A

DISSERTATION REPORT
ON
“Financial Planning for salaried Employee and strategies for Tax saving”

SUBMITTED TO
SAVITRIBAI PHULE PUNE UNIVERSITY
IN PARTIAL FULFILLMENT OF TWO YEARS FULL TIME
“MASTERS OF BUSINESS ADMINISTRATION (M.B.A)”

SUBMITED BY
Miss. Nikita Salve

UNDER THE GUIDANCE OF

PROF. DR. MANGLAGAURI PATIL

SINHGAD TECHNICAL EDUCATION SOCIETY PUNE

SINHGAD INSTITUTE OF MANAGEMENT (SIOM) - MBA

(BATCH 2018-2020)

DECLARATION

1
I, Nikita sham Salve, student of Sinhgad Institute of management and Computer
Apllication (SIMCA), for Masters of Business Administration (FINANCE), IV Semester.
Hereby declare that I have completed dissertation on “Financial Planning for salaried

Employee and strategies for Tax saving” in the academic year 2018-2020. The
information submitted is true & original to the best of my knowledge.

PLACE: PUNE Miss. Nikita sham Salve

DATE: / / 20 MBA Finance

ACKNOWLEDGEMENT

Any accomplishment requires the effort of many people and this work is also a synergistic
Product of many minds. I will take this opportunity in expressing the facts that this Dissertation
Report is the result of an enormous amount of encouragement, cooperation and morale support
that I have received from others.

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It is beyond my literal and material means to express thanks and deep gratitude to (manager)
for this assiduous guidance, continuous encouragement and inspiring suggestion.

My special thanks to Prof. MADHULIKA GUPTA (H.O.D) (DYPCMR) for guiding me

throughout the dissertation. I take this opportunity to thank the management of the company
for giving me a chance to do this dissertation. It gives me a chance to do this dissertation. It
gives me great pleasure to express my deep sense of gratitude towards the (manager) for this
valuable guidance and warm cooperation. I am also thankful to my family members and
friends, who helped me with the necessary information and guide me in documentation process
in the due cause of the dissertation.
Last but not the least I am also thankful to the employees of the company, who provided me
the support and inspiration needed to compile this dissertation.

Place: Pune Mr. Nikita Sham Salve

Date:
M.B.A. (FINANCE)

INDEX

SR. NO TITLE PAGE NO.

I INTRODUCTION 5

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II REVIEW OF LITERATURE 6-32

III RESEARCH METHODOLOGY 33-35

IV DATA ANALYSIS AND INTERPRETATION 36-46

V FINDINGS 47-48

VI SUGGETIONS, CONCLUSION AND LIMITATION 49

 BIBLIOGRAPHY 50

 ANNEXURE

CHAPTER - I

INTROUCTION

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 This Project is a part of two years syllabus of PG programme to help the students to
get familiar with business environment and get practical knowledge of any industry. The
project topic is “FIVE HEADS OF INCOME TAX” which deals with the calculation of total
taxable income from various heads, taxable allowance, taxable perquisites and deduction
allowed under various heads of income. It verifies or profession, capital gain and other sources.
The main objective of the study is to calculate taxable income of assesse from five heads of
direct tax.

CHAPTER – II

REVIEW OF LITERATURE
A)Salary

Meaning Of Salary:
Section 17(1) define salary to include -Wages, any annuity or pension, any
gratuity, any fees, commission, perquisites or profit in lieu of or in addition to any salary or
wages, any advance of salary , leave encashment , the annual accretion to recognized provident
fund, the accumulated transferred balance from unrecognized provident fund a/c to a
recognized provident fund a/c to the extent it is chargeable, contribution made by the central

5
govt. or any other employer in previous year to the a/c of an employee under a pension scheme
referred to in sec. 80CCD

Gratuity:

a) Government employee –fully exempt.

b) Employee covered by the gratuity act. 1972 then list of the following exempt.
1) Rs.10,00,000 OR
2) 15 Day salary (out of 26 days) based on last drawn salary for each
completed year of service/part of year in excess of 6 months.
3) Gratuity actually received.

c) Employee not covered by the gratuity act 1972, then least of the following is exempt.

1) Rs.10, 00,000 OR
2) 15 Days salary (on the basis of the last 10 month average immediately preceding
the month in which any such event occurs) for each completed year of service
(fraction to be ignored) OR
3) Gratuity actually received

Pension:

1) Uncommitted pension is taxable as salary u/s 15 in the hand of both government and
non-government employee.
2) Commuted pension received by a govt. employee is wholly exempt from tax.
3) A non govt. employee can avail exemption to following extent.
1. If the employee is receipt of gratuity act, 1/3 of amount of commuted pension

2. If the employees is not in receipt of gratuity act,1/2 of the amount of commuted

pension.

Voluntary retirement/separation scheme sec. 10(10C)-

A Maximum amount of exemption is Rs.5, 00,000.

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Deduction of PF-
Note-PF is exempt u/s 80C.

Particulars SPF RPF URPF

Employee’s Exempt u/s 80C Exempt u/s 80C -
Contribution
Employer’s Exempt 12% of salary Not taxable
Contribution Exempt
Interest Exempt 9.5% Exempt Not taxable

Lum-sum amount Exempt Up to 5 lakhs Whole amount is

Exempt taxable

COMPUTATION OF SALARY INCOME

Particulars Amount
1. Basic salary, Pension, Annuity, Bonus, Commission, Arrears of Salary, xxxx
Advance salary
2. Add: Taxable allowances xxxx
3. Value of perquisites xxxx
4. Employer’s contribution to P.F. in excess of 12% of salary of employee Xxxx
5. Interest credited to P.F. in excess of 9.5% Xxxx
6. Gross salary Xxxx
7. Less: Deduction from salary Xxxx
a) Entertainment allowance
xxxx
b) Professional tax

Income chargeable under the head “salary” Xxxx

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CHARGE ABILITY: Employer-Employee relationship is must.

DEDUCTION SEC.16

1) Entertainment Allowance sec.16 (2)-This deduction is only available in the

case of govt. The deduction is allowed to the extent of the least of the
following-
a) Rs.5000 or
b) 20% of salary or
c) Actual entertainment allowance received for the previous year.
2) Professional Tax sec.16(3)

ALLOWANCES:
Extra compensation paid by the employer, a part from salary, due to presence of some
unusual conditions in rendering the service, is called allowances.

