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Monika Kadam
, Assistant Professor
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on Feb 21, 2015

SIP REPORT
ON
INCOME TAX PLANNING WITH RESPECT TO INDIVIDUAL ASSESSEE

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Published in: Economy & Finance
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SIP REPORT ON INCOME TAX PLANNING WITH RESPECT TO

INDIVIDUAL ASSESSEE
1. 1. 79 SIP REPORT ON INCOME TAX PLANNING WITH RESPECT TO INDIVIDUAL
ASSESSEE Submitted in partial fulfillment of requirement of Bachelor of Business Administration
(B.B.A) General BBA IV Semester (E) Batch 2011-2014 Submitted to: Submitted by: Anshika Goel
Monika Kadam Assistant Professor Enrollment no. 02124501711 JAGANNATH INTERNATIONAL
MANAGEMENT SCHOOL KALKAJI, NEW DELHI
2. 2. 79 PROJECT COMPLETION CERTIFICATE
3. 3. 79 This is to certify that the Project Work titled “Income Tax Planning with Respect to Individual
Assessee” is a bonafide work of Monika Kadam, Enrollment No. : 02124501711 carried out in partial
fulfillment for the award of degree of BBA (G) of Jagannath International Management School under
my guidance. This project work is original and not submitted earlier for the award of any degree /
diploma or associate ship of any other University / Institution. Signature of the Guide: Name and
Official Address of the Guide: Place: Date:
4. 4. 79 DECLARATION I, Monika Kadam being a student of BBA fourth semester of JAGANNATH
INTERNATIONAL MANAGEMENT SCHOOL hereby declares that the project report under title
“Income Tax Planning with Respect to Individual Assessee” is my own work. All care has been taken
to keep this report error free and I sincerely regret for any unintended discrepancies that might have
crept into this report. I shall be highly obliged if errors (if any) be brought to my attention. Thank You
(Monika Kadam)
5. 5. 79 CONTENT S NO. DESCRIPTION PAGE NO. List of tables List of figures 1. Executive
Summary 2. Introduction to the topic 3. Objectives 4. Company Profile 5. Literature Review i. An
Extract from Income Tax Act, 1961 ii. Computation of Total Income iii. Deductions from Taxable
Income iv. Computation of Tax Liability 6. Research Methodology 7. Recommendations 8.
Limitations 9. Conclusion 10. Bibliography LIST OF TABLES S NO. TITLE PAGE NO.
6. 6. 79 1. Tax Liability below 60 years of age 2. Tax Liability for 60 years of age or above the age of 80
years 3. Tax Liability for 80 years of age or above 4. Layout for Computation Of Total Income 5.
Traditional Endowment Plan Returns LIST OF FIGURES S NO. TITLE PAGE NO. 1. Tax 2.
Contribution of tax to the Government 3. Service Divisions 4. Extract from Income Tax Act, 1961 5.
Five Sources of Income 6. Recommendations & Tips 7. Term Plan Returns Comparison
7. 7. 79 ACKNOWLEDGEMENT I have taken efforts in this project. However, it would not have been
possible without the kind support and help of many individuals and organizations. I would like to
extend my sincere thanks to all of them. I am highly indebted Mr. Arvinder Kumar Gupta for their
guidance and constant supervision as well as for providing necessary information regarding the project
& also for their support in completing the project. I would like to express my gratitude towards my
parents, my mentor Ms. Anshika Goel & member of Jagannath Internationnal Management School for
their kind co-operation and encouragement which help me in completion of this project. I would like
to express my special gratitude and thanks to industry persons for giving me such attention and time.
My thanks and appreciations also go to my colleague in developing the project and people who have
willingly helped me out with their abilities.
8. 8. 79 EXECUTIVE SUMMARY The Income-tax Act, 1961 is the charging Statute of Income Tax in
India. It provides for levy, administration, collection and recovery of Income Tax. Recently the
Government of India has brought out a draft statute called the "Direct Taxes Code" intended to replace
the Income Tax Act, 1961 and the Wealth Tax Act, 1956. The residential status of the assessee is
useful in determining the scope or chargeability of the income for the assessee, i.e., whether taxable or
not. For an individual person, to be a resident, any one of the following basic conditions must be
satisfied:-  Presence of at least 182 days in India during the previous year.  Presence of at least 60
days in India during the previous year & 365 days during 4 years immediately preceding the relevant
previous year. However, in case the individual is an Indian citizen who leaves India during the
previous year for the purpose of employment (or as a member of a crew of an Indian ship) or in case
the individual is a person of Indian origin who comes on a visit to India during the previous year, then
only the first of the above basic condition is applicable. To determine whether the resident individual
is ordinarily resident the following both additional conditions are to be satisfied:-  Resident in India
in at least 2 out of 10 years immediately preceding the relevant previous year.  Presence of at least
730 days in India during 7 years immediately preceding the relevant previous year. The total income
of a person is segregated into five heads:-  Income from salaries  Income from house property 
Profits and gains of business or profession
9. 9. 79  Capital gains and  Income from other sources Some incomes under the section 80 are
allowed as deductions after calculating the total income from the five heads. then the income which
comes out after deducting the allowed incomes is taxable as per Income Tax Act, 1961. Tax planning
is a process individuals, businesses, and organizations use to evaluate their financial profile, with the
 aim of minimizing the amount of taxes paid on personal income or business profit. Effective tax
planning entails analyzing investment instruments, expenditures, and other factors such as filing status
for their tax liability impact. For tax planning there are five strategic planning tools to minimize the
tax liability. The five tools are as follows:  Insurance  Public Provident Fund (PPF)  Pension
policies  Five year fixed deposits (FDs), National Savings Scheme (NSC), other bonds  Equity
Linked Savings Scheme (ELSS) A term plan is the most basic type of life insurance plan. In this plan,
only the mortality charges and the sales and administration expenses are covered. There is no savings
element; hence the individual does not receive any maturity benefits. A term plan should form a part
of every individual's portfolio. An illustration will help in understanding term plans better.
10. 10. 79 CHAPTER I – INTRODUCTION TO THE TOPIC Income Tax Act, 1961 governs the taxation
of incomes generated within India and of incomes generated by Indians overseas. This study aims at
presenting a lucid yet simple understanding of taxation structure of an individual’s income in India for
the assessment year 2013-14. Figure 1 Income Tax Act, 1961 is the guiding baseline for all the content
in this report and the tax saving tips provided herein are a result of analysis of options available in
current market. Every individual should know that tax planning in order to avail all the incentives
provided by the Government of India under different statures is legal. This project covers the basics of
the Income Tax Act, 1961 as amended by the Finance Act, 2007 and broadly presents the nuances of
prudent tax planning and tax saving options provided under these laws. Any other hideous means to
avoid or evade tax is a cognizable offence under the Indian constitution and all the citizens should
refrain from such acts.
11. 11. 79 Figure-2 Contribution of tax to the Government 17% 32% 3% 21% 18% 9% Personal income
tax (direct) Corporate tax (direct) Other taxes (direct) Excise duty (indirect) Customs duty (indirect)
Other taxes (indirect)
12. 12. 79 CHAPTER II – COMPANY PROFILE Avinder Kumar Gupta & Co. was established on 20th
October 1986 by Mr. Arvinder Kumar Gupta. Our firm has witnessed the tumultuous changes that
have transformed the landscape of India over the last 27 glorious years. From the black and white era
to the information superhighways, it has stood the test of time by being a pillar of strength for each of
its esteemed clients and growing from strength to strength. As the overall maturity and confidence of
the Indian economy is gaining international recognition, more and more opportunities for the company
to provide innovative value added services are arising. The reverberations of this change are being felt
in every sphere of activity and we under the omnipresent light of our Founding Partner are expanding
into new service areas and geographies. Their office is located in Noida (India) and being in close
proximity to the Registrar of Companies, Reserve Bank of India and Department of Tax Revenue,
they are able to provide prompt and efficient service to our clients. The philosophy of the company is
to assist clients achieve business success through our professional advice and specialized services
thereby creating long lasting relationships based on mutual respect, trust and confidentiality.
Knowledge, principles, dignity, innovation and out of the box thinking are our hallmarks. Our
constant endeavor is to be committed to our clients’ needs through our personalized care and attention
in a professional environment, striving for the pinnacles of perfection in all areas of service,
employing the latest technological tools and industry best practices. The company is a professionally
managed firm. The team consists of distinguished chartered accountants, corporate financial advisors
and tax consultants. The firm represents a combination of specialized skills, which are geared to offers
sound financial advice and personalized proactive services. Those associated with the firm have
13. year: Provided that, in the case of a person not ordinarily resident in India, the income which accrues
or arises to him outside India shall not be included unless it is derived from a business controlled in or
a profession set up in India. 4. Total Income For the purposes of chargeability of income-tax and
computation of total income, The Income Tax Act, 1961 classifies the earning under the following
heads of income: 1. Salaries 2. Income from house property
14. 18. 79 3. Capital gains 4. Profits and gains of business or profession 5. Income from other sources 5.
Concepts used in Tax Planning  Tax Evasion Tax Evasion means not paying taxes as per the
provisions of the law or minimizing tax by illegitimate and hence illegal means. Tax Evasion can be
achieved by concealment of income or inflation of expenses or falsification of accounts or by
conscious deliberate violation of law. Tax Evasion is an act executed knowingly willfully, with the
 intent to deceive so that the tax reported by the taxpayer is less than the tax payable under the law.
