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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

A PROJECT REPORT ON

A STUDY ON COMPUTATION OF TOTAL INCOME AND TAX


THEREON UNDER THE INCOME TAX ACT, 1961.

IN THE SUBJECT OF

ADVANCE TAXATION

SUBMITTED BY

NAME: KOMAL JAWAGE


ROLL NO. : 23

MCOM PART II IN ADVANCED ACCOUNTANCY


(SEM III)

UNDER THE GUIDENCE OF


PROF. VAIBHAV SINGAVI

TO

UNIVERSITY OF MUMBAI ACADEMIC YEAR 2016-17

K.G.COLLEGE OF ARTS & N.G. BEDEKAR, COLLEGE OF


COMMERCE

A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

DECLARATION BY THE STUDENT

I, student of M.Com. (Part -II) Roll No. : 23 hereby declare that the
project title A STUDY ON COMPUTATION OF TOTAL
INCOME AND TAX THEREON UNDER THE INCOME TAX
ACT, 1961.. for the subject of ADVANCE TAXATION submitted by
me for Semester - III of the academic year 2016-17, is based on actual
work carried out by me under the guidance and supervision of PROF.
VAIBHAV SINGAVI. I further state that this work is original and not
submitted anywhere else for any examination.

Place: Thane
Date:

komal jawage
Roll No. : 23

A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

ACKNOWLEDGEMENT

It is indeed a great pleasure and proud privilege to present this project


work.

I take this opportunity to express my gratitude and acknowledge to all the


individuals involved both directly and indirectly for their valuable help
and guidance.
This project has been an attempt to give information about the A
STUDY ON COMPUTATION OF TOTAL INCOME AND TAX
THEREON UNDER THE INCOME TAX ACT, 1961.. I expressed
my deep since of gratitude to founder and president of Vidya Prasarak
Mandal. I express my heartful thanks to our honorable Principal for her
constant support and motivation.

I express special thanks to my guide Prof. VAIBHAV SINGAVI under


whose guidance the project conceived, planned and executed.

I would

also like to thank the college library and its staff for patiently listening
and guiding me. I would like to thank my family also.

Thank You.

A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

INDEX

Chapter

Sub-chapter

Content

Page No.

1.1

Introduction

1.2

Definition of tax

1.3

Advantages & Disadvantages of Direct & Indirect

Tax

1.4

Types of Tax

10

2.1

Heads of Income

15

2.2

Format of Computation of total income

21

2.3

Deduction under Sec.80 from gross total income

22

3.1

Residential Status

25

3.2

Residential Status Section 6

26

3.3

Residential Status & scope of total income

27

3.4

Important points to be borne in mind while

30

determining the Residential Status of an individual

3.5

Sources of income

33

3.6

Illustration of Residential Status

35

4.1

Any one of Head of Income- House Property

36

4.2

Objectives

38

4.3

Property income exempt from tax

43

4.4

Computation of income from Let Out House

44

Property

4.5

Deduction under Sec.24

47

4.6

Some Special Provisions

50

4.7

Illustration of Total Income & Tax Liability

51

5.1

Advance Tax Liability

55

5.2

Which ITR form is applicable to you?

58

6.1

Bibliography

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

Chapter no:-1
1.1. Introduction
Taxation, system of raising money to finance government. All governments require
payments of money taxes from people. Governments use tax revenues to pay soldiers and
police, to build dams and roads, to operate schools and hospitals, to provide food to the poor
and medical care to the elderly, and for hundreds of other purposes. Without taxes to fund its
activities, government could not exist.
Throughout history, people have debated the amount and kinds of taxes that a
government should impose, as well as how it should distribute the burden of those taxes
across society. Unpopular taxes have caused public protests, riots, and even revolutions. In
political campaigns, candidates views on taxation may partly determine their popularity with
voters.
Taxation is the most important source of revenues for modern governments, typically
accounting for 90 percent or more of their income. The remainder of government revenue
comes from borrowing and from charging fees for services. Countries differ considerably in
the amount of taxes they collect. In the United States, about 30 percent of the gross domestic
product (GDP), a measure of economic output, went for tax payments in 2000. The 30
percent figure is relatively low from a historical standpoint.
As a result of a new round of tax cuts in 2003, the tax percentage share of GDP was
expected to be lower than at any time since 1959 when many major government programs,
such as Medicare and Medicaid, did not exist. In Canada about 35 percent of the countrys
gross domestic product goes for taxes. In France the figure is 45 percent, and in Sweden it is
51 percent.
In addition to using taxation to raise money, governments may raise or lower taxes to
achieve social and economic objectives, or to achieve political popularity with certain groups.
Taxation can redistribute a societys wealth by imposing a heavier tax burden on one group in
order to fund services for another. Also, some economists consider taxation an important tool
for maintaining the stability of a countrys economy.

A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

1.2 Definition of tax


A tax may be defined as a "pecuniary burden laid upon individuals or property
owners to support the government, a payment exacted by legislative authority. A tax "is not a
voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative
authority".
Taxes consist of direct tax or indirect tax, and may be paid in money or as its labour
equivalent (often but not always unpaid labour). India has a well developed taxation
structure. The tax system in India is mainly a three tier system which is based between the
Central, State Governments and the local government organizations. In most cases, these
local bodies include the local councils and the municipalities.
According to the Constitution of India, the government has the right to levy taxes on
individuals and organizations. However, the constitution states that no one has the right to
levy or charge taxes except the authority of law. Whatever tax is being charged has to be
backed by the law passed by the legislature or the parliament. Article 246 (SEVENTH
SCHEDULE) of the Indian Constitution, distributes legislative powers including taxation,
between the Parliament and the State Legislature.
Schedule VII enumerates these subject matters with the use of three lists;
List - I entailing the areas on which only the parliament is competent to makes laws,
List - II entailing the areas on which only the state legislature can make laws, and
List - III listing the areas on which both the Parliament and the State Legislature can make
laws upon concurrently.
Separate heads of taxation are provided under lists I and II of Seventh Schedule of
Indian Constitution. There is no head of taxation in the Concurrent List (Union and the States
have no concurrent power of taxation). Any tax levied by the government which is not
backed by law or is beyond the powers of the legislating authority may be struck down as
unconstitutional.

A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

The thirteen heads List-I of Seventh Schedule of Constitution of India covered under
Union taxation, on which Parliament enacts the taxation law, are as under:
Taxes on income other than agricultural income;
Duties of customs including export duties;
Duties of excise on tobacco and other goods manufactured or produced in India except
(i) alcoholic liquor for human consumption, and
(ii) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and
toilet preparations containing alcohol or any substance included in

Corporation Tax;
Taxes on capital value of assets, exclusive of agricultural land, of individuals and
companies, taxes on capital of companies;
Estate duty in respect of property other than agricultural land;
Duties in respect of succession to property other than agricultural land;
Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares
and freight;
Taxes other than stamp duties on transactions in stock exchanges and futures markets;
Taxes on the sale or purchase of newspapers and on advertisements published therein;
Taxes on sale or purchase of goods other than newspapers, where such sale or purchase
takes place in the course of inter-State trade or commerce;
Taxes on the consignment of goods in the course of inter-State trade or commerce, etc

A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

1.3.ADVANTAGES AND DISADVANTAGES OF DIRECT AND


INDIRECT TAX
Direct Tax
A direct tax is a tax paid by a person on whom it is legally imposed. In direct tax, the person
paying and bearing tax is the same. It is the tax on income and property. Examples of direct
taxes are:
* Income Tax
* Vehicle Tax
* Expenditure Tax
* property Tax
* Interest Tax
* Gift Tax etc.
Advantages Of Direct Tax
* Direct tax is equitable as it is imposed on person as per the property or income.
* Time, procedure and amount of tax paid to be paid is known with certainty.
* Direct tax is elastic. The government can change tax rate with the change in the level of
property or income.
Disadvantages Of Direct Tax
* Direct tax gives mental pinch to the taxpayers as they have to curtail their income to pay to
the government.
* Taxpayers feel inconvenience as the government impose tax progressively.
* Tendency to evade tax may increase to avoid tax burden.

A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

Indirect Tax
An indirect tax is a tax imposed on one person but partly or wholly paid by another. In
indirect tax, the person paying and bearing tax is different. It is the tax on consumption or
expenditures. Examples of indirect taxes are:
* VAT
*Entertainment Tax
* Excise Duty
* Sales Tax
* Hotel Tax
* Import And Export Duty etc.

Advantages Of Indirect Tax


* Indirect tax is convenient as the taxpayer does not have to pay a lump sum amount for tax.
* There is mass participation. Each and every person getting goods or services has to pay tax.
* There is a less chance of tax evasion as the taxpayers pay the tax collected from consumers.
* The government can check on the consumption of harmful goods by imposing higher taxes.
Disadvantages Of Indirect Tax

* Indirect tax is uncertain. As demand fluctuates, tax will also fluctuate


* It is regretful as the tax burden to the rich and poor is same.
* Indirect tax has bad effect on consumption, production and employment. Higher taxes will
reduce all of them.
* Most of the taxes are included in the price of goods or services. As result, taxpayers do not
know how much tax they are paying to the government.

