INCOME TAX IN INDIA

The government of India imposes an income tax on taxable income of individuals, Hindu Undivided Families (HUFs), companies, firms, co-operative societies and trusts (Identified as body of Individuals and Association of Persons) and any other artificial person. Levy of tax is separate on each of the persons. The levy is governed by the Indian Income Tax Act, 1961. The Indian Income Tax department is governed by the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue under the Ministry of Finance, Govt. of India. . OVERVIEW CHARGE TO INCOME-TAX Every Person whose total income exceeds the maximum amount which is not chargeable to the income tax is an assesse, and shall be chargeable to the income tax at the rate or rates prescribed under the finance act for the relevant assessment year, shall be determined on basis of his residential status. Income tax is a tax payable, at the rate enacted by the Union Budget (Finance Act) for every Assessment Year, on the Total Income earned in the Previous Year by every Person. The changeability is based on nature of income, i.e., whether it is revenue or capital. The principles of taxation of income are:

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RESIDENTIAL STATUS The inclusion of a particular income in the Total Income 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 [1] All residents are taxable for all their income, including income outside India. [2] 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. DEPARTMENTAL STRUCTURE * * * * * * * * * * * * Chairman Board Members of Direct Taxes Chief Commissioner Commissioner Additional Commissioner Joint Commissioner Deputy Commissioner Assistant Commissioner Income Tax Officer Tax Inspector Tax Assistant Constable

. HEADS OF INCOME The total income of a person is divided into five heads, viz., taxable[3]: 1. 2. 3. 4. 5. Salaries Income from House Property Profits and Gains of Business or Profession Capital Gains Income from Other sources

. INDIVIDUAL HEADS OF INCOME INCOME FROM SALARY

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All income received as salary under Employer-Employee relationship is taxed under this head. Employers must withhold tax compulsorily, if income exceeds minimum exemption limit, as Tax Deducted at Source (TDS), and provide their employees with a Form 16 which shows the tax deductions and net paid income. In addition, the Form 16 will contain any other deductions provided from salary such as: 1. Medical reimbursement: Up to Rs. 15,000 per year is tax free if supported by bills. 2. Conveyance allowance: Up to Rs. 800 per month (Rs. 9,600 per year) is tax free if provided as conveyance allowance. No bills are required for this amount. 3. Professional taxes: Most states tax employment on a per-professional basis, usually a slabbed amount based on gross income. Such taxes paid are deductible from income tax. 4. House rent allowance: the least of the following is available as deduction 1. Actual HRA received 2. 50%/40%(metro/non-metro) of basic 'salary' 3. Rent paid minus 10% of 'salary'. basic Salary for this purpose is basic+DA forming part+commission on sale on fixed rate.

Income from salary is net of all the above deductions INCOME FROM HOUSE PROPERTY Income from House property is computed by taking what is called Annual Value. The annual value (in the case of a let out property) is the maximum of the following: . Rent received . Municipal Valuation . Fair Rent (as determined by the I-T department)

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If a house is not let out and not self-occupied, annual value is assumed to have accrued to the owner. Annual value in case of a self occupied house is to be taken as NIL. (However if there is more than one self occupied house then the annual value of the other house/s is taxable.) From this, deduct Municipal Tax paid and you get the Net Annual Value. From this Net Annual Value, deduct: . 30% of Net value as repair cost (This is a mandatory deduction) . Interest paid or payable on a housing loan against this house In the case of a self occupied house interest paid or payable is subject to a maximum limit of Rs, 1, 50,000 (if loan is taken on or after 1 April 1999 and construction is completed within 3 years) and Rs.30,000 (if the loan is taken before 1 April 1999). For all non self-occupied homes, all interest is deductible, with no upper limits. The balance is added to taxable income. INCOME FROM BUSINESS OR PROFESSION Carry forward of losses An example .. An architect works out of home and coordinates work for his clients. All the following expenses would be deductible from his professional fees. .he uses a computer, .he travels to sites in his car, .he has a peon to help him collect payments .He has a maid who comes in daily .part of the society maintenance bills .Entertainment expenses incurred.. .Books and magazines for his professional practice. The income referred to in section 28, i.e, the incomes chargeable as "Income from Business or Profession" shall be computed in accordance with the provisions contained in sections 30 to 43D. However, there are few more sections under this Chapter, viz., Sections 44 to 44DA (except sections 44AA, 44AB & 44C), which contain the computation completely within itself. Section 44C is a disallowance provision in the case non-residents. Section 44AA deals with maintenance of books and section 44AB deals with audit of accounts.