Example: Mr. A, having rendered service to another person Mr. B, is entitled to receive a sum of say
Rs. 50,000/- from Mr. B. A tells B to pay him Rs. 50,000/- in cash and thus does not account for it as
his income. Mr. A has resorted to Tax Evasion.  Tax Avoidance Tax Avoidance is the art of dodging
tax without breaking the law. While remaining well within the four corners of the law, a citizen so
arranges his affairs that he walks out of the clutches of the law and pays no tax or pays minimum tax.
Tax avoidance is therefore legal and frequently resorted to. In any tax avoidance exercise, the attempt
is always to exploit a loophole in the law. A transaction is artificially made to appear as falling
squarely in the loophole and thereby minimize the tax. In India, loopholes in the law, when detected
by the tax authorities, tend to be plugged by an amendment in the law, too often retrospectively.
Hence tax avoidance though legal, is not long lasting. It lasts till the law is amended. Example: Mr. A,
having rendered service to another person Mr. B, is entitled to receive a sum of say Rs. 50,000/- from
Mr. B. Mr. A’s other income is Rs. 200,000/-. Mr. A tells Mr. B to pay cheque of Rs. 50,000/- in the
name
15. 19. 79 of Mr. C instead of in the name of Mr. A. Mr. C deposits the cheque in his bank account and
account for it as his income. But Mr. C has no other income and therefore pays no tax on that income
of Rs. 50,000/-. By diverting the income to Mr. C, Mr. A has resorted to Tax Avoidance.  Tax
Planning Tax Planning has been described as a refined form of ‘tax avoidance’ and implies
arrangement of a person’s financial affairs in such a way that it reduces the tax liability. This is
achieved by taking full advantage of all the tax exemptions, deductions, concessions, rebates, reliefs,
allowances and other benefits granted by the tax laws so that the incidence of tax is reduced. Exercise
in tax planning is based on the law itself and is therefore legal and permanent. Example: Mr. A having
other income of Rs. 200,000/- receives income of Rs. 50,000/- from Mr. B. Mr. A to save tax deposits
Rs. 60,000/- in his PPF account and saves the tax of Rs. 12,000/- and thereby pays no tax on income
of Rs. 50,000.  Tax Management Tax Management is an expression which implies actual
implementation of tax planning ideas. While that tax planning is only an idea, a plan, a scheme, an
arrangement, tax management is the actual action, implementation, the reality, the final result.
Example: Action of Mr. A depositing Rs. 60,000 in his PPF account and saving tax of Rs. 12,000/- is
Tax Management. Actual action on Tax Planning provision is Tax Management. To sum up all these
four expressions, we may say that: • Tax Evasion is fraudulent and hence illegal. It violates the spirit
and the letter of the law. • Tax Avoidance, being based on a loophole in the law is legal since it
violates only the spirit of the law but not the letter of the law.
16. 20. 79 • Tax Planning does not violate the spirit nor the letter of the law since it is entirely based on
the specific provision of the law itself. • Tax Management is actual implementation of a tax planning
provision. The net result of tax reduction by taking action of fulfilling the conditions of law is tax
management.  The Income Tax Equation: For the understanding of any layman, the process of
computation of income and tax liability can be outlined in following five steps. This project is also
designed to follow the same. • Calculate the Gross total income deriving from all resources. • Subtract
all the deduction & exemption available. • Applying the tax rates on the taxable income. • Ascertain
the tax liability. • Minimize the tax liability through a perfect planning using tax saving schemes.
B.COMPUTATION OF TOTAL INCOME Total income can be calculated from the five sources of
income which are as follows:- Figure-5 Sources of Income Income from Other Sources Income from
Other Sources Profits and Gains of Business or Profession Profits and Gains of Business or Profession
Capital Gains Capital Gains Income from House Property Income from House Property Income from
Salaries Income from Salaries Sources of Income Sources of Income
17. 21. 79 1. Income from Salaries Incomes termed as Salaries: Existence of ‘master-servant’ or
‘employer- employee’ relationship is absolutely essential for taxing income under the head “Salaries”.
Where such relationship does not exist income is taxable under some other head as in the case of
partner of a firm, advocates, chartered accountants, LIC agents, small saving agents, commission
agents, etc. Besides, only those payments which have a nexus with the employment are taxable under
the head ‘Salaries’. Salary is chargeable to income-tax on due or paid basis, whichever is earlier. Any
arrears of salary paid in the previous year, if not taxed in any earlier previous year, shall be taxable in
the year of payment. Advance Salary: Advance salary is taxable in the year it is received. It is not
 included in the income of recipient again when it becomes due. However, loan taken from the
employer against salary is not taxable. Arrears of Salary: Salary arrears are taxable in the year in
which it is received. Bonus: Bonus is taxable in the year in which it is received. Pension: Pension
received by the employee is taxable under ‘Salary’ Benefit of standard deduction is available to
pensioner also. Pension received by a widow after the death of her husband falls under the head
‘Income from Other Sources.’ Profits in lieu of salary: Any compensation due to or received by an
employee from his employer or former employer at or in connection with the termination of his
employment or modification of the terms and conditions relating thereto; Any payment due to or
received by an employee from his employer or former employer or from a provident or other fund to
the extent it does not consist of contributions by the assessee or interest on such contributions or
18. 22. 79 any sum/bonus received under a Key man Insurance Policy. Any amount whether in lump sum
or otherwise, due to or received by an assessee from his employer, either before his joining
employment or after cessation of employment. Allowances from Salary Incomes  Dearness
Allowance/Additional Dearness (DA): All dearness allowances are fully taxable  City Compensatory
Allowance (CCA): CCA is taxable as it is a personal allowance granted to meet expenses wholly,
necessarily and exclusively incurred in the performance of special duties unless such allowance is
related to the place of his posting or residence. Certain allowances prescribed under Rule 2BB,
granted to the employee either to meet his personal expenses at the place where the duties of his office
of employment are performed by him or at the place where he ordinarily resides, or to compensate
him for increased cost of living are also exempt.  House Rent Allowance (HRA): HRA received by
an employee residing in his own house or in a house for which no rent is paid by him is taxable. In
case of other employees, HRA is exempt up to a certain limit.  Entertainment Allowance:
Entertainment allowance is fully taxable, but a deduction is allowed in certain cases.  Academic
Allowance: Allowance granted for encouraging academic research and other professional pursuits, or
for the books for the purpose, shall be exempt u/s 10(14). Similarly newspaper allowance shall also be
exempt.  Conveyance Allowance: It is exempt to the extent it is paid and utilized for meeting
expenditure on travel for official work.
19. 23. 79 2. Income from House Property Incomes Termed as House Property Income: The annual value
of a house property is taxable as income in the hands of the owner of the property. House property
consists of any building or land, or its part or attached area, of which the assessee is the owner. The
part or attached area may be in the form of a courtyard or compound forming part of the building. But
such land is to be distinguished from an open plot of land, which is not charged under this head but
under the head ‘Income from Other Sources’ or ‘Business Income’, as the case may be. Besides, house
property includes flats, shops, office space, factory sheds, agricultural land and farm houses. However,
following incomes shall be taxable under the head ‘Income from House Property'. 1. Income from
letting of any farm house agricultural land appurtenant thereto for any purpose other than agriculture
shall not be deemed as agricultural income, but taxable as income from house property. 2. Any arrears
of rent, not taxed u/s 23, received in a subsequent year, shall be taxable in the year. Even if the house
property is situated outside India it is taxable in India if the owner- assessee is resident in India.
Incomes Excluded from House Property Income: The following incomes are excluded from the charge
of income tax under this head:  Annual value of house property used for business purposes 
Income of rent received from vacant land.  Income from house property in the immediate vicinity of
agricultural land and used as a store house, dwelling house etc. by the cultivators
20. 24. 79 Annual Value: Income from house property is taxable on the basis of annual value. Even if the
property is not let-out, notional rent receivable is taxable as its annual value. The annual value of any
property is the sum which the property might reasonably be expected to fetch if the property is let
from year to year. In determining reasonable rent factors such as actual rent paid by the tenant,
tenant’s obligation undertaken by owner, owners’ obligations undertaken by the tenant, location of the
property, annual ratable value of the property fixed by municipalities, rents of similar properties in
neighbor-hood and rent which the property is likely to fetch having regard to demand and supply are
to be considered. Annual Value of Let-out Property: Where the property or any part thereof is let out,
the annual value of such property or part shall be the reasonable rent for that property or part or the
actual rent received or receivable, whichever is higher. Deductions from House Property Income:
 House property income are allowed the following as deductions:-  Deduction of House Tax/Local
Taxes paid: In case of a let-out property, the local taxes such as municipal tax, water and sewage tax,
fire tax, and education cess levied by a local authority are deductible while computing the annual
value of the year in which such taxes are actually paid by the owner.  Other than self-occupied
properties: Repairs and collection charges: Standard deduction of 30% of the net annual value of the
property.  Interest on Borrowed Capital: Interest payable in India on borrowed capital, where the
property has been acquired constructed, repaired, renovated or reconstructed with such borrowed
capital, is allowable (without any limit) as a deduction (on accrual basis). Furthermore, interest
payable for the period prior to the previous year in which such
21. 25. 79 property has been acquired or constructed shall be deducted in five equal annual installments
commencing from the previous year in which the house was acquired or constructed. Amounts not
deductible from House Property Income: Any interest chargeable under the Act payable out of India
on which tax has not been paid or deducted at source and in respect of which there is no person who
may be treated as an agent. Expenditures not specified as specifically deductible. For instance, no
deduction can be claimed in respect of expenses on electricity, water supply, salary of liftman, etc. 
