“STUDY ON AWARENESS OF TAX MANAGEMENT

OF SALARIED ASSESSES”

SUBMITTED TO

GURU NANAK KHALSA COLLEGE OFARTS, SCIENCE

& COMMERCE (AUTONOMOUS) MATUNGA (E), MUMBAI – 400019

SUBMITTED BY

RANJEET SINGH BHULLAR

B.Com. (ACCOUNT AND FINANCE) Sem: -VI

ROLL NO: 14

UNDER THE GUIDANCE OF

AMIT DUBEY

IN THE PARTIAL FULFILLMENT OF THE DEGREE OF BACHELOR

OF COMMERCE (ACCOUNT AND FINANCE)
2019-20

I
 DECLARATION

I, Ranjeet Singh Bhullar, hereby declare that this project report entitled A
Study on Awareness of Tax Management if Salaried people has been submitted
during the year 2019-2020 under the valuable guidance and supervision of Amit
Dubey in partial fulfilment of requirements of the Bachelor of Commerce
(Account and Finance).

Further, I extend my declaration that this report is result of my original work.

(RANJEET SINGH BHULLAR)

II
 ACKNOWLEDGEMENT

I would like to express my gratitude towards Almighty.

I would like to thank Guru Nanak Khalsa College(Autonomous) for providing
assistance.
I would like to express special thanks to my Principal-
Dr. Kiran Mangaonkar
Vice Principal & H.O.D- Dr. Allan D’Souza
Project Guide- Amit Dubey
I would also like to thank the non-teaching staff for helping me throughout the
project.
I have taken efforts in this project. However, it would not have been possible
without the kind support and help of many individuals and organizations. I would
like to extend my sincere thanks to all of them.
I am highly indebted for their guidance and constant supervision as well as for
providing necessary information regarding the project & also for their support in
completing this project.
My thanks and appreciations also go to my friends in developing the project and
people who have willingly helped me out with their abilities.

III
 CERTIFICATE

This is to certify that RANJEET SINGH BHULLAR of B.Com (Account and

Finance) Semester VI(2019-2020) has successfully completed the project,
“STUDY ON AWARENESS OF TAX MANAGEMENT FOR SALARIED
ASSESSES” under the guidance of AMIT DUBEY.

Place: - _____________ Date: - _____________

_______________ ______________ ______________

Internal Examiner HOD & Coordinator External Examiner

______________
Principal College Stamp

IV
 INDEX

SR TITLE PAGE
NO. NO.
1 Introduction 1-22

1.1 What is tax 1

1.2 Why taxes are levied 1

1.3 The Income Tax laws in India 2-3

1.4 Meaning of Direct Taxes 4-5

1.5 Tax Management 6

1.6 Introduction to Salaries 7-22

2 Literature Review 23

3 Research Methodology 24-25

3.1 Primary Data 24

3.2 Secondary Data 25

4 Data Analysis, Interpretation & Presentation 26-41

5 Findings 42

6 Suggestions 43

7 Conclusion 44

8 Reference 45

9 Appendix 46-47

V
 INTRODUCTION
WHAT IS TAX?
Tax is a fee charged by the government on any product, activity or income. Based on the mode
of collection of taxes, in India the taxes are classified in the following two categories:

DIRECT TAXES INDIRECT TAXES

Levied on a PERSON. Levied on GOODS/SERVICES.

Collected INDIRECTLY from the

Collected DIRECTLY form the payer
payer.

Burden of direct taxes CANNOT BE Burden of undirect taxes CAN BE

shifted. shifted.

Eg: Income tax, tax on Undisclosed

Eg: GST, Customs duty.
Inomes & Foreign Assets.

WHY TAXES ARE LEVIED?

Tax is the basic source of revenue for the government. The tax revenue so raised by the
government is used for:
✓ Defence of the nation;
✓ Providing benefits like education, health care facilities & various other assistance to the
economically backward classes of the society;
✓ Development & maintenance of infrastructure facilities like roads, bridges, dams, etc.
in India;
✓ Meeting contingences;
✓ Preservation of natural resources & places of historic & artistic importance;
✓ The overall development of nation etc.

1
THE INCOME TAX LAWS IN INDIA

The Income
Tax Act,1961

Judgements
Annual
of various
Finance Act
courts

INCOME TAX
LAWS IN INDIA

Circulars The Income

issued by Tax
the CBDT Rules,1962

Notifications
issued under
CBDT

1) The Income Tax Act,1961:

✓ The levy, computation and collection mechanism of taxes on income in India is
governed by the provisions of Income Tax Act,1961. Further, the provisions
relating to the assessment procedures, appeals, penalties & prosecution, etc. are
also contained therein.
✓ Accordingly, the Income Tax Axt,1961 is divided into XXIII chapters
containing 298 sections and XIV schedules.
✓ Sections are the main provisions of the Income Tax Act,1961 and may be further
divided into sub-sections, clauses and sub-clauses.
✓ The sections, sub-sections, clauses & sub-clauses may also have explanations
and provisos attached to them.

2) Annual Finance Act:

✓ The Income Tax Act, 1961 undergoes changes every year with additions,
deletions and modifications brought out by the Annual Finance Act passed by
the Parliament.
✓ The Finance Minister of the Government of India introduces the Finance Bill
every year in the parliament’s budget session. After the bill is presented in the
budget session, it is then passes by both the houses of the Parliament and
thereafter gets the assent of then President. And then it becomes the Annual
Finance Act. Amendments are made every year to the Income Tax Act,1961
and other laws passed by the Finance Act.

2
3) The Income Tax Rules,1962:
✓ Direct taxes in In India are administered by the Central Board of Direct Taxes
(CBDT). For the purpose of proper administration of direct taxes in India, the
CBDT is empowered to make rules for carrying out the purposes of the Income
Tax Act, 1961. Accordingly, the CBDT frames rules from time to time. These
rules are collectively known as Income Tax Rules, 1962.
✓ Rules also have sub-rules, provisos and exceptions.

