Analysis of Tax Returns and Tax Savings Avenues under

various heads for an individual as per Income Tax Act

,1961
Group Members Roll Numbers
Anusha Goel 3007
Deepak Bansal 3014
Muskaan Kapoor 3033
Satvik Jogadand 3296
Nrutyang Wadiwala 3318

Submitted For: Direct Taxation (Group A)

Submitted To: Prof. Smita Chopra

Submitted On: 25th April,2021

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Table of content
S.no Title Page No.

1 Executive summary 3

2 Part A - The Ideal Salary Package – A case study 4

 Background of the Individual
 Drafted ITR under Old Regime
 Exemptions and Deduction - Already Claimed
 Why Old Regime over New Regime?
 Challenges faced while drafting - Salary Package
 Conclusion

3 Part B – ITR ANALYSIS OF TWO INDIVIDUALS. 8

 Individual’s Background Info
 Benefits as per Old Regime – Exemptions &
Deductions – Already Claimed
 Exemption & Deductions – Suggested
 Why old Regime over new regime
 Conclusion
 ITR
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4 Conclusion and Annexures

Work Allocation Chart

Name Task Allotted
Anusha ITR- 1, ITR 2
Deepak ITR- 2
Muskaan The Ideal Salary Package – A case study
Nrutyang The Ideal Salary Package – A case study
Satvik ITR 2 and compiling

*Deepak, Satvik were covid positive throughout the duration of this project.

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Executive Summary
The project is submitted for the course of Direct Taxation and aims at understanding the Tax Returns and
Tax Savings Avenues under the various heads of income for an individual as per Income Tax Act ,1961.
Two individual’s Income tax returns as filled under the old tax regime have been collected and analyzed
to gain practical insights on the taxation policy of India. After analyzing and understanding the steps
involved in filling an ITR, an imaginary individual with an ideal salary package has been created. The
imaginary subject is given income under various heads and an effort has been made to ensure maximum
tax benefits being available to the individual.
The selected documents have assisted us in understanding various Exemptions and Deductions for the
various Income heads on the grounds of Old Regime. Also, the Ideal Salary Package that comprises of
various income heads has helped in enriching and widening overall conceptual understanding of the topic.
Furthermore, as graduates few of us will be working professionals in few months, this project has helped
face the documentations challenges that may arise in the near future.
A brief outline of the project and documents prepared/used is given below-

1. For the ideal salary package, we have imagined an individual working in Frozen Foods Limited,
which is India's leading cooked shrimp manufacturers and exporters. Mr. Rahul is assumed to be
a 33-year-old individual who works as a Sales manager at Frozen Foods Ltd. And has income
generation under various heads of income. The information is self-generated and its resemblance
with any sort of real-life scenario is a pure co-incidence.
2. The first ITR belongs to a middle-class family individual who is a director of a private family
business company and has income as director salary along with rental and capital gains. The
subject has agreed to share their income tax returns provided that we are not allowed to share their
company name / personal information / profile and company net worth. So, this detail is considered
hidden. He filled his ITR under the old regime and took advantage of the exemptions and
deductions available and we have also made an attempt to find ways where he can gather more
benefits while doing so.
3. The second ITR belongs to an upper middle-class family individual who is a government hospital
employee and has a salary income along with capital losses. He filled his ITR under old regime
and took advantages of deductions and exemptions available.

We have tried our best to ensure authenticity and originality in our work and each member has contributed
to the best of his/her ability.
Thankyou

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Part A - The Ideal Salary Package

Background of the Individual

Frozen Foods Limited is one of India's leading cooked shrimp manufacturers and exporters.
It is a fully coordinated relationship with part of the entire inventory network - shrimp
manufacturing and transportation.
Our Subject, Mr. Rahul is a 33-year-old imaginary individual, who works as a Sales
manager at Frozen Foods Ltd. and based on our understanding we have provided the
information for the fiscal year ended March 31, 2021.And have also drafted an ITR under
Old regime to understand Indian Tax structure in detail.
For Mr. Rahul we have assumed and considered the following information for the year
ended 31.03.2021: (All the values mentioned are in INR)

 Basic Salary 15,000 p.m.

