Taxation System in India

India has a well-developed tax structure with clearly demarcated authority between
Central and State Governments and local bodies.
Central Government levies taxes on income (except tax on agricultural income,
which the State Governments can levy), customs duties, central excise and service
tax.
Value Added Tax (VAT), stamp duty, state excise, land revenue and profession tax
are levied by the State Governments.
Local bodies are empowered to levy tax on properties, octroi and for utilities like
water supply, drainage etc.
Indian taxation system has undergone tremendous reforms during the last decade.
The tax rates have been rationalized and tax laws have been simplified resulting in
better compliance, ease of tax payment and better enforcement. The process of
rationalization of tax administration is ongoing in India.

Direct Taxes
In case of direct taxes (income tax, wealth tax, etc.), the burden directly falls on the
taxpayer.

Income tax
According to Income Tax Act 1961, every person, who is an assessee and whose
total income exceeds the maximum exemption limit, shall be chargeable to the
income tax at the rate or rates prescribed in the Finance Act. Such income tax shall
be paid on the total income of the previous year in the relevant assessment year.
Assessee means a person by whom (any tax) or any other sum of money is payable
under the Income Tax Act, and includes (a) Every person in respect of whom any proceeding under the Income Tax Act has
been taken for the assessment of his income (or assessment of fringe benefits) or of
the income of any other person in respect of which he is assessable, or of the loss
sustained by him or by such other person, or of the amount of refund due to him or
to such other person;
(b) Every person who is deemed to be an assessee under any provisions of the
Income Tax Act;
(c) Every person who is deemed to be an assessee in default under any provision of
the Income Tax Act.

Where a person includes:

Individual
Hindu Undivided Family (HUF)
Association of persons (AOP)
Body of individuals (BOI)
Company
Firm

A local authority and,

Every artificial judicial person not falling within any of the preceding
categories.
Income tax is an annual tax imposed separately for each assessment year (also
called the tax year). Assessment year commences from 1st April and ends on the
next 31st March.
The total income of an individual is determined on the basis of his residential status
in India. For tax purposes, an individual may be resident, nonresident or not
ordinarily resident.

Resident
An individual is treated as resident in a year if present in India:
1. For 182 days during the year or
2. For 60 days during the year and 365 days during the preceding four years.
Individuals fulfilling neither of these conditions are nonresidents. (The rules are
slightly more liberal for Indian citizens residing abroad or leaving India for
employment abroad.)

Resident but not Ordinarily Resident

A resident who was not present in India for 730 days during the preceding seven
years or who was nonresident in nine out of ten preceding years is treated as not
ordinarily resident.

Non-Residents
Non-residents are taxed only on income that is received in India or arises or is
deemed to arise in India. A person not ordinarily resident is taxed like a non-resident
but is also liable to tax on income accruing abroad if it is from a business controlled
in or a profession set up in India.
Non-resident Indians (NRIs) are not required to file a tax return if their income
consists of only interest and dividends, provided taxes due on such income are
deducted at source. It is possible for non-resident Indians to avail of these special
provisions even after becoming residents by following certain procedures laid down
by the Income Tax act.

Personal Income Tax

Personal income tax is levied by Central Government and is administered by Central
Board of Direct taxes under Ministry of Finance in accordance with the provisions of
the Income
Tax
Act.

Rates of Withholding Tax

To view tax rates applicable in India under Avoidance of Double Taxation (ADT)
agreement
Tax upon Capital Gains
Corporate tax

Definition of a company
A company has been defined as a juristic person having an independent and
separate legal entity from its shareholders. Income of the company is computed and
assessed separately in the hands of the company. However the income of the
company, which is distributed to its shareholders as dividend, is assessed in their
individual hands. Such distribution of income is not treated as expenditure in the
hands of company; the income so distributed is an appropriation of the profits of the
company.

Residence of a company
A company is said to be a resident in India during the relevant previous year

if:
o
o

It is an Indian company
If it is not an Indian company but, the control and the management of
its affairs is situated wholly in India
A company is said to be non-resident in India if it is not an Indian company
and some part of the control and management of its affairs is situated outside India.
Corporate sector tax
The taxability of a company's income depends on its domicile. Indian companies are
taxable in India on their worldwide income. Foreign companies are taxable on
income that arises out of their Indian operations, or, in certain cases, income that is
deemed to arise in India. Royalty, interest, gains from sale of capital assets located
in India (including gains from sale of shares in an Indian company), dividends from
Indian companies and fees for technical services are all treated as income arising in
India. Current rates of corporate tax.
Different kinds of taxes relating to a company
Minimum Alternative Tax (MAT)
Normally, a company is liable to pay tax on the income computed in accordance
with the provisions of the income tax Act, but the profit and loss account of the
company is prepared as per provisions of the Companies Act. There were large
number of companies who had book profits as per their profit and loss account but
were not paying any tax because income computed as per provisions of the income

tax act was either nil or negative or insignificant. In such case, although the
companies were showing book profits and declaring dividends to the shareholders,
they were not paying any income tax. These companies are popularly known as
Zero Tax companies. In order to bring such companies under the income tax act net,
section 115JA was introduced w.e.f assessment year 1997-98.
A new tax credit scheme is introduced by which MAT paid can be carried forward for
set-off against regular tax payable during the subsequent five year period subject to
certain conditions, as under:When a company pays tax under MAT, the tax credit earned by it shall be an
amount, which is the difference between the amount payable under MAT and the
regular tax. Regular tax in this case means the tax payable on the basis of normal
computation of total income of the company.
MAT credit will be allowed carry forward facility for a period of five
assessment years immediately succeeding the assessment year in which MAT is
paid. Unabsorbed MAT credit will be allowed to be accumulated subject to the fiveyear carry forward limit.
In the assessment year when regular tax becomes payable, the difference
between the regular tax and the tax computed under MAT for that year will be set
off against the MAT credit available.
The credit allowed will not bear any interest

Fringe Benefit Tax (FBT)

The Finance Act, 2005 introduced a new levy, namely Fringe Benefit Tax (FBT)
contained in Chapter XIIH (Sections 115W to 115WL) of the Income Tax Act, 1961.
Fringe Benefit Tax (FBT) is an additional income tax payable by the employers on
value of fringe benefits provided or deemed to have been provided to the
employees. The FBT is payable by an employer who is a company; a firm; an
association of persons excluding trusts/a body of individuals; a local authority; a
sole trader, or an artificial juridical person. This tax is payable even where employer
does not otherwise have taxable income. Fringe Benefits are defined as any
privilege, service, facility or amenity directly or indirectly provided by an employer
to his employees (including former employees) by reason of their employment and
includes expenses or payments on certain specified heads.
The benefit does not have to be provided directly in order to attract FBT. It may still
be applied if the benefit is provided by a third party or an associate of employer or
by under an agreement with the employer.
The value of fringe benefits is computed as per provisions under Section 115WC.
FBT is payable at prescribed percentage on the taxable value of fringe benefits.
Besides, surcharge in case of both domestic and foreign companies shall be leviable
on the amount of FBT. On these amounts, education cess shall also be payable.
Every company shall file return of fringe benefits to the Assessing Officer in the
prescribed form by 31st October of the assessment year as per provisions of Section

115WD. If the employer fails to file return within specified time limit specified under
the said section, he will have to bear penalty as per Section 271FB.
The scope of Fringe Benefit Tax is being widened by including the employees stock
option as fringe benefit liable for tax. The fair market value of the share on the date
of the vesting of the option by the employee as reduced by the amount actually
paid by him or recovered from him shall be considered to be the fringe benefit. The
fair market value shall be determined in accordance with the method to be
prescribed by the CBDT.

