and the period to which the return pertains.

(c) There should not be any overwriting, striking on form 27A or 27 B and if there is, then the same should be ratifiedby the authorized signatory. Further if any of the controlledtotals mentioned in form No. 27A or 27B) (control chart)does not match with that in the e-TDS return, then suchreturns will not be accepted at the TIN FacilitationCentres.

(d) While filing form no. 24Q and 26Q, deductor shouldfurnish physical copies of certificates of no deduction ordeduction at a lower rate of TDS, if any, received fromthe deductees.

(e) No bank challan, copy of TDS certificate should befurnished alongwith e-TDS return filed.

The e-TDS prepared by the deductor has to be submitted atthe TIN Facilitation Centres opened by NSDL which is the e-TDSIntermediary. The addresses of the TIN Facilitation Centres areavailable at websites of Income-tax Depar tment http:\\www.incometaxindia.gov.in and of NSDL at http:\\ www.tin-nsdl.com.It is also to be noted that quarterly TDS returns are also to be filedin Electronic file with e-TDS Intermediary.

11.5 Checklist for Deductor

After preparing the e-TDS return deductor should check thefollowing to ensure that the e-TDS return is complete and is readyfor furnishing to TIN-FC :

e-TDS return is in conformity with the file format notifiedby ITD.

Each e-TDS return (Form 24Q and 26Q) is furnished ina separate CD/floppy alongwith duly filled and signedForm 27A in physical form.

Separate Form 27A or 27 B in physical form is furnishedfor each e-TDS return.

Form 27A or 27 B duly filled and signed by an authorizedsignatory.

Striking and overwriting, if any, on Form 27A or 27Bratified by the person who has signed the Form .

More than one e-TDS return is not furnished in one CD/floppy.

More than one CD/floppy is not used for furnishing onee-TDS return.

Label is affixed on CD/floppy containing details ofdeductor/collector like name of deductor/collector, TAN,Form no. and period to which return pertains.

e-TDS return is compressed using Winzip 8.1 or ZipItFast3.0 compression (or higher version) utility only.

TAN quoted in e-TDS return and stated on Form 27A or27 B (for tax collection at source) is same. Confirm newTAN by using search facility on ITD website .

Carry copy of TAN allotment letter from ITD or screenprint from ITD website as proof of TAN to avoidinconvenience at time of furnishing due to minor variationin way of transcribing the new TAN in e-TDS return.

In case of Government deductors if TAN is not availableat the time of furnishing return, application for TAN (Form49B) should be made along with e-TDS return or copy ofacknowledgement of TAN application to be submitted.

Control totals, TAN and name mentioned in e-TDS returnmatch with those mentioned on Form 27A or 27 B.

In case of Form 24Q and 26Q, copies of certificates ofno deduction of TDS and deduction of TDS atconcessional rate, received from deductees are attached.

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e-TDS return has been successfully passed through theFVU.

CD/floppy furnished is virus free.

11.6 Quarterly Statements of TDS :

The provisions of quarterly statements of TDS have beenintroduced in the statute vide section 200(3) w.e.f. 01/04/2005. Everyperson responsible for deducting tax is required to file quarterlystatements of TDS for the quarter ending on 30th June, 30th

September, 31st December, and 31st March in each Financial Year.This statement is to be prepared in Form No.26 Q (for TDS otherthan salaries),Form No.27 EQ ( for Tax collection at source) and24Q( for salaries), 27Q(for payments other than salary to non-residents) (relevant rule 31A and 31AA) and is to be delivered withprescribed income-tax authority or the person authorized by suchauthority on or before the 15th July, the 15th October and the 15th

January in respect of the first 3 quarters of the Financial Year andon or before the 15th June following the last quarter of the FinancialYear. However the statement of last quarter in Form 27EQ is to befurnished by 30th April.

With respect to the quarterly statements of TDS, the followingpoints are noteworthy : -

Every deductor is required to file the quarterly statement ofTDS in form specified above for each quarter and as per thedates specified above.

