Income Tax: Administrative Set-Up

INCOME TAX
The Central Government has been empowered by Entry 82 of the Union List of
Schedule VII of the Constitution of India to levy tax on all income other than
agricultural income (subject to Section 10(1)).[1] The Income Tax Law comprises The
Income Tax Act 1961, Income Tax Rules 1962, Notifications and Circulars issued
by Central Board of Direct Taxes (CBDT), Annual Finance Acts and Judicial
pronouncements by Supreme Court and High Courts.
The government imposes a tax on taxable income of all persons including
individuals, Hindu Undivided Families (HUFs), companies, firms, association of
persons, body of individuals, local authority and any other artificial judicial person.
Levy of tax is different on each individual. The levy is governed by the Indian Income
Tax Act, 1961. The Indian Income Tax Department is governed by CBDT and is part
of the Department of Revenue under the Ministry of Finance, Govt. of India. Income
tax is a key source of funds that the government uses to fund its activities and serve
the public.
The Income Tax Department is the biggest revenue mobilizer for the Government. The
total tax revenues of the Central Government increased from 1,392.26
billion (US$21 billion) in 1997-98 to 5,889.09 billion (US$88 billion) in 2007-08.
Administrative set-up[edit]
Central Board of Direct Taxes
Backend job
Public handling
Principal Director General, Director General
Principal Chief Commissioner of Income Tax, Chief Commissioner of Income Tax
Principal Director, Director
Principal Commissioner of Income Tax, Commissioner of Income Tax, CIT (Appeals)
Principal Additional Director, Additional Director
Principal Additional Commissioner, Additional Commissioner
Principal Joint Director, Joint Director
Principal Joint Commissioner, Joint Commissioner
Deputy Director, Additional Director
Deputy Commissioner, Assistant Commissioner
Income Tax Officer
Tax Recovery Officer

Inspector
Senior tax assistant
Tax assistant
Residential status
For all purposes of Income tax Tax payers are classified into 3 categories
1. Resident and Ordinarily Resident
2. Resident but Not Ordinarily Resident
3. Non-Resident
Scope
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Charge to income-tax
An entity whose income exceeds the "maximum amount", which is not chargeable to
the income tax, is an assessee, and shall be chargeable to the income tax at the rate or
rates prescribed under the finance act for the relevant assessment year, shall be
determined on basis of his residential status.
Income tax is a tax payable, at enacted by the Union Budget (Finance Act) for every
Assessment Year, on the Total Income earned in the Previous Year by every Person.
The chargeability is based on nature of income, i.e., whether it is revenue or capital.
The rates of taxation of income are-:
Income Tax Slabs and Rates for the Assessment Year 2016-17 (applicable on income
earned during 01.04.2015 to 31.03.2016) for various categories of Indian Income Tax
payers.[4]
1. Individual resident aged below 60 years
2. Senior Citizen
3. Super Senior Citizen
4. Any NRI / HUF / AOP / BOI / AJP
5. Co-operative Society
6. Firm
7. Local Authority
8. Domestic Company
9. Other Company
#Individual resident aged below 60 years (i.e. born on or after 1 April 1956)
Surcharge : 15% of the Income Tax, where taxable income is more than Rs. 1 crore.
(Marginal Relief in Surcharge, if applicable)
Education Cess : 3% of the total of Income Tax and Surcharge.
#Senior Citizen (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 i.e. born on or
after 1 April 1936 but before 1 April 1956)
Income Slabs
Tax Rates
i. Where the taxable income does not

NIL
exceed Rs. 2,50,000/-.
10% of the amount by which the taxable
ii. Where the taxable income exceeds
Rs. 2,50,000/- but does not exceed
income exceeds Rs. 2,50,000/-. Less : Tax
Rs. 5,00,000/Credit u/s 87A - 10% of taxable income up to
a maximum of Rs. 2000/-.
iii. Where the taxable income
exceeds Rs. 5,00,000/- but does not
exceed Rs. 10,00,000/-
Rs. 25,000/- + 20% of the amount by which
iv. Where the taxable income

exceeds Rs. 10,00,000/-
Rs. 120,000/- + 30% of the amount by which
the taxable income exceeds Rs. 5,00,000/-.
the taxable income exceeds Rs. 10,00,000/-.

#Super Senior Citizen (Individual resident who is of the age of 80 years or more
at any time during the previous year i.e. born before 1 April 1936)
Income Tax :Tax Calculator : AY 2016-17
Income Slabs
i. Where the taxable income does not exceed Rs.
5,00,000/-.
Tax Rates
NIL
20% of the amount by which

ii. Where the taxable income exceeds Rs. 5,00,000/- the taxable
but does not exceed Rs. 10,00,000/income exceeds Rs.
5,00,000/-.
iii. Where the taxable income exceeds Rs.
10,00,000/-
Rs. 100,000/- + 30% of the

amount by which
the taxable income exceeds
Rs.10,00,000/-.
#Any NRI or HUF or AOP or BOI or AJP
Income Tax :Tax Calculator : AY 2016-17
Income Slabs
2,50,000/-.
ii. Where the taxable income exceeds Rs. 2,50,000/but does not exceed Rs. 5,00,000/-.
Tax Rates
NIL
10% of amount by which the

taxable income
exceeds Rs. 2,50,000/-.
iii. Where the taxable income exceeds Rs. 5,00,000/but does not exceed Rs. 10,00,000/-.
Rs. 25,000/- + 20% of the

amount by which
Rs. 5,00,000/-.
iv. Where the taxable income exceeds Rs.
10,00,000/-.
Rs. 125,000/- + 30% of the

amount by which
Rs. 10,00,000/-.
Abbreviations used :
NRI - Non Resident Individual; HUF - Hindu Undivided Family; AOP - Association
of Persons; BOI - Body of Individuals; AJP - Artificial Judicial Person
#Co-operative Society
Income Tax :
Income Slabs
10,000/-.
ii. Where the taxable income exceeds Rs. 10,000/but does not exceed Rs. 20,000/-.
Tax Rates
10% of the income.
Rs. 1,000/- + 20% of income

in excess of Rs.
10,000/-.
iii. Where the taxable income exceeds Rs. 20,000/-
Rs. 3.000/- + 30% of the

amount by which the
taxable income exceeds Rs.
20,000/-.
#Firm
Income Tax : 30% of taxable income.