Dividend Distribution Tax (DDT)

Under Section 115-O of the Income Tax Act, any amount declared, distributed or
paid by a domestic company by way of dividend shall be chargeable to dividend tax.
Only a domestic company (not a foreign company) is liable for the tax. Tax on
distributed profit is in addition to income tax chargeable in respect of total income.
It is applicable whether the dividend is interim or otherwise. Also, it is applicable
whether such dividend is paid out of current profits or accumulated profits.
The tax shall be deposited within 14 days from the date of declaration, distribution
or payment of dividend, whichever is earliest. Failing to this deposition will require
payment of stipulated interest for every month of delay under Section115-P of the
Act.
Rate of dividend distribution tax to be raised from 12.5 per cent to 15 per cent on
dividends distributed by companies; and to 25 per cent on dividends paid by money
market mutual funds and liquid mutual funds to all investors.

Banking Cash Transaction Tax (BCTT)

The Finance Act 2005 introduced the Banking Cash Transaction Tax (BCTT) w.e.f.
June 1, 2005 and applies to the whole of India except in the state of Jammu and
Kashmir.BCTT continues to be an extremely useful tool to track unaccounted monies
and trace their source and destination. It has led the Income Tax Department to
many money laundering and hawala transactions.
BCTT is levied at the rate of 0.1 per cent of the value of following "taxable banking
transactions" entered with any scheduled bank on any single day:
Withdrawal of cash from any bank account other than a saving bank account;
and
Receipt of cash on encashment of term deposit(s).
However,Banking Cash Transaction Tax (BCTT) has been withdrawn with effect from
April 1, 2009.

Securities Transaction Tax (STT)

Securities Transaction Tax or turnover tax, as is generally known, is a tax that is

leviable on taxable securities transaction. STT is leviable on the taxable securities
transactions with effect from 1st October, 2004 as per the notification issued by the
Central Government. The surcharge is not leviable on the STT.

Wealth Tax

Wealth tax, in India, is levied under Wealth-tax Act, 1957. Wealth tax is a tax on the
benefits derived from property ownership. The tax is to be paid year after year on
the same property on its market value, whether or not such property yields any
income.
Under the Act, the tax is charged in respect of the wealth held during the
assessment year by the following persons: Individual
Hindu Undivided Family (HUF)
Company
Chargeability to tax also depends upon the residential status of the assessee same
as the residential status for the purpose of the Income Tax Act.
Wealth tax is not levied on productive assets, hence investments in shares,
debentures, UTI, mutual funds, etc are exempt from it. The assets chargeable to
wealth tax are Guest house, residential house, commercial building, Motor car,
Jewellery, bullion, utensils of gold, silver, Yachts, boats and aircrafts, Urban land and
Cash in hand (in excess of Rs 50,000 for Individual & HUF only).
The following will not be included in Assets: Assets held as Stock in trade.
A house held for business or profession.
Any property in nature of commercial complex.
A house let out for more than 300 days in a year.
Gold deposit bond.
A residential house allotted by a Company to an employee, or an Officer, or a
Whole
Time Director (Gross salary i.e. excluding perquisites and before Standard Deduction
of such Employee, Officer, Director should be less than Rs 5,00,000).
The assets exempt from Wealth tax are "Property held under a trust", Interest of the
assessee in the coparcenary property of a HUF of which he is a member,
"Residential building of a former ruler", "Assets belonging to Indian repatriates"
Wealth tax is chargeable in respect of Net wealth corresponding to Valuation date
where Net wealth is all assets less loans taken to acquire those assets and valuation
date is 31st March of immediately preceding the assessment year. In other words,
the value of the taxable assets on the valuation date is clubbed together and is
reduced by the amount of debt owed by the assessee. The net wealth so arrived at
is charged to tax at the specified rates. Wealth tax is charged @ 1 per cent of the
amount by which the net wealth exceeds Rs 15 Lakhs.

Tax Rebates for Corporate Tax

The classical system of corporate taxation is followed in India

Domestic companies are permitted to deduct dividends received from other

domestic companies in certain cases.
Inter Company transactions are honored if negotiated at arm's length.
Special provisions apply to venture funds and venture capital companies.
Long-term capital gains have lower tax incidence.
There is no concept of thin capitalization.
Liberal deductions are allowed for exports and the setting up on new
industrial undertakings under certain circumstances.
There are liberal deductions for setting up enterprises engaged in developing,
maintaining and operating new infrastructure facilities and power-generating units.
Business losses can be carried forward for eight years, and unabsorbed
depreciation can be carried indefinitely. No carry back is allowed.
Dividends, interest and long-term capital gain income earned by an
infrastructure fund or company from investments in shares or long-term finance in
enterprises carrying on the business of developing, monitoring and operating
specified infrastructure facilities or in units of mutual funds involved with the
infrastructure of power sector is proposed to be tax exempt.

Capital Gains Tax

A capital gain is income derived from the sale of an investment. A capital
investment can be a home, a farm, a ranch, a family business, work of art etc. In
most years slightly less than half of taxable capital gains are realized on the sale of
corporate stock. The capital gain is the difference between the money received from
selling the asset and the price paid for it.
Capital gain also includes gain that arises on "transfer" (includes sale, exchange) of
a capital asset and is categorized into short-term gains and long-term gains.
The capital gains tax is different from almost all other forms of taxation in that it is a
voluntary tax. Since the tax is paid only when an asset is sold, taxpayers can legally
avoid payment by holding on to their assets--a phenomenon known as the "lock-in
effect."
The scope of capital asset is being widened by including certain items held as
personal effects such as archaeological collections, drawings, paintings, sculptures
or any work of art. Presently no capital gain tax is payable in respect of transfer of
personal effects as it does not fall in the definition of the capital asset. To restrict
the misuse of this provision, the definition of capital asset is being widened to
include those personal effects such as archaeological collections, drawings,
paintings, sculptures or any work of art. Transfer of above items shall now attract
capital gain tax the way jewellery attracts despite being personal effect as on date.
Short Term and Long Term capital Gains
Gains arising on transfer of a capital asset held for not more than 36 months (12
months in the case of a share held in a company or other security listed on
recognised stock exchange in India or a unit of a mutual fund) prior to its transfer
are "short-term". Capital gains arising on transfer of capital asset held for a period
exceeding the aforesaid period are "long-term".
Section 112 of the Income-Tax Act, provides for the tax on long-term capital gains,
at 20 per cent of the gain computed with the benefit of indexation and 10 per cent
of the gain computed (in case of listed securities or units) without the benefit of
indexation.