FULLY TAXABLE ALLOWANCES -

a) City Compensatory Allowance b) Dearness Allowance
c) Fixed Medical Allowance d) Tiffin/Lunch Allowance

TAX FREE ALLOWANCE-

a) Foreign Allowance b) Allowance from UNO
c) Supreme/High Court Judges

PARTIALLY EXEM PT ALLOWANCES-

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A) House Rent Allowance-This allowance granted to an assessed by his employer is
exempt to the extent of the following:
1) If accommodation is in Mumbai,Chennai,Calcutta,Delhi-50%of salary & in any other
places-40% of salary or
2) Actual amount of allowance or
3) Excess of rent paid over 10% of salary
B) When exemption depends upon actual expenditure by
employee-

The following allowances are exempt u/s 10(14).Least of the following are exempted
1) The amount of the allowance or
2) The amount utilized for the specific purpose for which allowance is given
a) Travelling allowance/transfer allowance b) Daily allowance
c) Conveyance Allowance d) Helper allowance
e) Research allowance f) Uniform Allowance

C) When exemption does not depends upon expenditure-

Least of the following are exempt
1) The amount of allowance or 2) the amount specified in rule 2BB

a) Trial areas/Scheduled areas Allowance-

Exemptions as specified in rule 2BB Rs.200 per month.
b) Children education Allowance- Exemption as specified in rule 2BB- Rs.13-
00 per month per child up to maximum of two children.

c) Hostel Expenditure Allowance- Exemption as specified in rule 2BB- Rs.300

per month per child up to maximum of two children.

d) Transport Allowance-Exemption as specified in the rule 2BB-Rs.800 per month

& Rs.1, 600 per month for blind and handicapped employee.

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PREQUISTES SEC. 17(2):
Perquisites are the added benefits, emoluments or facilities received by the employee from his
employer in relation to his employment.

Accommodation-Employer may provide accommodation facility to the employee with or

without furniture. Such may be rent free or art a concessional rent.

1) For Rent Free Accommodation-The amount taxable for such perquisites is as

follows:

Type of employee Taxable amount Taxable amount

a. Government Employee
b. Non-Govt. Employee
If house is owned by the
employee
If house is not owned by the
employee
for Unfinished for furnished
accommodation(1) accommodation
Amount payable as per (1)+10% of cost of
government rule furniture.
15% of salary if population (1)+10% of costs of
is more than 25 lakhs.10% furniture.
of salary if the population
is between 10 to 25
lakhs.7.5% of salary if the
population is less than 10
lakhs
15% of salary or lease rent, (1)+10% of cost of
whichever is lower. furniture.

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 c. If accommodation provided 24 % of salary or Actual
by employer in hotel(up to 15 charges paid employer,
days exempt) whichever is lower

2) For accommodation at concessional Rent- column 2(as above)-rent charged

by employer.

a) Gas, Electricity and Water Supply - It is taxable on the following basis:

Condition Amount of exemption

Mode of valuation
Step 1-Find out cost to the
employer
Step 2-Less.Amount
recovered from the
employee Taxable
value(Step1-Step2)
Gas, Electricity or water Gas, Electricity or water
purchased by employer supplied by employer out
from outside agency of own sources.
Amount paid or payable Manufacturing cost per
by employer to the unit incurred by employer
outside agency. Recovery Recovery from employee
from the employee Balancing amount(it is
Balancing amount(it is positive)
positive)

b) Travelling, Touring & Accommodation-

Cost of the employer (-) amount recovered from the employee=taxable value of perquisites.

c) Lunch/Refreshment-

Tea or similar non-alcoholic beverages & snacks during working hours are not charged to tax
as perquisites.
Mode of valuation = cost of employer (-) amount recovered from employee = taxable value.

d) Leave Travel Concession in India-Sec.10 (5)

Where journey is performed Amount of economy class air fare of the national carrier by
by air the shortest route or the amount spent, whichever is less.

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 Where journey is performed Amount of air conditioned first class rail fare by the shortest
by rail. route or amount spent, whichever is less.

The above expression is available only in respect of fare for going anywhere in India along
with family twice in block of four years.

e) Motor car-
1) If motor car belongs to the employer or taken on lease, maintenance & running expenses
born by employer-

Situation Valuation
Fully used for official purpose NIL
Fully used for personal use by employee (expenses incurred by company +10 %
or his family member cost of car + driver salary)-recovery from
salary
Partly used for official purpose Up to 1600 or 1.6 liter-Rs. 1800 per
& partly for personal use meter. Above 1600 or 1.6 liter –Rs.2400
per meter
Note-if driver is provided add Rs.900.

If any amount is received from employee’s salary nothing is added as per is perquisites means
NIL.

2) If motor car belongs to employer or taken on lease, maintenance & running expenses
born by employee.

Situation Valuation
Fully used for official purpose NIL
Fully used for personal use by employee 10% of motor car value or if car is taken
or his family member on lease then actual amount
Partly for personal use and party for Rs.600 per meter.
official use
If any amount recovered from employee’s salary is nothing is added as per perquisites means
NIL.

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3) If motor car belong to employee maintenance & running expenses born by employer-

Situation
Fully used for official purpose
Fully used for personal use by employee
or his family member partly for personal
use and partly for office use
Valuation
Nil
Expenses incurred by company(-)
recovery from salary Up to 1600 or 1.6
liter-Rs.1800 per meter
Above 1600 or 1.6 liter-Rs 2400 per meter
Note- If driver is provided add Rs.900 per
meter.

f) Medical Facilities-up to 15,000 exempt.

B) Income from House Property

CHARGIBILITY:
Income is taxable under this head, if the following three conditions are satisfied.

1. The property should consist of any building or land appurtenant thereto,

2. The assesse should be owner of the property.
3. 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 chargeable to income tax.

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LET OUT PROPERTY (LOP)-
Annual Value: The annual value of any property is sum for which the property might
reasonably be expected to let from year to year.