4) Circulars & Notifications issued by CBDT:

✓ Circulars are issued by the CBDT from time to time to deal with certain specific
problems and to clarify doubts regarding scope and meaning of certain
provisions of Income Tax Act, 1961. These circulars are issued for the guidance
of the officers and/or assesses. The department and its officers are bound by the
circulars. But they are not binding on assesses.
✓ Notifications are issued by CBDT to give effect to the provisions of the Income
Tax Act, 1961. They are binding on assesses as well as on department. Further,
CBDT is also empowered to make and amend rules for the purpose of the
Income Tax Act, 1961 by issue of notifications.

5) Judgements of various courts

✓ The study of case laws is an integral part of the understanding of Income Tax
Law in India. It is possible that issues may arise in the implementation of
provisions of the Income Tax Act, 1961. Hence, the judiciary will hear the
disputes between tax payers and the department and give decision on various
issues.
✓ In India the issues relating to the provisions of Income Tax Act, 1961 are
resolved by the Income Tax Appellate Tribunals, the High Courts & the
Supreme Court.
The Supreme court is the apex court of the country and the law laid down by
the supreme court is the law of land. The decisions given by the various High
Courts will apply in the respective states in which such high courts have
jurisdiction.

3
Meaning of Direct Taxes

A Direct tax is a kind of charge, which is imposed directly on the taxpayer and paid directly to
the government by the persons (juristic or natural) on whom it is imposed. A direct tax is one
that cannot be shifted by the taxpayer to someone else. Some important direct taxes imposed
in India are as under:

Income Tax:
Income Tax Act, 1961 imposes tax on the income of the individuals or Hindu undivided
families or firms or co-operative societies (other than companies) and trusts (identified as
bodies of individuals associations of persons) or every artificial juridical person. The inclusion
of a particular income in the total incomes of a person for income-tax in India is based on his
residential status. There are three residential status, viz.
(i) Resident & Ordinarily Residents (Residents)
(ii) Resident but not Ordinarily Residents and
(iii) Non-Residents. There are several steps involved in determining the residential status of
a person. All residents are taxable for all their income, including income outside India.
Non-residents are taxable only for the income received in India or Income accrued in India.
Not ordinarily residents are taxable in relation to income received in India or income
accrued in India and income from business or profession controlled from India.

Corporation Tax:
The companies and business organizations in India are taxed on the income from their
worldwide transactions under the provision of Income Tax Act, 1961. A corporation is deemed
to be resident in India if it is incorporated in India or if it’s control and management is situated
entirely in India. In case of non-resident corporations, tax is levied on the income which is
earned from their business transactions in India or any other Indian sources depending on
bilateral agreement of that country.

Property Tax:
Property tax or 'house tax' is a local tax on buildings, along with appurtenant land, and imposed
on owners. The tax power is vested in the states and it is delegated by law to the local bodies,
specifying the valuation method, rate band, and collection procedures. The tax base is the
annual rateable value (ARV) or area-based rating. Owner-occupied and other properties not
producing rent are assessed on cost and then converted into ARV by applying a percentage of
cost, usually six percent. Vacant land is generally exempted from the assessment. The
properties lying under control of Central are exempted from the taxation. Instead a 'service
charge' is permissible under executive order. Properties of foreign missions also enjoy tax
exemption without an insistence for reciprocity.

4
Inheritance (Estate) Tax:
An inheritance tax (also known as an estate tax or death duty) is a tax which arises on the death
of an individual. It is a tax on the estate, or total value of the money and property, of a person
who has died. India enforced estate duty from 1953 to 1985. Estate Duty Act, 1953 came into
existence w.e.f. 15th October, 1953. Estate Duty on agricultural land was discontinued under
the Estate Duty (Amendment) Act, 1984. The levy of Estate Duty in respect of property (other
than agricultural land) passing on death occurring on or after 16th March, 1985, has also been
abolished under the Estate Duty (Amendment) Act, 1985.

Gift Tax:
Gift tax in India is regulated by the Gift Tax Act which was constituted on 1st April, 1958. It
came into effect in all parts of the country except Jammu and Kashmir. As per the Gift Act
1958, all gifts in excess of Rs. 25,000, in the form of cash, draft, check or others, received from
one who doesn't have blood relations with the recipient, were taxable. However, with effect
from 1st October, 1998, gift tax got demolished and all the gifts made on or after the date were
free from tax. But in 2004, the act was again revived partially. A new provision was introduced
in the Income Tax Act 1961 under section 56 (2). According to it, the gifts received by any
individual or Hindu Undivided Family (HUF) in excess of Rs. 50,000 in a year would be
taxable.

5
Tax Management

Tax planning is a wider term and it includes tax management also. Tax management is an
important aspect of tax planning. It is an expression which implies actual implementation of
tax planning ideas. While that tax planning is the actual action, implementation, the reality, the
final result. Planning which leads to filing of various returns in time, compliance of the
applicable provisions of law and avoiding of levy of interest and penalties can be termed as
efficient tax management. It is an exercise by which defaults are avoided and legal compliance
is secured. The filing of returns with all proper documentary evidence for the various claims,
rebates, reliefs, deductions and computation of income and tax liability would come under the
purview of tax management.
The assessee is exposed to certain unpleasant consequences if obligations
cast under the tax laws are not duly discharged. Such consequences take shape of levy of
interest, penalty, prosecutions, forfeiture of certain rights etc. Therefore, any effort in tax
planning is incomplete unless proper discharge of responsibilities is made. Tax management
includes:
• Compiling and preserving data and supporting documents evidencing transactions, claims
etc.
• Making timely payment of taxes.
• TDS and TCS compliance.
• Following procedural requirements.
• Timely filing of returns.
• Responding to notices received from the authorities.
• Preserving record for the prescribed number of years.
• Mentioning PAN, TAN etc. at appropriate places.

6
 Introduction to SALARIES

The provisions pertaining to income under the head “SALARIES” are contained under section
15, 16 and 17.