Double Taxation Relief

Double Taxation means taxation of the same income of a person in more than one
country. This results due to countries following different rules for income taxation.
There are two main rules of income taxation i.e. (a) Source of income rule and (b)
residence rule.
As per source of income rule, the income may be subject to tax in the country
where the source of such income exists (i.e. where the business establishment is
situated or where the asset / property is located) whether the income earner is a
resident in that country or not.
On the other hand, the income earner may be taxed on the basis of the residential
status in that country. For example, if a person is resident of a country, he may have
to pay tax on any income earned outside that country as well.
Further,some countries may follow a mixture of the above two rules. Thus, problem
of double taxation arises if a person is taxed in respect of any income on the basis
of source of income rule in one country and on the basis of residence in another
country or on the basis of mixture of above two rules.
In India, the liability under the Income Tax Act arises on the basis of the residential
status of the assessee during the previous year. In case the assessee is resident in
India, he also has to pay tax on the income, which accrues or arises outside India,
and also received outside India. The position in many other countries being also
broadly similar, it frequently happens that a person may be found to be a resident in
more than one country or that the same item of his income may be treated as
accruing, arising or received in more than one country with the result that the same
item becomes liable to tax in more than one country.
Relief against such hardship can be provided mainly in two ways: (a) Bilateral relief,
(b) Unilateral relief.
Bilateral Relief
The Governments of two countries can enter into Double Taxation Avoidance
Agreement (DTAA) to provide relief against such Double Taxation, worked out on the
basis of mutual agreement between the two concerned sovereign states. This may
be called a scheme of 'bilateral relief' as both concerned powers agree as to the
basis of the relief to be granted by either of them.
Unilateral relief

The above procedure for granting relief will not be sufficient to meet all cases. No
country will be in a position to arrive at such agreement with all the countries of the
world for all time. The hardship of the taxpayer however is a crippling one in all
such cases. Some relief can be provided even in such cases by home country
irrespective of whether the other country concerned has any agreement with India
or has otherwise provided for any relief at all in respect of such double taxation.
This relief is known as unilateral relief.
Double Taxation Avoidance Agreement (DTAA)
List of countries with which India has signed Double Taxation Avoidance Agreement :
DTAA Comprehensive Agreements - (With respect to taxes on income)

DTAA Limited Agreements With respect to income of airlines/ merchant

shipping
Limited Multilateral Agreement
DTAA Other Agreements/Double Taxation Relief Rules
Specified Associations Agreement
Tax Information Exchange Agreement (TIEA)
Indirect Taxation
Sales tax
Central Sales Tax (CST)
Central Sales tax is generally payable on the sale of all goods by a dealer in the
course of inter-state trade or commerce or, outside a state or, in the course of
import into or, export from India.
The ceiling rate on central sales tax (CST), a tax on inter-state sale of goods, has
been reduced
from 4 per cent to 3 per cent in the current year.
Value Added Tax (VAT)

VAT is a multi-stage tax on goods that is levied across various stages of production
and supply with credit given for tax paid at each stage of Value addition.
Introduction of state level VAT is the most significant tax reform measure at state
level. The state level VAT has replaced the existing State Sales Tax. The decision to
implement State level VAT was taken in the meeting of the Empowered Committee
(EC) of State Finance Ministers held on June 18, 2004, where a broad consensus was
arrived at to introduce VAT from April 1, 2005. Accordingly, all states/UTs have
implemented VAT.
The Empowered Committee, through its deliberations over the years, finalized a
design of VAT to be adopted by the States, which seeks to retain the essential
features of VAT, while at the same time, providing a measure of flexibility to the
States, to enable them to meet their local requirements. Some salient features of
the VAT design finalized by the Empowered Committee are as follows:
The rates of VAT on various commodities shall be uniform for all the
States/UTs. There are 2 basic rates of 4 per cent and 12.5 per cent, besides an
exempt category and a special rate of 1 per cent for a few selected items. The items
of basic necessities have been put in the zero rate bracket or the exempted
schedule. Gold, silver and precious stones have been put in the 1 per cent schedule.
There is also a category with 20 per cent floor rate of tax, but the commodities
listed in this schedule are not eligible for input tax rebate/set off. This category
covers items like motor spirit (petrol), diesel, aviation turbine fuel, and liquor.
There is provision for eliminating the multiplicity of taxes. In fact, all the State
taxes on purchase or sale of goods (excluding Entry Tax in lieu of Octroi) are
required to be subsumed in VAT or made VATable.
Provision has been made for allowing "Input Tax Credit (ITC)", which is the
basic feature of VAT. However, since the VAT being implemented is intra-State VAT
only and does not cover inter-State sale transactions, ITC will not be available on
inter-State purchases.

Exports will be zero-rated, with credit given for all taxes on inputs/ purchases
related to such exports.
There are provisions to make the system more business-friendly. For instance,
there is provision for self-assessment by the dealers. Similarly, there is provision of
a threshold limit for registration of dealers in terms of annual turnover of Rs 5 lakh.
Dealers with turnover lower than this threshold limit are not required to obtain
registration under VAT and are exempt from payment of VAT. There is also provision
for composition of tax liability up to annual turnover limit of Rs. 50 lakh.
Regarding the industrial incentives, the States have been allowed to continue
with the existing incentives, without breaking the VAT chain. However, no fresh
sales tax/VAT based incentives are permitted.
Roadmap towards GST
The Empowered Committee of State Finance Ministers has been entrusted with the
task of preparing a roadmap for the introduction of national level goods and
services tax with effect from 01 April 2007.The move is towards the reduction of
CST to 2 per cent in 2008, 1 per cent in 2009 and 0 per cent in 2010 to pave way for
the introduction of GST (Goods and Services Tax).
Excise Duty
Central Excise duty is an indirect tax levied on goods manufactured in India.
Excisable goods have been defined as those, which have been specified in the
Central Excise Tariff Act as being subjected to the duty of excise.
There are three types of Central Excise duties collected in India namely
Basic Excise Duty
This is the duty charged under section 3 of the Central Excises and Salt Act,1944 on
all excisable goods other than salt which are produced or manufactured in India at
the rates set
forth in the schedule to the Central Excise tariff Act,1985.
Additional Duty of Excise
Section 3 of the Additional duties of Excise (goods of special importance) Act, 1957
authorizes the levy and collection in respect of the goods described in the Schedule
to this Act. This is levied in lieu of sales Tax and shared between Central and State
Governments. These are levied under different enactments like medicinal and toilet
preparations, sugar etc. and other
industries development etc.
Special Excise Duty
As per the Section 37 of the Finance Act,1978 Special excise Duty was attracted on
all excisable goods on which there is a levy of Basic excise Duty under the Central
Excises and Salt Act,1944.Since then each year the relevant provisions of the
Finance Act specifies that the Special Excise Duty shall be or shall not be levied and
collected during the relevant financial year.