#Local Authority
#Domestic Company
Surcharge : The amount of income tax as computed in accordance with above rates,
and after being reduced by the amount of tax rebate shall be increased by a surcharge
At the rate of 7% of such income tax, provided that the taxable income exceeds Rs. 1
crore. (Marginal Relief in Surcharge, if applicable) At the rate of 12% of such income
tax, provided that the taxable income exceeds Rs. 10 crores. Education Cess : 3% of
the total of Income Tax and Surcharge.
i)Company other than a Domestic Company
Income Tax : @ 50% of on so much of the taxable income as consist of (a) royalties
received from Government or an Indian concern in pursuance of an agreement made
by it with the Government or the Indian concern after the 31st day of March, 1961 but
before the 1st day of April, 1976; or (b) fees for rendering technical services received
from Government or an Indian concern in pursuance of an agreement made by it with
the Government or the Indian concern after the 29th day of February, 1964 but before
the 1st day of April, 1976, and where such agreement has, in either case, been
approved by the Central Government. @ 40% of the balance
Surcharge : The amount of income tax as computed in accordance with above rates,
and after being reduced by the amount of tax rebate shall be increased by a surcharge
as under
At the rate of 2% of such income tax, provided that the taxable income exceeds Rs. 1
crore. (Marginal Relief in Surcharge, if applicable) At the rate of 5% of such income
tax, provided that the taxable income exceeds Rs. 10 crores.
Marginal Relief in Surcharge
When an assessee's taxable income exceeds Rs. 1 crore, he is liable to pay Surcharge
at prescribed rates mentioned above on Income Tax payable by him. However, the
amount of Income Tax and Surcharge shall not increase the amount of income tax
payable on a taxable income of Rs. 1 crore by more than the amount of increase in
Example In case of an individual assessee (< 60 years) having taxable income of Rs.
1,00,01,000/1. Income Tax Rs. 28,25,300 2. Surcharge @12% of Income Tax Rs. 3,39,036 3.
Income Tax on income of Rs. 1 crore Rs. 28,25,000 4. Maximum Surcharge payable
(Income over Rs. 1 crore less income tax on income over Rs. 1 crore) Rs. 700/- (1000
- 300) 5. Income Tax + Surcharge payable Rs. 28,26,000 6. Marginal Relief in

Surcharge Rs. 3,38,336/- (339036 - 700)
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About 1% of the national population, called the upper class, fall under the 30% slab. It
grew 22% annually on average during 2000-10 to 0.58 million income taxpayers.
Themiddle class, who fall under the 10% and 20% slabs, grew 7% annually on average
to 2.78 million income taxpayers.[5]
Residential status
Residential status of a person other than an individual
Control &
management of
affairs of the
taxpayer is wholly
in India
Control &
management of
affairs of the
taxpayer is wholly
outside India
Control &
management of
affairs of the
taxpayer is partly in
India partly outside
India
HUF1
Resident
Non-Resident
Resident
Firm
Resident
Non-resident
Resident
Association
of persons
Resident
Non-resident
Resident
Indian
company2
Resident
Resident
Resident
Foreign
company3
Resident
Non-resident
Non-resident
Any other
Resident
person except
Non-resident
Resident
Type
of person
Type
of person
Control &
management of
affairs of the
taxpayer is wholly
in India
Control &
management of
affairs of the
taxpayer is wholly
outside India
Control &
management of
affairs of the
taxpayer is partly in
India partly outside
India
an individual
^1 HUF is resident or non-resident, the additional conditions (as laid down for an
individual) should be checked for the karta to determine whether the HUF is ordinary
or not-ordinary resident.
^2 An Indian company is the one which satisfies the conditions as laid down under
section 2(26) of the Act.
^3 Foreign company is the one which satisfies the conditions as laid down under
section 2(23A) of the Act.
Scope of total income[edit]
Indian income1 is always taxable in India not withstanding residential status of the
taxpayer.
Foreign income1 is not taxable in the hands of a non-resident in India. For resident (in
case of firm, association of persons, company and every other person) or resident &
ordinarily resident (in case of an individual or an HUF), foreign income is always
taxable. For resident but not ordinarily resident foreign income is taxable only if it is
business income and business is controlled wholly or partly in India or it is a
professional income and profession is set up in India.
^1 Foreign income is the one which satisfies both the following conditions:
Income is not received (or not deemed to be received under section 7) in India,
and
Income doesn't accrue (or doesn't deemed to be accrued under section 9) in

India.
If such an income satisfies one or none the above conditions then it is an Indian
income.
Heads of income[edit]
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
Capital gains
Income from other sources

Income from salaries[edit]
All income received as salary under employer-employee relationship is taxed under
this head, on due or receipt basis, whichever arises earlier. Employers must withhold
tax compulsorily (subject to Section 192), if income exceeds minimum exemption
limit, as Tax Deducted at Source (TDS), and provide their employees with a Form
16 which shows the tax deductions and net paid income. The Act contains exemptions
including (the list isn't exhaustive):Particulars
Relevant section for

computing exemption
Leave travel concession
10(5)
Death-cum-Retirement Gratuity
10(10)
Commuted value of Pension (not taxable for

specified Government employees)
10(10A)
Leave encashment
10(10AA)
Retrenchment Compensation
10(10B)
Compensation received at time of Voluntary