Section 15 Section 16 Section 17

Basis of Charge under Deductions available Meaning of Salary,

the head of “SALARIES” from income under the perquisite and profits in
head of “SALARIES” lieu of Salary

Meaning:
Any ‘salary’ received or receivable by an employee from his employer (or former employer)
for services rendered, shall be charged to tax under the head ‘Salaries’ on due or receipt basis
whichever is earlier.
Meaning of the term ‘salary’ for the purpose of Income Tax Act, 1961 is much wider than what
is normally understood as the term salary is expressly defined u/s 147(1) to include:
i. Wages;
ii. Annuity or Pension;
iii. Gratuity;
iv. Fees, Commission, Perquisites and Profits in Lieu of Salary;
v. Advance Salary;
vi. Leave Encashment;
vii. The annual increase in the RPF A/c of the employees on excess of 9.5% rate of interest;
and
viii. Any contribution made by the Central Government or any other employer to the A/c of
the employee participating in Notified Pension Scheme(NPS) as referred u/s 80CCD.
An Income is treated as Salary if the relationship between tax payer and the receiver is of
MASTER AND SERVANT. [Employer and Employee].

7
 Statement showing computation of Income under the head “SALARIES”

Sr Particulars Rs.
No.

1 Basic Salary xx

2 Allowance xx

3 Provident Fund xx

4 Gratuity xx

5 Pension xx

6 Leave Salary xx

7 Voluntary Retirement Compensation xx

8 Retrenchment Compensation xx

9 Advance Salary, Arrears of Salary & Bonus xx

10 Perquisites xx

Gross Taxable salary xxx

Less: Deductions u/s 16:

16(i)- Standard Deduction (Finance Act, 2018 Amendment) xx

16(ii)- Entertainment Allowance xx

16(iii)- Profession Tax xx

TAXABLE INCOME FROM SASLARIES xxx

8
1) Basic Salary: -
Basic salary is fully taxable. It is the purest form of salary given by the employer to employee
for the services provided by the employee. If net basic salary is given in the question then find
out GROSS Basic Salary as follows:
Net basic salary xx
Add: PF Contribution xx
Add: Loan instalment etc xx
Gross Basic Salary xxx

2) Allowances: -
Any fixed quantity of money or any other substance given regularly by an employer to his
employee in addition to his basic salary:
✓ To meet some particular requirement related to the employment (i.e. to meet any
expense to which is to be incurred in the course of doing his official duties), or
✓ To meet employee’s personal expenses, or
✓ As a compensation for unusual or extra ordinary conditions of the employment.

Types of Allowances

Entertainment Other Taxable

Dearness Allowance Exempt Allowance
Allowance Allowance

(i) House Rent Allowance (HRA)

(ii) Allowances exempt u/s 10(14) based on amount spent for official
purpose
(iii) Allowances exempt u/s 10(14) to the extent of limits prescribed
under the ITA Rules, 1962
(iv) Allowances exempt for certain specified persons only

9
Dearness Allowance
Along with the basic salary; of employees are normally given an additional amount which is
called Dearness Allowance (D.A).
This is given to an employee to compensate him for the increased cost of living i.e. inflation.
It is linked with the Consumer Price Index (CPI), and is paid to employee on the basis of certain
percentage of his basic salary and is always fully taxable just like the basic salary.
Dearness Allowance

Provided in terms of employment not provided in terms of employment

i.e D.A forming part of salary while i.e D.A not forming part of salary while
calculating retirement/other benefits calculating retirement/other benefits

Fully taxable under the head ‘Salaries’ Fully taxable under the head ‘Salaries’

Entertainment Allowance
Entertainment allowance is given to an employee to meet the expenditure on entertaining guests
of the employer or to meet expenses of the hospitality of business customers/clients.
For entertainment Allowance, no exemption is given under the Income Tax Act,1961 instead,
it is fully taxable and forms part of the gross taxable salary.
However, deduction u/s 16(ii) is given from the gross taxable salary in the case of
government employees only.
Entertainment Allowance received or receivable by a

Government Employee Non-Government Employee

Fully Taxable
Fully Taxable Deduction u/s 16(ii)
(a) 1/5th of Basic Salary
(b) Actual Amount Received No deduction u/s 16(ii)
(c) Maximum Rs.5000

10
Exempt Allowances

(i) House Rent Allowance (HRA)

This allowance is given by the employer to his employee to meet the rental expenses of his
residential accommodation.
HRA received or receivable by the employee is an income for the employee chargeable to tax
under the head ‘Salaries’.
However, the employee can claim exemption u/s 10(13A) to the extent of least of following:
(a) Amount of HRA Actually Received
(b) 50% of salary**(if the rent is paid in Mumbai, Chennai, Delhi, Kolkata); or
40% of salary**(if the rent is paid in places other than Mumbai, Chennai, Delhi,
Kolkata)
(c) Rent paid (-) 10% of salary**
Note: **Salary=Basic +D.A. (in terms) + Turnover Commission

(ii) Allowances exempt u/s 10(14) based on amount actually spent for official
purpose

(1) Travelling Allowance

(2) Daily Allowance
(3) Conveyance Allowance
(a) Motor Car Allowance
(b) Petrol Allowance
(c) Diesel Allowance
(d) Scooter Allowance
(4) Academic/Research Allowance
(5) Helper Allowance
(6) Uniform Allowance
If the full amount is spent officially by the employee for the said purposes then, such
allowance shall be fully exempt u/s 10(14), However, if the allowance is not spent fully by
the employee for the said purposes then, whatever is spent is exempt u/s 10(14) and whatever
remains unspent becomes taxable.

11
(iii) Allowances exempt u/s 10(14) to the extent of limits prescribes under rule 2BB
of the Income Tax Rules,1962
(1) Children Education Allowance
This allowance is given to an employee to meet the cost of education of his/her
children.
It is exempt up to maximum Rs. 100 p.m. per child
(Exemption is allowed for maximum 2 children)
(2) Children Hostel Expenditure Allowance
This allowance is given to the employee to meet the cost of any hostel in which
his children are studying
It is exempt up to maximum Rs. 300 p.m. per child
(Exemption is allowed for maximum 2 children)

(3) Outstation Allowance or Running Allowance

This allowance is granted to an employee of transport sector undertaking to
meet his personal expenses in the course of running the transport conveyance of
the employer from one place to another.
Exempt up to least of following amounts:
70% of the amount received
OR
Maximum Rs. 10,000 p.m.

(4) Computation Allowance or Transport Allowance

This allowance is granted to an employee to meet his expenditure on commuting
between the place of his residence and the place of his duty.
Exemption is maximum Rs. 3,200 p.m.
(In case of Handicap Allowance)

(5) Underground /Area Mining Allowance

This allowance is given to the employees working in mines or any other
uncongenial unnatural climate conditions which are underground.
Exemption is maximum Rs. 800 p.m.