Customs Duty
Custom or import duties are levied by the Central Government of India on the goods
imported into India. The rate at which customs duty is leviable on the goods
depends on the classification of the goods determined under the Customs Tariff. The
Customs Tariff is generally aligned with the Harmonised System of Nomenclature
(HSL).
In line with aligning the customs duty and bringing it at par with the ASEAN level,
government has reduced the peak customs duty from 12.5 per cent to 10 per cent
for all goods other than agriculture products. However, the Central Government has
the power to generally exempt goods of any specified description from the whole or
any part of duties of customs leviable thereon. In addition, preferential/concessional
rates of duty are also available under the various Trade Agreements.
Service Tax
Service tax was introduced in India way back in 1994 and started with mere 3 basic
services viz. general insurance, stock broking and telephone. Today the counter
services subject to tax have reached over 100. There has been a steady increase in
the rate of service tax. From a mere 5 per cent, service tax is now levied on
specified taxable services at the rate of 12 per cent of the gross value of taxable
services. However, on account of the imposition of education cess of 3 per cent, the
effective rate of service tax is at 12.36 per cent.
Union Budget 2013-14

Latest Union Budget for the year 2013-14 has been announced by the Financed
Minister Mr P.Chidambaram on 28th of February 2013.
Here are the highlights of the key features of Direct and Indiarect Tax Proposals:
Tax Proposals
Direct Taxes

According to the Finance Minister,there is a little room to give away tax

revenues or raise tax rates in a constrained economy.
No case to revise either the slabs or the rates of Personal Income Tax. Even a
moderate increase in the threshold exemption will put hundreds of thousands of Tax
Payers outside Tax Net.
However, relief for Tax Payers in the first bracket of USD 0.004 million to USD
0.009 million. A tax credit of USD 36.78 to every person with total income upto USD
0.009 million.
Surcharge of 10 percent on persons (other than companies) whose taxable
income exceed USD 0.18 million to augment revenues.
Increase surcharge from 5 to 10 percent on domestic companies whose
taxable income exceed USD 1.84 million.
In case of foreign companies who pay a higher rate of corporate tax,
surcharge to increase from 2 to 5 percent, if the taxabale income exceeds USD 1.84
million.
In all other cases such as dividend distribution tax or tax on distributed
income, current surcharge increased from 5 to 10 percent.

Additional surcharges to be in force for only one year.

Education cess to continue at 3 percent.
Permissible premium rate increased from 10 percent to 15 percent of the sum
assured by relaxing eligibility conditions of life insurance policies for persons
suffering from disability and certain ailments.
Contributions made to schemes of Central and State Governments similar to
Central Government Health Scheme, eligible for section 80D of the Income tax Act.
Donations made to National Children Fund eligible for 100 percent deduction.
Investment allowance at the rate of 15 percent to manufacturing companies
that invest more than USD 1.84 million in plant and machinery during the period 1st
April 2013 to 31st March 2015.
Eligible date for projects in the power sector to avail benefit under Section
80- IA extended from 31st March 2013 to 31st March 2014.
Concessional rate of tax of 15 percent on dividend received by an Indian
company from its foreign subsidiary proposed to continue for one more year.
Securitisation Trust to be exempted from Income Tax. Tax to be levied at
specified rates only at the time of distribution of income for companies, individual or
HUF etc. No further tax on income received by investors from the Trust.
Investor Protection Fund of depositories exempt from Income-tax in some
cases.
Parity in taxation between IDF-Mutual Fund and IDF-NBFC.
A Category I AIF set up as Venture capital fund allowed pass through status
under Income-tax Act.
TDS at the rate of 1 percent on the value of the transfer of immovable
properties where consideration exceeds USD 0.092 million. Agricultural land to be
exempted.
A final withholding tax at the rate of 20 percent on profits distributed by
unlisted companies to shareholders through buyback of shares.
Proposal to increase the rate of tax on payments by way of royalty and fees
for technical services to non-residents from 10 percent to 25 percent.
Reductions made in rates of Securities Transaction Tax in respect of certain
transaction.
Proposal to introduce Commodity Transaction Tax (CTT) in a limited
way.Agricultural commodities will be exempted.
Modified provisions of GAAR will come into effect from 1st April 2016.
Rules on Safe Harbour will be issued after examing the reports of the
Rangachary Committee appointed to look into tax matters relating to Development
Centres & IT Sector and Safe Harbour rules for a number of sectors.
Fifth large tax payer unit to open at Kolkata shortly.
A number of administrative measures such as extension of refund banker
system to refund more than USD 918.86, technology based processing, extension of
e-payment through more banks and expansion in the scope of annual information
returns by Income-tax Department.
Indirect Taxes

No change in the normal rates of 12 percent for excise duty and service tax.
No change in the peak rate of basic customs duty of 10 perent for nonagricultural products.

Customs

Period of concession available for specified part of electric and hybrid

vehicles extended upto 31 March 2015.
Duty on specified machinery for manufacture of leather and leather goods
including footwear reduced from 7.5 to 5 percent.
Duty on pre-forms precious and semi-precious stones reduced from 10 to 2
perent.
Export duty on de-oiled rice bran oil cake withdrawn.
Duty of 10 percent on export of unprocessed ilmenite and 5 percent on
export on ungraded ilmenite.
Concessions to air craft maintenaince, repair and overhaul (MRO) industry.
Duty on Set Top Boxes increased from 5 to10 percent.
Duty on raw silk increased from 5 to 15 percent.
Duties on Steam Coal and Bituminous Coal equalised and 2 percent custom
duty and 2 percent CVD levied on both kinds coal.
Duty on imported luxury goods such as high end motor vehicles, motor
cycles, yachts and similar vessels increased.
Duty free gold limit increased to USD 918.86 in case of male passenger and
USD 1,837.47 in case of a female passenger subject to conditions.