A) Deciding Gross annual value when the house property is occupied

throughput the year:

For deciding gross annual value following four items should be considered.

a) Fair rent:-It means rent which similar property in the same locality would fetch.
b) Municipal Valuation: Municipality values the property for levying taxes. It decides the
rent that the house is capable of fetching.
c) Standard Rent: It is an amount fixed under rent control act.
d) Actual Rent: It is amount actually payable by the tenant to owner as reduced by the revenue
expenses incurred by the owner Om tenant’s amenities.

B) Deciding GAV when house property is let and was vacant during the
whole or part of the previous year:
1) If actual rent received is more as computed o fair rent and municipal valuation standard
rent then that Actual is taken.
2) If actual rent received is less as compared to fair rent and municipal valuation standard
rent then that actual rent is not taken.
C) Deciding GAV of house property, which is part of the year ,let and
part of the year occupied for own residence:

The expected rent shall be taken for full year but actual rent received or receivable shall be
taken only for the project let.

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 D) Deduction from GAV:

Municipal Taxes: Deduction is allowed in respect of property taxes subject to the following
situations-

1) It should be borne by the assesse (i.e. landlord)

2) It should be actually paid during the previous year.
Deduction from Net annual value(see.24):
a) 30% of NAV: 30% flat deduction on the NAV and interest on loan borrowed.

b) Interest on the borrowed capital sec .24(b):Interest on borrowed capital is allowed as

deduction on approval basis, If capital is borrowed for the purpose of purchase ,
construction ,repair, renewal, or reconstruction of the house property.

SELF OCCUPIED HOUSE PROPERTY (SOP):

a. Assesses may occupy the house for the purpose of his own residence. Annual value of house
is treated as NIL.
b. No deduction for any expenses is permissible other than the interest on money borrowed for
the purpose of construction ,repairs, of that particular house property only.
c. When the assesses occupies more than one house for the purpose of his residence ,then only
one of the house will treated as self-occupied and the other will be treated as deemed let out.
d. Assesses may use the house for the purpose of his own business or profession, and then no
income will be chargeable to tax under the head income from hose property.

e. When the part of house is used for residence and part for own business for profession, and
the annual value proportionate to the self-occupied portion will be determined as NIL. And
the remaining portion will be treated as explain above.

Deduction allowed in case of self-occupied property:

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Interest on borrowed capital: Interest on borrowed capital of the current year + preconstruction
period.
It is deductible subject to maximum selling as follows-
If Capital is borrowed on or after 1st April,1999 interest on borrowed capital is deductible to
the extent of Rs.1,50,000 if the following conditions are satisfied.

a. The acquisition or construction is completed within 3 years from the end of financial year
in which the capital was borrowed.
b. The loan is taken for acquiring or constructing a property. However if capital is borrowed
for any other purpose(i.e. For reconstruction, repairs or renewal of a house property ) and
before 1st April,1999, then the maximum amount of deduction on amount of interest is
Rs.30,000 and not Rs.1,50,000.

C) Income from Business and Profession

MEANING OF BUSINESS:
“Business” simply means any economic activity carried on for earning profits. Sec. 2(3) has
defined terms as “any trade, commerce, manufacturing activity or any adventure or concern in
the nature of trade, commerce and manufacture”.
MEANING OF PRFESSION:
“Profession” may be defined as a vacation or a job requiring some thought skill and special
knowledge like that of C.A., Lawyer, Doctor, Engineer ,Architect etc. So Profession refers to
those activities where the livelihood is earned by the person through their intellectual or manual
skill.

5.3 ALLOWABLE AND DISALLOWABLE EXPENDITURE

SR. Name of expenses Sec.
NO.
1. Rent, Rate, Taxes, Repairs & Insurance of premises/Buildings used for the 30
purpose of the business

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2. Repairs and insurance of plant & Machinery, Furniture used in business 31
and profession

3. Depreciation on Building, plant & Machinery, Furniture owned by the 32

assessed.

4. Revenue Expenditure incurred by the assesses himself. 35(1) (i)

5. Contribution made to outsiders: weighted deduction is allowed is equal to 35(1)

1 ¼ times of any sum paid to scientific research association or to a (ii) (iii)
university, college or institution.

6. Expenditure or acquisition of patent rights or copyrights: Any expenditure 35A

of a capital nature incurred on the acquisition of patent rights used for the
purpose of the business after the 28-02-1966 [but before the 01-04-1998],be
allowed for each the relevant previous years, a deduction is equal to the
appropriate fraction of the amount of such expenditure.

7. Expenditure for obtaining license to operate telecommunication services. 35ABB

8. Expenditure on eligible project or schemes. 35AC

9. Other deductions: 36
a. Insurance premium paid for stock and/or stores.
b. Insurance Premium paid towards Health insurance Scheme of
Employees
c. Bonus and commission paid to employees.
d. Interest paid on borrowed capital for Business/ profession.
e. The pro rata amount of discount on zero coupon bonds.
f. Employer’s contribution towards a recognized provident fund (RPF) or
an approved superannuation fund.
g. Employer’s contribution towards an approved gratuity fund created by
him for the exclusive benefit of his employees.
h. The amount of any bad debt or part thereof which is written off as
irrecoverable in the accounts of the assesse for the previous year.
i. In respect of any provision for bad and doubtful Debts made by-

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 4.2.1 A scheduled bank or non-scheduled bank or co-operative bank or a
primary co-operative agricultural and rural development bank, an
amount.
4.2.2 Not exceeding seven and one half percent of the total income and
4.2.3 An amount not exceeding Ten percent (10%) of the aggregate
average advances made by the rural branches of such bank computed
in the prescribed manner.

j. Transfer to Special Reserve:

An amount not exceeding twenty percent(20%) of the profits derived
from eligible business (before making any deduction under this clause)
carried to such reserve account:
k. Any expenditure bona fid incurred by a company for the purpose of
promoting family planning amongst its employees.