(6) Highly Active Field Area Allowance

This allowance is granted to the members of armed forces.
Exemption is maximum Rs. 4,200 p.m.

(7) Island Duty Allowance

This allowance is granted to the members of armed forces in Andaman &
Nicobar and Lakshadweep Island.
Exemption is maximum Rs. 3,250 p.m.

12
 (iv) Allowances exempt for certain specified persons only

(1) Daily & constituency Allowance received by MPs/MLAs/MLCs is fully

exempt u/s 10(17).
(2) Allowances & perquisites paid or allowed as such outside India by the
Government to the citizen of India for services rendered outside India are fully
exempt u/s 10(7).
(3) All Allowances received by Judges of High Court/Supreme Court.
(4) Allowances received by the employees of United Nations Organisation (UNO).
(5) Specific perquisite & allowances as notified by the Central Government to the
chairman and members of the Union Public Service Commission (UPSC)-
Exempt u/s 10(45).

(v) Other Taxable Allowances

Allowances other than those which are discussed as above are fully taxable in the
hands of the employee under the head ‘Salaries’.
For example:
Medical allowance, city compensatory allowance, Servant allowance, Tiffin/Lunch
allowance, overtime allowance, family allowance, project allowance or any other
cash allowance.

Provident Fund
Provident Fund is a scheme which gives financial security and substantial benefits to an
employee at the time of his retirement.
Gross Basic Salary xx
Less: PF Contribution xx
Net Basic Salary xxx

13
Tax treatment of different amounts based on the type of provident fund:

Particulars SPF RPF UPF

Employee’s Deduction u/s 80C Deduction u/s 80C Deduction u/s 80C
Contribution (
Employer’s Fully Exempt in the Exempt least of the Fully Exempt in the
Contribution year of contribution following: year of contribution
(a) 12% of
salary** or
(b) Amount of
actual
contribution
by employer
Interest credited Fully Exempt Exempt least of the Fully exempt in the
u/s10(11) in the year following: year of credit to the
of credit to the PF (a) Amount of PF Account.
Account interest
computed
@9.5% rate
of interest;
or
(b) Amount of
actual
interest
credited to
the RPF
account.
Lumpsum received Fully exempt u/s Fully exempt u/s Taxable in
10(11) 10(12) if: following manner:
(a) Employee (a) Employer’s
has rendered contribution
services of & interest
five years or thereon
more before taxable under
retirement. head salaries
(b) If not, then (b) Interest on
termination employee’s
of service is contribution
due to ill taxable under
health. head other
(c) On sources
termination (c) Employee’s
of the contribution
employment is not taxable
(d) Death of the
employee

14
 Gratuity
It is a gratuitous payment made by an employer to his employee as an appreciation of services
rendered in the past. Payment of gratuity is normally made when an employee retires from the
organisation or if the employee dies then its payment is made to employee’s legal
heirs/nominees.

Tax treatment of gratuity in different situations:

Gratuity received or receivable

While in service At the time of Retirement/Death by a

Non-government employee Government employee

Fully Taxable

Fully exempt u/s 10(10)

Covered by payment of Gratuity Act,1972 Not covered by Payment of Gratuity

Exemption u/s 10(10) shall be least
a) Gratuity actually received or
Receivable.
b) Maximum Rs.20,00,000 u/s 10(10)
c) 15/26 (x) Last drawn salary p.m.
(x) No. of years of service
Exemption u/s 10(10) shall be least
a) Gratuity actually received or receivable.
b) Maximum Rs.10,00,000 u/s 10(10)
c) 15/30 (x) Average salary p.m. (x) No of
completed years of service.

15
 Pension
It is the amount received or receivable by an employee from his employer after his employment
has come to an end.
Tax treatment of pension in different situations:

Pension

Uncommuted pension Commuted pension

Regular payment on a monthly
basis after the retirement
Fully taxable (for all types of
employees)
Sometimes the employer allows the retiring employee to
take a lumpsum amount in lieu of the future
monthly pensions right away and this lumpsum
amount is known as commuted pension.

Government Employee Non-Government Employee

Fully exempt u/s 10(10A) Receiving Gratuity Not Receiving Gratuity

Exempt u/s 10(10A) to the Exempt u/s 10(10A) to the

extent of maximum 1/3rd of extent of maximum 1/2nd of
Fully Commuted Pension Fully Commuted Pension

Fully Commuted Pension:

It is the amount of commuted pension which the employee would have received if he would
have commuted the pension fully (i.e. amount of commuted pension receivable on 100%
commutation of the monthly pension).

16
Leave Salary
Leave salary means encashment of “unused leave”.
As per the service rules, an employee is allowed to have certain paid leaves from his employer.
It may happen that the employee does not avail all the paid leaves which are allowed to him
by his employer. In such scenario, the employee has leave accumulated to his credit.
Tax treatment of leave salary/leave encashment in different situations:

On retirement by a during the continuation of service

Government Non-Government Fully taxable

Employee Employee

Fully exempt u/s Exempt u/s10(10AA) to extent of least:

10(10AA)
(a) Leave credit (x) Average salary p.m.
(b) 10 month’s salary
[i.e. Average salary p.m. (x) 10 months]
(c) Maximum Rs. 30,000
(d) Actual leave salary received or receivable

Leave Credit
Leave allowed as per govt rules xxx
(Max 30 days x No. of years’ service)
Less: Leave taken (xx)
Leave credit xxx

Average salary p.m.=Average basis p.m. + Average D.A. (in terms) p.m. + Average TC p.m.
[Average of last 10 months up to date of retirement]

17
Voluntary Retirement Compensation
If the employee takes retirement before his scheduled date of retirement then it is called
voluntary retirement.
It is exempt u/s 10(10C) if the voluntary retirement scheme is as per the guidelines prescribed
in Rule 2BA.
1) The scheme should be applicable to those employees who have completed 40 years of
age or 10 years of service.
2) The scheme should be applicable to ALL EMPLOYEES (except Directors)
3) The scheme should be drawn for OVERALL REDUCTION in the strength of the
employees.
4) VACANCIS should not be refilled and the retiring employees should not join a
company under same management.