Self-Occupied Properties: No deduction is allowed under section 24(1) by way of repairs, insurance
premium, etc. in respect of self- occupied property whose annual value has been taken to be nil under
section 23(2) (a) or 23(2) (b) of the act. However, a maximum deduction of Rs. 30,000 by way of
interest on borrowed capital for acquiring, constructing, repairing, renewing or reconstructing the
property is available in respect of such properties. In case of self-occupied property acquired or
constructed with capital borrowed on or after 1.4.1999 and the acquisition or construction of the house
property is made within 3 years from the end of the financial year in which capital was borrowed the
maximum deduction for interest shall be Rs. 1,50,000. For this purpose, the assessee shall furnish a
certificate from the person extending the loan that such interest was payable in respect of loan for
acquisition or construction of the house, or as refinance loan for repayment of an earlier loan for such
purpose. The deduction for interest u/s 24(1) is allowable as under: i. Self-occupied property:
deduction is restricted to a maximum of Rs. 1,50,000 for property acquired or constructed with funds
furrowed on or after 1.4.1999 within 3 years from the end of the financial year in which the funds are
borrowed. In other cases, the deduction is allowable up to Rs. 30,000.
22. 26. 79 ii. Let out property or part there of: all eligible interests are allowed. It is, therefore, suggested
that a property for self, residence may be acquired with borrowed funds, so that the annual interest
accrual on borrowings remains less than Rs. 1,50,000. The net loss on this account can be set off
against income from other properties and even against other incomes. If buying a property for letting it
out on rent, raise borrowings from other family members or outsiders. The rental income can be safely
passed off to the other family members by way of interest. If the interest claim exceeds the annual
value, loss can be set off against other incomes too. At the time of purchase of new house property,
the same should be acquired in the name(s) of different family members. Alternatively, each property
may be acquired in joint names. This is particularly advantageous in case of rented property for
division of rental income among various family members. However, each co-owner must invest out of
his own funds (or borrowings) in the ratio of his ownership in the property. 3. Capital Gains Any
profits or gains arising from the transfer of capital assets effected during the previous year is
chargeable to income-tax under the head “Capital gains” and shall be deemed to be the income of that
previous year in which the transfer takes place. Taxation of capital gains, thus, depends on two aspects
– ‘capital assets’ and transfer’. Capital Asset: ‘Capital Asset’ means property of any kind held by an
assessee including property of his business or profession, but excludes non- capital assets. Transfers
Resulting in Capital Gains
23. 27. 79 • Sale or exchange of assets; • Relinquishment of assets; • Extinguishment of any rights in
assets; • Compulsory acquisition of assets under any law; • Conversion of assets into stock-in-trade of
a business carried on by the owner of asset; • Handing over the possession of an immovable property
in part performance of a contract for the transfer of that property; • Transactions involving transfer of
membership of a group housing society, company, etc.., which have the effect of transferring or
enabling enjoyment of any immovable property or any rights therein ; • Distribution of assets on the
dissolution of a firm, body of individuals or association of persons; • Transfer of a capital asset by a
 partner or member to the firm or AOP, whether by way of capital contribution or otherwise; and •
Transfer under a gift or an irrevocable trust of shares, debentures or warrants allotted by a company
directly or indirectly to its employees under the Employees’ Stock Option Plan or Scheme of the
company as per Central Govt. guidelines. Year of Taxability: Capital gains form part of the taxable
income of the previous year in which the transfer giving rise to the gains takes place. Thus, the capital
gain shall be chargeable in the year in which the sale, exchange, relinquishment, etc. takes place.
Where the transfer is by way of allowing possession of an immovable property in part performance of
an agreement to sell, capital gain shall be deemed to have arisen in the year in which such possession
is handed over. If the
24. 28. 79 transferee already holds the possession of the property under sale, before entering into the
agreement to sell, the year of taxability of capital gains is the year in which the agreement is entered
into. Classification of Capital Gains: capital gains are classified as follows:-  Short Term Capital
Gain: Gains on transfer of capital assets held by the assessee for not more than 36 months (12 months
in case of a share held in a company or any other security listed in a recognized stock exchange in
India, or a unit of the UTI or of a mutual fund specified u/s 10(23D) ) immediately preceding the date
of its transfer.  Long Term Capital Gain: The capital gains on transfer of capital assets held by the
assessee for more than 36 months (12 months in case of shares held in a company or any other listed
security or a unit of the UTI or of a specified mutual fund).  Period of Holding a Capital Asset:
Generally speaking, period of holding a capital asset is the duration for the date of its acquisition to
the date of its transfer. However, in respect of following assets, the period of holding shall exclude or
include certain other periods. Computation of Capital Gains: 1. As certain the full value of
consideration received or accruing as a result of the transfer. 2. Deduct from the full value of
consideration- Transfer expenditure like brokerage, legal expenses, etc., Cost of acquisition of the
capital asset/indexed cost of acquisition in case of long-term capital asset and Cost of improvement to
the capital asset/indexed cost of improvement in case of long term capital asset. The balance left-over
is the gross capital gain/loss. Deduct the amount of permissible exemptions u/s 54, 54B, 54D, 54EC,
54ED, 54F, 54G and 54H.
25. 29. 79  Full Value of Consideration: This is the amount for which a capital asset is transferred. It
may be in money or money’s worth or combination of both. For instance, in case of a sale, the full
value of consideration is the full sale price actually paid by the transferee to the transferor. Where the
transfer is by way of exchange of one asset for another or when the consideration for the transfer is
partly in cash and partly in kind, the fair market value of the asset received as consideration and cash
consideration, if any, together constitute full value of consideration. In case of damage or destruction
of an asset in fire flood, riot etc., the amount of money or the fair market value of the asset received by
way of insurance claim, shall be deemed as full value of consideration. • Fair value of consideration in
case land and/ or building; and • Transfer Expenses.  Cost of Acquisition: Cost of acquisition is the
amount for which the capital asset was originally purchased by the assessee. Cost of acquisition of an
asset is the sum total of amount spent for acquiring the asset. Where the asset is purchased, the cost of
acquisition is the price paid. Where the asset is acquired by way of exchange for another asset, the
cost of acquisition is the fair market value of that other asset as on the date of exchange. Any
expenditure incurred in connection with such purchase, exchange or other transaction e.g. brokerage
paid, registration charges and legal expenses, is added to price or value of consideration for the
acquisition of the asset. Interest paid on moneys borrowed for purchasing the asset is also part of its
cost of acquisition. Where capital asset became the property of the assessee before 1.4.1981, he has an
option to adopt the fair market value of the asset as on 1.4.1981, as its cost of acquisition.
26. 30. 79  Cost of Improvement: Cost of improvement means all capital expenditure incurred in making
additions or alterations to the capital assets, by the assessee. Betterment charges levied by municipal
authorities also constitute cost of improvement. However, only the capital expenditure incurred on or
after 1.4.1981, is to be considered and that incurred before 1.4.1981 is to be ignored.  Indexed cost
of Acquisition/Improvement: For computing long- term capital gains, ‘Indexed cost of acquisition and
‘Indexed cost of Improvement’ are required to deducted from the full value of consideration of a
capital asset. Both these costs are thus required to be indexed with respect to the cost inflation index
pertaining to the year of transfer. Rates of Tax on Capital Gains:  Short-term Capital Gains: Short-
 term Capital Gains are included in the gross total income of the assessee and after allowing
permissible deductions under Chapter VI-A. Rebate under Sections 88, 88B and 88C is also available
against the tax payable on short- term capital gains.  Long-term Capital Gains: Long-term Capital
Gains are subject to a flat rate of tax @ 20% However, in respect of long term capital gains arising
from transfer of listed securities or units of mutual fund/UTI, tax shall be payable @ 20% of the
capital gain computed after allowing indexation benefit or @ 10% of the capital gain computed
without giving the benefit of indexation, whichever is less.  Capital Loss: The amount, by which the
value of consideration for transfer of an asset falls short of its cost of acquisition and improvement
/indexed cost of acquisition and improvement, and the expenditure on transfer, represents the capital
loss. Capital Loss’ may be short-term or long-term, as in case of capital gains, depending upon the
period of holding of the asset.
27. 31. 79 Set Off and Carry Forward of Capital Loss: Any short-term capital loss can be set off against
any capital gain (both long-term and short term) and against no other income. Any long-term capital
loss can be set off only against long-term capital gain and against no other income. Any short-term
capital loss can be carried forward to the next eight assessment years and set off against ‘capital gains’
in those years. Any long-term capital loss can be carried forward to the next eight assessment year and
set off only against long-term capital gain in those years. Capital Gains Exempt from Tax  Capital
Gains from Transfer of a Residential House: Any long- term capital gains arising on the transfer of a
residential house, to an individual or HUF, will be exempt from tax if the assessee has within a period
of one year before or two years after the date of such transfer purchased, or within a period of three
years constructed, a residential house.  Capital Gains from Transfer of Agricultural Land: Any
capital gain arising from transfer of agricultural land, shall be exempt from tax, if the assessee
purchases within 2 years from the date of such transfer, any other agricultural land. Otherwise, the
amount can be deposited under Capital Gains Accounts Scheme, 1988 before the due date for
furnishing the return.  Capital Gains from Compulsory Acquisition of Industrial Undertaking: Any
capital gain arising from the transfer by way of compulsory acquisition of land or building of an
industrial undertaking, shall be exempt, if the assessee purchases/constructs within three years from
the date of compulsory acquisition, any building or land, forming part of industrial undertaking.