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In summary, the sections relating to computation of business income can be grouped as under: 1. 2. 3. 4. 5. Deductible Expenses - Sections 30 to 38 [except 37(2)]. Inadmissible Expenses - Sections 37(2), 40, 40A, 43B & 44-C. Deemed Incomes - Sections 33AB, 33ABA, 33AC, 35A, 35ABB & 41. Special Provisions - Sections 42 & 43D Self-Coded Computations - Sections 44, 44A, 44AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB, 44-D & 44-DA.

The computation of income under the head "Profits and Gains of Business or Profession" depends on the particulars and information available.[4] If regular books of accounts are not maintained, then the computation would be as under: Income (including Deemed Incomes) chargeable as income under this head xxx Less: Expenses deductible (net of disallowances) under this head xxx Profits and Gains of Business or Profession xxx However, if regular books of accounts have been maintained and Profit and Loss Account has been prepared, then the computation would be as under: Net Profit as per Profit and Loss Account xxx Add: Inadmissible Expenses debited to Profit and Loss Account xxx Deemed Incomes not credited to Profit and Loss Account xxx xxx Less: Deductible Expenses not debited to Profit and Loss Account xxx Incomes chargeable under other heads credited to Profit & Loss A/c xxx

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xxx Profits and Gains of Business or Profession xxx

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INCOME FROM CAPITAL GAINS Transfer of capital assets results in capital gains. A Capital asset is defined under section 2(14) of the I.T. Act, 1961 as property of any kind held by an assesse such as real estate, equity shares, bonds, jewellery, paintings, art etc. but does not include some items like any stock-in-trade for businesses and personal effects. Transfer has been defined under section 2(47) to include sale, exchange, relinquishment of asset, extinguishment of rights in an asset, etc. Certain transactions are not regarded as 'Transfer' under section 47. For tax purposes, there are two types of capital assets: Long term and short term. Long term asset are held by a person for three years except in case of shares or mutual funds which becomes long term just after one year of holding. Sale of such long term assets gives rise to long term capital gains. There are different scheme of taxation of long term capital gains. These are: 1. As per Section 10(38) of Income Tax Act, 1961 long term capital gains on shares or securities or mutual funds on which Securities Transaction Tax (STT) has been deducted and paid, no tax is payable. STT has been applied on all stock market transactions since October 2004 but does not apply to off-market transactions and company buybacks; therefore, the higher capital gains taxes will apply to such transactions where STT is not paid. 2. In case of other shares and securities, person has an option to either index costs to inflation and pay 20% of indexed gains, or pay 10% of none indexed gains. The indexation rates are released by the I-T department each year. 3. In case of all other long term capital gains, indexation benefit is available and tax rate is 20%. All capital gains that are not long term are short term capital gains, which are taxed as such: Under section 111A, for shares or mutual funds where STT is paid, tax rate is 10% From Asst Yr 2005-06 as per Finance Act 2004. For Asst Yr 2009-10 the tax rate is 15%. * In all other cases, it is part of gross total income and normal tax rate is applicable. *

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For companies abroad, the tax liability is 20% of such gains suitably indexed (since STT is not paid). INCOME FROM OTHER SOURCES This is a residual head; under this head income which does not meet criteria to go to other heads is taxed. There are also some specific incomes which are to be taxed under this head. 1. 2. 3. 4. Income by way of Dividends Income from horse races Income from winning bull races Any amount received from key man insurance policy an donation.

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AGRICULTURAL INCOME SECTION 10(1)

U/s 10(1) agricultural income is exempted from tax. Agriculture income means under section 2(1A) the expression agricultural income means a. Any rent o7r revenue derived from land which is situated in India and is is used for agricultural purpose. b. Any income derived from such land by agricultural operations including processing of agricultural produce, raised or received as rent in kind so as to render it fit for market or sale of such produce. c. Income attributable to a farm house subject to certain conditions.

Three types of income are classified as agricultural incomes. a. Rent or revenue from land b. Income from agricultural operations c. Income attributable to farm house rent or revenue from land. Rent or revenue derived from land will termed as agricultural income. i) Rent or revenue is derived from land (in cash or kind) ii) The land is situated in India. iii) The land is use for agricultural purpose. This clause covers income of landlord from land used for agricultural purpose and situated in India.