A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

1.4 :Types of Tax


(A) Direct Taxes: A Direct tax is a kind of charge, which is imposed directly on the taxpayer and paid
directly to the government by the persons (juristic or natural) on whom it is imposed. A direct
tax is one that cannot be shifted by the taxpayer to someone else. The some important direct
taxes imposed in India are as under:

Income Tax:
Income Tax Act, 1961 imposes tax on the income of the individuals or Hindu
undivided families or firms or co-operative societies (other tan companies) and trusts
(identified as bodies of individuals associations of persons) or every artificial juridical
person. The inclusion of a particular income in the total incomes of a person for income-tax
in India is based on his residential status. There are three residential status, viz.,
(i) Resident & Ordinarily Residents (Residents)
(ii) Resident but not Ordinarily Residents and
(iii) Non Residents. There are several steps involved in determining the residential status of a
person. All residents are taxable for all their income, including income outside India. Non
residents are taxable only for the income received in India or Income accrued in India. Not
ordinarily residents are taxable in relation to income received in India or income accrued in
India and income from business or profession controlled from India.
Corporation Tax:
The companies and business organizations in India are taxed on the income from their
worldwide transactions under the provision of Income Tax Act, 1961. A corporation is
deemed to be resident in India if it is incorporated in India or if its control and management
is situated entirely in India. In case of non resident corporations, tax is levied on the income
which is earned from their business transactions in India or any other Indian sources
depending on bilateral agreement of that country.

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

Property Tax:
Property tax or 'house tax' is a local tax on buildings, along with appurtenant land, and
imposed on owners. The tax power is vested in the states and it is delegated by law to the
local bodies, specifying the valuation method, rate band, and collection procedures. The tax
base is the annual rateable value (ARV) or area-based rating. Owner-occupied and other
properties not producing rent are assessed on cost and then converted into ARV by applying a
percentage of cost, usually six percent. Vacant land is generally exempted from the
assessment. The properties lying under control of Central are exempted from the taxation.
Instead a 'service charge' is permissible under executive order. Properties of foreign missions
also enjoy tax exemption without an insistence for reciprocity.

Inheritance (Estate) Tax:


An inheritance tax (also known as an estate tax or death duty) is a tax which arises on
the death of an individual. It is a tax on the estate, or total value of the money and property,
of a person who has died. India enforced estate duty from 1953 to 1985. Estate Duty Act,
1953 came into existence W.E.F. 15th October, 1953. Estate Duty on agricultural land was
discontinued under the Estate Duty (Amendment) Act, 1984. The levy of Estate Duty in
respect of property (other than agricultural land) passing on death occurring on or after 16th
March, 1985, has also been abolished under the Estate Duty (Amendment) Act, 1985.

Gift Tax:
Gift tax in India is regulated by the Gift Tax Act which was constituted on 1st April,
1958. It came into effect in all parts of the country except Jammu and Kashmir. As per the
Gift Act 1958, all gifts in excess of Rs. 25,000, in the form of cash, draft, check or others,
received from one who doesn't have blood relations with the recipient, were taxable.
However, with effect from 1st October, 1998, gift tax got demolished and all the gifts made
on or after the date were free from tax. But in 2004, the act was again revived partially. A
new provision was introduced in the Income Tax Act 1961 under section 56 (2). According to
it, the gifts received by any individual or Hindu Undivided Family (HUF) in excess of Rs.
50,000 in a year would be taxable.

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

(B) Indirect Tax: An indirect tax is a tax collected by an intermediary (such as a retail store) from the
person who bears the ultimate economic burden of the tax (such as the customer). An indirect
tax is one that can be shifted by the taxpayer to someone else. An indirect tax may increase
the price of a good so that consumers are actually paying the tax by paying more for the
products. The some important indirect taxes imposed in India are as under:

Customs Duty:
The Customs Act was formulated in 1962 to prevent illegal imports and exports of
goods. Besides, all imports are sought to be subject to a duty with a view to affording
protection to indigenous industries as well as to keep the imports to the minimum in the
interests of securing the exchange rate of Indian currency. Duties of customs are levied on
goods imported or exported from India at the rate specified under the customs Tariff Act,
1975 as amended from time to time or any other law for the time being in force.

Central Excise Duty:


The Central Government levies excise duty under the Central Excise Act, 1944 and
the Central Excise Tariff Act, 1985. Central excise duty is tax which is charged on such
excisable goods that are manufactured in India and are meant for domestic consumption. The
term "excisable goods" means the goods which are specified in the First Schedule and the
Second Schedule to the Central Excise Tariff Act 1985. It is mandatory to pay Central Excise
duty payable on the goods manufactured, unless exempted eg; duty is not payable on the
goods exported out of India. Further various other exemptions are also notified by the
Government from the payment of duty by the manufacturers.

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

Service Tax:
The service providers in India except those in the state of Jammu and Kashmir are

required to pay a Service Tax under the provisions of the Finance Act of 1994. The
provisions related to Service Tax came into effect on 1st July, 1994. Under Section 67 of this
Act, the Service Tax is levied on the gross or aggregate amount charged by the service
provider on the receiver. However, in terms of Rule 6 of Service Tax Rules, 1994, the tax is
permitted to be paid on the value received.

Sales Tax:
Sales Tax in India is a form of tax that is imposed by the Government on the sale or
purchase of a particular commodity within the country. Sales Tax is imposed under both,
Central Government (Central Sales Tax) and State Government (Sales Tax) Legislation.
Generally, each State follows its own Sales Tax Act and levies tax at various rates. Apart
from sales tax, certain States also imposes additional charges like works contracts tax,
turnover tax and purchaser tax. Thus, Sales Tax Acts as a major revenue-generator for the
various State Governments. From 10th April, 2005, most of the States in India have
supplemented sales tax with a new Value Added Tax (VAT).

Value Added Tax (VAT):


The practice of VAT executed by State Governments is applied on each stage of sale,
with a particular apparatus of credit for the input VAT paid. VAT in India classified under
the tax slabs are 0% for essential commodities, 1% on gold ingots and expensive stones, 4%
on industrial inputs, capital merchandise and commodities of mass consumption, and 12.5%
on other items. Variable rates (State-dependent) are applicable for petroleum products,
tobacco, liquor, etc. VAT levy will be administered by the Value Added Tax Act and the
rules made there-under and similar to a sales tax. It is a tax on the estimated market value
added to a product or material at each stage of its manufacture or distribution, ultimately
passed on to the consumer. Under the current single-point system of tax levy, the
manufacturer or importer of goods into a State is liable to sales tax. There is no sales tax on
the further distribution channel. VAT, in simple terms, is a multi-point levy on each of the
entities in the supply chain. The value addition in the hands of each of the entities is subject
to tax. VAT can be computed by using any of the three methods:
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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

(a) Subtraction method: The tax rate is applied to the difference between the value of output
and the cost of input.
(b) The Addition method: The value added is computed by adding all the payments that is
payable to the factors of production (viz., wages, salaries, interest payments etc).
(c) Tax credit method: This entails set-off of the tax paid on inputs from tax collected on
sales.

Securities Transaction Tax (STT):


STT is a tax being levied on all transactions done on the stock exchanges. STT is
applicable on purchase or sale of equity shares, derivatives, equity oriented funds and equity
oriented Mutual Funds. Current STT on purchase or sell of an equity share is 0.075%. A
person becomes investor after payment of STT at the time of selling securities (shares).
Selling the shares after 12 months comes under long term capital gains and one need not have
to pay any tax on that gain. In the case of selling the shares before 12 months, one has to pay
short term capital gains @10% flat on the gain. However, for a trader, all his gains will be
treated as trading (Business) and he has to pay tax as per tax sables. In this case the
transaction tax paid by him can be claimed back/adjusted in tax to be paid.

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

Chapter no:- 2
2.1 Heads Of Income
Heads of income: Salary
What is Salary:Income under heads of salary is defined as remuneration received by an individual for
services rendered by him to undertake a contract whether it is expressed or implied.
According to Income Tax Act there are following conditions where all such remuneration are
chargeable to income tax:

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

When paid or allowed in the previous year, by or on behalf of a former employer or


present employer, though not due or before it becomes due.

When arrears of salary is paid in the previous year by or on behalf of a former


employer or present employer, if not charged to tax in the period to which it relates.

What Income Comes Under Head of Salary :Under section 17 of the Income Tax Act, 1961 there are following incomes which comes
under head of salary:
Salary (including advance salary), Wages, Fees, Commissions, Pensions, Annuity, Perquisite,
Gratuity, Annual Bonus, Income From Provident Fund, Leave Encashment, Allowance,
Awards.

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

Heads of Income: House Property


What Is Heads of House Property
According to Chapter 4, Section 22 - 27 of Income Tax Act, 1961 there is a provision of
income under head of house property . In every section from 22-27 there are detail
specification of house property income. It is defined as income earned by a person through
his house or land.

What Income Comes Under Head of House Property:


Annual value of building or land owned by assesses. There is a charge on the potential of
property to generate income not on the rent received. But if property is used for making profit
in business then it will be taxable not under this head but will be taxable under head of profit
in business/ profession.

How to calculate annual value of property:


According to annual value, house property is calculated as

Annual value of a house is zero if property is in the occupation of the owner for his
residence for the whole year & if no other benefit is availed by owner from his
property. There will be no deductions as given under section 24 except deduction
interest on borrowed capital.

If the owner lets out the house or a part thereof for any period of time during the
previous year the annual value of the property or part has to be calculated for the
whole year and the proportionate annual value of the period for which the house or
any part thereof was in the occupation of the owner for his own residence shall be
deducted from the gross annual value. The assessee in such cases cannot claim
deduction under section 24 in excess of the annual value so determined.