Excise duty

Relief to readymade garment industry. In case of cotton, zero excise duty at

fibre stage also. In case of spun yarn made of man made fibre, duty of 12 percent at
the fibre stage.
Handmade carpets and textile floor coverings of coir and jute totally
exempted from excise duty.
To provide relief to ship building industry, ships and vessels exempted from
excise duty. No CVD on imported ships and vessels.
Specific excise duty on cigarettes increased by about 18 percent. Similar
increase on cigars, cheroots and cigarillos.
Excise duty on SUVs increased from 27 to 30 percent. Not applicable for SUVs
registered as taxies.
Excise duty on marble increased from USD 0.55 per square meter to USD
1.10 per square meter.
Proposals to levy 4 percent excise duty on silver manufactured from smelting
zinc or lead.
Duty on mobile phones priced at more than USD 36.78 raised to 6 percent.
MRP based assessment in respect of branded medicaments of Ayurveda,
Unani,Siddha, Homeopathy and bio-chemic systems of medicine to reduce valuation
disputes.

Service Tax

Maintain stability in tax regime.

Vocational courses offered by institutes affiliated to the State Council of

Vocational Training and testing activities in relation to agricultural produce also
included in the negative list for service tax.
Exemption of Service Tax on copyright on cinematography limited to films
exhibited in cinema halls.
Proposals to levy Service Tax on all air conditioned restaurant.
For homes and flats with a carpet area of 2,000 sq.ft. or more or of a value of
USD 0.18 million or more, which are high-end constructions, where the component
of services is greater, rate of abatement reduced from from 75 to 70 percent.
Out of nearly 1.7 million registered assesses under Service Tax only 0.7
million file returns regularly. Need to motivate them to file returns and pay tax dues.
A onetime scheme called Voluntary Compliance Encouragement Scheme proposed
to be introduced. Defaulter may avail of the scheme on condition that he files
truthful declaration of Service Tax dues since 1st October 2007.
Tax proposals on Direct Taxes side estimated to yield to USD 2,444.32 million
and on the Indirect Tax side USD 863.68 million.

Good and Services Tax

A sum of USD 1,653.78 million towards the first instalment of the balance of
CST compensation provided in the budget.
Work on draft GST Constitutional amendment bill and GST law expected to be
taken forward.

LIFE INSUARANCE PREMIUM

Life insurance policies can be used as tax planning tool as premium paid on
Insurance Policies is eligible for tax benefits under Section 80C of the Income Tax
Act 1961 (Act) and Maturity Proceeds are also eligible for exemption under
section Section 10(10D) and Section 10(10A)(iii). Life Insurance helps Assessee
in only tax saving , achieving their long term goals and it also provides
Comprehensive financial protection against unforeseen events for your family.
Deduction U/s. 80C in respect of life insurance premium
Eligible Assessee Individual and Hindu undivided family.

Maximum Limit Maximum Deduction allowed under this Section is Rs. 1.50 Lakh
and the sum includes payment on other allowable investment option available
Under Section 80C of the Income Tax Act,1961. It is to be further noted that
combined Maximum limit of deduction under Sec 80C & 80CCC & 80CCD (1) is Rs
1,50,000.
Deduction limit: Deduction will be allowed only for premiums upto a maximum of
10% of the sum assured for policy issued on or after April 1, 2012. In case of policy
issued before March 31, 2012, deduction will be allowed only for premiums upto a
maximum of 20% of the sum assured.
Allowable on Payment- Only life insurance premia paid or deposited during the year
are allowable as deduction under Section 80C.

Disallowance: The deductions claimed earlier will be taxable as income if the policy
is terminated either by notice or by failure to pay any premium in case of

Single premium policy: within 2 years after the commencement date

Regular premium policy: before premiums have been paid for 2 years.

On Whose Life insurance premia Can be Paid-

In the case of an individual (Resident or Non Resident)

On his own life

On Wife/husband(dependent or not)

Child

-Major or minor (dependent or not)

Married or unmarried Daughter / Son (dependent or not)
in the case of a Hindu undivided family, any member thereof;

Premium Paid on life of parents, Brother, Sisters or In-laws not EligiblePlease note that life insurance premium paid by you for your parents (father /
mother / both) Brother, Sisters or your in-laws is not eligible for deduction under
section 80C.
More than one insurance policyIf you are paying premium for more than one insurance policy, all the premiums
can be included.
Premium Paid to LIC and Other Insurance CompaniesIt is not necessary to have the insurance policy from Life Insurance Corporation
(LIC) even insurance bought from private players can be considered here.
Premiums on pure endowment assurance policy
A pure endowment assurance policy is an assurance on the life of the assessee and
hence the premium paid on such policy would be eligible to rebate under section
80C.
Taxability of Maturity Proceeds
Section 10(10D)

The proceeds under a life insurance policy are exempt under Section 10(10D) of the
Act, subject to the provisions of the said section.
Section 10(10A)(iii)
Commuted Pension received from Pension fund (Pension Plans approved by IRDA)
would be tax-free.

Service Tax on Life Insurance Premium

All premiums and charges are subject to applicable taxes including service tax,
education cess and secondary and higher education cess as applicable under the
prevailing tax laws.

MUTUAL FUNDS
The Indian capital market has been growing tremendously with
the reforms in industry policy, reforms in public and financial
sector and new economic policies of liberalization, deregulation
and restructuring. The Indian economy has opened up and many
developments have been taking place in the Indian capital market
and money market with the help of the financial system and
financial institution or intermediaries which faster saving and
channel them to their most efficient use.
The measurement of fund performance has been a topic of
increased

interest

in

both

the

academic

and

practitioner

communities for the last four decades. It is more so because of

growing scale of mutual theory. The investment environment is
becoming increasingly complex.
The study is aimed to understand the organisation of mutual
fund industry and to examine the performance of tax saving
schemes undertaken for study. It evaluates the performance of
selected schemes in comparison with benchmark index S&P CNX
Nifty, and also helps to the employ risk return measures.

The Indian financial system based on four basic components like

Financial Market, Financial Institutions, Financial Service, Financial
Instruments. All are play important role for smooth activities for
the transfer of the funds and allocation of the funds. The main
aim of the Indian financial system is that providing the efficiently
services to the capital market. The Indian capital market has been
increasing tremendously during the second generation reforms.
The first generation reforms started in 1991 the concept of LPG.
(Liberalization, privatization, Globalization).
Then after 1997 second generation reforms was started, still the
its going on, its include reforms of industrial investment, reforms
of fiscal policy, reforms of ex- imp policy, reforms of public sector,
reforms of financial sector, reforms of foreign investment through
the institutional investors, reforms banking sectors. The economic
development model adopted by India in the post independence
era has been characterized by mixed economy with the public
sector playing a dominating role and the activities in private
industrial sector control measures emaciated form time to time.
The last two decades have been a phenomenal expansion in the
geographical coverage and the financial spread of our financial
system.
The spared of the banking system has been a major factor in
promoting financial intermediation in the economy and in the
growth of financial savings with progressive liberalization of
economic policies, there has been a rapid growth of capital

market, money market and financial services industry including

merchant banking, leasing and venture capital, leasing, hire
purchasing. Consistent with the growth of financial sector and
second generation reforms its need to fruition of the financial
sector.
Concept of Mutual Fund:
Mutual fund is the pool of the money, based on the trust who
invests the savings of a number of investors who shares a
common financial goal, like the capital appreciation and dividend
earning. The money thus collect is then invested in capital market
instruments such as shares, debenture, and foreign market.
Investors invest money and get the units as per the unit value
which we called as NAV (net assets value). Mutual fund is the
most suitable investment for the common man as it offers an
opportunity to invest in diversified portfolio management, good
research team, professionally managed Indian stock as well as the
foreign market, the main aim of the fund manager is to taking the
scrip that have under value and future will rising, then fund
manager sell out the stock. Fund manager concentration on risk
return trade off, where minimize the risk and maximize the return
through diversification of the portfolio. The most common
features of the mutual fund unit are low cost.
Concept of mutual fund