Retirement
10(10C)
Tax on perquisite paid by employer
10(10CC)
Amount received from Superannuation Fund to

legal heirs of employee
10(13)
House Rent Allowance
10(13A)
Particulars
Some Special Allowances
Relevant section for

computing exemption
10(14)
The Act contains list of perquisites which are always taxable in all cases and a list of
perquisites which are exempt in all cases (List I). All other perquisites are to be
calculated according to specified provision and rules for each. Only two deductions
are allowed under Section 16, viz. Professional Tax and Entertainment Allowance (the
latter only available for specified government employees).
[show]Computation of exemption for gratuity [Section 10(10)]
[show]Computation of exemption of House Rent Allowance(HRA) [Section
10(13A)]
[show]Computation of exemption for pension [Section 10(10A)]
[show]Computation of exemption for Leave encashment [Section 10(10AA)]
[show]Computation of exemption for Retrenchment compensation [Section
10(10B)]
[show]Computation of exemption for Voluntary Retirement Scheme [Section
10(10C)]
[show]Computation of deduction for Entertainment Allowance [Section 16 (ii)]
and Professional Tax [Section 16 (iii)]
Income from house property[edit]
Income under this head is taxable if the assessee is the owner of a property consisting
of building or land appurtenant thereto and is not used by him for his business or
professional purpose. An individual or an Hindu Undivided Family (HUF) is eligible
to claim any one property as Self-occupied if it is used for own or family's residential
purpose. In that case, the Net Annual Value (as explained below) will be nil. Such a
benefit can only be claimed for one house property. However, the individual (or HUF)
will still be entitled to claim Interest on borrowed capital as deduction under section
24, subject to some conditions. In the case of a self occupied house deduction on
account of interest on borrowed capital is subject to a maximum limit of
2,00,000(1,50,000 for A/Y 2014-15 and before) (if loan is taken on or after 1 April
1999 and construction is completed within 3 years) and 30,000 (if the loan is taken
before 1 April 1999). For let-out property, all interest is deductible, with no upper
limits. The balance is added to taxable income.
The computation of income from let-out property is as under:Gross annual value (GAV)1
Less:Municipal Taxes paid
Net Annual value (NAV)
Less:Deductions under section 242
Income from House property
xxxx
(xxx)
xxxx
(xxx)
xxxx
^1 The GAV is higher of Annual Letting Value (ALV) and Actual rent
received/receivable during the year. The ALV is higher of fair rent and municipal
value, but restricted to standard rent fixed by Rent Control Act.
^2 Only two deductions are allowed under this head by virtue of section 24, viz.,
30% of Net annual value as Standard deduction

Interest on capital borrowed for the purpose of acquisition, construction, repairs,
renewals or reconstruction of property (subject to certain provisions).
Profits and Gains of business or profession

The income referred to in section 28, i.e., the incomes chargeable as "Income from
Business or Profession" shall be computed in accordance with the provisions
contained in sections 30 to 43D. However, there are few more sections under this
Chapter, viz., Sections 44 to 44DA (except sections 44AA, 44AB & 44C), which
contain the computation completely within itself. Section 44C is a disallowance
provision in the case non-residents. Section 44AA deals with maintenance of books
and section 44AB deals with audit of accounts.
In summary, the sections relating to computation of business income can be grouped
as under: Specific
deductions
Sections 30 to 37 cover expenses which are expressly allowed as

deduction while computing business income.
Specific
disallowance
Sections 40, 40A and 43B cover inadmissible expenses.
Deemed Incomes Sections 33AB, 33ABA, 33AC, 35A, 35ABB, 41.

Special
provisions
Sections 42, 43C, 43D, 44, 44A, 44B, 44BB, 44BBA, 44BBB,
44DA, 44DB.
Presumptive
Income
Sections 44AD, 44AE 55.
The computation of income under the head "Profits and Gains of Business or
Profession" depends on the particulars and information available.[6]
If regular books of accounts are not maintained, then the computation would be as
under: Income (including deemed income) chargeable as income under this head
Less: Expenses deductible (net of disallowances) under this head
xxx
(xx)
However, if regular books of accounts have been maintained and profit and loss
account has been prepared, then the computation would be as under: Net Profit as per profit and loss account
xxx
Add : Inadmissible expenses debited to profit and loss account
xx
Add: Deemed incomes not credited to profit and loss account
xx
Less: Deductible expenses not debited to profit and loss account
(xx)
Less: Incomes chargeable under other heads credited to Profit & Loss A/c
(xx)
Income from capital gains