The assessee occupies more than one house for his residence, the above exemption is
applicable only to one such house at the option of the assessee. The annual value of
the other house or houses shall be computed as if the house or houses are let.

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

Heads of Income: Profit in Business/ Profession


According to Income Tax Act, 1961 income under this head is defined as the income
earned by assessee as a profit or gain in his business or profession. Income under this head
must follow these conditions:

There must be a business/ profession

Business/ profession is being carried by assessee

Business/ profession have been carried out by assessee in assessment year for which
income tax is filling

What Income Comes Under Head of Profit in Business

Profits and gains of assessee from any business or profession during assessment year

Any payment or compensation due or received by a person for his services to


organization as a part of his business

Making profit in trade Income of professional or organization against services


provided by that professional/ organization

Profits on sale of a license granted under the Imports (Control) Order, 1955, (EXIM
control Act, 1947)

Cash received or due by any person against exports under government schemes

Any benefit whether it is not in cash coming from business/ profession

Any profit, salary, bonus or commission received by company partners

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

Heads of Income: Capital Gains


What is Capital Gain:
According to Income Tax Act,1961 heads of capital gain is defined as gains derived on
transfer of capital asset. Capital Gain is the profit or gain of an assessee coming from the
transfer of a capital asset effected during the previous year or assessment year. "Capital
Asset" and transfer are predefined in income tax act.

What is Capital Asset:


Under section 2(14) of the Income Tax Act,1961 Capital Asset is defined as property of any
kind held by assesse including property held for his business or profession. It includes all
type real property as well as all rights in property. It is also defined as gains on transfer of
assets in which there in no cost of acquisition like:
1.Goodwill of business generated by assessee
2.Tenacy rights
3.Stage carriage permits
4.Loom hours
5.Right to manufacture
6.Processing & production of any article or things

Assets Which Don't Come Under Heads of Capital Assets


According to Income Tax Act,1961 there are few assets which don't form a part of Capital
Assets, which are as follows:

(A) Stock of goods and raw materials used by assessee for his business or profession Those
property which are movable like wearing apparel, furniture, automobile, phone, household
goods etc. Held by assessee. But Jewellery which is also an movable assets comes under
heads of Capital Assets

(B)Agricultural property in India. But agriculture land coming under municipal limits (in area
having population more than 10,000) comes under Capital Assets. Agriculture lands within 8

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

Km from municipal limit also comes under Capital Assets if it is notified by the central
government of India

(C)Agricultural property in India. But agriculture land coming under municipal limits (in area
having population ore than 10,000) comes under Capital Assets. Agriculture lands within 8
Km from municipal limit also comes under Capital Assets if it is notified by the central
government of India

(D)Few Gold Bonds issued by government

(E)Few special bonds issued by central government like Special Bearer Bonds, 1991

Transfer of Capital Assets


Under Section 2(47) of The Income Tax Act,1961 transfer of capital assets is defined as:
Sale, exchange and relinquishment of assets
Extinguishment of any rights in capital assets
Acquisition of capital assets or rights
Conversion of capital asset by its owner as stock in trade of his business, it may also be a
term of transfer
Transfer of immovable property under Section 53A of Transfer of Property Act, 1882
Any transaction by which an assessee become enable to act as a member of cooperative
society.

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

Heads of Income: Other Sources


Every type of income comes under a specified heads. But there are few incomes, which don't
come under any of following heads:

Salary

House Property

Profit In Business/ Profession

Capital Gains

So under Section 56(2) of Income Tax Act,1962 all such income comes in this heads of
income. There are following incomes which are taxed under this heads

Income coming as a dividend paid by a company to an assessee

Income coming from winning in lottery, crossword puzzles, races, card games,
gambling or other such sports

Income coming as an amount received by assessee from his employer as a fund for
welfare of employee

Income as an interest on securities

Income coming by letting on hire machinery, plant, furniture, building or other goods
Income coming from insurance policy

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

2.2:Format of Computation Of Total Income

TOTAL INCOME:
The total income of an assessee is computed by deducting from the gross total income
all permissible deductions available under the Chapter VI A of the Income Tax Act,
1961. This is also referred to as the Net Income or Taxable Income.
Particulars
a) Income from Salaries

AMT

Basic Salary

xx

Taxable Allowances

xx

Taxable Value of Perquisites

xx

Gross Salary
Less : Entertainment Allowance

(xx)

Professional Tax
b)

AMT

Xx
xx

Xx

Income From House Property

Gross Annual Value

xx

Less: Municipal Taxes paid


Annual Value

(xx)
xx

Less: Deduction u/s 24

(xx)

Xx

Net Profit as per P/L A/c


Add: Amount shown as expenses but not allowed

xxx
xx

Xxx

Less: Expenses allowed but not claimed.

(xx )

Add: Incomes not shown in the P/L A/c but taxable

xxx

Less: Incomes shown in the P/L A/c but not taxable

(xx)

c)

Profits and Gains of Business or Profession

d) Capital Gains
Sale Consideration

xxx

Less: Expenses on transfer

(xx)

Net Sale Consideration

xxx

Less: Cost of acquisition/improve.

(xx)

Capital Gains
Less: Exemptions (if any)

Xxx

Xxx
(xx)
Xxx

e)

Income From Other Sources

xx

Gross Total Income


Less: Deduction u/s 80CCC to 80U
Total Income

Xxx
(xx)
Xxx

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

2.3 :Deduction Under Section 80


From Gross Total Income

Section 80C
Under section 80C, a deduction of Rs 1,50,000 can be claimed from your total
income. In simple terms, you can reduce up to Rs 1,50,000 from your total taxable
income through section 80C. This deduction is allowed to an Individual or a HUF.
A maximum of Rs 1,50,000 can be claimed for financial year 2014-15. The limit for
financial year 2015-16 and financial year 2016-17 is also Rs 1,50,000.

Section 80CCC: Deduction for Premium Paid for Annuity Plan of LIC or Other
Insurer
This section provides deduction to an Individual for any amount paid or
deposited in any annuity plan of LIC or any other insurer. The plan must be for
receiving pension from a fund referred to in Section 10(23AAB).
If the annuity is surrendered before the date of its maturity, the surrender value is
taxable in the year of receipt.

Section 80 TTA: Deduction from gross total income for Interest on Savings bank
account
A deduction of maximum Rs 10,000 can be claimed against interest income
from a savings bank account. Interest from savings bank account should be first
included in other income and deduction can be claimed of the total interest earned or
Rs 10,000, whichever is less. This deduction is allowed to an individual or HUF. And
it can be claimed for interest on deposits in savings account with a bank, co-operative
society or post office. Section 80TTA deduction is not available on interest income
from fixed deposits or recurring deposits or interest income from corporate bonds.

Section 80E: Deduction for Interest on Education Loan for Higher Studies
Deduction is allowed for interest on loan taken for pursuing higher education.
This loan may have been taken for the taxpayer, spouse or children or for a student for
whom the taxpayer is a legal guardian. The deduction is available for a maximum of 8

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years or till the interest is paid, whichever is earlier. There is no restriction on the
amount that can be claimed

Section 80EE: Deductions on Home Loan Interest for First Time Home Owners
For Financial Year 2013-14 and Financial Year 2014-15
This section provided deduction on the Home Loan Interest paid. The
deduction under this section is available only to Individuals for first house purchased
where the value of the house is Rs 40lakhs or less and loan taken for the house is Rs
25lakhs or less. And the Loan has been sanctioned between 01.04.2013 to 31.03.2014.
The aggregate deduction allowed under this section cannot exceed Rs 1,00,000 and is
allowed for financial years 2013-14 & 2014-15 (Assessment year 2014-15 and 201516).

Section 80D: Deduction for premium paid for Medical Insurance


For financial year 2014-15 - Deduction is available up to Rs. 15,000/- to a
taxpayer for insurance of self, spouse and dependent children. If individual or spouse
is more than 60 years old the deduction available is Rs 20,000. An additional
deduction for insurance of parents (father or mother or both) is available to the extent
of Rs. 15,000/- if less than 60 years old and Rs 20,000 if parents are more than 60
years old. Therefore, the maximum deduction available under this section is to the
extent of Rs. 40,000/-. (From AY 2013-14, within the existing limit a deduction of up
to Rs. 5,000 for preventive health check-up is available).
For financial year 2015-16 Deduction is raised from Rs 15,000 to Rs 25,000.
The deduction for senior citizens is raised from Rs 20,000 to Rs 30,000. For
uninsured super senior citizens (more than 80 years old) medical expenditure incurred
up to Rs 30,000 shall be allowed as a deduction under section 80D. However, total
deduction for health insurance premium and medical expenses for parents shall be
limited to Rs 30,000.