MUTUALFUND

MARKET

SCHEMES

FLUCTUATION

I
INVEST THEIR MONEY INVEST IN VARIETY OF STOCKS/BONDS
N
V
E
S
T
O
R
S
PROFIT/LOSS
FROM PORTFOLIOPROFIT/LOSS
INVESTMENT FROM INDIVIDUAL INVESTMENT

Growth of Mutual Fund Industry

The history of mutual funds dates support to 19th century when it
was introduced in Europe, in particular, Great Britain. Robert
Fleming set up in 1868 the first investment trust called Foreign
and colonial investment trust which promised to manage the
finances of the moneyed classes of Scotland by scattering the
investment over a number of different stocks. This investment
trust and other investment trusts which were afterward set up in
Britain and the U.S., resembled todays close ended mutual
funds. The first mutual fund in the U.S., Massachusetts investors
trust, was set up in March 1924. This was the open ended
mutual fund.

ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below
illustrates the organisational set up of a mutual fund
Organisation structure of mutual fund

Mutual

funds have

a unique

structure

not

shared with

other entities such as companies of firms. It is important for

employees & agents to be aware of the special nature of this
structure, because it determines the rights & responsibilities of
the funds constituents viz., sponsors, trustees, custodians,
transfer agents & of course, the fund & the Asset Management
Company(AMC)

the

legal

structure

also

drives

the

inter-

relationships between these constituents.

The structure of the mutual fund India is governed by the SEBI
(Mutual Funds) regulations, 1996. These regulations make it
mandatory for mutual funds to have a structure of sponsor,
trustee, AMC, custodian. The sponsor is the promoter of the
mutual fund,& appoints the trustees. The trustees are responsible
to the investors in the mutual fund, & appoint the AMC for

managing the investment portfolio. The AMC is the business face

of the mutual fund, as it manages all affairs of the mutual fund.
The mutual fund & the AMC have to be registered with SEBI.
Custodian, who is also registered with SEBI, holds the securities of
various schemes of the fund in its custody.

TYPES OF MUTUAL FUND SCHEMES

1) By Structure
Open-ended Funds: An open-end fund is one that is
available for subscription all through the year. These do not
have a fixed maturity. Investors can conveniently buy and
sell units at Net Asset Value ("NAV") related prices. The key
feature of open-end schemes is liquidity.
Closed ended Funds: A closed-end fund has a stipulated
maturity period which generally ranging from 3 to 15 years.
The fund is open for subscription only during a specified
period. Investors can invest in the scheme at the time of the
initial public issue and thereafter they can buy or sell the
units of the scheme on the stock exchanges where they are
listed. In order to provide an exit route to the investors,
some close-ended funds give an option of selling back the
units to the Mutual Fund through periodic repurchase at NAV
related prices. SEBI Regulations stipulate that at least one of
the two exit routes is provided to the investor.

 Interval Funds: Interval funds combine the features of

open-ended and close-ended schemes. They are open for
sale or redemption during pre-determined intervals at NAV
related prices
2) By Investment Objective
Growth Funds: The aim of growth funds is to provide
capital appreciation over the medium to long term. Such
schemes normally invest a majority of their corpus in
equities. It has been proved that returns from stocks, have
outperformed most other kind of investments held over the
long term. Growth schemes are ideal for investors having a
long term outlook seeking growth over a period of time.
Income Funds: The aim of income funds is to provide
regular and steady income to investors. Such schemes
generally invest in fixed income securities such as bonds,
corporate debentures and Government securities. Income
Funds are ideal for capital stability and regular income.
Balanced Fund: The aim of balanced funds is to provide
both growth and regular income as such schemes invest
both in equities and fixed income securities in the proportion
indicated in their offer documents. These are appropriate for
investors looking for moderate growth. They generally invest
40-60% in equity and debt instruments. These funds are also
affected because of fluctuations in share prices in the stock

markets. However, NAVs of such funds are likely to be less

volatile compared to pure equity funds.
MoneyMarketFunds: The aim of money market funds is to
provide easy liquidity, preservation of capital and moderate
income. These schemes generally invest in safer short-term
instruments such as treasury bills, certificates of deposit,
commercial paper and inter-bank call money. Returns on
these schemes may fluctuate depending upon the interest
rates prevailing in the market. These are ideal for Corporate
and individual investors as a means to park their surplus
funds for short periods.
3) Other Schemes
Tax Saving Schemes: These schemes offer tax rebates to
the investors under specific provisions of the Indian Income
Tax laws as the Government offers tax incentives for
investment in specified avenues. Investments made in
Equity Linked Savings Schemes (ELSS) and Pension Schemes
are allowed as deduction u/s 80C of the Income Tax Act,
1961. The Act also provides opportunities to investors to
save capital gains u/s 54EA and 54EB by investing in Mutual
Funds.
Gilt Fund: These funds invest exclusively in government
securities. Government securities have no default risk. NAVs
of these schemes also fluctuate due to change in interest

rates and other economic factors as is the case with income

or debt oriented schemes.
Special Schemes
Industry

Specific

Schemes:

Industry

Specific

Schemes invest only in the industries specified in the

offer document. The investment of these funds is
limited to specific industries like InfoTech, FMCG, and
Pharmaceuticals etc.
Sectoral Schemes: Sectoral Funds are those which
invest exclusively in a specified sector. This could be an
industry or a group of industries or various segments
such as 'A' Group shares or initial public offerings.
Index Schemes Index Funds attempt to replicate
the performance of a particular index such as the
BSE Sensex or the NSE 50.

SWOT ANALYSIS
SWOT Analysis presents the information about external and
internal environment of mutual fund in structured from where by
key

external

opportunity

and

threats

can

be

compared

systematically with internal capabilities and weakness. The basic

objectives of SWOT analysis is provide a framework to reflect on
the industry capabilities to avail opportunities or to overcome
thrats presented by environment.
Strength
Full

Weakness
benefit

of

Lesser return compared to

diversification
Tax benefit
Transparancy & flexibility
Expert
investment

equity
Poor technology & service
level
Lack of proper marketing

management
Opportunity

Threats

Government policies & Tax

Arrival of more private &

concession
Setting up a specific fund
Technology development

foreign players
Introduction of more debt
instrument in market.