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d. INCOME FROM AGRICULTURAL OPERATIONS. It includes i) Income derived by performing agricultural operations from land situated in India and used for agricultural purposes. I.e. income of a cultivator ii) Income derived by the cultivator of land by performance of agricultural operations in India is exempted from tax. In some cases the cultivator or receiver of rent in kind has to perform some operations so as to make the agricultural produce fit for market. This is the case where the agriculture output is not marketable unless some other non agricultural operations are performed on the agricultural output. Income from such operations is considered as agricultural income. Such operation may be performed by the cultivator or the receiver of rent in kind. In such cases, income from both the operations, agricultural as well operations necessary to make the produce marketable will be considered as agricultural income. C. INCOME FROM FARM BUILDING: Annual value of a house property is taxable under section 22. However income from a house property which satisfies the following conditions would be treated as agricultural income A} The building or house property is occupied by the cultivator or receiver of rent in kind. B} The house property should be on or in the immediate vicinity of land, situated in India and used for agricultural purposes. C} The cultivator or receiver of rent in kind requires the building as dwelling house or as a store house due to agricultural operations carried on the land. D} The land is assessed to land revenue or local rates.

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OR if the land is not assessed to land revenue it should be situated outside urban areas. It mean land should not be situated in any area which is with the jurisdiction of a municipality or a cantonment board and which has a population of a 10,000 or more and it should not be situated within such limits (max. 8 km) from the local limits of such municipality or cantonment board as the central government may be notification in the official gazette specify in this behalf If the above conditions are satisfied, income from farm building is exempt from tax under sec 2 (1A) (c). Amendment made by the finance act 2000 Finance act 200 has inserted explanation 2 to clause (1A) above. This explanation states that if any income is derived from such farm building due to use of such building for any other purpose (including letting for residential purpose or for the purpose of any business or profession) then such an income shall not be considered as agricultural income. In other words if such a farm building which is referred above is used for non agricultural purpose, income derived from such use will not be considered as agricultural income. The primary condition to claim exemption as agricultural income is that the land should be used for agricultural purpose. The term agriculture or agricultural purpose has not been defined in the act. Bhagwati J after discussing the case on the subject laid down the following principles in CIT v/s Benoy Kumar Sahas (1957) SC. a) Some basic operations prior to germination involving expenditure of human skill and labour on the land itself is essentials to constitute agriculture activity. Examples of such activities are tilling of land, sowing or disseminating of seeds and planting. b) Subsequent operations which are performed after the produce sprouts from the land e.g. weeding, digging, cutting etc by themselves do not

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constitute agriculture. However if subsequent operations are combined with the basic operations, the subsequent operations would also constitute part of the agricultural activity. c) Agriculture connotes not merely raising food grains food produces it also includes raising of all commercial crops such as tea, coffee, cotton, sugarcane, rubber etc. d) The most important principle is that activities which do not involve basic operations would not constitute agriculture. The mere fact that on activity has some connection with land or an activity is dependent upon land is not sufficient to bring it within the scope of agricultural income. For example breeding and rearing of live stock, dairy farming would not amount to agricultural activity. e) In CIT v/s Kameshwar Singh it was held that in a forest where there is no tilling of land or other basic operations like sowing, or planning and all trees are of spontaneous germination, subsequent operations for the conservation, growth and improvement of the forest trees would not constitute agricultural operations. Following incomes are held as agricultural income. a) Rent for agricultural land received from sub tenant by mortgagee in possession. b) Profit on sale of standing crop or produce after harvest by a cultivating owner or tenant of land. c) If denuded parts of the forest are replanted and subsequent operations in forestry are carried out, the income arising from sale of replanted trees. d) Income from growing flowers and creepers. e) Share of profit of partner from a firm engaged in agricultural operation and also salary received by him for rendering services is agricultural income. f) Interest on capital received by partner from the firm engaged in agricultural operation.