Section 80DD: Deduction for Rehabilitation of Handicapped Dependent Relative


Deduction is available on:
Expenditure incurred on medical treatment, (including nursing), training and
rehabilitation of handicapped dependent relative

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Payment or deposit to specified scheme for maintenance of dependent handicapped


relative.
Where disability is 40% or more but less than 80% - fixed deduction of Rs
50,000.Where there is severe disability (disability is 80% or more) fixed deduction
of Rs 1,00,000.A certificate of disability is required from prescribed medical
authority.
Note: A person with 'severe disability' means a person with 80% or more of one or
more disabilities as outlined in section 56(4) of the 'Persons with disabilities (Equal
opportunities, protection of rights and full participation)' Act.Certificate can be taken
from a Specialist as specified.
Patients receiving treatment in a government hospital have to take certificate
from any specialist working full-time in that hospital. Such specialist must have a
post-graduate degree in General or Internal Medicine or any equivalent degree, which
is recognised by the Medical Council of India.
Certificate in Form 10I is no longer required. The certificate must have - name
and age of the patient, name of the disease or ailment, name, address, registration
number and the qualification of the specialist issuing the prescription. If the patient is
receiving the treatment in a Government hospital, it should also have name and
address of the Government hospital.
For financial year 2015-16 The deduction limit of Rs 50,000 has been raised
to Rs 75,000 and Rs 1,00,000 has been raised to Rs 1,25,000.

Section 80U: Deduction for Person suffering from Physical Disability


Deduction of Rs. 50,000/- to an individual who suffers from a physical
disability (including blindness) or mental retardation. In case of severe disability,
deduction of Rs. 100,000 can be claimed. Certificate should be obtained from a Govt.
Doctor. The relevant rule is Rule 11D. This is a fixed deduction and not based on bills
or expenses.
For financial year 2015-16 The deduction limit of Rs 50,000 has been raised to Rs
75,000 and Rs 1,00,000 has been raised to Rs 1,25,000.

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

Chapter no:-3
3.1 RESIDENTIAL STATUS

Determination of residential status: The residential status of a person has to be

determined to ascertain which income is to be included in computing the total income.


The residential status as per the Income-tax Act are shown below

RESIDENTIAL STATUS UNDER INCOME TAX , 1961

RESIDENT

RESIDENT AND
ORDINIARILY
RESIDENT

NON-RESIDENT

RESIDENT BT NON
ORDINARILY
RESIDENT

In the case of an individual, the duration for which he is present in India determines his
residential status. Based on the time spent by him, he may be
(a) resident and ordinarily resident,
(b) resident but not ordinarily resident, or
(c) non-resident.
The residential status of a person determines the taxability of the income. E.g.,
income earned outside India will not be taxable in the hands of a non-resident but will be
taxable in case of a resident and ordinarily resident.

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3.2 Residential Status Section 6


The incidence of tax on any assessee depends upon his residential status under
the Act. Therefore, after determining whether a particular amount is capital or revenue
in nature, if the receipt is of a revenue nature and chargeable to tax, it has to be seen
whether the assessee is liable to tax in respect of that income. The taxability of a
particular receipt would thus depend upon not only on the nature of the income and the
place of its accrual or receipt but also upon the assessees residential status.
For all purposes of income-tax, taxpayers are classified into three broad categories on
the basis of their residential status. viz
(1) Resident and ordinarily resident
(2) Resident but not ordinarily resident
(3) Non-resident

The residential status of an assessee must be ascertained with reference to each previous
year. A person who is resident and ordinarily resident in one year may become nonresident or resident but not ordinarily resident in another year or vice versa. The
provisions for determining the residential status of assessees are:

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3.3 RESIDENTIAL STATUS & SCOPE OF TOTAL INCOME


In India, as in many other countries, the charge of income tax and the scope of taxable
income varies with the factor of residence. There are two categories of taxable entities viz.
(1) residents and
(2) non-residents. Residents are further classified into two sub-categories
(i) resident and ordinarily resident and
(ii) resident but not ordinarily resident. The law prescribes two alternative technical tests of
residence for individual taxpayers. Each of the two tests relate to the physical presence of the
taxpayer in India in the course of the previous year which would be the twelve months
from April 1 to March 31.
A person is said to be resident in India in any previous year if he
a. is in India in that year for an aggregate period of 182 days or more; or
b. having within the four years preceding that year been in India for a period of 365 days
or more, is in India in that year for an aggregate period of 60 days or more.
The above provisions are applicable to all individuals irrespective of their nationality.
However, as a special concession for Indian citizens and foreign citizens of Indian origin, the
period of 60 days referred to in Clause (b) above, will be extended to 182 days in two cases:
(i) where an Indian citizen leaves India in any year for employment outside India; and
(ii) where an Indian citizen or a foreign citizen of Indian origin (NRI), who is outside India,
comes on a visit to India.
In the above context, an individual visiting India several times during the relevant
previous year should note that judicial authorities in India have held that both the days of
entry and exit are counted while calculating the number of days stay in India, irrespective of
however short the time spent in India on those two days may be.
A non-resident is merely defined as a person who is not a resident i.e. one who
does not satisfy either of the two prescribed tests of residence.

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An individual, who is defined as Resident in a given financial year is said to be not


ordinarily resident in any previous year if he has been a non-resident in India 9 out of the 10
preceding previous years or he has during the 7 preceding previous years been in India for a
period of, or periods amounting in all to, 729 days or less.
Till 31st March 2003, not ordinarily resident was defined as a person who has not
been resident in India in 9 out of 10 preceding previous years or he has not during the 7
preceding previous years been in India for a period of, or periods amounting in all to, 730
days or more.
Section 6 of the Income-tax Act, 1961, prescribes the tests for determining the
residential status of a person. Section 6, as amended, reads as follows:
For the purposes of this Act,
1) An individual is said to be resident in India in any previous year, if he
a. is in India in that year for a period or periods amounting in all to one hundred and
eighty-two days or more; or
b. [* * *]
c. having within the four years preceding that year been in India for a period or periods
amounting in all to three hundred and sixty five days or more, is in India for a period
or periods amounting in all to sixty days or more in that year.
Explanation.- In the case of an individual,
(a) being a citizen of India, who leaves India in any previous year [as a member of the crew
of an Indian ship as defined in clause (18) of section 3 of the Merchant Shipping Act, 1958
(44 of 1958), or] for the purpose of employment outside India, the provisions of sub-clause
(b) shall apply in relation to that year as if for the words sixty days, occurring therein, the
words one hundred and eighty-two days had been substituted
(c) being a citizen of India, or a person of Indian origin within the meaning of Explanation to
clause

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(d) of section 115C, who, being outside India, comes on a visit to India in any previous year,
the provisions of sub-clause
(e) shall apply in relation to that year as if for the words sixty days, occurring therein, the
words one hundred and eighty-two days had been substituted.
(2) A Hindu undivided family, firm or other association of persons is said to be resident in
India in any previous year in every case except where during that year the control and
management of its affairs is situated wholly outside India.
(3) A company is said to be resident in India in any previous year, if
(a) it is an Indian company; or
(b) during that year, the control and management of its affairs is situated wholly in India.
(4) Every other person is said to be resident in India in any previous year in every case,
except where during that year the control and management of his affairs is situated wholly
outside India.
(5) If a person is resident in India in a previous year relevant to an assessment year in respect
of any source of income, he shall be deemed to be resident in India in the previous year
relevant to the assessment year in respect of each of his other sources of income.
(6) A person is said to be not ordinarily resident in India in any previous year if such
person is
(a) an individual who has not been a non-resident in India in nine out of the ten previous
years preceding that year, or has not during the seven previous years preceding that year been
in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days
or less; or
(b) a Hindu undivided family whose manager has not been non-resident in India in nine out
of the ten previous years preceding that year, or has not during the seven previous years
preceding that year been in India for a period of, or periods amounting in all to, seven
hundred and twenty-nine days or less.

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3.4 Important Points to be Borne in Mind while Determining the


Residential Status of an Individual
a. Residential status is always determined for the Previous Year because the assessee has
to determine the total income of the Previous Year only. In other words, as the tax is
on the income of a particular Previous Year, the enquiry and determination of the
residence qualification must confine to the facts obtaining in that Previous Year.
b. If a person is resident in India in a Previous Year in respect of any source of income,
he shall be deemed to be resident in India in the Previous Year relevant to the
Assessment Year in respect of each of his other sources of Income. [Section 6(5)]
c. Relevant Previous Year means, the Previous Year for which residential status is to be
determined
d. It is not necessary that the stay should be for a continuous period.
e. It is not necessary that the stay should be at one place in India.
f. Both the day of entry and the day of departure should be treated as the day of stay in
India [Petition No.7 of 1995 225 ITR 462 (AAR)]
g. Presence in territorial waters in India would also be regarded as stay in India.
h. A person is said to be of Indian Origin if he or either of his parents or any of his grand
parents was born in undivided India [Section 115C]
i. Offcial tours abroad in connection with employment in India shall not be regarded as
employment outside India.
j. A person may be resident of more than one country for any Previous Year.
k. Citizenship of a country and residential status of that country are two separate
concepts. A person may be an Indian national/Citizen but may not be a resident in
India and vice versa.
Points to be Considered by NRIs
Previous Year is period of 12 months from 1st April to 31st March. Number of days stay in
India is to be counted during this period.
Both the Day of Arrival into India and the Day of Departure from India are counted as the
days of stay in India (i.e. 2 days stay in India).