Transfer of capital assets results in capital gains. A Capital asset is defined under
section 2(14) of the I.T. Act, 1961 as property of any kind held by an assessee such as
real estate, equity shares, bonds, jewellery, paintings, art etc. but does not include
some items like any stock-in-trade for businesses and personal effects. Transfer has
been defined under section 2(47) to include sale, exchange, relinquishment of
asset extinguishment of rights in an asset, etc. Certain transactions are not regarded as
'Transfer' under section 47.
Computation of Capital Gains:Full value of consideration1
Less:Cost of acquisition2
Less:Cost of improvement2
Less:Expenditure pertaining to transfer incurred by the transferor
xxx
(xx)
(xx)
(xx)
^1 In case of transfer of land or building, if sale consideration is less than the stamp
duty valuation, then such stamp duty value shall be taken as full value of consideration
by virtue of Section 50C. The transferor is entitled to challenge the stamp duty
valuation before the Assessing Officer.
^2 Cost of acquisition & cost of improvement shall be indexed in case the capital asset
is long term.
For tax purposes, there are two types of capital assets: Long term and short term.
Transfer of long term assets gives rise to long term capital gains. The benefit of
indexation is available only for long term capital assets. If the period of holding is
more than 36 months, the capital asset is long term, otherwise it is short term.
However, in the below mentioned cases, the capital asset held for more than 12 months
will be treated as long term:
Any share in any company
Government securities
Listed debentures
Units of UTI or mutual fund, and
Zero-coupon bond
Also, in certain cases, indexation benefit is not be available even though the capital
asset is long term. Such cases include depreciable asset (Section 50), Slump Sale
(Section 50B), Bonds/debentures (other than capital indexed bonds) and certain other
express provisions in the Act. There are different scheme of taxation of long term
capital gains. These are:
1. As per Section 10(38) of Income Tax Act, 1961 long term capital gains on
shares or securities or mutual funds on which Securities Transaction Tax (STT)
has been deducted and paid, no tax is payable. STT has been applied on all
stock market transactions since October 2004 but does not apply to off-market
transactions and company buybacks; therefore, the higher capital gains taxes
will apply to such transactions where STT is not paid.
2. In case of other shares and securities, person has an option to either index costs
to inflation and pay 20% of indexed gains, or pay 10% of non indexed gains.
The cost inflation index rates are released by the I-T department each year.
3. In case of all other long term capital gains, indexation benefit is available and
tax rate is 20%.
All capital gains that are not long term are short term capital gains, which are taxed as
such:
Under section 111A, for shares or mutual funds where STT is paid, tax rate is
10% from Assessment Year (AY) 2005-06 as per Finance Act 2004. With effect
from AY 2009-10 the tax rate is 15%.
In all other cases, it is part of gross total income and normal tax rate is
applicable.
For companies abroad, the tax liability is 20% of such gains suitably indexed (since
STT is not paid).
Besides exemptions under section 10(33), 10(37) & 10(38) certain specific exemptions
are available under section 54, 54B, 54D, 54EC, 54F, 54G & 54GA.
Section 54
Sectio
Section
Section
n 54B
54D
54EC
Any perso
Any perso
Section 54F
Section 54G
Section 54GA
Section
54GB
Who is
eligible
to claim
Individual/HUF
Individual
exempti
Individual/HUF
Any person
Any person
Individual/H
UF
on
Agricultur
al land (if
used by
individual
or his
Which
asset is
eligible
for
exempti
on
parents
A residential
for
house property or
agricultur
land appurtenant
al
thereto (long
purpose
term)
during at
least 2
years
immediat
ely prior
to
transfer)
Land/buildi
ng forming
part of an
industrial
Long-term
Any long term
undertakin
residential
capital asset
g which is
property if
(other than house
compulsori
ly acquired
Any long
by the
term
Governme
capital
nt & which
asset
is used
property) provided
Land/building/plant/mac
that on the date of
hinery in order to shift
transfer the
an industrial
assessee does
undertaking from urban
not own more
area to rural area
than one
during 2
transfer
takes place
an industrial
between if
undertaking from urban
transfer
area to any Special
takes place
Economic Zone
during 1
April 2012
residential house
years for
and 31
property
industrial
March 2017
purposes
prior to
acquisition
Bonds
ofNational
Highways
Authority
Which
of
asset
India or Ru
should
Agricultur
be
al land in
acquire
d to
Residential house
property
claim
rural or
urban
area
Land/buildi
ng for
industrial
purpose
ral
Electrificati
on
Corporatio
A residential
house property
undertaking to rural
area
n Limited;
exempti
Maximum
on
exemption
undertaking to any SEZ
Equity
shares in
eligible
company
in one
financial
year is
5 million
What is
Purchase: 1-year
2 years
3 years
6 months
Purchase: 1-year
1-year backward or 3
1-year backward or 3
Equity
the time
backward or 2
forward
forward
forward
backward or 2
years forward
years forward
shares in an
limit for
years
years
eligible
acquirin
forward;Constructi
forward;Constructi
company to
g the
on:3 years
on:3 years
be acquired
new
forward
forward
on or before
asset
due date of
filing return
Section 54
Sectio
Section
Section
n 54B
54D
54EC
Section 54F
Section 54G
Section 54GA
Section
54GB
of income as
under
section
139(1). The
eligible
company
should
utilize this
amount for
the
purchase of
a new asset
within one
year from
the date of
subscription
in equity
shares
Investment
in the new
asset or
capital
gain,
whichever
is lower
Investme
Investment in the
new asset or
capital gain,
How
whichever is lower
much is
(The new asset
exempt
should not be
transferred within
3 years of its
acquisition)
nt in the
Investmen
new
t in the
asset or
new asset
capital
or capital
gain,
gain,
whicheve
whichever
r is lower
is lower
(The new
(The new
asset
asset
should
should not
not be
be
transferre
transferred
d within 3
within 3
years of
years of its
its
acquisition
acquisitio
n)
Investment in the
in the new
asset
new assetNet
asset
should not
sale
capital gain
be
considerationCa
net sale
transferred
pital gain; The
consideratio
within 3
assessee should
n. (The
years of its
not complete
exemption is
acquisition
construction of
); The new
another
asset
residential house
should not
property within 3
be
years from the
converted
date of transfer of
into money
original asset nor
or any
should he
or the new
loan/advan
purchase within 2
asset is
ce should
years from the
sold/transfer
not be
date of transfer of
red by the
taken on
original asset
company
the
another house
within 5
security of
property
years from
the new
asset
within 3
years from
the date of
its
acquisition
Income from other sources
Investment
(The new
Investment in the new
Investment in the new
asset or capital gain,
asset or capital gain,
whichever is lower (The
whichever is lower (The
new asset should not be
new asset should not be
transferred within 3
transferred within 3
years of its acquisition)
years of its acquisition)
revoked if
equity
shares are
sold/transfer
red within 5
years from
acquisition
acquisition)
This is a residual head, underthis head income which does not meet criteria to go to
other heads is taxed. There are also some specific incomes which are to be always
taxed under this head.
1. Income by way of Dividends.
2. Income from horse races/lotteries.
3. Employees' contribution towards staff welfare scheme/ provident fund/
superannuation fund or any fund set up under the provisions of ESIC Act,
received from the employees by the employer.
4. Interest on securities (debentures, Government securities and bonds).
5. Any amount received from keyman insurance policy including the sum
allocated by way of bonus on such policy.
6. Gifts (subject to certain conditions and exemptions).
7. Interest on compensation/enhanced compensation.
8. Income from renting of other than house property.
9. Family pension received by family members after the death of the pensioner.
10.Income by way of interest on other than securities.
Agricultural income
Agricultural income is exempt from tax by virtue of section 10(1). Section 2(1A)
defines agricultural income as :
Any rent or revenue derived from land, which is situated in India and is used for
agricultural purposes.
Any income derived from such land by agricultural operations including

processing of agricultural produce, raised or received as rent-in-kind so as to render
it fit for the market or sale of such produce.
Income attributable to a farm house (subject to some conditions).
Income derived from saplings or seedlings grown in a nursery.