In case of every Government and Corporate deductor, thequarterly statements are to be delivered on computer readablemedia (3.5”, 1.44 MB floppy diskette or CD-Rom of 650 MBcapacity). The statement in computer readable media is to beprepared as per data structure provided by the e-filingAdministrator(DGIT Systems) designated by the Board forpurposes of e-TDS Scheme : 2003. Further, a declaration inForm 27A or 27B is also to be submitted in paper format.

A person other than a Corporate or Government deductor mayat his option deliver the quarterly statements in computer

readable media as specified above. However, it is not mandatoryfor him to do so. The scheme has been extended to certainother deductors vide notification 238/2007 dt. 30.8.2007 ofCBDT(as discussed at para 8.4 of this booklet).

The quarterly statements are to be furnished in accordancewith the provisions of rule 31A and rule 31AA.

It is mandatory for the deductor to quote TAN and PAN in thequarterly statements. However, where the deduction has beenmade by or on behalf of the Government, PAN shall not berequired to be quoted in the quarterly statement.

In the quarterly statements, the deductor is also required toquote the Permanent Account Number (PAN) of all persons inrespect of whom Income-tax has been deducted. However,PAN of those persons is not required to be quoted who arespecified under second proviso to sub section 5B to section139A. These persons include those who are not required toobtain PAN under any provisions of this Act or those whosetotal income is not chargeable to Income-tax.

The deductor is also required to furnish the particulars of taxpaid to the Central Government in the quarterly statements.

11.7 Frequently Asked Questions

1. What is e-TDS Return?

e-TDS return is a TDS return prepared in form No.24Q, 26Q, 27EQor 27Q in electronic media as per prescribed data structure in eithera floppy or a CD ROM. The floppy or CD ROM prepared should beaccompanied by a signed verification in Form No.27A or 27B.

2. Who is required to file e-TDS return?

As per Section 206 of Income Tax Act all corporate and governmentdeductors are compulsorily required to file their TDS return onelectronic media (i.e. e-TDS returns). However for other Deductors,filing of e-TDS return is optional.

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3. Under what provision the e-TDS return should be filed?

An e-TDS return should be filed under Section 206 of the IncomeTax Act in accordance with the scheme dated 26.8.03 for electronicfiling of TDS return notified by the CBDT for this purpose. CBDTCircular No.8 dated 19.9.03 may also be referred.

4. What are the forms to be used for filing annual/quarterly TDS/TCS returns?

Following are the returns for TDS and TCS and their periodicity:

Form No. Particulars Periodicity

Form 24 Annual return of “Salaries” under AnnualSection 206 of Income Tax Act, 1961

Form 26 Annual return of deduction of tax under Annualsection 206 of Income Tax Act, 1961 inrespect of all payments other than“Salaries”

Form 24Q Quarterly statement for tax deducted Quarterlyat source from “Salaries”

Form 26Q Quarterly statement of tax deducted at Quarterlysource in respect of all payments otherthan “Salaries”

Form 27EQ Quarterly statement of tax collection Quarterlyat source

Form 27Q Quarterly statement of deduction of Quarterlytax from interest, dividend or any othersum (other than salary) payable to non-residents

Form 27 A Forms for furnishing information Quarterlyand 27B with the statement of deduction /

collection of tax at source filed oncomputer media

11.8 Who is the e-Filing Administrator?

The CBDT has appointed the Director General of Income-

tax(Systems) as e- Filing Administrator for the purpose of theElectronic Filing of Returns of Tax Deducted at Source Scheme,2003.

11.9 Who is an e-TDS Intermediary?

CBDT has appointed National Securities Depository Ltd.,Mumbai as e-TDS Intermediary.

11.10 How will the e-TDS returns be prepared?

e-TDS return has to be prepared in the data format issued bye-Filing Administrator. This is available on the websites of Income-tax Department at i.e. http://www.incometaxindia.gov.in and of NSDLat http://www.tin-nsdl.com/. There is a validation software availablealong with the data structure which should be used to validate thedata structure of the e-TDS return prepared. The e-TDS return shouldhave following features:

Each e-TDS return file (Form 24, 26 or 27Q or 27EQ) shouldbe in a separate CD/floppy.