10. GENERAL DEDUCTION: 37(1)

Section 37(1) is a residuary section. In order to claim deduction

under this section, the following condition should be satisfied:
Condition 1: The expenditure should not be the nature of described under
section 30 and 36
Condition 2: It should not be in the nature of capital expenditure.
Condition 3: It should not be personal expenditure of the assesse.
Condition 4: It should have been incurred in previous year.
Condition 5: It should be in respect of business carried on by the assessed.
Condition 6: It should have been expended wholly and exclusive for the
purpose of such business.
Condition 7: It should not have been incurred for any purpose which is an
offence or is prohibited by any law.
The following Expenditures are allowed, if incurred, for
furtherance of Business without any limit:
(a) Entertainment
(b) Compliments
(c) Travelling

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 (d) Advertisement
(e) Maintenance of guest house

Note: Any payment above Rs. 20000 should be made by account payee
cheque/DD. Otherwise, 20% of such expenditure will be disallowed subject
to exceptions.

D) Income from Capital Gains

INTRODUCTION
A capital gain means three profits and gain arising from the transfer of capital assets. There for
the income will be charged under this hade if following conditions are satisfied.

A) There is capital asset.

B) There is transfer of such capital asset.
C) The transfer of such capital assets has been affected during the previous year.
D) Profit and gain (losses also) arise for the transfer such capital asset affected during the
previous year.
E) Profit and gain are exempt from tax under sec. 54, 54B, 54C, 54D and 54F.
Capital assets:
It means property of any kind (fixed or circulating, movable or immovable, tangible or
intangible) held by an assesses, whether or not connected with his business or profession, but
does not include-

1. Any stock in trade, consumable stores or raw material a held for the purpose his business or
profession.
2. Personal effects, that is to say, movable property (including wearing apparel and furniture,
but excluding jewelry) held for the personal use by assesses or any member of his family
dependent on him.
3. Agricultural land in India, not being land situated-
a. With limit of any municipal or the cantonment board, having a population of 10,000.00 or
more or
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b. In areas lying within a distance not exceeding 8Km from the limits of any Municipal or
cantonment board.
4. 61/2 % gold bonds, 1977 or 7% gold bonds, 1980 or national defiance gold, bonds, 1999
issued bonds, 1991 issued by central government.
5. Special bearer bonds, 1991 issued by the central government.

Computation of Capital Gain:

Particulars Amount Amount

1) Short term Capital gain:
Full consideration on transfer(selling price) XXX
Less:
a) Capital of acquisition of assets. XXX
b) Cost of improvement of assets. XXX
c) Expenditure on transfer of assets XXX

Short term capital gain or loss XXX

2) Long term capital gain :
Full consideration on transfer(selling price) XXX
Less:
a) Index cost of acquisition of asset. XXX
b) Index cost of improvement of asset. XXX
c) Index on transfer of assets XXX
Long term capital gain or loss XXX
Less : exemption u/s 54 XXX
Long term capital gain chargeable to tax XXX

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 Capital assets

Eq.share/mutual fund units Sales of Assets

(UTI) (Land, building, etc.)

Short term long term Short term long term (Holding

(Holding price less (Holding price more (Holding price less (Holding price more
than 12 Months) than 12 months) than 36 Months) than 36 Mo nths)

A) Equity share/mutual fund units:

1) Long term capital gain, if the broker has charged security transaction tax then it is fully
exempted from capital gain. If STT in not pad, then chargeable @ 20%
2) Short term capital gain, if broker charged STT, still it is chargeable under capital gain tax
@15% mutual fund(subject certain exception) /bonds are not chargeable under
3) Profit/gain on sale of debentures, the capital gain.
4) Only short term equity share capital chargeable under the capital gain not preference shares
w. e. f. 01.04.2007

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B) Share assets:
1) Long term capital gain chargeable under capital gain 20%

2) Short term capital gain chargeable under capital gain 15%

Computation of index cost of computation and index cost of improvement:

a) Index cost means

Cost of acquisition X (cost inflation index the transfer year/cost inflation index of the year
when assets was held for first time)
b) Index cost of improvement means:
Cost of improvement X (cost inflation index the transfer year/cost inflation index of the
improvement year)

Cost of improvement incurred period of 01.04.1981 is to be ignore – when purchase of

capital assets before 01.04.1981, total purchase price+ expenses are compared with fair
market value as 01.04.1981, whichever is more is take as cost of acquisition and base year of
indexation with be taken as 01.04.1981- 1982 (i.e. 100)

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 Exception available in computation of capital gain:

Questions Sec.54 Sec.54B Sec.54C Sec.54D Sec.54F

1. Who can Individual/ Individual Any Any Individual/
claim exemption HUF person person HUF

2. Which capital Long term Long Long Long Long

assets is eligible term/short term/short term Term
term term

3. Which Residential Agricultur Govt. or Any long term Long term

specific house e land if it building capital assets. capital assets
assets is eligible property used by use for E.g. bonds of (other than
assesses or industry for national residential
his parents two years highway or house) provided
for period to rural electrical on date of
agriculture its acquisition corporation.. transfer. He
purpose does not own
for at last more than
two years. One residential
house except
new house.
4. What is time Purchase 1 2 year 3 year forward 6 year forward Purchase
limit for year back forward one year
acquiring ward or 2 back ward
year forward or 2year
construction forward
3 year construction
forward 3 year forward
5. For which From date From date From date From date of From date of
date time limit of of transfer of receipt transfer but transfer but in
compulsory case of

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shall be acquisition of in case of compulsory
determined from date compensation compulsory acquisition
of receipt of acquisition from from date of
compensation date of receipt receipt
of of
compensation compensation.
6. How much is Investment in Investment Investment is Investment in Investment in
exempt new asset or in new new asset or new asset or new asset or
capital gain asset or capital gain capital gain capital gain
whichever is capital whichever is whichever is whichever is
less gain less less less
whichever
is less
7. It is possible If new asset If new If new asset If new asset If new asset
to revoke transferred asset transferred transferred/cove transferred
exemption in a within 3 year transferred within 3 year red in within 3 year of
subsequent year of acquisition within 3 of acquisition money/loan is acquisition or if
year of take on security another
acquisition of new asset residential
within 3 year of house is
acquisition purchased
within the 2
years or if
constructed
within 3 years

8. What will be Short term Short term Short term Long term
Long term
status of capital gain capital capital gain capital gain
capital gain
National income gain
9. Whether Yes Yes Yes Yes Yes
scheme of
deposit is
applicable

To save capital gain tax:

1. We should invest in infrastructure rural development bond not redeemable below 3 years
period.

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2. Deposit amount in capital gain a/c only in national bank.