Otherwise,
28. 32. 79 the amount can be deposited under the ‘Capital Gains Accounts Scheme, 1988’ before the due
date for furnishing the return.  Capital Gains from an Asset other than Residential House: Any long-
term capital gain arising to an individual or an HUF, from the transfer of any asset, other than a
residential house, shall be exempt if the whole of the net consideration is utilized within a period of
one year before or two years after the date of transfer for purchase, or within 3 years in construction,
of a residential house. Tax Planning for Capital Gains: An assessee should plan transfer of his capital
assets at such a time that capital gains arise in the year in which his other recurring incomes are below
taxable limits. Assessees having income below Rs. 60,000 should go for short-term capital gain
instead of long-term capital gain, since income up to Rs. 60,000 is taxable @ 10% whereas long-term
capital gains are taxable at a flat rate of 20%. Those having income above Rs. 1,50,000 should plan
their capital gains vice versa. Since long-term capital gains enjoy a concessional treatment, the
assessee should so arrange the transfers of capital assets that they fall in the category of long-term
capital assets. An assessee may go for a short-term capital gain, in the year when there is already a
short-term capital loss or loss under any other head that can be set off against such income. The
assessee should take the maximum benefit of exemptions available u/s 54, 54B, 54D, 54ED, 54EC,
54F, 54G and 54H. Avoid claiming short-term capital loss against long-term capital gains. Instead
claim it against short-term capital gain and if possible, either create some short-term capital gain in
that year or, defer long-term capital gains to next year. Since the income of the minor children is to be
clubbed in the hands of the parent, it would be better if the minor children have no or lesser recurring
29. 33. 79 income but have income from capital gain because the capital gain will be taxed at the flat rate
of 20% and thus the clubbing would not increase the tax incidence for the parent. 4. Profits and Gains
of Business or Profession Income from Business or Profession: The following incomes shall be
chargeable under this head Profit and gains of any business or profession carried on by the assessee at
any time during previous year. Any compensation or other payment due to or received by any person,
 in connection with the termination of a contract of managing agency or for vesting in the Government
management of any property or business is said to be income from business or profession. Income
derived by a trade, professional or similar association from specific services performed for its
members. Profits on sale of REP license/Exim scrip, cash assistance received or receivable against
exports, and duty drawback of customs or excise received or receivable against exports. The value of
any benefit or perquisite, whether convertible into money or not, arising from business or in exercise
of a profession. Any interest, salary, bonus, commission or remuneration due to or received by a
partner of a firm from the firm to the extent it is allowed to be deducted from the firm’s income. Any
interest salary etc. which is not allowed to be deducted u/s 40(b), the income of the partners shall be
adjusted to the extent of the amount so disallowed. Any sum received or receivable in cash or in kind
under an agreement for not carrying out activity in relation to any business, or not to share any know-
how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of,
similar nature of information or technique likely to assist in the manufacture or processing of goods or
provision for
30. 34. 79 services except when such sum is taxable under the head ‘capital gains’ or is received as
compensation from the multilateral fund of the Montreal Protocol on Substances that Deplete the
Ozone Layer. Any sum received under a Keyman Insurance Policy referred to u/s 10(10D). Any
allowance or deduction allowed in an earlier year in respect of loss, expenditure or trading liability
incurred by the assessee and subsequently received by him in cash or by way of remission or cessation
of the liability during the previous year. Profit made on sale of a capital asset for scientific research in
respect of which a deduction had been allowed u/s 35 in an earlier year. Amount recovered on account
of bad debts allowed u/s 36(1) (vii) in an earlier year. Any amount withdrawn from the special
reserves created and maintained u/s 36 (1) (viii) shall be chargeable as income in the previous year in
which the amount is withdrawn. Expenses Deductible from Business or Profession: Following
expenses incurred in furtherance of trade or profession are admissible as deductions.  Rent, rates,
taxes, repairs and insurance of buildings.  Repairs and insurance on machinery, plant and furniture.
 Depreciation is allowed on: • Building, machinery, plant or furniture, being tangible assets, • Know
how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights
of similar nature, being intangible assets, acquired on or after 1.4.1998.  Development rebate. 
Development allowance for Tea Bushes planted before 1.4.1990.
31. 35. 79  Amount deposited in Tea Development Account or 40% profits and gains from business of
growing and manufacturing tea in India,  Amount deposited in Site Restoration Fund or 20% of
profit, whichever is less, in case of an assessee carrying on business of prospecting for, or extraction
or production of, petroleum or natural gas or both in India. The assessee shall get his accounts audited
from a chartered accountant and furnish an audit report in Form 3 AD.  Reserves for shipping
business.  Scientific Research • Expenditure on scientific research related to the business of assessee,
is deductible in that previous year. • One and one-fourth times any sum paid to a scientific research
association or an approved university, college or other institution for the purpose of scientific
research, or for research in social science or statistical research. • One and one-fourth times the sum
paid to a National Laboratory or a University or an Indian Institute of Technology or a specified
person with a specific direction that the said sum shall be used for scientific research under a
programme approved in this behalf by the prescribed authority. • One and one half times, the
expenditure incurred up to 31.3.2005 on scientific research on in-house research and development
facility, by a company engaged in the business of bio-technology or in the manufacture of any drugs,
pharmaceuticals, electronic equipments, computers telecommunication equipments, chemicals or other
notified articles.  Expenditure incurred before 1.4.1998 on acquisition of patent rights or copyrights,
used for the business, allowed in 14 equal installments starting from the year in which it was incurred.
32. 36. 79  Expenditure incurred before 1.4.1998 on acquiring know-how for the business, allowed in 6
equal installments. Where the know-how is developed in a laboratory, University or Institution,
deduction is allowed in 3 equal installments.  Any capital expenditure incurred and actually paid by
an assessee on the acquisition of any right to operate telecommunication services by obtaining license
will be allowed as a deduction in equal installments over the period starting from the year in which
 payment of license fee is made or the year in which business commences where license fee has been
paid before commencement and ending with the year in which the licence comes to an end. 
Expenditure by way of payment to a public sector company, local authority or an approved association
or institution, for carrying out a specified project or scheme for promoting the social and economic
welfare or upliftment of the public. The specified projects include drinking water projects in rural
areas and urban slums, construction of dwelling units or schools for the economically weaker sections,
projects of non-conventional and renewable source of energy systems, bridges, public highways, roads
promotion of sports, pollution control, etc.  Expenditure by way of payment to association and
institution for carrying out rural development programs or to a notified rural development fund, or the
National Urban Poverty Eradication Fund.  Expenditure incurred on or before 31.3.2002 by way of
payment to associations and institutions for carrying out programme of conservation of natural
resources or afforestation or to an approved fund for afforestation.  Amortization of certain
preliminary expenses, such as expenditure for preparation of project report, feasibility report,
feasibility report, market survey, etc., legal charges for drafting and printing charges of Memorandum
and Articles, registration expenses, public issue expenses, etc. Expenditure incurred after 31.3.1988,
shall be
33. 37. 79 deductible up to a maximum of 5% of the cost of project or the capital employed, in 5 equal
installments over five successive years.  One-fifth of expenditure incurred on amalgamation or
demerger, by an Indian company shall be deductible in each of five successive years beginning with
the year in which amalgamation or demerger takes place.  One-fifth of the amount paid to an
employee on his voluntary retirement under a scheme of voluntary retirement, shall be deductible in
each of five successive years beginning with the year in which the amount is paid.  Deduction for
expenditure on prospecting, etc. for certain minerals.  Insurance premium for stocks or stores. 
Insurance premium paid by a federal milk co-operative society for cattle owned by a member. 
Insurance premium paid for the health of employees by cheque under the scheme framed by G.I.C.
and approved by the Central Government.  Payment of bonus or commission to employees,
irrespective of the limit under the Payment of Bonus Act.  Interest on borrowed capital.  Provident
and superannuation fund contribution.  Approved gratuity fund contributions.  Any sum received
from the employees and credited to the employees account in the relevant fund before due date. 
Loss on death or becoming permanently useless of animals in connection with the business or
profession.
34. 38. 79  Amount of bad debt actually written off as irrecoverable in the accounts not including
provision for bad and doubtful debts.  Provision for bad and doubtful debts made by special reserve
created and maintained by a financial corporation engaged in providing long- term finance for
industrial or agricultural development or infrastructure development in India or by a public company
carrying on the business of providing housing finance.  Family planning expenditure by company. 
Contributions towards Exchange Risk Administration Fund.  Expenditure, not being in nature of
capital expenditure or personal expenditure of the assessee, incurred in furtherance of trade. However,
any expenditure incurred for a purpose which is an offence or is prohibited by law, shall not be
deductible.  Entertainment expenditure can be claimed u/s 37(1), in full, without any
limit/restriction, provided the expenditure is not of capital or personal nature.  Payment of salary,
etc. and interest on capital to partners  Expenses deductible on actual payment only.  Any
provision made for payment of contribution to an approved gratuity fund, or for payment of gratuity
that has become payable during the year.  Special provisions for computing profits and gains of civil
contractors.  Special provision for computing income of truck owners.  Special provisions for
computing profits and gains of retail business.  Special provisions for computing profits and gains of
shipping business in the case of non-residents.