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Dates stamped on Passport are normally considered as proof of dates of departure from and
arrival in India.
It is advisable to keep several photocopies of the relevant passport pages for present and
future use.
Ensure that date stamped on the passport is legible.
Keep track of no. of days in India from year to year and check the same before making the
next trip to India. It is advisable to maintain a chart for the number of days stay in the current
and in the preceding seven (7) previous years.
In the 1st year of leaving India for employment outside India, ensure that you leave before
29th September. Otherwise total income of the financial year (including the foreign income)
will be taxable in India if it exceeds the basic exemption limit.
During the last year of stay abroad, on transfer of residence to India, ensure to come back
on or after Feb 1st (or Feb 2nd in case of a leap year). Since arrival before this date will result
in stay in India exceeding 59 days. However, a person whose stay in India in preceding four
(4) previous years does not exceed 365 days, he may return after September 30th of the
relevant year without loss of non-resident status.
Implications of Residential Status for NRIs/PIOs
The complexities of determining the residential status for individual NRI/PIO under various
statutes and regulations will be obvious from the provisions outlined above and in this
context it would be important to note the following:
1. The concepts and rules for determining the residential status income-tax laws and
FEMA are quite different and it would be possible to be a resident under one law and
non-resident under the other.
2. For exemption of income tax in respect of NRE and FCNR deposits investor should
be non-resident under FEMA.
3. The special tax rate concessions on income and long-term capital gains on specified
assets, purchased in convertible foreign exchange are available to nonresidents under
the Income-tax Act.
CHARGEABLE INCOME
Section 5 of the Income-tax Act lays down the scope of total income of any previous year of
any person. The section reads as follows:

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(1) Subject to the provisions of this Act, the total income of any previous year of a person
who is a resident includes all income from whatever source derived which(a) is received or is deemed to be received in India in such year by or on behalf of such
person ;or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year; or
(c) accrues or arises to him outside India during such year:
Provided that, in the case of a person not ordinarily resident in India within the meaning of
sub-section (6) of Section 6, the income which accrues or arises to him outside India shall not
be so included unless it is derived from a business controlled in or a profession set up in
India.
(2) Subject to the provisions of this Act, the total income of any previous year of a person
who is a non resident includes all income from whatever source derived which
(a) Is received or is deemed to be received in India in such year by or on behalf of such
person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year.

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3.5 Sources of income

Sources of Income
Indian Income

R& OR

Income received or
deemed to be received
in India during the Taxable in India
current financial year.
Income accruing or
arising or deemed to
accrue or arise in Taxable in India
India
during
the
current financial year
Income accruing or
arising or deemed to
accrue or arise out Taxable in India
side India, but first
receipt is in India
during the current
financial year
Foreign Income
Income accruing or
arising or deemed to
accrue or arise outside
India and recieved
outside India, during
the current financial Taxable in India
year.

Income accruing or
arising or outside
India from a Business/
profession controlled
in/from India during Taxable in India
the current financial
year.
Income accruing or
arising out side India
from any source other
than
Business
Profession controlled Taxable in India
from India

R & NOR

NR

Taxable in India

Taxable in India

Taxable in India

Taxable in India

Taxable in India

Taxable in India

Taxable in India

Not Taxable in India

Taxable in India

Not Taxable in India

Taxable in India

Not Taxable in India

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

In the above context, it may be noted that the receipt of income refers to the first occasion
when the recipient gets the money under his own control and it is the first receipt that
determines the year and place of receipt for the purposes of taxation. If the income is already
received outside India, no tax liability will arise when the whole or any part of such income is
remitted to India.
2. A resident and ordinarily resident pays tax in India on his entire world income, wherever
accrued or received.
3. A non-resident pays tax only on his taxable Indian income and his foreign income
(earned and received outside India) is totally exempt from Indian taxes.
4. A not ordinarily resident pays tax on taxable Indian income and on foreign income
derived from a business controlled in or a profession set up in India
5. An individual upon acquiring the status of not ordinarily resident would not pay tax, for
a period of two years, on the interest on :
a) the continued Foreign Currency Non-Resident (FCNR) account;
(b) the Resident Foreign Currency (RFC) account; and
(c) on income earned from foreign sources unless such income is directly received in India or
is earned from a business controlled in or a profession set up in India.

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3.6: Illustration of Residential Status


Mr.C a japanese citizen left India after a stay of 10 years on 01.06.2011 during the financial
year 2012 2013 he comes to India for 46 days. Later he returns to india for 1 year on
10.102013 determine his residential status for the year 2014-2015
Solution :During the previous year 2013-2014 mr. C was in India for 173 days (ie
22+30+31+31+28+31 days ) his stay in the last 4 years is.
2012-2013

46

2011-2012

62

2010-2011

365

(since he left India on 01-06-2011 after 10 years)

2009-2010

365

(since he left India on 01-06-2011 after 10 year)

Total Days

838

Mr.C is a resident since his stay in the privacy year 2013-2014 is 173 days and in the last 4
years is more than 365 days
For the purpose of being ordinarily resident it is evident from the above calculation that.
1) his stay in the last 7 years is more than 730 days
2) Since he was in India for 10 years poor to 01-06-2011 he was a resident in at least 2 out of
the last 10 years preceding the relevant previous year.
There fore, mr.c is a resident and ordinarily resident for the A.Y. 2014-2015

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

Chapter no:-4
4.1: ANY ONE HEAD OF INCOME
House property
INTRODUCTION
The process of computation of income under the head Income from house property
starts with the determination of annual value of the property. The concept of annual value and
the method of determination is laid down in section 23.
The annual value of any property comprising of building or land appurtenant thereto,
of which the assessee is the owner, is chargeable to tax under the head Income from house
property.
Conditions for Chargeability
(i)Property should consist of any building or land appurtenant thereto.

Buildings include not only residential buildings, but also factory buildings, offices,
shops, god owns and other commercial premises.

Land appurtenant means land connected with the building like garden, garage etc.

Income from letting out of vacant land is, however, taxable under the head Income
from other sources.

(ii) Assessee must be the owner of the property

Owner is the person who is entitled to receive income from the property in his own
right.

The requirement of registration of the sale deed is not warranted. (c) Ownership
includes both free-hold and lease-hold rights.

Ownership includes deemed ownership

The person who owns the building need not also be the owner of the land upon which
it stands.

The assessee must be the owner of the house property during the previous year. It is
not material whether he is the owner in the assessment year.

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If the title of the ownership of the property is under dispute in a court of law, the
decision as to who will be the owner chargeable to income-tax under section 22 will
be of the Income-tax Department till the court gives its decision to the suit filed in
respect of such property.

(iii) The property may be used for any purpose, but it should not be used by the owner for the
purpose of any business or profession carried on by him, the profit of which is chargeable to
tax.
(iv) Property held as stock-in-trade etc.: Annual value of house property will be charged
under the head Income from house property in the following cases also
Where it is held by the assessee as stock-in-trade of a business;
(b) Where the assessee is engaged in the business of letting out of property on rent;
Exceptions
(a) Letting out is supplementary to the main business

Where the property is let out with the object of carrying on the business of the
assessee in an efficient manner, then the rental income is taxable as business income,
provided letting is not the main business but it is supplementary to the main business.

In such a case, the letting out of the property is supplementary to the main business of
the assessee and deductions/allowances have to be calculated as relating to
profits/gains of business and not relating to house property.

(b) Letting out of building along with other facilities

Where income is derived from letting out of building along with other facilities like
furniture, the income cannot be said to be derived from mere ownership of house
property but also because of facilities and services rendered and hence assessable as
income from business.

Where a commercial property is let out along with machinery e.g. a cotton mill
including the building and the two lettings are inseparable, the income will either be
assessed as business income or as income from other sources, as the case may be.

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4.2: OBJECTIVES
After going through this lesson, you will be able to understand:
The meaning of house property
Who is treated as owner of house property
The treatment of rental income from properties under different circumstances
Determination of the annual value of a house property
The expenses deductible from rental/notional income from house property
Special treatment given to self-occupied house property
Treatment of income/loss from house property.

BASIS OF CHARGE (SECTION 22)


The annual value of a property, consisting of any buildings or lands appurtenant
thereto, of which the assessee is the owner, is chargeable to tax under the head
Income from house property. However, if a house property, or any portion there of,
is occupied by the assessee, for the purpose of any business or profession, carried on
by him, the profits of which are chargeable to income-tax, the value of such property
is not chargeable to tax under this head.
Thus, three conditions are to be satisfied for property income to be taxable underthis
head.
o The property should consist of buildings or lands appurtenant thereto.
o The assessee should be the owner of the property.
o The property should not be used by the owner for the purpose of any business
or profession carried on by him, the profits of which are chargeable to incometax.

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APPLICABILITY OF SECTION 22
Buildings or lands appurtenant there to The term building includes
residential houses, bungalows, office buildings ,warehouses, docks, factory buildings,
music halls, lecture halls, auditorium etc .The appurtenant lands in respect of a
residential building may be in the form of approach roads to and from public streets,
compounds, courtyards, backyards, playgrounds, kitchen garden, motor garage, stable
or coach home, cattle-shed etc, attached to and forming part of the building. In respect
of non-residential buildings, the appurtenant lands may be in the form of car-parking
spaces, roads connecting one department with another department, playgrounds for
the benefit of employees, etc.
All other types of properties are excluded from the scope of section 22. Rental
income from a vacant plot of land (not appurtenant to a building) is not chargeable to
tax under the head Income from house property, but is taxable either under the head
Profits and gains of business or profession or under the head Income from other
sources, as the case may be. However, if there is land appurtenant to a house
property, and it is let out along with the house property, the income arising from it is
taxable under this head.
Ownership of house property
It is only the owner (or deemed owner) of house property who is liable to tax
on income under this head. Owner may be an individual, firm, company, co-operative
society or association of persons. The property may be let out to a third party either
for residential purposes or for business purposes. Annual value of property is assessed
to tax in the hands of the owner even if he is not in receipt of the income. For tax
purposes, the assesse is required to be the owner in the previous year only. If the
ownership of the property changes in the relevant assessment year, it is immaterial as
the tax is to be paid on the income of the previous year.
Income from subletting is not taxable under section 22. For example, A owns
a house property. He lets it out to be B. B further lets it (or a portion of it) out to C.
Rental income of A is taxable under the head Income from house property.
However, since B is not the owner of the house, his income is not taxable as income
from house property, but as income from other sources under section 56.