Income partly agricultural and partly business activities
Income in respect of the below mentioned activities is initially computed as if it is
business income and after considering permissible deductions. Thereafter, 40,35 or 25
percent of the income as the case may be, is treated as business income, and the rest is
treated as agricultural income.
Incomea
Growing & manufacturing tea in India
Business
Agricultural
income
income
40%
60%
35%
65%
Sale of coffee grown & cured by seller in India
25%
75%
Sale of coffee grown, cured, roasted & grounded by seller in India
40%
60%
Sale of latex or cenex or latex based crepes or brown crepes manufactured from field latex or coalgum obtained from rubber
plants grown by a seller in India
^a For apportionment of a composite business-cum-agricultural income, other than the above-mentioned, the market value of any agricultural produce, raised by the assessee or
received by him as rent-in-kind and utilized as raw material in his business, should be deducted. No further deduction is permissible in respect of any expenditure incurred by the
assessee as a cultivator or receiver of rent-in-kind.
Permissible deductions from Gross Total Income

Ministry of Finance has notified certain deductions from Gross Total Income of an
assessee. Below are deductions as updated by finance act, 2015
SECTIO
N
80C
NATURE OF DEDUCTION
This section has been introduced by the Finance Act, 2005. Broadly
speaking, this section provides deduction from total income in respect of
various investments/ expenditures/payments in respect of which tax rebate
u/s 88 was earlier available. The total deduction under this section is limited
to Rs. 1.50 lakh only.
Deductions can be claimed for:
Provident Fund (PF) & Voluntary Provident Fund (VPF) : PF is
automatically deducted from your salary. Both you and your employer
contribute to it. While employers contribution is exempt from tax, your
contribution (i.e., employees contribution) is counted towards section 80C
investments. You also have the option to contribute additional amounts
through voluntary contributions (VPF). Current rate of interest is 8.5% per
annum (p.a.) and is tax-free.
Public Provident Fund (PPF): Among all the assured returns small saving
schemes, Public Provident Fund (PPF) is one of the best. Current rate of
interest is 8.70% tax-free (Compounded Yearly) and the normal maturity
period is 15 years. Minimum amount of contribution is Rs 500 and maximum
is Rs 1,50,000. A point worth noting is that interest rate is assured but not
fixed.
Life Insurance Premiums: Any amount that you pay towards life insurance
premium for yourself, your spouse or your children can also be included in
Section 80C deduction. Please note that life insurance premium paid by you
for your parents (father / mother / both) or your in-laws is not eligible for
deduction under section 80C. If you are paying premium for more than one
insurance policy, all the premiums can be included. It is not necessary to
have the insurance policy from Life Insurance Corporation (LIC) even
insurance bought from private players can be considered here.
Equity Linked Savings Scheme (ELSS): There are some mutual fund (MF)
schemes specially created for offering you tax savings, and these are called
REMARKS
Equity Linked Savings Scheme, or ELSS. The investments that you make in
ELSS are eligible for deduction under Sec 80C.
Home Loan Principal Repayment: The Equated Monthly Installment (EMI)
that you pay every month to repay your home loan consists of two
components Principal and Interest.The principal component of the EMI
qualifies for deduction under Sec 80C. Even the interest component can save
you significant income tax but that would be under Section 24 of the
Income Tax Act. Please read Income Tax (IT) Benefits of a Home Loan /
Housing Loan / Mortgage, which presents a full analysis of how you can
save income tax through a home loan.
Stamp Duty and Registration Charges for a home: The amount you pay
as stamp duty when you buy a house, and the amount you pay for the
registration of the documents of the house can be claimed as deduction
under section 80C in the year of purchase of the house.
Sukanya Samriddhi Account : Sukanya Samriddhi Account meaning Girl
Child Prosperity Scheme is a special deposit scheme launched by Prime
Minister Narendra Modi on 22 January 2015 for girl child. The scheme of
Sukanya Samriddhi Account came into effect via notification of Ministry of
Finance. The notification details are Notification No. G.S.R.863(E) Dated
02.12.2014. Scheme will be governed by Sukanya Samriddhi Account Rules,
2014.
Per girl child only single account is allowed. Parents can open
this account for maximum two girl child. In case of twins this facility will
be extended to third child
Minimum deposit amount for this account is 1,000/- and

maximum is 1,50,000/- per year
Money to be deposited for 14 years in this account.
Interest rate for this account is 9.1% per annum, calculated on

yearly basis, Yearly compounded.
Passbook facility is available with Sukanya Samriddhi account.
From FY 2014-14 the interest earned on account will be tax

exempted. As per Finance Bill 2015-16.
National Savings Certificate (NSC) (VIII Issue):

NSC is a time-tested tax saving instrument with a maturity period of Five and
Ten Years. Presently, the interest is paid @ 8.50% p.a. on 5 year NSC and
8.80% Per Annum on 10 year NSC. Interest is Compounded Half Yearly.
While the minimum investment amount is Rs 100, there is no maximum
amount. Premature withdrawals are permitted only in specific circumstances
such as death of the holder. Investments in NSC are eligible for a deduction
of up to Rs 150,000 p.a. under Section 80C. Furthermore, the accrued
interest which is deemed to be reinvested qualifies for deduction under
Section 80C. However, the interest income is chargeable to tax in the year in
which it accrues.
Infrastructure Bonds: These are also popularly called Infra Bonds. These
are issued by infrastructure companies, and not the government. The amount
that you invest in these bonds can also be included in Sec 80C deductions.
Pension Funds Section 80CCC: This section Sec 80CCC stipulates
that an investment in pension funds is eligible for deduction from your
income. Section 80CCC investment limit is clubbed with the limit of Section
80C it means that the total deduction available for 80CCC and 80C is Rs.
1.50 Lakh.This also means that your investment in pension funds up to Rs.
1.50 Lakh can be claimed as deduction u/s 80CCC. However, as mentioned
earlier, the total deduction u/s 80C and 80CCC can not exceed Rs. 1.50
Lakh.
5-Yr bank fixed deposits (FDs): Tax-saving fixed deposits (FDs) of
scheduled banks with tenure of 5 years are also entitled for section
80C deduction.
Senior Citizen Savings Scheme 2004 (SCSS): A recent addition to section
80Clist, Senior Citizen Savings Scheme (SCSS) is the most lucrative scheme
among all the small savings schemes but is meant only for senior citizens.
Current rate of interest is 9.20% per annum payable quarterly. Please note
that the interest is payable quarterly instead of compounded quarterly. Thus,
unclaimed interest on these deposits wont earn any further interest. Interest
income is chargeable to tax.
The premium must be deposited to keep in force a contract for an
80CCC
Payment of premium for annuity plan of LIC or any other insurer Deduction is
available up to a maximum of Rs. 1,00,000/-
annuity plan of the LIC or any other insurer for receiving pension from
the fund. The Finance Act 2015 has enhanced the ceiling of deduction
under Section 80CCC from Rs.100,000 to Rs. 1,50,000 with effect from
A.Y. 2016-17
Where the Central Government makes any contribution to the pension
account, deduction of such contribution to the extent of 10% of salary
80CCD
Deposit made by an employee in his pension account to the extent of 10% of