35. 39. 79  Special provisions for computing profits or gains in connection with the business of
exploration etc. of mineral oils.  Special provisions for computing profits and gains of the business
of operation of aircraft in the case of non-residents.  Special provisions for computing profits and
gains of foreign companies engaged in the business of civil construction, etc. in certain turnkey
 projects.  Deduction of head office expenditure in the case of non-residents.  Special provisions for
computing income by way of royalties etc. in the case of foreign companies.  Expenses deductible
for authors receiving income from royalties  In case of Indian authors/writers where the amount of
royalties receivable during a previous year are less than Rs. 25,000 and where detailed accounts
regarding expenses incurred are not maintained, deduction for expenses may be allowed up to 25% of
such amount or Rs. 5,000, whichever is less. The above deduction will be allowed without calling for
any evidence in support of expenses.  If the amount of royalty receivable exceeds Rs.25,000 only the
actual expenses incurred shall be allowed. Set Off and Carry Forward of Business Loss: If there is a
loss in any business, it can be set off against profits of any other business in the same year. The loss, if
any, still remaining can be set off against income under any other head. However, loss in a speculation
business can be adjusted only against profits of another speculation business. Losses not adjusted in
the same year can be carried forward to subsequent years. 5. Income from Other Sources
36. 40. 79 Other Sources: This is the last and residual head of charge of income. Income of every kind
which is not to be excluded from the total income under the Income Tax Act shall be charge to tax
under the head Income From Other Sources, if it is not chargeable under any of the other four heads-
Income from Salaries, Income From House Property, Profits and Gains from Business and Profession
and Capital Gains. In other words, it can be said that the residuary head of income can be resorted to
only if none of the specific heads is applicable to the income in question and that it comes into
operation only if the preceding heads are excluded. Illustrative List: Following is the illustrative list of
incomes chargeable to tax under the head Income from Other Sources:  Dividends: Any dividend
declared, distributed or paid by the company to its shareholders is chargeable to tax under the head
‘Income from Other Sources”, irrespective of the fact whether shares are held by the assessee as
investment or stock in trade. Dividend is deemed to be the income of the previous year in which it is
declared, distributed or paid. However interim dividend is deemed to be the income of the year in
which the amount of such dividends unconditionally made available by the company to its
shareholders. However, any income by way of dividends is exempt from tax u/s10(34) and no tax is
required to be deducted in respect of such dividends. • Income from machinery, plant or furniture
belonging to the assessee and let on hire, if the income is not chargeable to tax under the head Profits
and gains of business or profession; • Where an assessee lets on hire machinery, plant or furniture
belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of
the said machinery, plant or furniture, the income from such letting, if it is not
37. 41. 79 chargeable to tax under the head Profits and gains of business or profession; • Any sum
received under a Keyman insurance policy including the sum allocated by way of bonus on such
policy if such income is not chargeable to tax under the head Profits and gains of business or
profession or under the head Salaries. • Where any sum of money exceeding twenty-five thousand
rupees is received without consideration by an individual or a Hindu undivided family from any
person on or after the 1st day of September, 2004, the whole of such sum, provided that this clause
shall not apply to any sum of money received (a) From any relative; or (b) On the occasion of the
marriage of the individual; or (c) Under a will or by way of inheritance; or (d) In contemplation of
death of the payer. • Any sum received by the assessee from his employees as contributions to any
provident fund or superannuation fund or any fund set up under the provisions of the Employees’
State Insurance Act. If such income is not chargeable to tax under the head Profits and gains of
business or profession • Income by way of interest on securities, if the income is not chargeable to tax
under the head Profits and gains of business or profession. If books of account in respect of such
income are maintained on cash basis then interest is taxable on receipt basis. If however, books of
account are maintained on mercantile system of accounting then interest on securities is taxable on
accrual basis. • Other receipts falling under the head “Income from Other Sources’:
38. 42. 79 i. Director’s fees from a company, director’s commission for standing as a guarantor to bankers
for allowing overdraft to the company and director’s commission for underwriting shares of a new
company. ii. Income from ground rents. iii. Income from royalties in general. Deductions from Income
from Other Sources: The income chargeable to tax under this head is computed after making the
following deductions:  In the case of dividend income and interest on securities: any reasonable sum
paid by way of remuneration or commission for the purpose of realizing dividend or interest.  In
 case of income in the nature of family pension: Rs.15, 000or 33.5% of such income, whichever is low.
 In the case of income from machinery, plant or furniture let on hire: (a) Repairs to building (b)
Current repairs to machinery, plant or furniture (c) Depreciation on building, machinery, plant or
furniture (d) Unabsorbed Depreciation.  `Any other expenditure (not being a capital expenditure)
expended wholly and exclusively for the purpose of earning of such income. C.DEDUCTIONS
FROM TAXABLE INCOME Following are the deductions which are allowed in the taxable income:-
1. DEDUCTION UNDER SECTION 80C
39. 43. 79 A new section 80C has been inserted from the assessment year 2006- 07 onwards. Section 80C
provides deduction in respect of certain expenditure/ investments (which are specified in this section)
paid or deposited by the assessee in the previous year. Deduction under this section is available only
to individual & Hindu Undivided Family. Gross Qualifying Amount The following
payments/investments qualify for deduction under this section. The total amount of investments made
during the P.Y. under these below mentioned schemes is known as Gross Qualifying Amount ( GQA )
1. Life Insurance premium paid on a policy taken on his own life, life of the spouse or any child (child
may be dependent/ independent ). The premium paid should be maximum of 20% of sum assured. 2.
Any sum deducted from salary payable to a Government employee for the 168 purpose of securing
him a deferred annuity (subject to a maximum of 20% of salary) 3. Contribution towards statutory
provident fund and recognized provident fund. 4. Contribution towards 15 year public provident fund
(maximum of Rs 70,000). 5. Contribution towards an approved superannuation fund 6. Subscription to
National Savings Certificates, VIII Issue. 7. Contribution for participating in the Unit-Linked
Insurance Plan (ULIP) of Unit Trust of India.. 8. Contribution for participating in the unit-linked
insurance plan (ULIP) of LIC Mutual Fund (i.e. Dhanraksha plan of LIC Mutual Fund)
40. 44. 79 9. Payment for notified annuity plan of LIC (i.e. Jeevan Dhara, Jeevan Akshay New Jeevan
Dhara ,etc ) or any other insurer. 10. Subscription towards notified units of Mutual Fund or UTI 11.
Contribution to notified pension fund set up by Mutual Fund or UTI . 12. Any sum paid (including
accrued interest) as subscription to Home Loan Account Scheme of the National Housing Bank 13.
Any sum paid as tuition fees to any university/college/educational institution in India for full time
education. Amount of deduction We add the amounts invested / spent in above mentioned schemes
and this amount is known as Gross qualifying amount. The amount deductible is a) Gross qualifying
amount; or b) Rs 1, 00, 000, whichever is less. 2. DEDUCTION UNDER SECTION 80CCC If the
following conditions are fulfilled an assessee may claim deduction under this section  The taxpayer
is an individual  During the previous year, he has paid/deposited a sum under an annuity plan of the
Life Insurance Corporation of India or any other insurer for receiving pension.  If deduction has not
been claimed under section 80C. Amount of deduction If the aforesaid conditions are satisfied, then a)
The amount deposited b) Rs. 10,000, whichever is lower, is deductible.
41. 45. 79 Tax treatment of pension received The pension amount received by the assessee or his nominee
as pension will be taxable in the year of the receipt. 3. DEDUCTION UNDER SECTION 80CCD
This section is for allowing deduction to new central Government employees, if the following
conditions are satisfied:  The taxpayer is an individual  He is employed by the Central Government
on or after January 1, 2004.  He has in the previous year paid or deposited any amount in his account
under a pension scheme notified by the Central Government. Amount of Deduction The amount
deductible is a) The total employee’s contribution and employer’s contribution to the notified pension
scheme during the year. b) Or 10% of salary of the employee, Whichever is less The aggregate
amount of deduction under sections 80C, 80CC and 80CCD cannot exceed Rs. 1, 00,000. 4.
DEDUCTION UNDER SECTION 80D If the following conditions are satisfied then an assessee may
claim deduction under this section.  The taxpayer is an individual or a Hindu undivided family 
Insurance premium is paid by the taxpayer in accordance with the scheme framed in this behalf by the
General Insurance Corporation of India and approved by the Central Government. The scheme is
known as “mediclaim” insurance policy.
42. 46. 79  The aforesaid premium is paid by cheque  Mediclaim policy is taken on the health of the
taxpayer, on the health of spouse, dependent parents or dependent children of the taxpayer. In case of
HUF on the health of any member of the family Amount of Deduction: If all the aforesaid conditions
are satisfied, then the a) Insurance premium paid b) Rs. 10,000 whichever is lower, is deductible. The
 aforesaid limit has been increased to Rs. 15,000 where the assessee or spouse or dependent parents or
any member of the family is a senior citizen (i.e. one who is resident and at least of 65 years of age at
any time during the previous year) and medical insurance is taken for such senior citizen. 5.
DEDUCTION UNDER SECTION 80 DD Following are the provisions under this section: • This
deduction is available to only Individuals and HUF, who is resident in India. • This deduction is given
to the assessee if a person with disability is dependent upon him. • A person with disability means
disabilities like autism, cerebral palsy, mental retardation, etc. as specified in Persons with Disabilities
Act 1995. • The assessee has incurred expenditure by way of medical treatment (including nursing),
training and rehabilitation of a disabled dependent: Or /and • He has paid or deposited any amount
under any scheme framed by the LIC of India or any other insurer for the payment of an annuity or a
lump
43. 47. 79 sum amount for the benefit of such dependent in the event of the death of the assessee. • For
claiming the deduction the assessee shall have to furnish a certificate by the prescribed medical
authority with the return of income. Amount of Deduction  If the above mentioned conditions are
satisfied the amount of deduction is fixed at Rs. 50,000 irrespective of actual expenditure.  In case of
a person with severe disability (over 80 %) a higher deduction of Rs. 75,000 shall be allowed
irrespective of actual expenditure. 6. DEDUCTION UNDER SECTION 80DDB Deduction is
available if following are satisfied • Assessee is an individual or HUF resident in India.173 • The
assessee has actually paid for the medical treatment of specified disease or ailment, for himself or any
dependent* or in case of HUF any member of the family. • The assessee furnishes a certificate, in the
prescribed form from prescribed authority, along with the return of income. Amount of deduction i) a)
the amount paid b) Rs. 40,000, whichever is less; ii) Where the amount is paid in relation to a senior
citizen the deduction shall be allowed for the amount paid or Rs. 60,000 whichever is less. iii) The
deduction shall be reduced by the amount received, if any, under insurance from an insurer for the
medical treatment of person mentioned in this section or reimbursed by the employer.