Amount of Exemption to the extent of least of the following:

1) *Salary p.m. x 3 months x No. of years of services completed.
2) *Salary p.m. x 1 month x No. of months of service remaining.
3) Actual amount received
4) Rs.5,00,000
*Salary p.m. = Latest DA (in terms) p.m. + Latest TC p.m.

Retrenchment Compensation
Retrenchment compensation means the compensation paid under Industrial Disputes Act,
1947 or under any other Act, Rule, Order or Notification issued under any law to an employee
or workman on termination, transfer of employment or closing down of an undertaking.
It may be noted that compensation on account of termination and due to modification in terms
and conditions of employment would be taxable as ‘profits in lieu of salary’.
Retrenchment compensation exempt u/s 10(10B) to least of the following:
(a) Amount received or receivable
(b) Maximum Amount Rs.5,00,000
(c) Amount as per the Industrial Disputes Act,1947.
[15/26 (x) Average pay (x) No. of years of service]

18
Arrears of Salary/ Advance Salary/ Bonus

Arrears of salary

If taxed earlier on due basis In any other case

Not taxed again on receipt basis Taxable as income under the head
‘Salaries’ in the P.Y. in which it is
received.

Advance Salary
It means that employee has received salary well in advanced before it has been actually been
accrued or became due. Always taxable on receipt basis because salary is taxable on due or
receipt whichever is earlier basis.
Note: Advance salary which is taxed on receipt basis, shall not be taxed again when it actually
received.

Bonus/Ex-Gratia
This is a payment which is made by the employer to his employee on the basis of profits or
on the basis of production/exceptional performance.
Bonus is taxable under the head ‘Salaries’ in the hands of the employee in the year of the
employee in the year in which it is received i.e. taxability of bonus is on receipt basis only.

Bonus/ Ex-Gratia

Received Outstanding/ Receivable

Fully taxable in the year of receipt Not taxable (i.e.to be ignored)

19
Perquisites
✓ It means any additional personal benefits given by an employer to his employee.
In other words, perquisites are:
- personal benefits
- in addition to normal salary to which the employee had right by virtue of his
employment.
✓ Perquisites may be provided in cash or in kind.
✓ Further, they may be provided free of cost or at a concessional rate.
✓ Also, they may or may not be given on regular basis.
✓ It is pertinent to note that, if such personal benefits arise in the course of employment,
only then they are chargeable to yax under head ‘Salaries’.
✓ Perquisite shall become taxable only if it has a legal origin. An authorized advantage
taken by an employee without his employer’s sanction cannot be considered as a
perquisite under the Income Tax Act,1961.
For example:
Suppose Mr. Vinit an employee was given a house by his employer. On 30.03.2018, he is
terminated from the services. However, he continues to occupy the house without the
permission of the employer for six months after which he is evicted by the employer.
The question arises whether the value of the benefit enjoyed by him during such six months
period can be considered as a perquisite and be charged to tax under the head ‘Salaries’.
It cannot be done since the relationship of employer-employee ceased to exist after 31.3.2018.
However, the definition of income is wide enough to bring the value of such benefit enjoyed
by Mr. Vinit to tax as income from ‘Other Sources’.

Perquisite under Income Tax Act, 1961 u/s 17(2) classified in following manner:

Types of Perquisites

Taxable in case of 'All Taxable only in the hands

Exempt Perquisites
Employees' of 'Specified Employee'

20
Deductions u/s 16:

(1) Standard Deduction (Finance Act 2018)

With effect from previous year 2019-20 onwards, a standard deduction u/s 16(ia) shall be
allowed from the income chargeable to tax under the head ‘Salaries’..

Such standard deduction shall be least of the following:

(a) Rs. 40,000; or
(b) Gross Taxable Salary

(2) Entertainment Allowance

Entertainment allowance is given to an employee to meet the expenditure on entertaining guests
of the employer or to meet expenses of the hospitality of business customers/clients.
For entertainment Allowance, no exemption is given under the Income Tax Act,1961 instead,
it is fully taxable and forms part of the gross taxable salary.
However, deduction u/s 16(ii) is given from the gross taxable salary in the case of
government employees only.
Entertainment Allowance received or receivable by a

Government Employee Non-Government Employee

Fully Taxable
Fully Taxable Deduction u/s 16(ii)
(a) 1/5th of Basic Salary
(b) Actual Amount Received No deduction u/s 16(ii)
(c) Maximum Rs.5000

21
(3) Professional Tax

Article 276 of the Constitution of India gives the power to the State Government to
charge tax on any profession or employment known as Professional Tax or Employment
Tax. It is allowed as a deduction u/s 16(iii) on payment basis only.

Where the Professional Tax is Paid

by the Employee by the Employer on behalf of Employee

1 effect 2 effects

Deductions u/s 16(iii) Fully Taxable as Deduction u/s 16(iii)

Perquisite

22
 Literature Review

➢ Major LHG conville of convillepur vs. CIT Punjab, NWF and Delhi provience,
Lahore AIR 1935 Lah 978
“salary signifies a recompense given to any man for his pains bestowed upon another
man’s business”. Where a father and son are joint owners of agricultural property and
son gets certain allowances for managing the property besides his share of the income
from the property. Only the surplus allowance can be taxed as his salary, his income
is to be treated as agricultural.

➢ Amar Dye Chemicals Ltd and another vs. Union of India and others AIR 1974
SC 636
Salary- Managing Director of Company whether servant or agent- Test- Assessee
appointed as Managing Director to manage business of company in terms of agreement
he could be removed for not discharging work diligently or not acting in interest of
company- Assessee held was servant and not agent of company-Remuneration payable
to assessee would be salary.

➢ CIT, UP,CP and Berar, Lucknow vs. ID Varshani AIR 1954 All 58
The assessee was called a Managing Agent but the powers conferred upon him under
the Articles were more in the nature of powers given to a servant and those powers
could be terminated, he was admitted to the benefits of the Company’s Provident Fund
as being an employee of the company and the value of rent-free quarters occupied by
him was added as income under the head ‘salary’. It was held that the assessee was in
fact the Chief Manager of the company and his remuneration was properly assessed as
salary.