his salary.
shall be allowed. Further, in any year where any amount is received

from the pension account such amount shall be charged to tax as
income of that previous year. The Finance Act, 2009 has extended
benefit to any individual assesse, not being a Central Government
employee.
Subscription made by individual or HUF to the extent of Rs. 20,000 to
80CCF
Subscription to long term infrastructure bonds
notified long term infrastructure bonds is exempt from A.Y. 2011-12

onwards. This deduction is discontinued w.e.f. A.Y. 2013-14.
The deduction was 50% of amount invested in such equity shares or
80CCG
Investment under Rajiv Gandhi Equity Savings Scheme, 2013
25,000, whichever is lower. The maximum Investment permissible for

claiming deduction under RGESS is Rs. 50,000. The benefit is in
addition to deduction available u/s Sec 80C.
The premium is to be paid by any mode of payment other than cash and
the insurance scheme should be framed by the General Insurance
80D
Payment of medical insurance premium. Deduction is available up to
Corporation of India & approved by the Central Govt. or Scheme framed
Rs.15,000/ for self/ family and also up to Rs. 15,000/- for insurance in respect
by any other insurer and approved by the Insurance Regulatory &
of parent/parents of the assessee. In case of senior citizens, a deduction up
Development Authority. The premium should be paid in respect of health
to Rs.20,000/- shall be available under this Section. Insurance premiume of
insurance of the assessee or his family members. The Finance Act 2008
senior citizen parent/ parents of the assessee also eligible for enhanced
has also provided deduction up to Rs. 15,000/- in respect of health
deduction of Rs. 20000/-
insurance premium paid by the assessee towards his parent/parents.

w.e.f. 01.04.2011, contributions made to the Central Government Health
Scheme is also covered under this section.
Deduction of Rs.40,000/ In respect of (a) expenditure incurred on medical

treatment, (including nursing), training and rehabilitation of handicapped
dependent relative. (b) Payment or deposit to specified scheme for
maintenance of dependent handicapped relative. W.e.f. 01 .04.2004 the
80DD
deduction under this section has been enhanced to Rs.50,000/- Further, if the
dependent is a person with severe disability a deduction of Rs.1,00,000/
shall be available under this section Budget 2015 has Further Proposed to
hike the limit from A.Y. 2016-17 to Rs. 75000 from existing Rs. 50,000/- and
The handicapped dependent should be a dependent relative suffering

from a permanent disability (including blindness) or mentally retarded,
as certified by a specified physician or psychiatrist.Note: A person with
severe disability means a person with 80% or more of one or more
disabilities as outlined in section 56(4) of the Persons with Disabilities
(Equal opportunities, Protection of Rights and Full Participation) Act.,
for person with severe disability to Rs. 1.25 lakh from existing Rs. 1 Lakh.
Deduction of Rs.40,000/- in respect of medical expenditure incurred. W.e.f.
01.04.2004, deduction under this section shall be available to the extent of
80DDB
Rs.40,000/- or the amount actually paid, whichever is less. In case of senior

citizens, a deduction up to Rs.60,000/- shall be available under this
Section .Budget 2015 has proposed deduction of Rs. 80000/- for senior
citizen aged 80 year or More from A.Y. 2016-17
Expenditure must be actually incurred by resident assessee on himself

or dependent relative for medical treatment of specified disease or
ailment. The diseases have been specified in Rule 11DD. A certificate in
form 10I is to be furnished by the assessee from a specialist working in
a Government hospital.Budget 2015 has Proposed for the purpose of
claiming deduction under the section assessee will be required to obtain
a prescription from a specialist doctor instead of Certificate.
This provision has been introduced to provide relief to students taking
loans for higher studies. The payment of the interest thereon will be
allowed as deduction over a period of up to 8 years. Further, by Finance
80E
Deduction in respect of payment in the previous year of interest on loan taken

from a financial institution or approved charitable institution for higher studies.
Act, 2007 deduction under this section shall be available not only in
respect of loan for pursuing higher education by self but also by spouse
or children of the assessee. W.e.f. 01.04.2010 higher education means
any course of study pursued after passing the senior secondary
examination or its equivalent from any recognized school, board or
university.
80EE
Deduction in respect of interest on loan taken for residential house property
Vide Finance Act 2013, an individual is allowed a deduction up to a limit
of Rs 1,00,000 being paid as interest on a loan taken from a Financial

Institution, sanctioned during the period 01-04- 2013 to 31-03-2014
(loan not to exceed Rs 25 lakhs) for acquisition of a residential house
whose value does not exceed Rs 40 lakhs. However the deduction is
available if the assessee does not own any residential house property
on the date of sanction of the loan.
The various donations specified in Sec. 80G are eligible for deduction
80G
Donation to certain funds, charitable institutions etc.
up to either 100% or 50% with or without restriction as provided in Sec.