E) Income from Other Sources

Basis of charges (sec.56)

Sec.56 (1) covers any income does not fall under any other hade of income
Sec.56 (2) specifies eight incomes which are always taxable under the head “Income from
Other Sources”
It can be said that the residuary head of income can be invoked only if all the following
condition are satisfied.

 Income: There is an “income” u/s 2(24)

 Income should not be exempt- That income is not exempt from tax under section 10 to 13
A
 Not covered by other head: That income is neither Salary, nor rental income from house
property, nor income from business profession, nor capital gain. The following are some of
the examples of income generally taxable u/s 56 (1):
a) Income from sub-letting.
b) Interest on bank loans.
c) Income from royalty(if it is not income from business/profession)
d) Directors fees
e) Ground rent
f) Agricultural income received from outside India.
g) Directors commission for standing as guarantor to bankers
h) Directors commission for underwriting shares of new company.

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i) Remuneration received from person other than his employee E.g. examination
remuneration received by teacher.
j) Rent of plot of land.
k) Insurance commission
l) Mining rent & royalties
m) Interest on foreign govt. securities.
n) Casual income
o) Annuity payable under a will, contract, trust, deed (excluding annuity payable by
employer which is chargeable under the head “salaries”)
p) Salary payable received by family members of a deceased employee
q) In the case of retirement, interest on employees contribution if provident fund is
unrecognized.
r) Income from undisclosed sources.
s) Gratuities paid by director who is not employee of company.
t) Income from racing establishment.
u) Compensation received from use of business assets.
v) Annuity payable to the lender of trade mark.

SPECIAL PROVISION:

The following none incomes are always taxable under the head “Income from
Other Sources”
Sec. 56(2) Dividend
Sec. 56(2) (ib) Casual income in the nature of Wining from lotteries, crossword
puzzles, races including horse races, card game and other game
of any sort of form gambling or betting of any from other nature
whatsoever.
Sec. 56(2)(ic) Employee’s contribution towards staff welfare scheme received
by employer.
Sec. 56(2) Interest on Securities
Sec. 56(2)(ii) Rental income of machinery, plant and furniture let out n hire
Sec. 56(2)(iii) Rental income of letting machinery, plant and furniture along
with letting out of building and the two letting are not separable.
Sum received under key man insurance policy

26
 Gift
Sec. 56(2)(vii) Interest on compensation or enhanced compensation.

APPLICABLE RATE OF TAX IN RESPECT OF CASUAL INCOME

[SECTION 115B]
(i) Taxed at a flat rate of 30% plus surcharge, if applicable, plus education cess plus
secondary and higher education cess.
(ii) No expenditure or allowance can be allowed from such income.
(iii) Deduction under chapter VI-A is not allowable from such income.
(iv) Adjustment of unexhausted basic exemption limit is also permitted against such income.
 Tax is deducted at source u/s 194B & 194BB on payment in respect of winnings from
lotteries or crossword puzzle or card game and other game of any sort exceeding Rs. 10000/-
(Rs. 5000/- in case of winnings from horse races) @ 30%
 If net amount received is given, then amount shall be grossed up to find out the chargeable
to tax.
Income by way of interest on securities is taxable under the head “Income from Other Sources,”
if the same is not taxable as business in u/s 28.
Receipts without consideration to be treated as income: [Sec. 56(2) (vii) (vii
a)]
Under this clause if an individual or a HUF receives on or after October 1, 2009, a sum of
money/property without consideration is chargeable to tax in the hands of the recipient under
the head “Income from Other Sources”.

EXEMPTED CATEGORIES:
While calculating the above monetary limit of Rs. 50000/- in any of the four categories, any
sum of money or property received from the following shall not be considered:
A. Money/property received from relative.

27
B. Money/property received on the occasion of the marriage of individual.
C. Money/property received by way of will/inheritance.
D. Money/property received in contemplation of death of the payer.
E. Money/property received from a local authority.
F. Money/property received from any fund, foundation, university, other educational
institutional, hospital, medical institution, any trust or institution referred in section
10(23C)
G. Money received from a charitable institute registered u/s 12AA.

The following points to be noted-

 The above provisions cover only a receipt by an individual or HUF.

 Gift the occasion of marriage is not chargeable to tax. Gift on other occasion like birthday,
etc. will, however, be chargeable to tax.

Interest on Kisan Vikas Patra, Indira Vikas Patra,National Saving Certificate etc.

DEDUCTION ALLOWABLE [SECTION 57]

(i) Commission or Remuneration for realizing dividend or interest on securities [Sec. 57(I)]
(ii) Deduction in respect of employee’s contribution towards staff welfare schemes. [Sec. 57 I
a]
(iii) Repairs, depreciation in the case of letting out of plant, machinery, furniture, building.
Where income to be charged under this head is from letting on hire of machinery, plant and
furniture, with or without building, the following items of the deductions are allowable in the
computation of such income.
(a) The amount paid on account of any current repairs to the machinery, plant or furniture.
(b) The amount of a premium paid in respect of insurance against risk of damaged or
destruction of machinery or plant or furniture.
(c) The normal depreciation allowance in respect of the machinery, plant or furniture, due
thereon.
(iv) Standard deduction in the case of Family Pension [sec. 57 (ii a)

In the case of income in the nature of family pension, a deduction of a sum equal to 1/3 percent
of such income or Rs. 15000 whichever is less.

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(v) Any other expenses for earning income [sec. 57 (iii)]
(vi) Standard deduction in the case of interest of compensation. [sec. 57(4)]
50% of income by way of compensation/ enhanced compensation received chargeable to tax
under section 56 (2) (vii). No deduction would be allowable under any other clause of section
57 in respect of such income.