ADVANTAGES OF INVESTING IN MUTUAL FUNDS

There are several that can be attributed to the growing
popularities and suitability of mutual funds as an investment
vehicle especially for retail investors.
a) Professional management: Mutual funds provide the
services of experienced and skilled professionals, backed by
a dedicated investment research team that analysis the
performance and prospects of companies and selects
suitable investments to achieve the objectives of the
scheme.
b) Diversification: Mutual funds invest in a number of
companies across a broad cross- section of industries and
sectors. This diversification reduces the risk because seldom
do all stocks decline at the sane time and in the same
proportion. You achieve this diversification through a mutual
fund with far less money than you can do on your own.
c) Convenient administration: Investing in a mutual fund
reduces paperwork and helps you avoid many problems such
as bad deliveries, delayed payment and follow up with
brokers and companies. Mutual funds save your time and
make investing easy and convenient.
d) Return potential: Over a medium to long term, mutual
funds have the potential to provide a higher return as they
invest in a diversified basket of selected securities.

e) Low costs: Mutual funds are a relatively less expensive way

to invest compared to directly investing in the capital
markets because the benefits of scale in brokerage, custodial
and other fees translate into lower costs for investors.
f) Liquidity: In open ended schemes, the investors get the
money back promptly at net asset value related prices from
the mutual fund. In closed end schemes, the units can be
sold on a stock exchange at the prevailing market price or
the investor can avail of the facility of direct repurchase at
NAV related prices by mutual fund.
g) Transparency: You get regular information on the value of
your investment in addition to disclosure on the specific
investments made by your scheme, the proportion invested
in each class of assets and the fund managers investment
strategy and outlook.
h) Flexibility: Through features such as regular investment
plans, regular withdrawal plans and dividend reinvestment
plans, you can systematically invest or withdraw funds
according to your needs and convenience.
i) Affordability: Investors individually may lack sufficient
funds to invest in high-grade stocks. A mutual fund because
of its large corpus allows even a small investor to take the
benefit of its investment strategy.

j) Choice of schemes: Mutual funds offer a family of schemes

to suit your varying needs over a lifetime.
k) Safety: Mutual Fund industry is part of a well-regulated
investment environment where the interests of the investors
are protected by the
regulator. All funds are registered with SEBI and complete
transparency is forced.

17 Types Of Tax Saving Schemes

The following are 17 important items of income, which are fully exempt from income
tax and which a resident individual Indian assessee can use with profit for the
purpose of tax planning.

1. Agricultural income
Under the provisions of Section 10(1) of the Income Tax Act,
agricultural income is fully exempt from income tax.
However, for individuals or HUFs when agricultural income is in
excess of Rs 5,000, it is aggregated with the total income for the
purposes of computing tax on the total income in a manner which
results into "no" tax on agricultural income but an increased
income tax on the other income.
Agricultural income which fulfils the above conditions is
completely exempt from tax. The manner of calculating tax on
total income and agricultural income, is explained in the following
illustration:
2. Receipts from Hindu Undivided Family (HUF)
Any sum received by an individual as a member of a Hindu
Undivided Family, where the said sum has been paid out of the
income of the family, or, in the case of an impartible estate,

where such sum has been paid out of the income of the estate
belonging to the family, is completely exempt from income tax in
the hands of an individual member of the family under Section
10(2).
3. Share from a partnership firm
Under the provisions of Section 10(2A), in the case of a person
being a partner of a firm which is separately assessed as such, his
share in the total income of the firm is completely exempt from
income tax since AY 1993-94.
For this purpose, the share of a partner in the total income of a
firm separately assessed as such would be an amount which
bears to the total income of the firm the same share as the
amount of the share in the profits of the firm in accordance with
the partnership deed bears to such profits.
4. Allowance for foreign service
Any allowances or perquisites paid or allowed as such outside
India by the Government to a citizen of India, rendering service
outside India, are completely exempt from tax under Section
10(7). This provision can be taken advantage of by the citizens of
India who are in government service so that they can accumulate
tax-free perquisites and allowances received outside India.
5. Gratuities
Under the provisions of Section 10(10) of the IT Act, any deathcum-retirement gratuity of a government servant is completely
exempt from income tax. However, in respect of private sector
employees gratuity received on retirement or on becoming
incapacitated or on termination or any gratuity received by his
widow, children or dependants on his death is exempt subject to
certain conditions.
The maximum amount of exemption is Rs. 3,50,000;. Of course,
this is further subject to certain other limits like the one halfmonth's salary for each year of completed service, calculated on
the basis of average salary for the 10 months immediately
preceding the year in which the gratuity is paid or 20 months'

salary as calculated. Thus, the least of these items is exempt from

income tax under Section 10(10).
6. Commutation of pension
The entire amount of any payment in commutation of pension by
a government servant or any payment in commutation of pension
from LIC [ Get Quote ] pension fund is exempt from income tax
under Section 10(10A) of IT Act.
However, in respect of private sector employees, only the
following amount of commuted pension is exempt, namely: (a)
Where the employee received any gratuity, the commuted value
of one-third of the pension which he is normally entitled to
receive; and (b) In any other case, the commuted value of half of
such pension.
It may be noted here that the monthly pension receivable by a
pensioner is liable to full income tax like any other item of salary
or income and no standard deduction is now available in respect
of pension received by a tax payer.
7. Leave salary of central government employees
Under Section 10(10AA) the maximum amount receivable by the
employees of central government as cash equivalent to the leave
salary in respect of earned leave at their credit upto 10 months'
leave at the time of their retirement, whether on superannuation
or otherwise, would be Rs. 3,00,000.
8. Voluntary retirement or separation payment
Under the provisions of Section 10(10C), any amount received by
an employee of a public sector company or of any other company
or of a local authority or a statutory authority or a cooperative
society or university or IIT or IIM at the time of his voluntary
retirement (VR) or voluntary separation in accordance with any
scheme or schemes of VR as per Rule 2BA, is completely exempt
from tax. The maximum amount of money received at such VR
which is so exempt is Rs. 500,000.
9. Life insurance receipts

Under Section 10(10D), any sum received under a Life Insurance

Policy (LIP), including the sum allocated by way of bonus on such
policy, other than u/s 80DDA or under a Keyman Insurance Policy,
or under an insurance policy issued on or after 1.4.2003 in
respect of which the premium payable for any of the years during
the term of the policy exceeds 20 per cent of the actual capital
sum assured, is fully exempt from tax.
However, all moneys received on death of the insured are fully
exempt from tax Thus, generally moneys received from life
insurance policies whether from the Life Insurance Corporation or
any other private insurance company would be exempt from
income tax.
10. Payment received from provident funds
Under the provisions of Sections 10(11), (12) and (13) any
payment from a government or recognised provident fund (PF) or
approved superannuation fund, or PPF is exempt from income tax.
11. Certain types of interest payment
There are certain types of interest payments which are fully
exempt from income tax u/s 10 (15). These are described below:

(i) Income by way of interest, premium on redemption or other

payment on such securities, bonds, annuity certificates, savings
certificates, other certificates issued by the Central Government
and deposits as the Central Government may, by notification in
the
Official
Gazette,
specify
in
this
behalf.
(iia) In the case of an individual or a Hindu Undivided Family,
interest on such capital investment bonds as the Central
Government may, by notification in the Official Gazette, specify in
this
behalf
(i.e.
7 Capital
Investment
Bonds);
(iib) In the case of an individual or a Hindu Undivided Family,
interest on such Relief Bonds as the Central Government may, by

notification in the Official Gazette, specify in this behalf (i.e., 9 per

cent or 8.5 per cent or 8 per cent or 7 per cent Relief Bonds); (iid)
Interest
on
NRI
bonds;
(iiia) Interest on securities held by the issue department of the
Central Bank of Ceylon constituted under the Ceylon Monetary
Law
Act,
1949;
(iiib) Interest payable to any bank incorporated in a country
outside India and authorised to perform central banking functions
in that country on any deposits made by it, with the approval of
the Reserve Bank of India [ Get Quote ] or with any scheduled
bank;
(iv) Certain interest payable by Government or a local authority
on moneys borrowed by it, including hedging charges on currency
fluctuation
(from
the
AY
2000-2001),
etc.;
(v) Interest

on

Gold

Deposit

Bonds;

(vi) Interest on certain deposits are: Bhopal Gas victims;

(vii) Interest

on

bonds

of

local

authorities

as

notified,

(viii) Interest on 6.5 per cent Savings Bonds [Exempt] issued by

the
RBI,
and
(ix) Stipulated new tax free bonds to be notified from time to
time.
12. Scholarship and awards, etc
Any kind of scholarship granted to meet the cost of education is
exempt from tax under Section 10(16). Similarly, certain awards
and rewards, etc. are completely exempt from tax under Section

10(17A), for example, Lakhotia Puraskar of Rs 100,000 awarded

to the best Rajasthani author, every year under Notification No.
199/28/95-IT (A-I) dated 22-4-1996.

Any daily allowance received by a Member of Parliament or by an

MLA or any member of any Committee of Parliament or State
legislature is also exempt from tax under Section 10(17).
13. Gallantry awards, etc. -- Section 10(18)
The Finance Act, 1999 has, with effect from AY 2000-2001,
provided for complete exemption for the pension and family
pension of Gallantry Award Winners like Paramvir Chakra, Mahavir
Chakra, and Vir Chakra and also other Gallantry Award winners
notified by the Central Government.
14. Dividends on shares and units -- Section 10(34) & (35)
With effect from the Assessment Year 2004-05, the dividend
income and income of units of mutual funds received by the
assessee completely exempt from income tax.
15. Long-term capital gains of transfer of securities -Section 10(38)
With effect from FY 2004-05, any income arising to a taxpayer on
account of sale of long-term capital asset being securities is
completely outside the purview of tax liability especially when the
transaction has been subjected to Securities Transaction Tax
(STT).
Thus, if the shares of any company listed in the stock exchange
are sold after holding it for a minimum period of one year then
there will be no liability to payment of capital gains. This provision
would even apply for the old shares which are held by an
assessee and are sold after the Finance (No.2) Act, 2004 came
into force.

16. Amount received by way of gift, etc -- Section 10(39)

As per the Finance (No. 2) Act, 2004, gift, etc. received after 1-92004 by an individual or an HUF whether in cash or by way of
credit, etc. is being subjected to tax if the same is not received
from a stipulated relative. Section 10(39) provides that the
amount received to the extent of Rs 50,000 will, however, be
exempt from the purview of tax payment.
Similarly, amount received on the occasion of marriage from nonrelatives, etc. would also be exempted. It may be noted that the
gift from relatives, as specified in the section can be received
without any upper limit.
17. Tax exemption regarding reverse mortgage scheme -sections 2(47) and 47(x)
Any transfer of a capital asset in a transaction of reverse
mortgage for senior citizens under a scheme made and notified
by the Central Government would not be regarded as a transfer
and therefore would not attract capital gains tax. The loan
amount would also be exempt from tax.

Bank Savings
1. Bank Fixed Deposits, [Term Deposit]
In a Fixed Deposit Saving Scheme a certain sum of money is
deposited in the bank for a specified time period with a fixed rate
of interest.
When you want to invest your hard earned money for a longer
period of time and get a regular income, Fixed Deposit Scheme is
ideal. It is SAFE, LIQUID and FETCHES HIGH RETURNS.
Loan / Overdraft facility is available against bank fixed deposits.
Now many banks dont charges for premature withdrawal.
2. RECURRING DEPOSITS
Under a Recurring Bank Deposit Saving Scheme, investor invests
a specific amount in a bank on a monthly basis for a fixed rate of

return. The deposit has a fixed tenure, at the end of which you get
your principal sum as well as the interest earned during that
period.Recurring Deposit provides you the element of compulsion
to save at high rates of interest applicable to Term Deposits alongwith liquidity to access that savings any time.

Government tax saving

RBI Bonds, or RBI Relief Bonds
RBI Bonds are tax saving bonds that have a special provision that
allows the investor to save on tax. These Bonds are instruments
that are issued by the RBI.
The interest is compounded half-yearly. Maturity period of RBI
Bonds is five years, and interest received is tax-free in the hands
of the investor.

POST OFFICE SAVING

Post Office Time Deposits

Post Office Recurring Deposits

Post Office Monthly Income Scheme [Post office MIS ]

National Savings Certificates [NSC ]

National Savings Scheme [NSS]

Kisan Vikas Patra [KVP ]

Public Provident Funds [PPF ]

OTHER SAVINGS
1. Infrastructure Bonds,

 Infrastructure bonds are available through issues of ICICI and

IDBI, brought out in the name of ICICI Safety Bonds and IDBI
Flexibonds. These provide tax-saving benefits under Section
88 of the Income Tax Act, 1961, for the investor. You can
reduce your tax liability by upto Rs 16,000 per annum

2. Company Fixed Deposits

Fixed deposits in companies that earn a fixed rate of return

over a period of time are called Company Fixed Deposits.
Financial institutions and Non-Banking Finance Companies
(NBFCs) also accept such deposits.

3. Life Insurance:

Life insurance saving schemes for government owned Life Insurance Corporation
of Indiaand other private life insurance companies like Bajaj Allianz, Birla Sun
Life Insurance, HDFC Life Insurance, ICICI Prudential and more.