44. 48. 79 7. DEDUCTION UNDER SECTION 80E Deduction is available if:- • Assessee is an
individual. • He has taken a loan from any financial institution (bank) or an approved charitable
institution. • The loan is taken is for the purpose of pursuing his higher education. • During the
previous year he has repaid some amount as interest on such loan. • Such amount is paid out of his
income chargeable to tax. Amount of deduction a) The entire amount paid by way of interest on such
loan b) Rs.40, 000, whichever is less is deductible in this section. Period of Deduction Further, the
deduction shall be allowed for the previous year in which the assessee starts repaying the loan or
interest thereon and seven previous years immediately succeeding it or until the loan together with
interest thereon is paid by the assessee in full, whichever is earlier. 8. DONATION UNDER
SECTION 80G To encourage donations for social cause all assessee are entitled to this deduction
from their gross total income, if the donation is made in the previous year to the following funds or
charitable institutions. For the sake of convenience we have divided the donations into four categories
depending on the quantum of deduction. A. Donations made to following are eligible for 100%
deduction without any qualifying limit. 1. Prime Minister’s National Relief Fund
45. 49. 79 2. National Defence Fund 3. Prime Minister’s Armenia Earthquake Relief Fund176 4. The
Africa (Public Contribution - India) Fund 5. The National Foundation for Communal Harmony 6.
Approved university or educational institution of national eminence 7. The Chief Minister’s
Earthquake Relief Fund, Maharashtra 8. Donations made to Zila Saksharta Samitis. 9. The National
Blood Transfusion Council or a State Blood Transfusion Council. 10. The Army Central Welfare
Fund or the Indian Naval Benevolent Fund or the Air Force Central Welfare Fund. B) Donations made
to the following are eligible for 50% deduction without any qualifying limit. 1. Jawaharlal Nehru
Memorial Fund 2. Prime Minister’s Drought Relief Fund 3. National Children’s Fund 4. Indira Gandhi
Memorial Trust 5. The Rajiv Gandhi Foundation. C) Donations to the following are eligible for 100%
deduction subject to qualifying limit (i.e. 10% of adjusted gross total income). 1. Donations to the
Government or a local authority for the purpose of promoting family planning. 2. Sums paid by a
company to Indian Olympic Association D) Donations to the following are eligible for 50% deduction
subject to the qualifying limit (i.e. 10% of adjusted gross total income).
46. 50. 79 1. Donation to the Government or any local authority to be utilized by them for any charitable
purposes other than the purpose of promoting family planning. Amount of deduction The quantum of
deduction is as follows:-  Category A- 100 % of amount donated  Category B -50 % of the amount
donated in the funds  Category C – 100% of the amount donated in the funds subject to maximum
limit of 10% of Adjusted GTI.  Category D – 50% of the amount donated in the funds subject to
maximum limit of 10% of Adjusted GTI. The total of these deductions under categories A, B, C, & D
is the quantum of deduction under this section without any maximum amount. 9. DEDUCTION
UNDER SECTION 80GG This deduction is allowed to an individual assessee in respect of rent paid
by him for an accommodation used for his residential purposes provided the following conditions are
fulfilled: • The assessee is either a self-employed person or such a salaried employee who is not in
receipt of house-rent allowance from any source. • The actual rent paid by him is in excess of 10% of
his total income. • He or his spouse or minor children or the HUF, of which he is a member, do not
own any residential accommodation at the place where the assessee resides performs the duties of his
office or employment or carries on his business or profession. Where, however, the assessee owns any
residential accommodation at any other place and claims the concessions of self-occupied house
property for the same, he will not be entitled to any deduction u/s 80GG even if he does not own any
residential accommodation
47. 51. 79 at the place where he ordinarily resides, performs the duties of his office or employment or
carries on his business or profession. • The assessee files a declaration in Form No. 10BA regarding
the payment of rent. Amount of Deduction The assessee, who fulfills the above mentioned conditions,
is allowed a deduction equal to least of the following three: • Excess of actual rent paid over 10% of
adjusted gross total income: • 25% of his adjusted gross total income; and •Rs. 2,000 p.m. 10.
DEDUCTION UNDER SECTION 80U To help a disabled person by reducing his tax burden, this
section has been incorporated. Following are the provisions. • The assessee is an individual being a
resident • He is a person with disability. • He is certified by the medical authority to be a person with
disability, at any time during the previous year. • He furnishes a certificate issued by the medical
authority in the prescribed form along the return of income. Amount of deduction A fixed deduction
of  Rs. 50,000 in case of a person with disability  Rs. 75,000 in case of a person with severe
disability (having any disability over 80%) D. COMPUTATION OF TAX LIABILITY
48. 52. 79 1. Tax Rates for A.Y. 2013-14 2. Layout of computation of taxable income 3. Filing of Income
Tax Return 1. Tax Rates for A.Y. 2013-14 Following rates are applicable for computing tax liability
for the current Financial Year ending on March 31, 2013 (Assessment Year 2013-14): I. Individual
(man and woman below 60 years of age) Table-1 Tax Liability below 60 years of age Income Slabs
Income Tax Rate i. Where the total income does not exceed Rs. 2,00,000/-. NIL ii. Where the total
income exceeds Rs. 2,00,000/- but does not exceed Rs. 5,00,000/-. 10% of amount by which the total
income exceeds Rs. 2,00,000/- iii. Where the total income exceeds Rs. 5,00,000/- but does not exceed
Rs. 10,00,000/-. Rs. 30,000/- + 20% of the amount by which the total income exceeds Rs. 5,00,000/-.
iv . Where the total income exceeds Rs. 10,00,000/-. Rs. 130,000/- + 30% of the amount by which The
total income exceeds Rs. 10,00,000/-. Education Cess: 3% of the Income-tax. II. Individual resident
who is of the age of 60 years or more but below the age of 80 years at any time during the previous
year Table-2 Tax Liability for 60 years of age or above the age of 80 years Income Level / Slabs
Income Tax Rate i. Where the total income does not exceed Rs. 2,50,000/-. NIL ii. Where the total
income exceeds Rs. 2,50,000/- but does not exceed Rs. 5,00,000/- 10% of the amount by which the
total income exceeds Rs. 2,50,000/-. iii. Where the total income exceeds Rs. Rs. 25,000/- + 20% of the
amount by which
49. 53. 79 5,00,000/- but does not exceed Rs. 10,00,000/- the total income exceeds Rs. 5,00,000/-. iv .
Where the total income exceeds Rs. 10,00,000/- Rs. 125,000/- + 30% of the amount by which the total
income exceeds Rs. 10,00,000/-. Education Cess: 3% of the Income-tax. III. Individual resident who is
of the age of 80 years or more at any time during the previous year Table 3 Tax Liability for 80 years
of age or above Income Level / Slabs Income Tax Rate i. Where the total income does not exceed Rs.
5,00,000/-. NIL ii. Where the total income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/-
20% of the amount by which the total income exceeds Rs. 5,00,000/-. iii. Where the total income
exceeds Rs. 10,00,000/- Rs. 100,000/- + 30% of the amount by which the total income exceeds Rs.
 10,00,000/-. Education Cess: 3% of the Income-tax. 2. Layout for Computation of Total Income
Table-4 Layout for Computation of Total Income .
50. 54. 79 3. Filing of Income Tax Return  Every individual (resident or non-resident) has to file the
return of his income tax if his/her total income before allowing deduction under Chapter VI-A (gross
total income) exceeds the exemption limit.  Even if you have been residing or working outside India,
you must file income tax return if you have any income which is deemed to accrue in India. Refer to
question "Income deemed to accrue in India" for list of such taxable incomes. The exemption limit on
gross total income for FY2012-13 is:  General Taxpayer (male or female) (below the age of 65
years): Rs. 2,00,000  Senior citizen (between 60 to 80 years of age): Rs. 2,50,000  Very senior
citizen (above 80 years of age): Rs. 5,00,000 For example, a non-senior male having annual income
above Rs. 2.0 lakh should file return, even if he can claim the entire Rs. 2.0 lakh in deductions. Person
who has achieved 60 years of age on or before 31st March, 2013 is considered as senior citizen.
Person who has achieved 80 years of age on or before 31st March, 2013 is considered as very senior
citizen.  The last date of filing income tax return is July 31, in case of individuals who are not
covered in point 3 below.  If the income includes business or professional income requiring tax audit
(turnover Rs. 40 lakhs), the last date for filing the return is October 31.
51. 55. 79  The penalty for non-filing of income tax return is Rs. 5000. Long term capital gain on sale of
shares and equity mutual funds if the security transaction tax is paid/imposed on such transactions.
52. 56. 79 RESEARCH METHODOLOGY  Study of company profile and information Understanding
the nature of consultancy industry and the business of the company, the working of the company by
going through the company journals, annual reports, official circulars, contract documents, tenders
and other documents.  Structuring of information collected and studied  Analysis of business
model and their inter relationship  Identification of critical aspects which facilitate the official and
system in place to streamline the processes.  Practical cases were studied with focus on financial
parameters and yardsticks.  For undertaking above steps, continues interaction and discussion made
with company mentor and other key persons concerned.  The analysis was supported with tables and
diagrams to present the results obtained in easy understandable manner  While alternatives were also
studied before concluding the most suitable solution to achieve the desired objective.  The way
forward has been suggested to further taking the topic to the next level. Analysis of secondary data of
projects from the company’s Financial Management Information System (FMIS) generated reports
and statements. The data and information is used as reference to understand the topic however same
may differ with actual scenario.