DEDUCTION NOT ALLOWABLE [SECTION 58]-

(A) In case of any assesses:

(1) Any personal expenses of the assesses;
(2) Any interest chargeable to tax under this act which is payable outside India on which
Tax has not be paid or deducted at source.
(3) Any payment taxable in India as salaries, if it is payable outside India unless Tax has
been paid thereon deduction at source.
(B) In deduction to these disallowance, section 58(2) specially provides that the
disallowance of payment to relative and associate concern and disallowance of payments
exceeding 20000 made to a person during a day otherwise the by account payee cheque or
draft covered by section 40 A will be applicable to the computation of income under the head
“Income from Other Sources”
(C) Income tax and wealth tax paid.
(D) No deduction in respect of any expenditure or allowance in connection with income
by way of earning from lotteries cross word puzzle, races including hours race, card game
and other game of any sort from gambling or betting of any from or nature whatsoever shall
be allowed in computing the said income (this provision is, however, not applicable in the
case of income from the activity of owing is and maintaining race horse)

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 DEDUCTION UNDER CHAPTER VIA
Section Nature of Payment Deduction
1) 80C LIC, PF, Specific term deposits Gross qualifying Amt or Rs. 150000
whichever is lower
2) 80CC Annuity or pension fund Amount deposited or 150000
whichever is lower
3) 80CCD Contribution to central government i) 10% of salary/ actual amount
pension scheme by an employee paid by employee, and
ii) 10% of salary/ actual amount
contributed by employer.

4) 80CCF Individuals/HUF Subscription to long term

5) 80D Medical Insurance premium
6) 80DD Medical treatment and maintenance of
dependent with disability
7) 80DDB Expenditure on Specified diseases
8) 80E Interest on loan taken for higher education
pursued by assesses or his relative.
Infrastructure Bonds Notifies by
Central Govt.
Rs. 30000 (Rs. 25000 for senior
citizen) and addition Rs. 30000 the
insurance of parents (Rs. 25000 for
parents of senior citizen)
i) Rs. 75000(normal disability)
ii) Rs. 125000 (server disability)
General : Actual or 40000
whichever is less
No limit

9) 80G Eligible donations 100% or 50% as provided.

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 10) 80GG Rental payment is case of non-receipt of Maximum deduction Rs. 24000
HRA
11) 80U Income of blind or physically handicapped i) Rs. 75000 (for normal
person disability)
ii) Rs. 125000 (for server
disability)

CHAPTER III

RESEARCH METHODOLOGY

STATEMENT OF PROBLE

It is hard to study all aspect of direct taxation i.e. five heads of income tax in
theory, but it is easy to use or we can calculate easily tax liability of individual in
practical.

OBJECTIVE OF STUDY

The Main objective of the study is to examine taxation of income from different five heads
with the following specific objective.

1. To study calculation of income from salary, calculation of the taxable value of allowances
of perquisites.
2. To study calculation of income from house property and deduction u/s24
3. To study calculation of profit and gains from business profession.
4. To study calculation of capital gains and deduction of exemption u/s 54 to 54H.
5. To study calculation of income from other sources and deduction u/s57.

31
6. With the help of Case studies i.e. Income from salary, Income from House Property,
Income from Profession and Business, Income from Capital Gains and Income from
Other Sources can be revealed the depth of problem during calculation of Income from
five heads.
7. To know the tax benefits from different sources.
8. To know the minimum exemption from tax.

SCOPE OF STUDY
The scope of the study is very vast. It deals with the calculation of total income of Individual
and classification of the total income of assesse into various five head of income tax. And we
can easily calculate the total income tax on income of the Assesse with respective rules and
regulations.
With the help of study of five heads of Income tax, we can make better tax planning.
DATA COLLECTION METHOD
The data has been collected by way of using secondary data method. The various document
referred for preparation of this project are:

1. Form 16 salary certificate

2. Information given by assesse about income from house property
3. Trial balance, Profit and loss account for business and profession.
4. Date of purchase and cost of purchase, date of sale and cost of sale for computation of
capital from gains.
5. Information given by assesse about income from other sources.

The study has been done with the help of selected five cases under each head -Taxable income
under salary, house property, business and profession, capital gain, other sources .the
methodology includes calculation of taxable income in view of the various allowances
and perquisites and deduction allowed each case is analyzed with suitable findings.

LIMITATION OF THE STUDY

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 1. The income tax itself is a wider concept is to deed with the each and every aspect of the
items needs more concentration and time.
2. Due to number of deductions and exemptions it is hard to applicable.
3. It is possibility to forget many things in Practical.
4. The will be an unexpected data can be get from assesse during case studies.
5. It is hard to calculate exempted and not exempted deductions from income.
6. Huge theory, it is impossible to attempt every aspect of direct taxes due to time limit.
7. Due to time limit I just could focus on some – Allowances, perquisites, deduction,
exemption and meaning of five head of income.

CHAPTER – IV

DATA ANALYSIS AND

INTERPRETATION
CASE STUDY ON SALARY

This is case study of calculation of taxable income from salary of Mr. Nitesh Patel. He is a
Sales Manager in Ahmedabad. He furnished the following particulars regarding his income
for FY 2016-17

1) Basic salary Rs. 840000

2) Bonus Rs. 50000.
3) DA Rs. 30000 pm.
4) Travelling allowances for official purpose Rs. 25000.
5) Reimbursement of medical bill Rs. 25000 (govt. hospital)
6) He lived in house belonging

33
Company has provided facility of a gardener and cook each of whom is being paid salary
of Rs. 250 pm. Company paid Rs. 5000 electricity bill.
7) He has been provided with 1.8 lit. Engine capacity car for official and personal use. The
maintenance and running expenses of car with driver are born by the company.
8) The following amount was deposited in his PF A/c.
a) Own contribution Rs. 84000
b) Company’s contribution Rs. 120000
c) Interest @ 12% pa. Rs. 12600
9) Rent of house received from Mr. Patel Rs. 36000 pa.

The following table gives details of the taxable salary based on the information provided:
COMPUTATION OF TAXABLE SALARY OF MR. NITESH PATEL
Particulars Details Amount
Basic salary 840000
Bonus 50000
DA 30000*12 360000
Travelling allowance(-) exempt 25000 NIL
25000
Medical facility in govt. Fully exempt NIL
Hospital
Value of unfurnished concessional Working Note 1 151500
rent accommodation
Gardner salary 250*2 3000
Cook salary 250*2 3000

Electricity bill 50000

Motor car facility (+) driver 2400*12=28000 39600
900*12=10800
Employee’s cont. to RPF 120000 NIL
(-) exempt (12% of basic+ DA)
144000
Interest on RPF @ 12% (-) 9.5% 12600 2625

34
 9975
Gross salary 1457725
Less : deduction u/s 16:
Entertainment allowance
Professional tax NIL
NIL
Income from salary 1457725

Hence the net income from salary is Rs. 1457525 per annum.