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Following incomes are not agricultural incomes. a) Interest on arrears of rent in respect of land used for agricultural purpose. b) Income from sale of forest trees, fruits and flowers growing on land naturally without the intervention of labour. c) Income from sale of wild grass of spontaneous growth. d) Dividend paid by a company out of its agricultural income. e) Interest received by a money lender in the form of agricultural produce. f) Commission earned by the landlord for selling agricultural produce of his tenant. g) Remuneration received by a money lender in the form of agricultural produce. h) Income of salt produced by the flooding the land with sea water as it is not derived from land used for agricultural income. i) Income from poultry farming, fisheries, mines. There are some business in which the some activates are agricultural activities and some activities are non agricultural activities. For example if the assesse is engaged in cultivation of sugarcane and manufacturing of sugar. The activity is connections of manufacturing of sugar are not agricultural activities, since activities in connection with manufacturing of sugar are not for making the sugarcane fit for market. In such cases the income from non agricultural activities will be ascertained by deductining market sd value of agricultural produce which has been raised by the assesse or received by him as rent in kind and which has been utilized as a raw material. However no deduction shall be allowed in respect of any expenditure incurred by him for earning agricultural income. In other words, we have to first total income from all activities and then deduct the market value of the produce used for manufacturing sugar. Growing of sugar cane converting sugarcane in to sugar Expenses 5,00,000 expenses incurred 7,00,000 Sugar sold for Rs 20,00,000

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Market value of cane transferred 7,00,000 Income = sale price of sugar – expenses on manufacturing sugar market value of sugarcane utilized in manufacturing of sugar. Expenses incurred on cultivation of sugar will not be allowed as deduction. For example if a sugar mill has its own farm and the sugarcane grown on the farm has been utilized in the factory, the average market price of the sugar cane shall be deducted from the sale proceeds of sugar while computing the taxable income from manufacturing of sugar. INCOME FROM MANUFACTURING OF TEA. Income derived from cultivator or receiver of rent in kind from any process ordinarily employed to render the agricultural produce fit for market. In some cases the cultivator or recievor of rent in kind has to perform some operations so as to make the agricultural produce fit for market. Income from such operations is considered as agricultural income. Cultivation of tea is one such activity. If a manufacturer is engaged in cultivation and manufacture of tea the activities and connection with the manufacture of tea would strictly be regarded as agricultural activities and as manufacturing operation in respect of tea are essential to make the produce marketable. This would imply that the entire income of cultivation and manufacturing of tea would be agricultural income .however the ensure that such assesses pay a reasonable amount of tax it has been provided that in case of income derived from assesses engaged in cultivation and manufacture of tea, sixty percent of the income would be treated as agricultural income and fourty percent as non agricultural business income. In computing the total income all cost incurred in connection raising of tea will deducted such method of dividing composite income(agricultural income and non agricultural income) is also applicable , in case of growing and manufacturing coffee in India and growing and manufacturing centrifuged latex or cenex

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manufactured from rubber plants grown by the seller in India.(with effect from assessment year 2002-2003.

Growing and manufacturing tea in India 40% is charged as non agricultural income and 60% is agricultural income. Growing and manufacturing coffee in India with or without mixing of chicory or other flavouring ingredients 40% is charged as non agricultural income and 60% is agricultural income. Sale of centrifuged latex or cenex manufactured from rubber plants grown by the seller in India 35% is charged as non agricultural income and 65% is treated as agricultural income.

Though agricultural income has been exempted from payment of income tax , agricultural income is taken in to account for the purpose of determining the payable on non agricultural income. The procedure for computing tax of payable on non agricultural income is stated as below. This procedure is applicable only if the following conditions are satisfied. a. THE tax payer is an individual, a Hindu undivided family or a body of individual or an association of persons. b. the non-agricultural income of the payers is more than exemption limit (Rs 1,45,000 in case of woman, Rs.1,95,000 in case of an senior citizen and Rs.1,10,000 in any other case)
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c. the agricultural income of the tax payer more than Rs.5000 Following steps are taken for calculating the exemption in respect of agricultural income. 1) Net agricultural income is computed and added to the non agricultural income as if agricultural income was chargeable to tax.

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2) Tax is calculated on such aggregated income. this may be called tax on aggregate income 3) The net agricultural income is increased by Rs.50,000 and tax is calculated on net agricultural income so increases as if such income is taxable. 4) Tax payable = tax on aggregate income - tax on agricultural income. I.e. tax determined in (2) above - tax determined (3) above.

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http://www.investmentyogi.com/blogs/taxes/treehands2_614CF1F2.jpg RECEIPTS BY A MEMBER FROM A HINDUUNDIVIDED FAMILY Sec.10 (2)

As per section 10(2), any sum received by an individual as a member of a Hindu undivided family either out of income of the family or out of income of estate belonging to the family is exempt from tax. Such receipts are not chargeable to tax in the hands of an individual member even if tax is not paid or payable by the family on its total income.