53. 57. 79 LIMITATIONS 1) This project studies the tax planning for individuals assessed to Income Tax.
2) The study relates to non-specific and generalized tax planning, eliminating the need of
sample/population analysis. 3) Basic methodology implemented in this study is subjected to various
pros & cons, and diverse insurance plans at different income levels of individual assessees. 4) This
study may include comparative and analytical study of more than one tax saving plans and
instruments. 5) This study covers individual income tax assessees only and does not hold good for
corporate taxpayers. 6) The tax rates, insurance plans, and premium are all subject to FY 2013-14
only.
54. 58. 79 RECOMMENDATIONS Figure-6 Recommendations and Tips 1. Tax Planning Tax planning is
a process individuals, businesses, and organizations use to evaluate their financial profile, with the aim
of minimizing the amount of taxes paid on personal income or business profit. Effective tax planning
entails analyzing investment instruments, expenditures, and other factors such as filing status for their
tax liability impact. Accounting, finance, banking, and insurance firms all emphasize slightly different
aspects of tax planning in accordance with the types of services they provide and the laws governing
their industries. For example, the tax planning advice banks give clients might revolve around
choosing investments that provide the most favorable return for the lowest tax liability, while an
insurer's approach to tax planning might include using cash value life insurance for its tax-deferral
features. Estate planning is a form of tax planning, in that its intent is to minimize estate taxes after
death. A number of retail income tax software packages provide tax planning tips along with step-by-
step guidance on tax preparation, and tax planning advice is also available online from the IRS and
 other sites. These three steps in tax planning are: RECOMMENDATIONS Tax Planning Tax Planning
Tools Strategic Tax Planning Income Head-wise Tax Planning Tips
55. 59. 79 i. Calculate your taxable income under all heads i.e., Income from Salary, House Property,
Business & Profession, Capital Gains and Income from Other Sources. ii. Calculate tax payable on
gross taxable income for whole financial year (i.e., from 1st April to 31st March) using a simple tax
rate table, given on next page. iii. After you have calculated the amount of your tax liability. You have
two options to choose from:  Pay your tax (No tax planning required)  Minimize your tax through
prudent tax planning. For most individuals, financial planning and tax planning are two mutually
exclusive exercises. While planning our investments we spend considerable amount of time evaluating
various options and determining which suits us best. But when it comes to planning our investments
from a tax-saving perspective, more often than not, we simply go the traditional way and do the exact
same thing that we did in the earlier years. Well, in case you were not aware the guidelines governing
such investments are a lot different this year. And lethargy on your part to rework your investment
plan could cost you dear. For persons below 30 years of age: This is generally the starting phase of
career for most of the professionals. HRA should It is the right time to start saving for the future. The
investments made during this phase should have a long term investment horizon. Starting to save and
investing for retirement will give an edge if started at early age because of power of compounding.
Investing in a mix of ELSS and Pension related schemes like EPF, NPS or EPF is a good option for
professionals of this age group. By doing so, they ensure that they plan for their retirement from an
early age. It also provides the advantage of providing equity exposure to their retirement fund. It is
also advisable for the professionals of this age group to get required life
56. 60. 79 insurance cover and health insurance cover. They can take the advantage of low premium rates
if they start during this age. Avoid falling in the trap of endowment plans and ULIPs. For the persons
between the age of 31 & 36: During this phase, most of the professionals can generally take advantage
of avenues of tax savings other than investments. Contribution to PF by self and employer, required
life insurance cover for self and family will form the major portion of 80C. Tuition fee of the children
can also be claimed under the same section. The average age of an Indian home buyer is 30. Most of
the professionals in this age group can take advantage of tax savings related to a home loan. They can
claim the principal repayment under section 80C and interest repayment under section 24B. For
couples who are both liable to pay tax, it is advisable to take the home loan on a joint account. It is
also advisable to take required health insurance cover for self and family which would account for
section 80D. For professionals who can still make investments under 80C, before making any tax
related investments they have to chalk out the goals they want to achieve and their respective
timelines. Then based on their risk appetite and time horizon, they can invest in relevant tax saving
investments. Avoid over doing tax saving investments. For the persons between the age of 36 & 45:
Non investment related tax savings will play a major role in tax planning even during this phase.
Principal repayment on existing home loan, employer and self contribution for PF, tuition fee of
children, life insurance cover for self and family account for more than 1 lakh under section 80C for
most of the professionals in this age group. So, most of them need not even make any investments for
tax saving. In case they have an option to invest in 80C they can opt for investments pertaining to
retirement. They can even claim the interest repayment of home loan under section 24B and health
insurance premium being paid for self and family under section 80D. This is also time for the
professionals to undo the past mistakes made regarding tax savings. They have to assess all their
existing
57. 61. 79 tax saving investments and assess the pros and cons of holding them. It is also important that
they avoid over doing tax saving investments. They have to assess all their expenditures and identify
the expenses which are eligible for tax savings. This gives them a fair bit of idea whether they have to
make investments or not. For the persons between the age of 46 & 60: This is generally the peak
earnings phase of the professionals. Most of them try to pay off their existing debts and channelize
their income towards savings for retirement. The same factors of home loan, tuition fee and PF
account for majority of the tax savings. Most of the professionals do not opt for health insurance other
than the one provided by their organizations. But getting a health insurance at age 60, after retirement
is an uphill task. Most of the service providers have a cut off age of 60. So if you need not get a health
 insurance by now, get one. This can be claimed under section 80D. The cut off age for opening a PPF
account is also 60. If they do not have a PPF account by now, it is advisable to start one 60 years is the
cut off for opening a PPF account. In case they have to make investments, they can choose any of the
debt products related to retirement. Avoid buying excessive insurance or tax saving investments. For
the persons above the age of 60: Capital protection should be the motto of the investments being made
after retirement. All investments should be in debt. Retired employees looking for timely pay outs
(monthly or quarterly) can consider investing in Senior Citizen Saving Schemes (SCSS). Since SCSS
is backed by government, it provides high security for your capital which is essential for post-
retirement investments. 2. Tax Planning Tools Following are the five tax planning tools that
simultaneously help the assessee’s maximize their wealth too. Most of what we do with respect to tax
saving, planning, investment whichever way you call it is going to be of little or no use in years to
come.
58. 62. 79 The returns from such investments are likely to be minuscule and or they may not serve any
worthwhile use of your money. Tax planning is very strategic in nature and not like the last minute
firefighting most do each year. For most people, tax planning is akin to some kind of a burden that
they want off their shoulders as soon as possible. As a result, the attitude is whatever seems ok and
will help save tax – ‘let’s go for it’ - the basic mantra. What is really foolhardy is that saving tax is a
larger prerogative than that of utilization of your hard earned money and the future of such monies in
years to come. Like each year we may continue to do what we do or give ourselves a choice this year
round. Let’s think before we put down our investment declarations this time around. Like each year
product manufacturers will be on a high note enticing you to buy their products and save tax. As usual
the market will be flooded by agents and brokers having solutions for you. Here are some guidelines
to help you wade through the various options and ensure the following: a. Tax is saved and that you
claim the full benefit of your section 80C benefits. b. Product are chosen based on their long term
merit and not like firefighting options undertaken just to reach that Rs 1 lakh investment mark. c.
Products are chosen in such a manner that multiple life goals can be fulfilled and that they are in line
with your future goals and expectations. d. Products that you choose help you optimize returns while
you save tax in the immediate future. 3. Strategic Tax Planning So far with whatever we have done in
the past, it is important to understand the future implications of your tax saving strategy. You cannot
do
59. 63. 79 much about the statutory commitments and contribution like provident fund (PF) but all the rest
is in your control. (i) Insurance If you have a traditional money back policy or an endowment type of
policy understand that you will be earning about 4% to 6% returns on such policies. In years to come,
this will be lower or just equal to inflation and hence you are not creating any wealth, in fact you are
destroying the value of your wealth rapidly. Such policies should ideally be restructured and making
them paid up is a good optionBe careful of ULIPS; invest if you are less than 35 years of age, else as
and when the stock markets are down or enter into a downward phase. Your ULIP will turn out to be
very expensive as your age increases. (ii) Public Provident Fund (PPF) This has been a long time
favorite of most people. It is a no-brainer and hence most people prefer this but note this. The current
returns are 8% and quite likely that sooner or later with the implementation of the exempt tax (EET)
regime of taxation investments in PPF may become redundant, as returns will fall significantly. How
this will be implemented is not clear hence the best option is to go easy on this one. Simply place a
nominal sum to keep your account active before there is clarity on this front. EET may apply to
insurance policies as well. (iii) Pension Policies This is the greatest mistake that many people make.
There is no pension policy today, which will really help you in retirement. That is the cold fact. Tulip
pension policies may help you to some extent but I would give it a rating of four out of ten. It is quite
likely that you will make a sizeable sum by the time you retire but that is where the problem begins.
60. 64. 79 The problem with pension policies is that you will get a measly 2% or 4% annuity when you
actually retire. To make matters worse this will be taxed at full marginal rate of income tax as well.