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Deemed owner:
Section 27 of the Income Tax Act provides that, in certain circumstances, persons who are
not legal owners are to be treated as deemed owners of house property for the purpose of tax
liability under this head.
1. If an individual transfers a house property to his or her spouse (except in connection with
an agreement to live apart) or to a minor child (except a married daughter) without
adequate consideration, he is deemed as the owner of the property for tax purposes.
However, if an individual transfers cash to his or her spouse or minor child, and the
transferee acquires a house property out of the gifted amount, the transferor shall not be
treated as the deemed owner of the house property
2.

The holder of an Impartible Estate is deemed to be the owner of all the properties
comprised in the estate.

3. A member of a co-operative society, company or association of persons, to whom a


property (or a part thereof) is allotted or leased under a house- building scheme of the
society, company or association, is deemed to be the owner of such property.
4.

A person who has acquired a property under a power of attorney transaction, by


satisfying the conditions of section 53A of the Transfer of Property Act, that is under a
written agreement, the purchaser has paid the consideration or is ready to pay the
consideration and has taken the possession of the property, is the deemed owner of the
property, although he may not be the registered owner.

5.

A person who has acquired a right in a building (under clause (f) of section 269UA), by
way of a lease for a term of not less than 12 years (whether fixed originally or extended
through a provision in the agreement), is the deemed owner of the property. This
provision does not cover any right by way of a lease renewable from month to month or
for a period not exceeding one year.

Ownership must be of the superstructure. It is not necessary that the assessee is


also the owner of the land. Thus, when a person obtains a piece of land on leaseand
constructs a building on it, the income from such building will be taxed in hishands as
income from house property.

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

Property used for own business or profession


The owner of a house property is not liable to tax under this head if the
property isused by him for his own business or profession. But the business or profession
should be such whose income is chargeable to tax. Chargeability to tax does not mean
that the income is actually taxed. It is possible that in a particular year the profits are not
sufficient enough to attract tax liability. What it means is that the income from such
business or profession is not exempt from tax.
The reason for this exemption is that the notional rent of property is not allowable as a
permissible deduction while computing business income, if a person carries on the business
or profession in his own house property.

Composite rent
In some cases, the owner obtains rent of other assets (like furniture) or he charges
for different services provided in the building (for instance, charges for lift ,security, air
conditioning, etc.), apart from obtaining the rent of the building. The

amount so

recovered is known as composite rent. If the owner of a house property gets a composite
rent for the property as well as for services rendered to the tenants, composite rent is to
be split up and the sum which is attributable to the use of property is to be assessed in the
form of annual value under section 22.
The amount which relates to rendition of the services(such as electricity supply,
provisions of lifts, supply of water, watch and ward facilities, etc.) is charged to tax under
the head Profits and gains of business or profession or under the head Income from
other sources.

Rental income of a dealer in house property


If a person is engaged in the business of purchasing house properties with the
purpose of letting them on high rents and disposing off those properties which are not
profitable for this purpose, the rental income from such property will not be taxed as

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

business income. Any rent from house property, whether received by a dealer or a
landlord, is taxable under the head Income from house property. It will remain so even
if the property is held by the assessee as stock-in-trade of a business or if the assessee is a
company which is incorporated for the purpose of building houses and letting them on
rent.

Disputed ownership
If the title of ownership of a house property is disputed in a court of law, the decision
as to who is the owner rests with the Income-tax Department. Mere existence of
dispute as to title cannot hold up an assessment even if a suit has been filed. Generally
the recipient of rental income or the person who is in possession of the property is
treated as owner.

House property in a foreign country


A resident assessee is taxable under section 22 in respect of annual value of a property
in a foreign country. A resident but not ordinarily resident or a non-resident is,
however, chargeable under section 22 in respect of income of a house property
situated aboard, provided income is received in India during the previous year. If tax
incidence is attracted under section 22 in respect of a house property situated abroad,
its annual value will be computed as if the property is situated in India.

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

4.3: PROPERTY INCOMES EXEMPT FROM TAX


Some incomes from house property are exempt from tax. They are neither taxablenor
included in the total income of the assessee for the rate purposes. These are:
1. Income from a farm house [section 2(1A) (c) and section 10(1)].
2. Annual value of one palace in the occupation of an ex-ruler [section 10(19A)].
3. Property income of a local authority [section 10(20)].
4. Property income of an approved scientific research association [section 10(21)].
5. Property income of an educational institution and hospital [section 10(23C)].
6. Property income of a registered trade union [section 10(24)].
7. Income from property held for charitable purposes [section 11].
8. Property income of a political party [section 13A].
9. Income from property used for own business or profession [section 22].
10. Annual value of one self occupied property [section 23(2)].

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

4.4: COMPUTATION OF INCOME FROM LET OUT HOUSE

PROPERTY
Income from house property is determined as under:

Gross Annual Value

xxxxxxx

Less: Municipal Taxes

xxxxxxx

Net Annual Value

xxxxxxx

Less: Deductions under Section 24


- Statutory Deduction (30% of NAV)

xxxxxxx

- Interest on Borrowed Capital

xxxxxxx

Income From House Property

xxxxxxx

DETERMINATION OF ANNUAL VALUE


The basis of calculating Income from House property is the annual value. This is
the inherent capacity of the property to earn income and it has been defined as the amount
for which the property may reasonably be expected to be let out from year to year. It is not
necessary that the property should actually be let out. It is also not necessary that the
reasonable return from property should be equal to the actual rent realized when the property
is, in fact, let out. Where the actual rent received is more than the reasonable return, it has
been specifically provided that the actual rent will be the annual value. Where, however, the
actual rent is less than the reasonable rent (e.g., in case where the tenancy is affected by
fraud, emergency, close relationship or such other consideration), the latter will be theannual
value.
The municipal value of the property, the cost of construction, thestandard rent, if any,
under the Rent Control Act, the rent of similar properties inthe same locality, are all pointers
to the determination of annual value.

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

Gross Annual Value [Section 23(1)]


The following four factors have to be taken into consideration while determining the Gross
Annual Value of the property:
1. Rent payable by the tenant (actual rent)
2. The municipal value of the property
3. Fair rental value (market value of a similar property in the same area).
4. Standard rent payable under the rent control act.

Actual Rent:

It is the most important factor in determining the annual value of alet

out house property. It does not include rent for the period during which the property remains
vacant. Moreover, it does not include the rent that the tax payer is unable to realize, if certain
conditions are satisfied. Sometimes a tenant pays a composite rent for the property as well as
certain benefits provided by the landlord. Such composite rent is to be disintegrated and only
that part of it which is attributable to the letting out of the house property is to be considered
in the determination of the annual value.
Municipal Valuation:

Municipal or local authorities charge house tax on properties

situated in the urban areas. For this purpose, they have to determine the income earning
capacity of the property so as to calculate the amount of house tax to be paid by the owner of
the property. But this valuation cannot be treated as a conclusive evidence of the rental value
of the property, although such valuation is given due consideration by the Assessing Officer.

Fair Rental Value: It is the rent normally charged for similar house properties in the same
locality. Although two properties cannot be alike in every respect, the evidence provided by
transactions of other parties in the matter of other properties in the neighborhood, more or
less comparable to the property in question, is relevant in arriving at reasonable expected
rent.

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

Standard Rent:

Standard Rent is the maximum rent which a person can legally recover

from his tenant under a Rent Control Act. This rule is applicable even if attendant has lost his
right to apply for fixation of the standard rent. This means that if a property is covered under
the Rent Control Act, its reasonable expected rent cannot exceed the standard rent.

The Gross Annual Value is the municipal value, the actual rent (whether received or
receivable) or the fair rental value, whichever is highest. If,however, the Rent Control
Act applies to the property, the gross annual value cannot exceed the standard rent
under the Rent Control Act, or the actual rent, whichever is higher.

If the property is let out but remains vacant during any part or whole of the year end
due to such vacancy, the rent received is less than the reasonable expected rent, such lesser
amount shall be the Annual value.
For the purpose of determining the Annual value, the actual rent shall not include the
rent which cannot be realized by the owner. However, the following conditions need to be
satisfied for this:
(a) The tenancy is bona fide;
(b) The defaulting tenant has vacated, or steps have been taken to compel him tovacate the
property.
(c) The defaulting tenant is not in occupation of any other property of the assessee;
(d) The assessee has taken all reasonable steps to institute legal proceedings for the recovery
of the unpaid rent or satisfied the Assessing Officer that legal proceedings would be useless..