Illustration 3.1 - X, an individual, has personal income of Rs. 56,000 for the previous year 2005-06. He is also a member of a Hindu undivided family, which has an income of Rs. 1, 08,000 for the previous year 2005-06. Out of income of the family, X gets Rs. 12,000, being his share of income. Rs. 12,000 will be exempt in the hands of X by virtue of section 10(2). The position will remain the same whether (or not) the family is chargeable to tax. X shall pay tax only on his income of Rs. 56,000

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SHARE OF PROFIT FROM PARTNERSHIPFIRM Sec.10 (2A)

As per section 10(2a), share of profit received by partners from a firm is not taxable in the hand of partners. This will the case even if the partner is a minor admitted for the benefits of the partnership.

CASUAL AND NON-RECURRING INCOME Sec.10 (4) and (4B)

LEAVE TRAVEL CONCESSION Sec.10 (5)

As per section 10(5), the amount exempt under section 10(5) is the value of any travel concession or assistance received or due to the assesse from his employer for himself and his family in connection with his proceeding on leave to any place in India. The amount exempt can in no case exceed the expenditure actually incurred for the purposes of such travel. Only two journeys in a block of four years is exempt. Exemption is available in respect of travel fare only and also with respect to the shortest route.

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http://dailycapitalist.com/wp-content/uploads/2009/10/Obama-note.jpg FOREIGN ALLOWANCE Sec.10 (7)

As per section 10(7), any allowance paid or allowed outside India by the Government to an Indian citizen for rendering service outside India is wholly exempt from tax.

TAX ON PERQUISITE PAID BY EMPLOYER Sec.10 (10CC)

As per section 10(10CC), the amount of tax actually paid by an employer, at his option, on non-monetary perquisites on behalf of an employee, is not taxable in the hands of the employee. Such tax paid by the employer shall not be treated as an allowable expenditure in the hands of the employer under section 40.

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http://img.mohanbn.com/2008/12/jeevan-aastha.jpg AMOUNT PAID ON LIFE INSURANCE POLICIES Sec.10 (10D)

As per section 10(10D), any sum received on life insurance policy (including bonus) is not chargeable to tax. Exemption is, however, not available in respect of the amount received on the following policies –

a. any sum received under section 80DD (3) or 80DDA (3); b. any sum received under a Keyman insurance policy; c. any sum received under an insurance policy (issued after March 31, 2003) in respect of which the premium payable for any of the years during the term of policy, exceeds 20 per cent of the actual sum assured.

In respect of (c) (supra) the following points should be noted -

1. Any sum received under such policy on the death of a person shall continue to be exempt.

2. The value of any premiums agreed to be returned or of any benefit by way of bonus or otherwise, over and above the sum actually assured, which is received under the policy by any person, shall not be taken into account for the purpose of calculating the actual capital sum assured under this clause.

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http://mikefalick.blogs.com/my_blog/images/2007/05/25/menu_01.jpg EDUCATIONAL SCHOLARSHIPS Sec.10 (16)

As per section 10(16), scholarship granted to meet the cost of education is exempt from tax. In order to avail the exemption it is not necessary that the Government should finance scholarship.

DAILY ALLOWANCES OF MEMBERS OFPARLIAMENT Sec.10 (17) Clause (17) of section 10 provides exemption to Members of Parliament and State Legislature in respect of the following allowances:

CASES NATURE OF ALLOWANCE HOW MUCH IS EXEMPT Case 1 Daily allowance Entire amount is exempt Case 2 Any other allowance received by a Member of Parliament under the

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Members of Entire amount is exempt

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Parliament (Constituency Allowance) Rules, 1986 Case 3 All allowances received by any person by reason of his member- ship of any State Legislature or any Committee thereof Up to Rs. 2,000 per month in aggregate

FAMILY PENSION RECEIEVED BYMEMBERS OF ARMED FORCES Sec.10 (19)

As per section 10(19), family pension received by the widow (or children or nominated heirs) of a member of the armed forces (including para-military forces)Of the Union is not chargeable to tax from the assessment year 200506, if death is occurred in such circumstances given below—

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a. acts of violence or kidnapping or attacks by terrorists or anti-social elements; b. b. action against extremists or anti-social elements; c. c. enemy action in the international war; d. d. action during deployment with a peace keeping mission abroad; e. e. border skirmishes; f. f. laying or clearance of mines including enemy mines as also mine sweeping g. operations; h. g. explosions of mines while laying operationally oriented mine-fields or lifting or i. negotiation mine-fields laid by the enemy or own forces in operational areas