80G
(1) Assessee or his spouse or minor child should not own residential
80GG
Deduction available is the least of(i) Rent paid less 10% of total incomeii.
accommodation at the place of employment.(2) He should not be in
Rs.2000 per monthiii. 25% of total income
receipt of house rent allowance.(3) He should not have a self-occupied

residential premises in any other place
Section 80TTA is introduced wef A.Y. 2013-14 to provide deduction to
an individual or a Hindu undivided family in respect of interest received
80TTA
Deduction in respect of interest on deposits in savings account
on deposits (not being time deposits) in a savings account held with

banks, cooperative banks and post office. The deduction is restricted to
Rs 10,000 or actual interest whichever is lower.
Deduction of Rs.50,000/- to an individual who suffers from a physical

disability (including blindness) or mental retardation. Further, if the individual
is a person with severe disability, deduction of Rs.75,000/- shall be available
80U
u/s 80U.W.e.f. 01.04.2010 this limit has been raised to Rs. 1 lakh.Budget
Certificate should be obtained on prescribed format from a notified
2015 proposed to amend section 80U to raise limit of deduction in respect of
Medical authority.
a person with disability from Rs. 50,000/- to Rs. 75,000 and for person with
severe disability from one lakh rupees to one hundred and twenty five
thousand rupees.
Finance Act 2013 has provided relief in the form of rebate to individual
taxpayers, resident in India, who are in lower income bracket, i. e.
87A
Rebate Of Rs 2000 For Individuals Having Total Income up to Rs 5 Lakh
having total income not exceeding Rs 5,00,000/-. The amount of rebate

is Rs 2000/- or the amount of tax payable, whichever is lower. WEF A.Y.
2014-15.
80RRB
80QQB
Deduction in respect of any income by way of royalty in respect of a patent
The assessee who is a patentee must be an individual resident in India.
registered on or after 01.04.2003 under the Patents Act 1970 shall be
The assessee must furnish a certificate in the prescribed form duly
available as :-Rs. 3 lacs or the income received, whichever is less.
signed by the prescribed authority along with the return of income.
Deduction in respect of royalty or copyright income received in consideration
The assessee must be an individual resident in India who receives such
for authoring any book of literary, artistic or scientific nature other than text
income in exercise of his profession. To avail of this deduction, the
book shall be available to the extent of Rs. 3 lacs or income received,
assessee must furnish a certificate in the prescribed form along with the
whichever is less.
return of income.
Due date of submission of return

The due date of submission of return shall be ascertained according to section 139(1)
of the Act as under:-If the assessee is a company (not having any inter-nation transaction), or
30 September of the Assessment
-If the assessee is any person other than a company whose books of accounts are required to be audited under any law,
Year(AY)
or
-If the assessee is a working partner in a firm whose books of accounts are required to be audited under any law.
30 November of the AY
31 July of the AY
If the assessee is a company and it is required to furnish report under section 92E pertaining to international
transactions.
In any other case.
If the Income of a Salaried Individual is less than 500,000 and he has earned income
through salary or Interest or both, such Individuals are exempted from filing their
Income Tax return provided that such payment has been received after the deduction
of TDS and this person has not earned interest more than 10,000 from all source
combined. Such a person should not have changed jobs in the financial year.[7]
CBDT has announced that all individual/HUF taxpayers with income more than
500,000 are required to file their income tax returns online. However, digital
signatures won't be mandatory for such class of taxpayers.[7]
Advance tax
Under this schemes, every assessee is required to pay tax in a particular financial year,
preceding the assessment year, on an estimated basis. However, if such estimated tax
liability for an individual who is not above 60 years of age at any point of time during
the previous year and does not conduct any business in the previous year, and the
estimated tax liability is below 10,000, advance tax will not be payable. The due
dates of payment of advance tax are:In case of corporate assessee
Otherwise
On or before 15 June of the previous year
Up to 15% of advance tax payable
On or before 15 September of the previous year
Up to 45% of balance of advance tax payable
On or before 15 December of the previous year
On or before 15 March of the previous year
Any default in payment of advance tax attracts interest under section 234B and any
deferment of advance tax attracts interest under section 234C.
Tax deducted at source (TDS)
The general rule is that the total income of an assessee for the previous year is taxable
in the relevant assessment year. However, income-tax is recovered from the assessee in
the previous year itself by way of TDS. The relevant provisions therein are listed
below. (To be used for reference only. The detailed provisions therein are not listed
below.)
Sectio
n
Nature of payment
192
Salary to any person
193 2
Interest on securities to any resident
Threshold limit (up to which no tax
TDS to be deducted
is deductible)
Exemption limit
Subject to detailed provisions of given

section
As specified for individual in Part III of I Schedule
10%
10000 (for Bank/cooperative bank) &
194A 2
Interest (other than interest on securities) to any resident
194B
Winning from lotteries etc. to any person
10000
30%
194BB
Winning from horse races to any person
5000
30%
194C 2
Payment to resident contractors
5000 otherwise
10%
30000 (for single contract) & 75000

(for aggregate consideration in a
2% (for companies/firms) & 1% otherwise
financial year)
194D
194E
194EE
Insurance commission to resident
Payment to non-resident sportsmen or sports

association
Payment of deposit under National Savings Scheme to

any person
20000
10%
Not applicable
10%
2500
20%
194G
Commission on sale of lottery tickets to any person
1000
10%
194H 2
Commission/brokerage to a resident
5000
10%
194-I 2
Rents paid to any resident
180000
194IA
Payment for Purchase of Immovable Property
5000000
1%
194J 2
Fees for professional/technical services; Royalty
30000
10%
5%
Interest or other sums (not being salary,which is covered
Amount as computed by the Assessing
As per double taxation avoidance treaty or regular
under section 192) paid to non-residents or foreign
Officer on application made under
provisions of Income Tax Act, which is beneficial to
company except under section 115O
section 195(2) or 195(3)
the recipient
194LB
195
Interest paid by Infrastructure Development Fund under

section 10(47) to non-resident or foreign company
2% (for plant,machinery,equipment) & 10% (for

land,building,furniture)
^1 At what time tax has to be deducted at source and some other specifications are subject to the above sections.
^2 In most cases, these payments shall not to deducted by an individual or an HUF if books of accounts are not required to be audited under the provisions of the Income Tax Act,1961
in the immediately preceding financial year.
In most cases, the tax deducted should be deposited within 7 days from the end of the month in which tax was deducted.
Corporate income tax
Income-wise number of corporate assessee in India