Each e-TDS return file should be accompanied by a duly filledand signed (by an authorised signatory) Form 27A/27B inphysical form.

Each e-TDS return file should be in one CD/floppy. It shouldnot span across multiple floppies.

In case the size of an e-TDS return file exceeds the capacityof one floppy, it should be furnished on a CD.

In case the e-TDS return file is in a compressed form, it shouldbe compressed using Winzip 8.1 or ZipItFast 3.0 compressionutility only to ensure quick and smooth acceptance of the file

Label should not be affixed on each CD/floppy mentioningname of the deductor, his TAN, Form no. (24, 26 ) and periodto which the return pertains.

There should not be any overwriting / striking on Form 27A/

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27B. If there is any, then the same should be ratified by anauthorised signatory.

No bank challan, copy of TDS certificate should be furnishedalongwith e-TDS return file.

In case of Form 26 a deductor need not furnish physical copiesof certificates of no deduction or lower deduction of TDSreceived from deductees.

In case of Form 24 deductor should furnish physical copies ofcertificates of ‘no deduction or deduction of TDS at lower rate’,if any, received from deductees.

e-TDS return file should contain TAN of the deductor withoutwhich the return will not be accepted.

CD/floppy should be virus free.

In case any of these requirements are not met the e-TDS returnwill not be accepted at TIN- FCs.

11.11 Can more than one e-TDS return of the sameDeductor be prepared in one CD/floppy?

No, separate CD/floppy should be used for each return.

11.12 Where can the e-TDS return be filed?

e-TDS returns can be filed at any of the TIN-FC opened by thee-TDS Intermediary for this purpose. Addresses of these TIN-FCsare available at the website on http://www.incometaxindia.gov.in orat www.tin-nsdl.com

11.13 What are the basic details that should beincluded in the e-TDS return?

Following information must be included in the e-TDS returnfor successful acceptance. If any of these essential details is missing,the returns will not be accepted at the TIN - Facilitation Centres -

Correct Tax deduction Account Number (TAN) of the Deductoris clearly mentioned in Form No.27A/27B as also in the e-TDS return, as required by sub-section (2) of section 203A ofthe Income-tax Act.

The particulars relating to deposit of tax deducted at source inthe bank are correctly and properly filled in the table at itemNo.6 of Form No.24 or item No.4 of Form No.26, as the casemay be.

The data structure of the e-TDS return is as per the structureprescribed by the e-Filing Administrator.

The Control Chart in Form 27A/27B is duly filled in all columnsand verified and is enclosed in paper form with the e-TDSreturn on computer media.

The Control totals of the amount paid and the tax deducted atsource as mentioned at item No.4 of Form No.27A tally withthe corresponding totals in the e-TDS return in Form No. 24 orForm No. 26 or Form No.27, as the case may be.

11.14 What happens if any of the control totalsmentioned in Form 27A does not match with that inthe e-TDS return?

In such a case the e-TDS return will not be accepted at theTIN Facilitation Centre.

11.15 What happens in a situation where a deductordoes not have TAN or has a TAN in old format?

The Deductor will have to file an application in Form 49B atthe TIN Facilitation Centre along with application fee (Rs. 50/-) forTAN.

11.16 Whether any charges are to be paid to the e-TDS Intermediary?

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The assessee is to pay following charges as upload chargesat the time of filing of e-TDS return to M/s NSDL.

Category of e-TDS return

Upload charges

Returns having up to 100 deductees records

Rs.25/-

Returns having 101 to 1000 deductees records

Rs. 150/-

Returns having more than 1000 deductees records

Rs.500/-

Tax as applicable will also be paid by the deductor.

11.17 How to find address of the office where e-TDS return can be filed?

Addresses of the TIN FCs are available onwww.incometaxindia.gov.in or at www.tin-nsdl.com..

11.18 What are the due dates for filing quarterly TDSReturns?

The due dates for filing quarterly TDS returns, both electronicand paper are as under:

Quarter Due date Due date for 27Q

April to June July 15 14 July

July to September October 15 14 October

October to December January 15 14 January

January to March June 15 14 June

11.19 E-TDS returns have been made mandatoryfor Government deductors. How do I know whetherI am a Government deductor or not?