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4.5 : DEDUCTIONS UNDER SECTION 24


Two deductions will be allowed from the net annual value (which is gross annual value less
municipal taxes) to arrive at the taxable income under the head income from house
property. It has to be borne in mind that the deductions mentioned here (section 24) are
exhaustive and no other deductions are allowed. The deductions admissible are as under:

Statutory deduction: 30 per cent of the net annual value will be allowed as a
deduction towards repairs and collection of rent for the property, irrespective of the
actual expenditure incurred.

Interest on borrowed capital:


The interest on borrowed capital will be allowable as a deduction on an accrual basis
if the money has been borrowed to buy or construct the house. Amount of interest
payable for the relevant year should be calculated and claimed as deduction. It is
immaterial whether the interest has actually been paid during the year or not.
However, there should be a clear link between the borrowal and the
construction/purchase etc., of the property. If money is borrowed for some other
purpose, interest payable thereon cannot be claimed as deduction.

The following points are to be kept in mind while claiming deduction on account of
interest on borrowed capital:

1. In case the property is let out, the entire amount of interest accrued during the year is
deductible. The borrowals may be for construction/acquisition or repairs/renewals.
2. A fresh loan may be raised exclusively to repay the original loan taken for purchase/
construction etc., of the property. In such a case also, the interest on the fresh loan will be
allowable.
3. Interest payable on interest will not be allowed.
4. Brokerage or commission paid to arrange a loan for house construction will not be
allowed.
5. When interest is payable outside India, no deduction will be allowed unless tax is deducted
at source or someone in India is treated as agent of the non-resident.

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

Interest attributable to period prior to construction/acquisition

Money may be borrowed prior to the acquisition or construction of the property .In such a
case, the period commencing from the date of borrowing and ending on the date of repayment
of loan or on March 31 immediately preceding the date of acquisition or completion of
construction, whichever is earlier, is termed as the pre-construction period. The interest
paid/payable for the pre-construction periods to be aggregated and claimed as deduction in
five equal instalments during five successive financial years starting with the year in which
the acquisition or construction is completed. This deduction is not allowed if the loan is
utilizedfor repairs, renewal or reconstruction.
COMPUTATION OF INCOME FROMSELF OCCUPIED HOUSE PROPERTY
The annual value of one self-occupied house property, which has not been actually let out at
any time during the previous year, is taken as Nil [Section23(2) (a)]. From the annual value,
only the interest on borrowed capital is allowed as a deduction under section 24. The amount
of deduction will be:
Either the actual amount accrued or Rs.30,000/- whichever is less
When borrowal of money or acquisition of the property is after 31.3.1999 - deduction is
Rs.1, 50,000/- applicable to A.Y 2002-03 and on wards.
However, if the borrowal is for repairs, renewals or reconstruction, the deduction is restricted
to Rs.30, 000. If the borrowal is for construction/acquisition, higher deduction as noted above
is available.
If a person owns more than one house property, using all of them for self-occupation, he is
entitled to exercise an option in terms of which, the annual value of one house property as
specified by him will be taken at Nil. The other self occupied house property/is will be
deemed to be let out and their annual value will be determined on notional basis as if they had
been let out.

Annual Value of one house away from work place [Section 23(2) (b)]

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

A person may own a house property, for example, in Bangalore, which he normally uses for
his residence. He is transferred to Chennai, where he does not own any house property and
stays in a rental accommodation. In such a case, the house property in Bangalore cannot be
used for self-occupation and notional income, therefore, would normally have been
chargeable although he derives no benefit from the property. To save the tax payer from
hardship in such situations, it has been specifically provided that the annual value of such a
property would be taken to be nil subject to the following conditions:
The assessee must be the owner of only one house property.
He is not able to occupy the house property because of his employment, business etc., away
from the place where the property is situated.
The property should not have been actually let or any benefit is derived therefrom.
He has to reside at the place of employment in a building not belonging to him.

Annual Value of a house property which is partly self occupied and partlylet
out

If a house property consists of two or more independent residential units, one of which is self
occupied and the other unit(s) are let out, the income from the different units is to be
calculated separately. The income from the unit which itself occupied for residential
purposes is to be calculated as per the provisions of Section 23(2)(a) i.e. the annual value will
be taken as nil and only interest on borrowed capital will be deductible upto the maximum
limit of Rs. 1,50,000 or Rs. 30,000, as the case may be. The income from the let out unit(s)
will recalculated in the same manner as the income from any let out house property.
If a house property is self occupied for a part of the year and let out for the remaining part
of the year, the benefit of Section 23(2) (a) is not available and the income from the property
will be calculated as if it is let out.

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

4.6: SOME SPECIAL PROVISIONS


Tax-ability of Unrealized Rent recovered later (Section 25A)
Where any rent cannot be realized, and subsequently if such amount is realized,such
an amount will be deemed to be the income from house property of that year in which it is
received. We have seen earlier that the basic requirement for assessment of this income is the
ownership of the property. However, in the case where unrealized rent is subsequently
realized, it is not necessary that the assessee continues to be the owner of the property in the
year of receipt also.
Assessment of arrears of rent received (Section 25B)
When the owner of a property receives arrears of rent from such a property, the same
shall be deemed to be the income from house property in the year of receipt. 30% of the
receipt shall be allowed as deduction towards repairs ,collection charges etc. No other
deduction will be allowed. As in the case of unrealized rent, the assessee need not be the
owner of the property in the year of receipt.
House property owned by co-owners (section 26)If a house property is owned by two
or more persons, then such persons are known as co-owners. Co-owners are not taxable as an
association of persons. When the share of each co-owner is definite and ascertainable, it has
been provided that each of the owners will be assessed individually in respect of share of
income from the property. In other words, income from the property will be determined and
allocated to each co-owner according to his share. When each of the co-owners of a property
uses it for his residence, each of them will also get the concessional treatment in respect of
one self-occupied property.
Loss from house property
If the aggregate amount of permissible deductions exceeds the annual value of the
house property, there will be a loss from that property. So far as income from a self- occupied
property is concerned, and in respect of a property away from the work place, the annual
value is taken at nil and no other deductions are allowed except for interest on borrowed
capital up to a maximum of Rs.30,000 or Rs.1,50,000. In such cases, there may be a loss upto
a maximum of Rs.30, 000 of Rs.1, 50,000, as the case may be. However, in respect of a let
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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

out house property, there are no restrictions on deductions and therefore, there can be loss of
any amount under this head.
The loss from one house property can be set off against the income from another
house property. The remaining loss, if any, can be set off against incomes under any other
head like salary. In case the loss does not get wiped out completely, the balance will be
carried forward to the next assessment year to be set off against the income from house
property of that year. However, such carry forward is restricted to eight assessment years
only.
LET US SUM UP
Under section 22 of the Income Tax Act, the annual value of house property,
consisting of buildings and lands appurtenant thereto, is taxable under the head .Income
from house property, in the hands of the owner (or deemed owner) of the property, provided
that the property is not used by the assessee for the purpose of his own business or profession.
For determining the annual value of the house property, the actual rent received or
receivable from the property, the municipal valuation, the fair rental value and the standard
rent under the Rent Control Act are taken into account.
From the Gross Annual Value of the property, the Municipal Taxes are deducted to
arrive at the Net Annual Value. Section 24 of the Income Tax Act provides that30% of the
NAV and the interest on borrowed capital shall be deducted from the NAV to obtain the
taxable income from house property.
As per Section 23(2) of the Income Tax Act, the annual value of one self-occupied
house property is taken to be nil. No deductions are permissible from theannual value of such
property, except the interest on borrowed capital, subject tothe maximum limit of Rs.1,
50,000 or Rs.30, 000 as the case may be.
The above provisions may result in loss from house property, which may be set off
against income from another house property or against incomes under the other heads. The
balance loss may be carried forward, to be set off against the income from house property,
upto a maximum of eight assessment years

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

4.7 ILLESTRATION OF TOTAL INCOME & TAX LIABILITY


A,B,Care partners of mrs ABC& company sharing profit in the ratio 2:2:1 in a firm (PFAS
I.e partnership firm assessed as such ) whose particulars of income for the previous year
ending on 31st march 2015 are given below
1) rent from house property

25000

2) Interest on listed securities (net)

18000

3) Income from legal profession

2,52,500

4) Long term capital gain

30,000

Income from legal profession is before making the deduction for salary payable to A,Band C
at rs. 90,000 p.a each as per firms deed. Also has income from t.v programmers on legal
advice amounting to rs. 1,24,000 but other partner have no other income. A deposited rs.
24,000 in PPF during the financial year.
Compute the total income of the firm,total income of A and tax payable by firm and A for
assessment year 2015-2016

Solution:NAME OF ASSESSEE: M/S ABC $COMPANY


PREVIOUS YEAR :2014-2015

COMPUTATION OF TAXABLE INCOME


SR.no

Particular

(A)

INCOME FROM PROFESSION

less

amt

amt

Income
from
legal
profession
before
remuneration to working partners of the firm

2,52,500

Remuneration to working partners allowable u/s


40(b) (as per working note 1)

(2,27,250)

25,250
(B)

less

INCOME FROM HOUSE PROPERTY


rent

25,000

Statutory deduction u/s 24(30% x25,000)

(7,500)

17,500

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

(C)

INCOME FROM CAPITAL GAINS


Long term capital gain

(D)

30,000

INCOME FROM OTHER SOURCES


Interest on listed securities

18,000

(E)

GROSS TOTAL INCOME

90,750

(F)

Less: deduction under chapter VI-A

NIL

(G)

TAXABLE INCOME

90,750

COMPUTAION OF TAX LIABILITY OF THE FIRM


Sr no
1.
2.