INTERPRETATION: (A)

1) Value of unfurnished concessional rent accommodation-

Salary=Basic+ DA +Bonus +Fees +Commission +all taxable allowances+ any monetary
payment.
=840000+360000+50000+NIL+NIL+NIL+NIL=1250000
An accommodation is belongs to company and population more than 25 lack.
Therefore:
Value of rent free unfurnished accommodation = 15% of salary.
=15% of 1250000=187500
187500(-) rent paid by Mr. Patel = 151500 is taxable amount.
2) He has been provided with 1.8 Lit. Engine capacity car for official and personal use. The
maintenance and running expenses of car with driver born by the company.
Up to 1.6 lit. : - 1800 pm
Up to 1.6 lit. : - 2400 pm
Therefore;

Value of motor car (+) driver =[2400*12=28800] + [900*12=10800]

=39600 is taxable amount.

3) Note: in absence of information we assume DA is part of salary for retirement benefits.
4) Note: Mr. Patel contribution to RPF is deductible u/s 80C

35
 CASE STUDY ON HOUSE PROPERTY

This is case study of calculation of taxable income from house property of Mr. Jadish Dabi,
age-32. He has four houses. House A is taken for own residential, House B is let out for
residence, House c is let out for commercial purpose and house D is vacant. And other house
details are given below for FY 2016-17.
Particulars House A own House B House C Let House D
residence Let out for out for Vacant
residence commercial
purpose
Municipal ___ 410000 420000 400000
valuation(MV)
Fair rent (FR) ___ 460000 460000 400000
Standard rate ____ 450000 ____ 550000
Municipal taxes 240000(paid by 28000(paid by 32000(paid by 12000(paid by
owner) owner) owner) owner)
Interest on loan 66000 88000 95000 30000
Actual rent(AR) ____ 520000 560000 ____
received
Unrealized rent _____ 30000 ____ ____

36
 Repairs 10000 20000 ____ 10000

The following table gives details of the taxable income from house property based on the
information provided.
COMPUTATION OF TAXABLE INCOME FROM HOUSE PROPERTY OF MR. DABI:

Particulars House A House B House C House D

Step-1:
1)Municipal _____ 410000 420000 400000
valuation _____
2)Fair rent 460000 460000 400000
A: - _____ 460000 460000 400000
Standard rent _____ 450000 460000 400000
B: - _____ 490000 460000 400000
Step-2: _____ 490000 560000 _____
C: - AR(-) UR
Reasonable ____ 490000 560000 400000
expected rent: -
(-)municipal _____ _____ ______ _____
taxes

Gross annual _____ 490000 560000 400000

value: -
(-)municipal _____ 28000 _____ 12000
taxes
Net Annual _____ 462000 560000 388000
value: -
(-)deduction u/s
24:
1)SD 30% pf _____ 138000 168000 116400
NAV

37
 2)Int. on
borrowed capital 66000 88000 95000 30000
(-66000) 235400 284000 241000
Net taxable
income from
house property: -
(B+C+D)-A
694400

Hence net income from house property is Rs. 694400 per annum.

INTERPRETATION: (B)

1) Consider higher amount from Municipal valuation and Fair rent as highlighted point “A”
in table.
2) Consider lower amount from point A and standard rent as highlighted point “B” in table.
3) Consider higher amount from B and C as a reasonable expected rent. And deduct loss
due to vacancy from it and then we get gross Annual Value. Deduct municipal taxes
from gross annual value, it gives Net Annual Value.
4) Deduct standard Deduction and Interest from Net Annual value. Finally take addition if
income house B, C and D, deduct income from residential house from it because income
of Mr. Jagdish Dabi from house property.

CASE STUDY ON BUSINESS OR PROFESSION

This case study is of calculation of taxable income from business or profession.
New Swan is engaged in manufacturing and selling phosphate products its net profit for the
year ending 31.03.2016 after debit credit of the following items to the P & L A/c was Rs.
2800000

1) Income tax paid on non-mandatory perquisites provided to the employees Rs. 100000.
2) Legal fees incurred in defending title to factory premises Rs.200000.

38
3) Expenditure on scientific research on in house research and development facility
approved by the prescribed authority Rs. 1000000
4) Interest paid on arrears of sales tax Rs. 100000
5) Cash payment of Rs. 20000 made on 10.10.2014 to a supplier towards purchase or raw
material.
6) The company paid royalty in India to foreign company amounting to Rs. 300000 on
01.05.2014, which was disallowed by the assessing officer for the assessment year 2014-
2015 since tax was not deducted thereon. The company deducted and paid tax at source
on said amount of royalty on 01.01.2016.
7) The company has brought forward loss from property relating to the AY 2013-2014
amounting Rs. 40000.
The following table gives details of the taxable income from business or professional based on
the information provided.

COMPUTATION OF TAXABLE INCOME FROM BUSINESS OR PROFESSION OF NEW

SWAN:

Particulars Amount Amount

Net profit as per profit and loss A/c 2800000
Add: Inadmissible expenses-
Income Tax on non-monetary perquisites
Legal expenses for defending title to factory 100000
premises
Expenditure on scientific research 200000
Interest paid on arrears of sales tax 100000
Cash payment towards purchase of raw material NIL

NIL 1300000
Less: admissible expenses-
Expenditure on scientific research-weighted 4100000
deduction @150%
Royalty paid to foreign company

39
 Profit and gains of business or profession 1500000

300000 1800000

2300000

Hence the net income from business or profession is Rs. 2300000 per annum.

INTERPRETATION: (C)

Any tax payment born by the employer, on behalf any employee in respect of non-monetary
perquisites provided to such employee, which is exempt in case of the employee u/s 10(10CC)
shall be disallowed in the hands of employee-sec. 40(a).