➢ CIT vs. Navnital Sakarlal AIR 2001 SC 235

Agreements between the company and its Managing directors entitled them to
remuneration but also empowered the Board of Directors to resolve in respect of any
year but not to pay any remuneration to them. For the previous year relevant to AY
1973-74, the Board of Directors resolved that “the amount of commission payable to
each of the Managing directors” should be expended to purchase single premium
deferred annuity policies on their lives.
The said resolution neither referred to the provision in agreement for non-payment of
remuneration nor saying that the Managing Directors should not be paid any
remuneration or part thereof In such circumstances, it was held that the amount of
commission did accrue to the Managing Directors and could not be said to have been
diverted. Therefore, it constituted part of their remuneration and was includible in their
hands as salaries.

23
 Research Methodology
1. Primary Data
Study on awareness of tax management of salaried assesses

2. Secondary Data
Study Objective
➢ To study the Effect of Taxes on tax payers.
➢ To study taxation provisions of The Income Tax Act,1961 as amended by Finance
Act,2018.
➢ To explore and simplify the tax planning procedure from a layman’s perspective.
➢ To know about the development of backward region through tax systems.
➢ To know about the awareness of tax management.
➢ To know whether people are aware of allowances.
➢ To know whether people are aware of different deductions under Chapter VI A.

Scope of the study

The scope of this document covers:
➢ This project studies the tax planning for individuals assessed to income Tax.
➢ Focus on effect of tax to Salaried people.
➢ Finding Positive and Negative impact of Tax.
➢ The study relates to non-specific and generalized tax planning, eliminating the need of
sample/ population analysis.

Statement of problem
An individual is not aware about the rules and regulations of income tax. Hence, they
need the services of CA for computing their personal income tax. The firm has to use
new way of working by reminding the clients about the last date of filing income tax
returns. This way they can increase their client base.

Limitation of Study
➢ It is limited to only salaried income other incomes are not covered under this study.
➢ Direct taxes encourage tax evasion.
➢ Direct taxes are directly imposed on the person. Burden cannot be shifted.
➢ Direct taxes may have an adverse impact on the will to work and save.

24
 Research Methodology used to find conclusion
Being a Descriptive research, it is based on Primary data collected from survey and
secondary data collected from journals, articles, newspapers and magazines. Considering the
objectives of study descriptive type research design is adopted to have more accuracy and
rigorous analysis of research study. The accessible primary and secondary data is intensively
used for research study.

Source of Data

To fulfil the objection of my study, I have taken into consideration both primary and
secondary data.

1) Primary data

Primary data has been collected from survey. Survey has been conducted through Online
Form with the help of Close ended questionnaire. This survey has been conducted among the
Different type of tax payers to find the effect of Tax.
The Study Participants are as from multiple regimes of transactions.

2) Secondary data

The secondary data collection from Reports, internet, text books and articles. The various
sources that were used for the collection of secondary data internal files and materials.
The purpose of using secondary data is to know the existing regulator issues pertaining to
ITA guidelines with the regards by studying existing secondary data, we can get the
initial understanding of basic scenario of Taxation.

25
 Data Analysis, Interpretation and Presentation

This study is based on review made by different tax payers forming part to pay
tax through the income generated in Mumbai. This participant is from various
income and field.
Data received from 50 respondents are been casted below with the help of charts.

Q.1 Under which head of income your income becomes taxable?

Sr. Particulars (Head Income) No of Percentage

No. responses %
1 Salary 30 60%
2 House property 3 6%
3 Profits & gains from Business & Profession 6 12%
4 Capital Gains 3 6%
5 Other Sources 8 16%

Number of responses

OTHER SOURCES
5

CAPITAL GAINS
4

PROFITS & GAINS FROM BUSINESS & PROFESSION

3

HOUSE PROPERTY
2

SALARY
1

INTERPRETATION:

This study is based on the suggestions and comments provided by the participants, these
participants are from various backgrounds. To study the effect in each area was quite difficult
because many people hesitate to share their personal details.
Study found that Income from Salary is more effective.

26
Q.2 What is your annual income range?

Sr. Income range No of responses Percentage%

No.
1 Less than 3 lacs 36 72%
2 More than 3 lacs but less than 5 11 22%
lacs
3 More than 5 lacs 3 6%

Number of responses

6%
22%

Less than 3 lacs

More than 3 lacs but less than 5 lacs
72%
More than 5 lacs

INTERPRETATION:

From the above data it can be interpreted that maximum no of responses i.e.
36 responses income are less than Rs. 3 lacs.
11 respondents are from income more than 3 lacs but less than 5 lacs.
3 respondents are from income more than 5 lacs

27
Q3. How much of your income in a year is saved?

Sr No. Income saved No. of responses Percentage%

1 Up to 10% 25 50%
2 10-20% 17 33%
3 20-30% 0 0%
4 30-40% 5 11%
5 Above 40% 3 6%

No. of responses

6%
11%
0% Up to 10%
50% 10-20%

33% 20-30%
30-40%
Above 40%

INTERPRETATION:

50% of respondent’s income is saved only up to 10% which is very less of the income. It
indicates that maximum amount of income is spent by them.

33% of respondent’s save income between 10-20% which is a bit higher amount of savings.

6% i.e. 1 respondent saves income above 40% which is very high income of savings but it is
lower among the respondents.
It shows that people prefer to save very less and spent at a higher rate

28
Q4. Does your tax consultant timely notify you the various provision’s and
submission of all taxes?

Sr No. Particulars No of responses Percentage%

1 Yes 28 56%
2 No 22 44%

No of responses

44%
56% Yes
No

INTERPRETATION:

It was found 28 respondents i.e. 56% of clients tax consultant notify their clients about the
provision’s and submission of all taxes which is a higher percentage.
It shows that the client and tax consultant’s relationship is very good and they show a great
bond together.

29
Q5. Do you seek the services of professional financial advisor/ CA for making
investment decisions?

Sr No. Particulars No of responses Percentage%

1 Always 14 28%
2 Occasionally 16 33%
3 Rarely 6 11%
4 Never 14 28%

No of responses

28% 28%
Always
Occasionally
11%
Rarely
33% Never

INTERPRETATION:

28% of the client’s always seek advice from their advisor and 28% of client’s do not like to
seek any advice from any of the advisor.