For companies, income is taxed at a flat rate of 30% for Indian companies(24.99% as
per Budget 2015-16). Foreign companies pay income tax at the rate of 40%. An
education cess of 3% (on both the tax and the surcharge) are payable. From 2005-06,
electronic filing of company returns is mandatory.
Surcharge
Non Corporate Assessee : 10% of Income Tax where taxable income exceeds 1 crore.
Corporate Assessee :
Particulars
Taxable Income > 1 Crore
Taxable Income > 10 Crore
Domestic company
7% of income tax payable
Foreign company
^1 Applicable from assessment year 2015-16 onwards.
Tax returns
Categories
There are five categories of Income Tax returns.
Normal return u/s 139(1)
In business, "normal" is any gained revenue that exceeds the cost, expenses, and taxes
needed to sustain the business or an activity.
Belated return
In case of failure to file the return on or before the due date, belated return can be filed
before the expiry of one year from the end of the relevant assessment year.
Revised return
In case of any omission or any wrong statement mentioned in the normal return can be
revised at any time before the expiry of one year from the end of the relevant
assessment year.
Defective return
Assessing Officer considers that the return is defective, he may intimate the defect.
One has to rectify the defect within a period of fifteen days from.
Returns in response to notices
Statistics
As of January 2016, a total of more than 3.27 crore returns were e-filed for the
financial year 2014-15.
Annual information return and statements
Annual information return
Those who are responsible for registering, or, maintaining books of account or other
documents containing a record of any specified financial transaction, shall furnish an
annual information return in Form No.61A.
Statements By producers
Producers of a cinematographic film during the financial year shall, prepare and
deliver to the Assessing Officer a statement in the Form No.52A,
within 30 days from the end of such financial year or
within 30 days from the date of the completion of the production of the film,
whichever is earlier.
Statements by non-resident having a liaison office in India
With effect from 01,June 2011, Non-Resident having a liaison office in India shall
prepare and deliver a statement in Form No. 49C to the Assessing Officer within sixty
days from the end of such financial year.
Assessments
Self-assessment is done by the assessee himself in his Return of Income. The
department assess the tax of an assessee under section 143(3) (scrutiny), 144 (best
judgement), 147 and 153A (search and seizure). The notices for such assessments are
issued under section 143(2), 148 and 153A respectively. The time limits are prescribed
under section 153.
Tax penalties
The major number of penalties initiated every year as a ritual by I-T Authorities is
under section 271(1)(c) which is for either concealment of income or for furnishing
inaccurate particulars of income.
"If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the
course of any proceedings under this Act, is satisfied that any person(b) has failed to comply with a notice under sub-section (1) of section 142 or subsection (2) of section 143 or fails to comply with a direction issued under sub-section
(2A) of section 142, or
(c) has concealed the particulars of his income or furnished inaccurate particulars of
such income,
he may direct that such person shall pay by way of penalty,-
(ii) in the cases referred to in clause (b), in addition to any tax payable by him, a sum
of ten thousand rupees for each such failure;
(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum
which shall not be less than, but which shall not exceed three times, the amount of tax
sought to be evaded by reason of the concealment of particulars of his income or the
furnishing of inaccurate particulars of such income.
Appeal
When taxpayers dispute the income tax demands raised on them, a structured appeal
process has to be followed. The first level of appeals lies with the CIT (A). The next
level of appeal lies with the Income Tax Appellate Tribunal - an independent body,
which is the final fact finding authority. Courts can subsequently be approached by the
aggrieved party only if a question of law is involved.

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INCOME TAX

Principal Director General, Director General

Principal Chief Commissioner of Income Tax, Chief Commissioner of Income Tax

Principal Director, Director

Principal Commissioner of Income Tax, Commissioner of Income Tax, CIT (Appeals)

Principal Additional Director, Additional Director

Principal Additional Commissioner, Additional Commissioner

Principal Joint Director, Joint Director

Principal Joint Commissioner, Joint Commissioner

Deputy Director, Additional Director

Deputy Commissioner, Assistant Commissioner

Income Tax Officer

Tax Recovery Officer

i. Where the taxable income does not

Rs. 25,000/- + 20% of the amount by which

iv. Where the taxable income

Rs. 120,000/- + 30% of the amount by which

the taxable income exceeds Rs. 5,00,000/-.

the taxable income exceeds Rs. 10,00,000/-.

Education Cess : 3% of the total of Income Tax and Surcharge.

20% of the amount by which

Rs. 100,000/- + 30% of the

10% of amount by which the

Rs. 25,000/- + 20% of the

Rs. 125,000/- + 30% of the

10% of the income.

Rs. 1,000/- + 20% of income

iii. Where the taxable income exceeds Rs. 20,000/-

Rs. 3.000/- + 30% of the

Education Cess : 3% of the total of Income Tax and Surcharge.

- 300) 5. Income Tax + Surcharge payable Rs. 28,26,000 6. Marginal Relief in

Income doesn't accrue (or doesn't deemed to be accrued under section 9) in

Income from salaries

Income from house property

Profits and gains of business or profession

Income from other sources

Relevant section for

Leave travel concession

Commuted value of Pension (not taxable for

Compensation received at time of Voluntary

Tax on perquisite paid by employer

Amount received from Superannuation Fund to

House Rent Allowance

Some Special Allowances

Relevant section for

30% of Net annual value as Standard deduction

Profits and Gains of business or profession

Sections 30 to 37 cover expenses which are expressly allowed as

Sections 40, 40A and 43B cover inadmissible expenses.

Deemed Incomes Sections 33AB, 33ABA, 33AC, 35A, 35ABB, 41.

Sections 44AD, 44AE 55.

Add : Inadmissible expenses debited to profit and loss account

Add: Deemed incomes not credited to profit and loss account

Less: Deductible expenses not debited to profit and loss account

Income from capital gains

Any share in any company

Units of UTI or mutual fund, and