All Drawing and Disbursing Officers of Central and StateGovernments come under the category of Government deductors.

11.20 Whether the particulars of the whole year orof the relevant quarter are to be filled in AnnexuresI and II of Form 24Q?

In Annexure I, only the actual figures for the relevant quarterare to be reported.

In Annexure II, estimated/actual particulars for the wholefinancial year are to be given. However, Annexure II is optionalin the return for the 1st, 2nd and 3rd quarters but in the quarterlystatement for the last quarter, it is mandatory to furnishAnnexure II giving actual particulars for the whole financialyear.

11.21 In Form 24Q, should the particulars of eventhose employees be given whose income is belowthe threshold limit or in whose case, the income aftergiving deductions for savings etc. is below thethreshold limit?

Particulars of only those employees are to be reported fromthe 1st quarter onwards in Form 24Q in whose case theestimated income for the whole year is above the thresholdlimit.

In case the estimated income for the whole year of an employeeafter allowing deduction for various savings like PPF, GPF,NSC etc. comes below the taxable limit, his particulars neednot be included in Form 24Q.

In case due to some reason estimated annual income of an

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employee exceeds the exemption limit during the course ofthe year, tax should be deducted in that quarter and hisparticulars reported in Form 24Q from that quarter onwards.

11.22 How are the particulars of those employeeswho are with the employer for a part of the year tobe shown in Form 24Q?

Where an employee has worked with a deductor for part ofthe financial year only, the deductor should deduct tax at sourcefrom his salary and report the same in the quarterly Form24Q of the respective quarter(s) up to the date of employmentwith him. Further, while submitting Form 24Q for the lastquarter, the deductor should include particulars of thatemployee in Annexures II & III irrespective of the fact that theemployee was not under his employment on the last day ofthe year.

Similarly, where an employee joins employment with asdeductor during the course of the financial year, his TDSparticulars should be reported by the current deductor in Form24Q of the relevant quarter. Further, while submitting Form24Q for the last quarter, the deductor should include particularsof TDS of such employee for the actual period of employmentunder him in Annexures II .

11.23 Form 24Q shows a column which requiresexplanation for lower deduction of tax. How can aDDO assess it? Please clarify.

Certificate for lower deduction or no deduction of tax fromsalary is given by the Assessing Officer on the basis of an applicationmade by the deductee. In cases where the Assessing Officer hasissued such a certificate to an employee, deductor has to onlymention whether no tax has been deducted or tax has been deductedat lower rate on the basis of such a certificate.

11.24 Can I file Form 26Q separately for contractors,professionals, interest etc.?

No, A single Form 26Q with separate annexures for each type ofpayment has to be filed for all payments made to residents.

11.25 From which financial year will the AnnualStatement under Sec. 203AA (Form No.26AS) beissued?

The annual statement (Form No 26AS) will be issued for alltax deducted and tax collected at source from F.Y 2008-09 onwardsafter the expiry of the financial year.

11.26 How will the PAN wise ledger account becreated by the intermediary i.e. NSDL in respect ofpayment of TDS made by deductors in Banks.

The PAN wise ledger account will be created after matchingthe information in the TDS/TCS returns filed by the deductor/ collectorand the details of tax deposited in banks coming through OLTAS.

11.27 What essential information will be required tobe given in the quarterly statement to enableaccurate generation of PAN wise ledger account?

The accuracy of PAN wise ledger account will depend on:-

Correct quoting of TAN by the deductor.

Correct quoting of PAN of deductor

Correct and complete quoting of PAN of deductee.

Correct quoting of CIN ( challan identification number) whereverpayment is made by challan.

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11.28 Will a deductee be able to view his ledgeraccount on TIN website?

Yes.

11.29 If a deductee finds discrepancy in his PANledger account, what is the mechanism available forcorrection?

The details regarding the help required for filing of e-TDS areavailable on the following two websites:

http://www.incometaxindia.gov.in/

http://www.tin-nsdl.com/

The TIN Facilitation Centers of the NSDL at over 270 citiesare also available for all related help in the e-filing of the TDS returns.