33% of client’s take advice on occasionally basis.

11% of clients i.e. 6 respondents never take any advice from the advisors.

30
Q6. Do you know Income Tax Act undergoes change every year with additions
and deletions brought by finance act passed by parliament?

Sr No. Particulars No of responses Percentage%

1 Yes 39 78%
2 No 11 22%

No of responses

22%

Yes
No
78%

INTERPRETATION:

Maximum number of respondents i.e. 78% of respondents know about the changes goes in
Income Tax Act with additions and deletions in finance act passed by the parliament every
year.

Whereas, there are still 22% of respondents who don’t know about any of the changes in
Income Tax Act which undergoes every year passed by parliament.

31
Q7. Do you know about deduction permissible under chapter VI A?

Sr No. Particulars No of responses Percentage%

1 Yes 25 50%
2 No 25 50%

No of responses

50% 50%
Yes
No

INTERPRETATION:

50% i.e. 25 respondents know about the deduction permissible under Chapter VI A and the
same no of respondents i.e. 25 respondents don’t know anything about the deduction
permissible under Chapter VI A.

It is compulsory for everyone to get aware about the deduction as it helps a lot while planning
out for filing income.

32
Q8. Do you know how taxable income is computed and tax is charged?

Sr No. Particulars No of responses Percentage%

1 Yes 39 78%
2 No 11 22%

No of responses

22%

Yes
No
78%

INTERPRETATION:
78% of respondents know about how taxable income is computed and charged. It is a good
percentage of awareness of amongst the people related to computation of tax liability.

33
Q9. Do you discuss Government Annual Budget provision’s with your tax
consultant beforehand?

Sr No. Particulars No of responses Percentage%

1 Yes 22 44%
2 No 28 56%

No of responses

44%
56% Yes
No

INTERPRETATION:
It is not a good percentage to know that the clients do not discuss about the Annual budget with
their tax consultant beforehand.
28 respondents i.e. 56% of the clients do not discuss about the Annual Budget with their tax
consultant beforehand.

34
Q10. Do you think that income tax rates in India are high

Sr No. Particulars No of responses Percentage%

1 Strongly Agree 2 5%
2 Agree 33 67%
3 Strongly Disagree 6 11%
4 Disagree 3 6%
5 Neutral 6 11%

No of responses

11% 5%
6%
Strongly Agree
11%
Agree
Strongly Disagree
67% Disagree
Neutral

INTERPRETATION:
67% i.e. 33 respondents agree that the income tax rates in India are high. It is a huge number
which government should be aware of and must take some actions towards the rate of tax.
There are few respondents who strongly agree and some respondents who are neutral about the
income tax rates in India.

35
Q11. Taxation procedure & filing of return is complex & difficult to
understand?

Sr No. Particulars No of responses Percentage%

1 Strongly Agree 11 22%
2 Agree 14 28%
3 Strongly Disagree 5 11%
4 Disagree 0 0%
5 Neutral 20 39%

No of responses

22%
39% Strongly Agree
Agree
Strongly Disagree
28%
0% Disagree
11%
Neutral

INTERPRETATION:
There are 20 respondents i.e. 39% which are neutral about the taxation procedure and do not
find difficulties while filing returns and understanding of taxation procedure.
There are 28 % i.e.14 respondents who agree and find difficulties for understanding taxation
procedure and 22% who strongly agree that filing return is complex and find it difficult to
understand the taxation procedure.

36
Q12. Generally when do you prepare for filing of return

Sr No. Particulars No of responses Percentage%

1 1 month before due date 25 50%
2 1 week before due date 8 17%
3 2-3 days before due date 6 11%
4 After due date 11 22%

No of responses

22%

1 month before due date

50%
11% 1 week before due date
2-3 days before due date
17%
After due date

INTERPRETATION:
50% of the respondents which file their tax return 1 month before the due date.
17% of the respondents file their tax return 1 week before the due date and 11% of the
respondents file income tax return 2-3 days prior to due date.
22% of the respondents file their tax return after due date which is a high percentage. It means
that they do not communicate with their tax advisor and fail to file their return on time and are
liable to pay penalty while filing their return.

37
Q13. Since how many years you are filing returns?

Sr No. Particulars No of responses Percentage%

1 0-5 years 45 89%
2 5-10 years 5 11%
3 10-15 years 0 0%

No of responses

11% 0%

0-5 years
5-10 years
10-15 years
89%

INTERPRETATION:
There are 45 respondents i.e. 89% who are filing returns form last 5 years. From this it can be
noticed that people have become more employed or have started their new business from past
5 years.
It can also be noted that people have become more aware about the taxation procedure and also
of filing their returns timely.

38
Q.14 Is your salary in hand is deduction of TDS & PPF?
Sr No. Particulars No of responses Percentage%
1 Yes 45 89%
2 No 5 11%

No of responses

11%

Yes
No
89%

INTERPRETATION:
There are 4 respondents whose salary in hand is deducting provident fund. The deducted
provident fund is then invested by the employer on behalf of employee.
The investment is done from both the sides i.e. from employer side as well as from employee.

39
Q15. Are you receiving any type of allowances?
Sr No. Particulars No of responses Percentage%
1 Yes 31 61%
2 No 19 39%

No of responses

39%

Yes
61%
No

INTERPRETATION:
There are 31 respondents i.e. 61% who receive allowances from their employer which is a bit
good percentage as employee uses the allowances amount by taking deduction while filing
return.
Eg :- Employee receives education allowance for their children from employer.
Amount is exempt up to Rs. 100 per month per child extent up to 2 children.

40
Q16. Are you aware of different types of schemes under the head salary?
Sr No. Particulars No of responses Percentage%
1 Yes 31 61%
2 No 19 39%

No of responses

39%

61% Yes
No

INTERPRETATION:
There are 31 respondents i.e. 61% who are aware of different types of schemes under the head
salary and 19 respondents i.e. 39% who are not aware of schemes under the head salary.