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j. near international borders or the line of control; k. h. in the aid of civil power in dealing with natural calamities and rescue l. operations; and m. i. in the aid of civil power in quelling agitation or riots or revolts by n. demonstrators

INCOME OF MINOR Sec.10 (32)

As per section 10(32), in case the income of an individual includes the income of his minor child in terms of section 64(1A), such individual shall be entitled to exemption of Rs. 1,500 in respect of each minor child if the income of such minors includible under section 64(1A) exceeds that amount. Where, however, the income of any minor so includible is less than Rs. 1,500, the aforesaid exemption shall be restricted to the income so included in the total income of the individual

CAPITAL GAIN ON TRANSFER OF US 64 Sec.10 (33)

As per section 10(33), any income arising from the transfer of a capital asset being a unit of US 64 is not chargeable to tax where the transfer of such assets takes place on or after April 1, 2002. This rule is applicable whether the capital asset (US64) is long-term capital asset or short-term capital asset. If income from a particular source is exempt from tax, loss from such source cannot be set off against income from another source under the same head of income. Consequently, loss arising on transfer of units of US64 cannot be set off against any income in the same year in which it is incurred and the same cannot be carried forward.

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DIVIDENDS AND INTEREST ON UNITS Sec.10 (34)/(35)

As per section 10(34)/ (35), the following income is not chargeable to tax—

a. any income by way of dividend referred to in section 115-O [i.e., dividend, not being covered by section 2(22) (e), from a domestic company];

b. any income in respect of units of mutual fund;

c. income from units received by a unit holder of UTI [i.e., from the administrator of the specified undertaking as defined in Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002];

d. Income in respect of units from the specified company.

CAPITAL GAIN ON COMPULSORYACQUISITION OF URBAN AGRICULTURALLAND Sec.10 (37)

As per section 10(37), in the case of an individual/Hindu undivided family, capital gain arising on transfer by way of compulsory acquisition of urban agricultural land is not chargeable to tax from the assessment year 2005-06 if such compensation is received after March 31, 2004 and the agricultural land was used by the assesse (or by any of his parents) for agricultural purposes during 2 years immediately prior to transfer.

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LONG-TERM CAPITAL GAINS ON TRANSFER OF EQUITYSHARES/UNITS INCASES COVERED BY SECURITIES TRANSACTION TAX Sec.10 (38)

As per section 10(38), Long-term capital gains arising on transfer of equity shares or units of equity oriented mutual fund is not chargeable to tax from the assessment year 2005-06 if such a transaction is covered by securities transaction tax. The securities transaction tax is applicable if equity shares or units of equity oriented mutual fund are transferred on or after October 1, 2004 in a recognized stock exchange in India (or units are transferred to the mutual fund). If the securities transaction tax is applicable, long-term capital gain is not chargeable to tax; short-term capital gain is taxable @ 10 per cent (plus SC and EC). If income is shown as business income, the taxpayer can claim rebate under section88E.

* The lesson discusses in brief few selected income, which are exempt from income-tax in India. The few important in today age include agricultural income, income of minor, family pension; leave travel commission and dividend income.

* Deduction: While deduction is available from gross total income, exemptions are not included in gross total income.

* Agricultural income from a foreign country: Indian agricultural income
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is exempt from tax by virtue of section 10(1). Agricultural income from a foreign country is treated as non-agricultural income in India.

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NATURE OF INCOME EXEMPTION LIMIT, IF ANY 10(1) Agricultural income

10(2) Share from income of HUF

10(2A) Share of profit from firm

10(3) Casual and nonrecurring receipts Winnings from races Rs.2500/- other receipts Rs.5000/10(10D) Receipts from life Insurance Policy

10(16) Scholarships to meet cost of education
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10(17) Allowances of MP and MLA. For MLA not exceeding Rs. 600/- per month 10(17A) Awards and rewards (i) from awards by Central/State Government (ii) from approved awards by others (iii) Approved rewards from Central & State Governments

10(26) Income of Members of scheduled tribes residing in certain areas in North Eastern States or in the Ladakh region. Only on income arising in those areas or interest on securities or dividends 10(26A) Income of resident of Ladakh On income arising in Ladakh or outside India 10(30) (i) Subsidy from Tea Board under approved
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scheme of replantation

10(31) (ii) Subsidy from concerned Board under approved Scheme of

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replantation 10(32) Minor’s income clubbed with individual Upto Rs. 1,500/10(33) Dividend from Indian Companies, Income from units of Unit Trust of India and Mutual Funds, and income from Venture Capital Company/fund.