1) Legal expenses for defending title to factory premises is a capital expenditure meant for
curing or completing the assesses title to capital assets, therefore Rs. 200000 shall be
disallowed.
2) Any interest on arrears of sales tax or the outstanding balance of sales tax is not penal
nature. It is compensatory in nature and is an allowable deduction in computing the
profits of the business.
3) According to sec. 40 A(3) read with rule 6DD, payment of expenses exceeding Rs. 20000
otherwise than by A/c payee cheque or draft shall disallowed in full. In this case cash
payment is exactly Rs. 20000. Hence, no disallowance is warranted u/s 40A (3).
4) As per sec. 35(2AB), companies engaged in business of Chemical Industries shall be
eligible to claim weighted deduction of 150% of any expenditure incurred (other than
expenditure on cost of land or building) on in house research development. Therefore
company can claim Rs. 15 lacks, being 150% of Rs. 10 Lacks in house R and D
expenditure.

40
 5) Royalty paid to a non-resident either in India or outside India without deducting tax shall
be disallowed u/s 40(a)(1). However, the same shall be allowed as deduction in the year
in which tax has been deducted and remitted.

CASE STUDY ON CAPITAL GAIN

Karthik has acquired a residential house property in Gandhi Nagar on 1stapril 2002 for Rs.
1000000 and decided to sell to sell the same on 3rd May, 2005 to Ms. Vimal and an advance of
Rs. 25000 was taken from her. The balance money was not paid by Ms. Vimal, Karthik has
forfeited the entire advance sum. On 3rd June, 2015, he has sold this house to Mr. Vivek for Rs.
3500000. In the meantime, on 4th April 2015, he had purchased a residential house in Gandhi
Nagar for Rs. 800000, where he was staying with his family on rent for the last 5 years and
paid the full amount as per the purchase agreement. However, Karthik does not possess any
legal title till 31st March, 2016 as such transfer was not registered with the registration
authority.
Karthik has purchased another old house in Mumbai on 14th October, 2015 from Mr. X, an
Indian resident, by paying Rs. 500000 and the purchase was registered with the appropriate
authority.
Determine the taxable capital gain arising from above transactions in the hands of Karthik for
Assessment Year 2016-2017 [cost inflation index- 2002-2003: 447; 2005-06: 497; 2015-
16:1081]

COMPUTATION OF TOTAL TAXABLE INCOME FROM CAPITAL GAIN OF MR

KARTHIK FOR THE A.Y. 2017-18:

41
Particulars Amount
Sale proceeds 35,00,000
Less: Indexed cost of acquisition 24,16,107
Long term capital gain 10,83,893
Less: Exemption under section 54 in respect of investment in house
at Gandhi Nagar 8,00,000
Taxable long-term capital gain 283893

CASE STUDY ON OTHER SOURCES

This is case study of calculation of taxable income from other sources of Mr. Bhavin
furnishes the following details for the AY 2017-2018.

The following table gives details of the taxable income from other sources based on the
information provided.
COMPUTATION OF TAXABLE INCOME FROM OTHER SOURCES OF MR. BHAVIN
FURNISHES:

Particulars Amount Amount

Net agricultural income in India NIL
Net agricultural income from the land in Shri Lanka 10000
Profit on sale of agricultural land situated in NA
Hyadrabad city
Vacant land- ground rent received 12000
Directors sitting fees 3600

42
 Interest on postal saving bank A/c NIL
Interest credited to PPF A/c NIL
Interest accrued but not received on NSC vii issue 1050
Dividend received from foreign company 1100
Less: interest paid on amount borrowed
8600 (7500)
Gift from a friend in foreign currency 50001
Add: gift in Indian currency 500 50501
Winning from lottery(gross) 100000
Taxable income from other sources 169651

Hence the net income from other sources is Rs. 169651 per annum.

CHAPTER – V

FINDING
1) INCOME FROM SALARY:
a) In the case of salary, income from salary is calculated.
b) Taxable value of travelling of travelling allowance is deducted.
c) The table values of following perquisites are deducted.
Medical facility, unfurnished concessional rent accommodation, motor car, Gardner
and cook.

d) Employer’s contribution to RPF is exempted up to 12% of salary and interest on

contribution to RPF is exempted up to 12% of salary and interest on contribution
exempted up to 9.5%.

2) INCOME FROM HOUSE PROPERTY:

a) In case of house property, income from own residence, let out and vacant house
property income from own residence, let out and vacant house property is calculated.

43
b) Deduction u/s 24 is deducted like standard deduction and interest on borrowed capital
is deducted.

3) PROF IT AND GAINS FROM BUSINESS OR PROFESSION:

a) In case of profits and gains from business and profession, income is calculated.
b) Expenditure on scientific research-weighted deduction @ 150% is deducted.
c) Royalty paid to foreign company is deducted.

4) CAPITAL GAINS:
a) In case of capital gain income from capital gain is calculated from short term and long
term.
b) Cost of acquisition is calculated on sale of flat(short term)

5) INCOME FROM OTHER SOURCES:

a) In case of other sources income calculated which is not covered in above four
categories. Balance is income from other sources.
b) Interest paid on amount borrowed is deducted from dividend received from foreign
company and gift Indian currency is added to gift in foreign currency.

44
 CHAPTER – VI

SUGGESTION AND CONCLUSION

SUGGESTION

1) During the calculation of Income from five a heads, there is vast theoretical data it is
needed to compress theoretical similar data.
2) Need to focus on exemption and deduction criteria.
3) Most of the people try to avoid the tax by the way of legal and illegal frame. There is
need of low tax system as per income.
4) There is number of deduction under section 80C but minimum exemption limit, need
to increase deduction limit or there should separate limit for every section.

45
 CONCLUSION

Income tax is payable by an Assesse on his total income from all the sources of
income. Each source has its own unique features and requires specific treatment for
correct computation of income from that particular source. All heads of income mutually
exclusive. If any Income considered under a particular head, it will not be taken into
consideration for another head.

BIBLIOGRAPHY

Dr. Vinod Singhania and Kapil Singhania, Direct Taxes law & Practices, Taxman’s, 56th
Editions 2016-17

Vinod Gupta, Direct Tax Laws, Law book Publishers, 2015-16

Institute of chartered accountants of India, Direct Tax Laws, 2015-16

Institute of Company Secretaries of India Tax Laws and Practice (Module I Paper 4), 2015-16

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