Liquidity and flexibility will just not be there. No insurance company or agent will agree to this but
this is a cold fact. Divest the money to more productive assets based on your overall risk profile and
general preferences. Bite this – Rs 100 today will be worth only Rs 32 say in 20 years’ time
considering 5% inflation. (iv) Five year fixed deposits (FDs), National Savings Scheme (NSC), other
 bonds These products are fair if your risk appetite is really low and if you are not too keen to build
wealth. Generally speaking, in all that we do wealth creation should be the underlying motive. (v)
Equity Linked Savings Scheme (ELSS) (vi) This is a good option. You save tax and returns are tax-
free completely. It is an equity investment and when your three years are over, you may not have
made great returns or the stock markets may be down at that point. If that be the case, you will have to
hold much longer. Hence if you wish to use such funds in three-four years’ time the calculations can
go wrong. Nevertheless, strange as it may seem, the high-risk investment has the least tax liability, in
fact it is nil as per the current tax laws. If you are prepared to hold for long really long like five-ten
years, surely you will make super normal returns. That said ideally you must have your financial goal
in mind first and then see how you can meet your goals and in the process take advantage of tax
savings strategies. There is so much to be done while you plan your tax. Look at 80C benefits as a
composite tool. Look at this as a tax management tool for the family and not just yourself. You have
section 80C benefit for yourself,
61. 65. 79 your spouse, your HUF, your parents, your father’s HUF. There are so many Rs 1 lakh to be
planned and hence so much to benefit from good tax planning. Traditionally, buying life insurance has
always formed an integral part of an individual's annual tax planning exercise. While it is important
for individuals to have life cover, it is equally important that they buy insurance keeping both their
long-term financial goals and their tax planning in mind. This note explains the role of life insurance
in an individual's tax planning exercise while also evaluating the various options available at one's
disposal. Term Plans A term plan is the most basic type of life insurance plan. In this plan, only the
mortality charges and the sales and administration expenses are covered. There is no savings element;
hence the individual does not receive any maturity benefits. A term plan should form a part of every
individual's portfolio. An illustration will help in understanding term plans better. Cover yourself with
a term plan  The premiums given in the table are for a sum assured of Rs 5,000,000 for a healthy,
non-smoking male.  Taxes as applicable may be levied on some premium quotes given above.  The
premium quotes are as shown on websites of the respective insurance companies. Individuals are
advised to contact the insurance companies for further details. Let us suppose an individual aged 30
years, wants to buy a term plan for tenure of 25 years and a sum assured of Rs 5,000,000. As the table
shows, a term plan is offered by insurance companies at a very affordable rate. In case of an
eventuality during the policy tenure, the individual's nominees stand to receive the sum assured of Rs
5,000,000.
62. 66. 79 Figure-7 Term Plan Returns Comparison Individuals should also note that the term plan
offering differs across life insurance companies. It becomes important therefore to evaluate all the
options at their disposal before finalizing a plan from any one company. For example, some insurance
companies offer a term plan with a maximum tenure of 25 years while other companies do so for 30
years. A certain insurance company also has an upper limit of Rs 5,000,000 for its sum assured.
63. 67. 79 Unit linked insurance plans (ULIPs) Unit linked plans have been a rage of late. With the advent
of the private insurance companies and increased competition, a lot has happened in terms of product
innovation and aggressive marketing of the same. ULIPs basically work like a mutual fund with a life
cover thrown in. They invest the premium in market-linked instruments like stocks, corporate bonds
and government securities (Gsecs). The basic difference between ULIPs and traditional insurance
plans is that while traditional plans invest mostly in bonds and Gsecs, ULIPs' mandate is to invest a
major portion of their corpus in stocks. Individuals need to understand and digest this fact well before
they decide to buy a ULIP. However, investments in ULIPs should be in tune with the individual's risk
appetite. Individuals who have a propensity to take risks could consider buying ULIPs with a higher
equity component. Also, ULIP investments should fit into an individual's financial portfolio. If for
example, the individual has already invested in tax saving funds while conducting his tax planning
exercise, and his financial portfolio or his risk appetite doesn't 'permit' him to invest in ULIPs, then
what he may need is a term plan and not unit linked insurance. Pension/retirement plans Planning for
retirement is an important exercise for any individual. A retirement plan from a life insurance
company helps an individual insure his life for a specific sum assured. At the same time, it helps him
in accumulating a corpus, which he receives at the time of retirement. Premiums paid for pension
plans from life insurance companies enjoy tax benefits up to Rs 10,000 under Section 80CCC.
 Individuals while conducting their tax planning exercise could consider investing a portion of their
insurance money in such plans.
64. 68. 79 Unit linked pension plans are also available with most insurance companies. As already
mentioned earlier, such investments should be in tune with their risk appetites. Traditional
endowment/endowment type plans Individuals with a low risk appetite, who want an insurance cover,
which will also give them returns on maturity could consider buying traditional endowment plans.
Such plans invest most of their monies in corporate bonds, Gsecs and the money market. The return
that an individual can expect on such plans should be in the 4%-7% range as given in the illustration
below. Table 5: Traditional Endowment Plan Returns AGE (Yrs.) SUM ASSURED (Rs.) PREMIU M
(Rs.) TENURE (Yrs.) MATURITY AMOUNT (Rs.) ACTUAL RATE OF RETURN (%) COMPANY
A 30 1,000,000 65070 15 1,684,000 6.55 COMPANY B 30 1,000,000 65202 15 1,766,559 7.09 
The maturity amounts shown above are at the rate of 10% as per company illustrations. Returns
calculated by the company are on the premium amount net of expenses.  Taxes as applicable may be
levied on some premium quotes given above.
65. 69. 79  Individuals are advised to contact the insurance companies for further details. A variant of
endowment plans are child plans and money back plans. While they may be presented differently, they
still remain endowment plans in essence. Such plans purport to give the individual either a certain sum
at regular intervals (in case of money back plans) or as a lump sum on maturity. They fit into an
individual's tax planning exercise provided that there exists a need for such plans. Tax benefits*
Premiums paid on life insurance plans enjoy tax benefits under Section 80C subject to an upper limit
of Rs 100,000. The tax benefit on pension plans is subject to an upper limit of Rs 10,000 as per
Section 80CCC (this falls within the overall Rs 100,000 Section 80C Limit). The maturity amount is
currently treated as tax free in the hands of the individual on maturity under Section 10 (10D). 4.
Income Head-wise Tax Planning Tips Salaries Head: Following propositions should be borne in mind:
a) It should be ensured that, under the terms of employment, dearness allowance and dearness pay
form part of basic salary. This will minimize the tax incidence on house rent allowance, gratuity and
commuted pension. Likewise, incidence of tax on employer’s contribution to recognized provident
fund will be lesser if dearness allowance forms a part of basic salary. b) The Supreme Court has held
in Gestetner Duplicators (p) Ltd. Vs CIT that commission payable as per the terms of contract of
employment at a fixed percentage of turnover achieved by an employee, falls within the expression
“salary” as defined in rule 2(h) of part A of the fourth schedule. Consequently, tax incidence on house
rent allowance, entertainment allowance, gratuity and commuted pension will be lesser
66. 70. 79 if commission is paid at a fixed percentage of turnover achieved by the employee. c) An
uncommuted pension is always taxable; employees should get their pension commuted. Commuted
pension is fully exempt from tax in the case of Government employees and partly exempt from tax in
the case of government employees and partly exempt from tax in the case of non-government
employees who can claim relief under section 89. d) An employee being the member of recognized
provident fund, who resigns before 5 years of continuous service, should ensure that he joins the firm
which maintains a recognized fund for the simple reason that the accumulated balance of the provident
fund with the former employer will be exempt from tax, provided the same is transferred to the new
employer who also maintains a recognized provident fund. e) Since employers’ contribution towards
recognized provident fund is exempt from tax up to 12 percent of salary, employer may give extra
benefit to their employees by raising their contribution to 12 percent of salary without increasing any
tax liability. f) While medical allowance payable in cash is taxable, provision of ordinary medical
facilities is no taxable if some conditions are satisfied. Therefore, employees should go in for free
medical facilities instead of fixed medical allowance. g) Since the incidence of tax on retirement
benefits like gratuity, commuted pension, accumulated unrecognized provident fund is lower if they
are paid in the beginning of the financial year, employer and employees should mutually plan their
affairs in such a way that retirement, termination or resignation, as the case may be, takes place in the
beginning of the financial year. h) An employee should take the benefit of relief available section 89
wherever possible. Relief can be claimed even in the case of a sum received from URPF so far as it is
attributable to employer’s contribution and interest thereon. Although gratuity received during the
67. 71. 79 employment is not exempt u/s 10(10), relief u/s 89 can be claimed. It should, however, be
ensured that the relief is claimed only when it is beneficial. i) Pension received in India by a non-
resident assessee from abroad is taxable in India. If however, such pension is received by or on behalf
of the employee in a foreign country and later on remitted to India, it will be exempt from tax. j) As
the perquisite in respect of leave travel concession is not taxable in the hands of the employees if
certain conditions are satisfied, it should be ensured that the travel concession should be claimed to the
maximum possible extent without attracting any incidence of tax. k) As the perquisites in respect of
free residential telephone, providing use of computer/laptop, gift of movable assets(other than
computer, electronic items, car) by employer after using for 10 years or more are not taxable,
employees can claim these benefits without adding to their tax bill. l) Since the term “salary” includes
basic salary, bonus, commission, fees and all other taxable allowances for the purpose of valuation of
perquisite in respect of rent free house, it would be advantageous if an employee goes in for
perquisites rather than for taxable allowances. This will reduce valuation of rent free house, on one
hand, and, on the other hand, the employee may not fall in the category of specified employee. The
effect of this ingenuity will be that all the perquisites specified u/s 17(2)(iii) will not be taxable. House
Property Head: The following propositions should be borne in mind: a) If a person has occupied more
than one house for his own residence, only one house of his own choice is treated as self- occupied
and all the other houses are deemed to be let out. The tax exemption applies only in the case of on
self-occupied house and not in the case of deemed to be let out properties. Care should,
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