10(A) Profit of newly established undertaking in free trade zones electronic hardware technology park on software technology park for 10 years (net beyond 10 year from 2000-01)

10(B) Profit of 100% export oriented undertakings manufacturing articles or things or computer software for 10 years (not beyond 10 years from 2000-01)

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10(C) Profit of newly established undertaking in I.I.D.C or I.G.C. in North-Eastern Region for 10 years

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INCOME FROM INTEREST Section Nature of Income Exemption limit, if any 10(15)(i)(iib)(iic) Interest, premium on� redemption or other payments from notified securities, bonds, Capital investment bonds, Relief bonds etc. To the extent mentioned in notification 10(15)(iv)(h) Income from interest payable by a Public Sector Company on notified bonds or debentures

10(15)(iv)(i) Interest payable by Government on deposits made by employees of Central or State Government or Public Sector Company of money due on retirement under a notified scheme

10(15)(vi) Interest on notified Gold Deposit bonds

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10(15)(vii) Interest on notified bonds of local authorities

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INCOME FROM SALARY Section Nature of Income Exemption limit, if any 10(5) Leave Travel assistance/ concession Not to exceed the amount payable by Central Government to its employees 10(5B) Remuneration of technicians having specialised knowledge and experience in specified fields (not resident in any of the four preceding financial years) whose services commence after 31.3.93 and tax on whose remuneration is paid by the employer Exemption in respect of income in the from of tax paid by employer for a period upto 48 months 10(7) Allowances and perquisites by the government to citizens of India for services abroad

10(8) Remuneration from foreign
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governments for duties in India under Cooperative technical assistance programmers. Exemption is provided also in respect of any other income arising outside India provided tax on such income is payable to that Government.

10(10) Death-cum-retirement Gratuity-

(i) from Government

(ii) Under payment of Gratuity Act 1972 Amount as per Sub-sections (2), (3) and (4) of the Act.

(iii) Any other Upto one-half month’s salary for each year of

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completed service. 10(10A) Commutation of Pension-

(i) from government, statutory Corporation etc.

(ii) from other employers Where gratuity is payable – value of 1/3 pension.� Where gratuity is not payable – value of 1/2 pension

(iii) from fund set up by LIC u/s 10(23AAB)

10(10AA) Encashment of unutilized earned leave

(i) from Central or State government

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(ii) from other employers Upto an amount equal to 10 months salary or Rs. 1,35,360/- whichever is less 10(10B) Retrenchment compensation Amount u/s. 25F (b) of Industrial Dispute Act 1947 or the amount notified by the government, whichever is less. 10(10C) Amount received on voluntary retirement or termination of service or voluntary separation under the schemes prepared as per Rule 2BA from public sector companies, statutory authorities, local authorities, Indian Institute of Technology, specified institutes of management or under any scheme of a company or Co-operative Society Amount as per the Scheme subject to maximum of Rs. 5 lakh 10(11) Payment under Provident Fund Act 1925 or other

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notified funds of Central Government 10(12) Payment under recognized provident funds To the extent provided in rule 8 of Part A of Fourth Schedule 10(13) Payment from approved Superannuation Fund

10(13A) House rent allowance least of-

(i) actual allowance

(ii) actual rent in excess of 10% of salary

(iii) 50% of salary in Mumbai, Chennai, Delhi and Calcutta and 40% in other places 10(14)
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Prescribed [See Rule 2BB (1)] special allowances or benefits specifically granted to meet expenses wholly necessarily and exclusively incurred in the performance of duties To the extent such expenses are actually incurred. 10(18) Pension including family pension of recipients of notified gallantry awards

EXEMPTIONS TO NON-CITIZENS ONLY Section Nature of Income Exemption limit, if any 10(6)(i)(a) and (b) (i) passage money from employer for the employee and his family for home leave outside India

(ii) Passage money for the employee and his family to ‘Home country’ after retirement/termination of service in India.

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10(6)(ii) Remuneration of members of

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diplomatic missions in India and their staff provided the members of staff are not engaged in any business or profession or another employment in India. 10(6)(vi) Remuneration of employee of foreign enterprise for services rendered during his stay in India in specified circumstances provided the stay does not exceed 90 days in that previous year.

10(6)(xi) Remuneration of foreign Government employee on training in certain establishments in India.