ADD
ADD

particular
amt
Incomes taxable at normal rate of 60,750
tax(90,750-30,000)
Income taxable special rate of tax I.e long 30,000
term capital gain @20%
30% firm tax on noraml income (30% x
60,750)
20% tax on LTCG (20% X 30,000)
Education cess @ 3%
Total ta liability the firm

amt

18,225
6,000
24,225
727
24,952

Calculation of remunaration of working partners allowable under section 40(b)


Rs.

Upto 3,00,000

2,52,500

Allowability

Allowability

Rs.

90%

2,27,250

This remuneration of rs 2,27,250 in to be divided among the tree partners in the ratio of
remuneration as per partnership deed equality i.e rs.75,750 to each partner.

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

COMPUTATION OF TAXABLE INCOME OF PARTNER MR. A

SR.no

particular

1)

INCOME FROM BUSINESS

amount

amount

Income as partners of m/s ABC$ company


A
Interest on capital

nil

Remuneration (allowed for firm )

75,750

Share in taxable profit of firm (1,47,000x1/3)

49,000

Less:- exempt under section 10(2A)

(49,000)

NIL

57,000
B

INCOME FROM TV PROGRAMMES ON


LEGAL ADVICE

1,24,000

2)

GROSS TOTAL INCOME

1,99,750

3)

LESS:- deduction

(24,000)

4)

TAXABLE INCOME

1,75,000

(D) COMPUTATION OF TAX PAYABLE MR.A


Income tax on rs. 1,75,750( below rs. 2,50,000)

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

Chapter no:-5
5.1:Advance tax liability
What is Advance Tax?
As we all can guess from name, tax paid in advance is advance tax. It is part payment
of tax liability before the end of financial year. This is also called pay-as-you-earn-scheme.
We earn money at every financial year (Suppose 2015-16) and are liable to file income tax
return (ITR) in next year by the due date (Suppose end of July 2016). The provision of
income tax acts make it mandatory for every individual, salaried, self-employed,
businessman, or corporation to pay Advance tax on any income on which TDS is not paid.
Income tax act says that estimates the income you will going to earn in entire year at the
starting of financial year and then calculate your income tax liability in advance. If your total
tax liability exceeds Rs. 10,000, you are liable to pay advance tax.
Who should File Advance Tax?

If salaried employee has no other source of income other than salary, they need not have
to bother about advance taxes as TDS is deducted by the employer.

If salaried employee has other income (capital gain, interest on fixed deposits), they have
to pay advance tax.

Professional, businessman, companies, corporate etc have to pay advance tax.

Due Dates of Payment of Advance tax:- For better control and convenience of tax payer,
income tax department has set few due dates for payment of advance tax and what percent of
that tax will be paid by that date
For Company If Tax payer is company (as per companies act 2013)
S.No. Advance tax payment date

% of advance tax payable

1.

15th June

At least 15% of Tax on total income for the year.

2.

15th September

3.

15th December

At least 45% of Tax on total income for the year less advance
tax already paid.
At least 75% of Tax on total income for the year less advance
tax already paid.

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

4.

15th March

100% of Tax on total income for the year less advance tax

Suppose if Mr. X is running a company and his company is liable to pay advance tax
for financial year 2015-16. Mr. X will calculate companys tax liability for entire fiscal
yearbefore 15th June, 2015 and will pay advance tax in 4 instalments as mentioned in above
table.
Before paying each instalment, Mr. X will recalculate tax liability and if there is any
change in previous estimates, pay the next instalment of advance tax as per new estimates. he
will incorporate the changes before paying the next installment.
For Person other than Company (i.e. Individual, HUF, Partnership Firm etc.)
S.No. Advance tax payment date
1.

15th September

2.

15th December

3.

15th March

% of advance tax payable


At least 30% of Tax on total income for the year less
advance tax already paid.
At least 60% of Tax on total income for the year less
advance tax already paid.
100% of Tax on total income for the year less advance tax
already paid.

There are 3 installments for person other than company. Mr. X is liable to pay advance tax
for financial year 2015-16. His first installment of payment of advance tax will be
15thSeptember 2015.
Advance tax can be paid at bank branches authorized by Income Tax Department by filling
tax payment challan. Advance tax can also be paid online through National Securities
Depository Limited website.
If tax paid is higher than actual tax liability, the assessee will get excess amount as refund.
Income tax department will also pay interest of 6% per annum if excess amount is more than
10% of tax liability.

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Interest under section 234B is levied in following two cases:1. When the taxpayer has failed to pay though he is liable to pay advance tax
2. Where the advance tax paid by the taxpayer is less than 90% of the assessed tax.
Taxpayer shall have to pay simple interest of 1% every month or part of month. It will be
calculated from first day of assessment year i.e. from 1st April till the date of filing ITR.
Interest under section 234C is levied, if advance tax paid in any installment(s) is less
than the required amount. It is levied as follows
1. In case of corporate taxpayers i.e. companies, interest is levied under section 234C, if the
advance tax paid by the taxpayer on or before June 15th is less than 12% of advance tax
payable.
2. Interest under section 234C is levied if the advance tax paid by the taxpayer on or before
September 15th is less than 30% of advance tax payable by him (in case of a noncorporate taxpayer) or 36% of advance tax payable (in case of a corporate taxpayer).
3. Interest under section 234C is levied if the advance tax paid by the taxpayer on or before
December 15th is less than 60% of advance tax payable by him (in case of a noncorporate taxpayer) or 75% of advance tax payable (in case of a corporate taxpayer).
4. Interest under section 234C is levied if the advance tax paid by the taxpayer on or before
March 15th is less than 100% of advance tax payable by him (in case of a corporate as
well as non-corporate taxpayer).
Interest under section 234C for default in payment of installment(s) of advance tax is
charged at 1% per month or part of a most.

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5.2: Which ITR Form is applicable to you?


With the introduction of new income tax return forms based on nature of income earned
during the year, one needs to know relevance of each return form and select the right form.
For an individual, four forms have been introduced, the details of which are as under:

Form No.

Applicability
Meant for Individuals, who have
a)
b)
c)
d)

Income from salary


Interest income (taxable / exempt)
Family pension
Income from agricultural activities

ITR 1
In other words, this form is not applicable in the following situations:

ITR 2
ITR 3

ITR 4

a)
Individual having any income (taxable / exempt) other than
mentioned above
b)
Any brought forward loss of earlier years
c)
Any income of other person to be included
Individuals / HUF not having any income on account of carrying out business
/ profession or on account of being a partner in a partnership firm.
Individuals / HUF who are partner in a partnership firm and does not carry
out any other separate business / profession.
Individuals / HUF who is carrying out business / profession under a
proprietary concern.

Consequences for not filing tax return by the last date


If individuals file their returns after the last date mentioned above, they will be charged a
penal interest at the rate of 1% per month of delay. However, if such a return is filed after
March 31, 2008, apart from the penal interest, they will also be liable for a penalty of Rs
5,000

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How to file the tax return


Today there are two options available to the individuals to file their return of income:

Electronic filing;
Physical filing

Under Electronic filing, the individual will have to follow the following procedure:

Get the tax return in a valid XML format (through the Income Tax department site or
other online tax preparation sites)

Visit the Income Tax site

Log on using the user-ID and password

Select the respective ITR form

Upload the XML file generated

Upon uploading, an acknowledgement will be generated.

If the file is uploaded with a digital signature, then the process of filing return is
completed.

However if the file is uploaded without a digital signature, the individual will have to print
form ITR-V and submit the same to the Income Tax department physically. The process of
filing return will be completed only on physical filing of ITR-V.
For Physical filing, the individual will have to take a print out of the respective ITR form
along with the Acknowledgment form and file it with the Income Tax Officer.
Documents to preserve
Since the tax-payer is not required to submit any additional documents along with the return
of income, the documents may be called at the later stage by the Income Tax Officer to check
the correctness of the claim made. Hence, it is advised that the individual preserve all the
documents required to substantiate the return of income filed. Some of the documents are
enumerated below:

Detailed calculation of taxable income and amount of tax payable / refundable.

Form No. 16 / 16A (original).


Counterfoil of all the tax payments made during the year.
Copy of documents concerning sale of investments and properties.

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A Study on Computation of Total Income and Tax thereon under the Income Tax Act, 1961

Copy of bank statements.


Copy of proof for all the deductions and exemptions claimed in the return of income.

Common mistakes people make while filing tax returns

The most common notion among salaried employees is that since tax has already been
deducted from their salary, there is no need to file their income tax returns. This is not
at all true or legal. Even though tax has been deducted and there is no further liability
to pay tax, an employee has to compulsorily file his / her income tax return. Form No.
16 received from employer is not their income tax return.

Employees do not include the interest that they receive on their savings bank account.
The entire interest earned on your savings bank account is taxable.

Omission of income received by a minor child. A minor child is not required to file a
separate return of income. However, this income has to be included in the hands of
either of the parents, although it might be a small amount of bank interest.

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CHAPTER NO.6
6.1: BIBLIOGRAPHY

Book References:

Direct Taxation M.com II (Sem-III)

Direct Taxation Intermediate (Group I) (CMA)

Web References:

www.investopedia.com

www.shodhganga.com

www.slideshare.com

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