11.30 Whether the e-TDS can be filed online?

Yes, e-TDS return can be filed online under digital signature.

11.31 Will the Paper TDS data be available onlineon TIN database?

Yes, the Paper TDS data will also be available in TIN databaseafter the digitalization of the Paper TDS return by the e-intermediary.

11.32 I do not know the Bank branch code of thebranch in which I deposited tax. Can I leave this fieldblank?

Bank Branch code or BSR code is a 7 digit code allotted tobanks by RBI. This is different from the branch code which is usedfor bank drafts etc. This no. is given in the OLTAS challan or can beobtained from the bank branch or from http://www.tin-nsdl.com/. Itis mandatory to quote BST code both in challan details and deducteedetails. Hence, this field cannot be left blank. Government deductors

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transfer tax by book entry, in which case the BSR code can be leftblank.

11.33 What should I mention in the field “paid bybook entry or otherwise” in deduction details?

If payment to the parties (on which TDS has been deducted)has been made actually i.e. by cash, cheque, demand draft or anyother acceptable mode, then “otherwise” has to be mentioned in thespecified field. But if payment has not been actually made and merelya provision has been made on the last date of the accounting year,then the option “Paid by Book Entry” has to be selected.

11.34 What is the “Upload File” in the new FileValidation Utility?

Earlier the “Input file” of the File Validation Utility (FVU) had tobe filed with TIN FC. Now “Upload File” which has some additionalinformation such as the version no. of FVU has to be filed with TINFC. This is a file which is generated by the FVU after the return /fileprepared by the Return Preparation Utility (RPU) is validated usingthe FYU.

11.35 By whom should the control chart Form 27Abe signed?

Form 27A is the summary of the TDS return. It has to be signed bythe same person who is authorized to sign the TDS return in paperformat.

11.36 What are the Control Totals appearing in theError / response File generated by validating the textfile through File Validation Utility (FVU) of NSDL?

The Control Totals in Error response File are generated onlywhen a valid file is generated. Otherwise, the file shows the kind oferrors. The control totals are as under:

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No. of deductee/party records: In case of Form 24, it is equalto the number of employees for which TDS return is beingprepared. In case of Form 26/ 27, it is equal to the total numberof records of tax deduction. 10 payments to 1 party wouldmean 10 deductee records.

Amount Paid: This is the Total Amount of all payments madeon which tax was deducted. In case of Form 24, it is equal tothe Total Taxable Income of all the employees. In case of Form26/27, Amount Paid is equal to the total of all the amounts onwhich tax has been deducted at source.

Tax Deducted: This is the Total Amount of Tax actually Deductedat source for all payments.

Tax deposited: This is the total of all the deposit challans. Thisis normally the same as Tax Deducted but at times may bedifferent due to interest or other amount.

11.37 Are the control totals appearing in Form 27Asame as that of Error/ response File?

Yes, the control totals in Form 27A and in Error/ response Fileare same.

11.38 What if e-TDS return does not contain PANsof all deductees?

In case PANs of some of the deductees are not mentioned inthe e-TDS return, the Provisional Receipt will mention the count ofmissing PANs in the e-TDS return. The details of missing PANs(extent it can be collected from the deductees) may be furnishedwithin seven days of the date of Provisional Receipt to TIN- FC. e-TDS return will be accepted even with missing PANs. However, ifPAN of deductees is not given in the TDS return, tax deducted frompayment made to him cannot be posted to the statement of TDS tobe issued to him u/s. 203AA.

11.39 Is the bank challan number compulsory?

Yes. Challan identification number is necessary for all nongovernment deductors.

11.40 Will the quarterly paper returns be acceptedby the Income tax department?

No, All quarterly paper TDS/TCS returns will be received atTIN-FCs

11.41 Is PAN mandatory for deductor andemployees/ deductees ?

PAN of the deductors has to be given by non governmentdeductors. It is essential to quote PAN of all deductees failing whichcredit of tax deducted will not be given.