EXEMPTIONS TO NON-RESIDENT INDIANS (NRIS) ONLY Section Nature of Income Exemption limit, if any 11.2 The units purchased by them are out of the amount remitted from abroad or from their Non-resident (External) Account

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EXEMPTIONS TO FUNDS, INSTITUTIONS, ETC. Section Nature of Income Exemption limit, if any 10(14A) Public Financial Institution from exchange risk premium received from person borrowing in foreign currency if the amount of such premium is credited to a fund specified in section 10(23E)

10(15)(iii) Central Bank of Ceylon

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from interest on securities 10(15)(v) Securities held by Welfare Commissioners Bhopal Gas Victims, Bhopal from Interest on securities held in Reserve Bank’s SGL Account No. SL/DH-048

10(20) any local Authority (a)� Business income derived from Supply of water or electricity any where. Supply of other commodities or service within its own jurisdictional area.

(b) ½ Income from house property, other sources and capital gains. 10(20A) Housing or other Development authorities

10(21) Approved Scientific Research Association

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10(23) Notified Sports Association/ Institution for control of cricket, hockey, football, tennis or other notified games.

10(23A) Notified professional association/institution All income except from house property, interest or dividends on investments and rendering of any specific services 10(23AA) Regimental fund or Nonpublic fund

10(23AAA) Fund for welfare of employees or their dependents.

10(23AAB) Fund set up by LIC of India under a pension scheme

10(23B) Public charitable trusts or registered societies approved

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by Khadi or Village Industries commission 10(23BB) Any authority for development of khadi or village industries

10(23BBA) Societies for administration of public, religious or charitable trusts or endowments or of registered religious or charitable Societies.

10(23BBB) European Economic Community from Income from interest, dividend or capital gains

10(23BBC) SAARC Fund

10(23C) Certain funds for relief, charitable and promotional purposes, certain educational or medical institutions

10(23D)
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Notified Mutual Funds

10(23E) Notified Exchange Risk Administration Funds

10(23EA) Notified Investors Protection Funds set up by recognized Stock Exchanges

10(23FB) Venture capital Fund/ company set up to raise funds for invest�ment in venture Capital undertaking Income from invest�ment in venture capital undertaking 10(23G) Infrastructure capital fund, or infrastructure capital company Income from dividend, interest and long term capital gains from investment in approved infrastructure enterprise 10(24) Registered Trade Unions Income from house property and other sources
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10(25)(i) Provident Funds Interest on securities and

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capital gains from transfer of such securities 10(25)(ii) Recognized Provident Funds

10(25)(iii) Approved Superannuation Funds

10(25)(iv) Approved Gratuity Funds

10(25)(v) Deposit linked insurance funds

10(25A) Employees State Insurance Fund

10(26B)(26BB) and (27) Corporation or any other body set up or financed by and government for welfare of scheduled caste/ scheduled tribes/backward classes or minorities communities

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10(29) Marketing authorities Income from letting of go down and warehouses 10(29A) Certain Boards such as coffee Board and others and specified Authorities

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CONCLUSION

Various tax systems grant a tax exemption to certain organizations, persons, income, property or other items taxable under the system. Tax exemption may also refer to a personal allowance or specific monetary exemption which may be claimed by an individual to reduce taxable income under some systems. Tax exempt status may provide a potential taxpayer complete relief from tax, tax at a reduced rate, or tax on only a portion of the items subject to tax. Examples include exemption of charitable organizations from property taxes and income taxes, exemptions provided to veterans, and exemptions under cross-border or multijurisdictional principles. Tax exemption generally refers to a statutory exception to a general rule rather than the mere absence of taxation in particular circumstances (i.e., an exclusion). Tax exemption also generally refers to removal from taxation of a particular item or class rather than a reduction of taxable items by way of deduction of other items (i.e., a deduction). Tax exemptions may theoretically be granted at any governmental level that imposes taxation, though in some broader systems restraints are imposed on such exemptions by lower tier governmental units.

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WEBLIOGRAPHY

@ http://www.etaxindia.org/2010/02/income-exemptunder-section-10.html @ http://www.indiastudychannel.com/resources/73921Income-exempt-under-section.aspx @ http://www.usig.org/countryinfo/laws/India/India%20Income%20Tax %20Act%201961%2010_23c_.pdf @ en.wikipedia.org/wiki/Exemption @ en.wikipedia.org/wiki/Income_tax_in_India @ www.managementparadise.com/forums/...php/t22810.html

THANK YOU

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