41
 FINDINGS

In this chapter, an attempt was made to study the income and its composition of the salaried
assesses. The income of the assesses was classified into five heads as per the provisions of the
Income Tax Act. An attempt was also made to ascertain the taxable income of the sample
assesses under different heads.
Attempt has been made to examine the association between the independent variables of the
50 assesses and their taxable income. To ascertain the association between independent
variables of the assesses and their level of investments in tax-saving schemes.
Tax planning measures are investing funds in tax-free return investments, tax-saving
investments, tax-free maturity investments and No tax deduction at source investments. Many
assesses may be ignorant of these tax-planning measures. However, many taxpayers do not
know the tax planning measures that are provided in the Income Tax Act. Ironically, the
agencies dealing with the tax saving schemes also have not taken any step to popularize their
schemes to the taxpayers. Hence, tax planning measures are little complicated and intricate for
an average assessee. Further, the information available to individual income tax assessee on
tax saving schemes is not much. It is needless to say that the investors should be made to
understand the features of various tax saving schemes available with concession.
Hence, this study is undertaken to provide suitable tax planning measures to the salaried
assesses in order to reduce substantially their tax liability.

42
 SUGGESTIONS

In the light of the findings, present tax provisions and features of different tax-saving schemes,
the following suggestions are presented in this study. The salaried assessees, on the basis of
the suggestions given, could adopt suitable tax planning options to reduce their tax liability
Considerably. It is found that 73.56 per cent of those sample assesses belonging to the group
young age 70 per cent belonging to the group upto SSLC studied 53.33 per cent belonging to
the group State Government 45.98 per cent belonging to the group professionals 56.25 per cent
belonging to the group in the village area 58.33 per cent belonging to the group of bachelors
and 55.56 per cent belonging to the group who are less than 10 years of service have low-level
of awareness about the various tax planning measures for the assessment year 2004-2005. Tax
planning requires awareness about the various tax planning measures available and knowledge
about the tax laws. Hence, it is suggested in this respect that the institutions offering tax-saving
schemes such as Post-office, Mutual Fund, Tax Consultants 224 should come forward to
arrange periodical programs to educate these types of assessees (i.e. the assessees belonging to
the group of young age, studied upto SSLC, State Government, professional, village area,
bachelors and employees who have put in less than 10 years of service) about timely tax
planning. They may bring out suitable handouts about the various tax planning options
available and their features. Frequent meetings may be arranged to update their knowledge in
tax laws and recent amendments in tax laws. Special meetings may be arranged for the salaried
assessees, in each institution to motivate them to invest in taxsaving schemes. In these meetings
informative pamphlets in vernacular may be distributed. Mass media such as newspapers and
televisions can be used in this respect.

43
 CONCLUSION

By the findings and survey conducted through this survey I conclude that tax planning as an
exercise is not just limited to filing returns and paying taxes. It is a process whereby your larger
financial plan needs to be taken into consideration after accounting for the above-mentioned
factors. Do not hesitate to look beyond Section 80C. You can smartly access the deductions
available under Section 80 and the exemptions too, save tax legitimately. Remember to
effectively know and structure each component of your salary income to effectively save more
tax.

Tax planning of salaried assesses is not satisfactory. It needs great improvement. In this respect
it is the duty of scholars in this field to create awareness about tax planning in the minds of the
assesses. The current study is a humble step towards this objective. By proper tax planning,
both the assesses and the Government shall equally be benefited.
Tax evasion is a serious crime. In general, assessees show lethargic attitude towards tax
planning. This is likely to land the assessees in financial trouble. Tax planning is not just a
strategy to reduce tax burden. In fact, it helps to save by encouraging investments in
Government Securities. Tax planning reduces not only the tax burden but also gives mental
satisfaction. If salaried assessees adopt tax planning measures it will help them to save a
considerable amount of their hard earned money in a legal way. When the Government has
given a wide chance of investing money according to the assesseesfinancial condition and taste,
it is the prime duty of every salaried assessee to utilize his/her chances and reaps the harvest.
Savings reduce extravagance, and correspondingly inflation. Tax saving is permitted only for
investment made in Government Securities and Bonds of priority sectors, which ultimately
help the whole nation. Therefore, the assessee savings in tax help the Central and State
Government to mobilize funds. Savings and investments are interconnected. To make
investments there should be saving. To make saving there should be surplus

44
 REFERENCE

The above information has been collectively collected from the books, magazines and articles.
Chartered Accountant book Indirect Tax Laws is referred and some of the information are taken
from the help of financial advisor.
Few information has been taken from Google.
https://shodhganga.inflibnet.ac.in
https://www.taxmanagementindia.com/

45
 Appendix
Q.1 Under which head of income your income becomes taxable?
a. Salary b. House property c. Profits and gains from business and
profession d. Capital Gains e. Other sources.

Q.2 What is your annual income range?

a. less than 3 lacs b. more than 3 lacs but less than 5 lacs c. more than 5 lacs

Q.3 How much of your income in a year is saved?

a. Up to 10% b. 10-20% c. 20-30% d. 30-40% e. Above 40%

Q.4 Does your tax consultant timely notify you the various provisions and
submissions of all taxes?
a. Yes b. No

Q.5 Do you seek the services of professional financial advisor/ CA for making
investment decisions?
a. Always b. Occasionally c. Rarely d. Never

Q.6 Do you know Income Tax Act undergoes change every year with additions
and deletions brought about by finance act passed by parliament.
a. Yes b. No

Q.7 Do you know deduction permissible under chapter VI A?

a. Yes b. No

Q.8 Do you know how taxable income is computed and tax is charged?
a. Yes b. No

46
Q.9 Do you discuss Government annual budget provision with your tax consultant
before-hand?
a. Yes b. No

Q.10 Do you think income tax rate in India are high?

a. Strongly Agree b. Agree c. Dias agree d. Strongly disagree
e. Neutral

Q.11 Taxation procedure and filing of return is complex and difficult to

understand?
a. Strongly Agree b. Agree c. Dias agree d. Strongly disagree
e. Neutral

Q.12 Generally when do you prepare for filing of return?

a. 1 month before due date b. 1 week before due date
c.2-3 days before due date d. After due date

Q.13 Since how many years you are filing returns?

a. 0-5 years b. 5-10 years c. 10-15 years

Q.14 Is your Salary in hand is deduction of TDS and PPF?

a. Yes b. No

Q.15 Are you receiving any type of allowances?

a. Yes b. No

Q.16 Are you aware of different types of schemes under the head salary?
a. Yes b. No

47