 DA (50% of it is meant for retirement benefits) 12,000 p.m.
 Commission as a percentage of turnover of the Company 0.5 %
 Turnover of the Company 50 lacs
 Bonus 50,000
 Gratuity 30,000
 Own Contribution to R.P.F. 30,000
 Employer’s contribution to R.P.F. 20% of basic salary
 Interest credited in the R.P.F. account @ 15% p.a. 15,000
 Gold Ring worth ` 10,000 was given by employer on his 25th wedding
anniversary.
 Music System purchased on 01.04.2020 by the company for 85,000 and was
given to him for personal use.
 Two old light goods vehicles owned by him were leased to a transport
company against the fixed charges of 6,500 p.m. Books of account are not
maintained.
 Received interest of 5,860 on bank FDRs on 24.4.2020 and interest of 6,786
(Net) from the debentures of Indian Companies on 5.5.2020.
 Made payment by cheques of 15,370 towards premium on Life Insurance
policies and 22,500 for Mediclaim Insurance policy for self and spouse.
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  Invested in NSC ` 30,000 and in FDR of SBI for 5 years 50,000.
 Donations of 11,000 to an institution approved u/s 80G and of 5,100 to Prime
Minister’s National Relief Fund were given during the year by way of
cheque.
 . Rahul does not opt for section 115BAC and files tax under old regime.

With this set of information, the total income and the tax liability has been calculated
for Mr. Rahul for the A.Y. 2021-22

Drafted ITR under Old Regime

Computation of Total Income

For the A.Y. 2021-22
(Amount in INR)

Particulars Amount
Income from salaries
1,80,000
Basics salary (15,000*12)
Dearness allowance (12,000*12) 1,44,000

Commission on turnover (0.5%of 50lacs) 25,000

Bonus 50,000

Gratuity (see note 1) 30,000

Employer’s contributions to recognized provident fund

36,000
actual contribute (20%of 1,80,000)
33,240
Less: Exempt (see note 2)
2,760
Interest credited in recognized provident fund account
@ 15% p.a. 15,000
Less: Exempt up to 9.5% p.a. 9,500 5,500

Gift of gold ring worth 10,000 on 25th wedding

10,000
anniversary by employer (see note 3)
Perquisite value of music system given for personal
use (being10% of actual cost) i.e., 10% of 85,000
8,500
4,55,760
Less: standard deduction under section 16 (IA) 50,000
Profit and gains of business or profession 4,05,760

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Lease of 2 light good vehicles on contract basis against
fixed charge of 6,500 p.m. In this case, presumptive
tax provisions of section 44AE will apply i.e., 7,500
p.m. for each of the two light good vehicles
(7,500*2*12). He cannot claim lower profits and gains
1,80,000
since he has not maintained books of accounts.
Income from other source
Interest on bank FDRs
5,860
Interest from debenture (6786*100/90)
7,540 13,400
Gross Total Income 5,99,160
Less: Deductions under chapter VI-A
Section 80C
Premium on life insurance policy
Investment in NSC 15,370
FDR of SBI for 5 years 30,000
Employee’s contributions to recognized provident 50,000
fund 1,25,370
Section 80D- Mediclaim insurance 30,000 22,500
Section 80G- (see note 4) 10,600
Total income 4,40,690

Tax on total income

Income tax 9,535
Add: Rebate u/s 87A, since total income does not
exceed 5,00,000 9,535
Total Tax Payable Nil
Less: Tax deducted at source (7540-6786) 754
Net tax refundable 754

Tax refundable (rounded off) 750

Exemptions and Deduction - Already Claimed as Notes

1. Gratuity received during service is fully taxable as per Income tax Act.
2. Employer’s contribution in the recognized provident fund is exempt up to 12% of
salary i.e. –
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 =12% of (Basic salary+ DA retirement benefits+ commissions based on turnover)
= 12% of (1,80,000+ (50% of 1,44,000) + 25,000)
=12% of 2,77,000 = 33,240
3. An alternative view possible is that only the sum in excess of 5,000 is taxable such
gifts up to 5,000 in the aggregate per annum would be exempt, beyond which it
would be taxed as perquisite. As per view, the value of perquisite would be 5,000.
In such that case the income from salaries would be 4,00,760.
4. Deductions under section 80G is computed as under: (Amount in INR)

Particulars Amount
Denotations to PM national relief fund
(100%) 5,100
Donations to institution approved under
sections 80G (50% of 11,000) (Amount
contributed 11,000) (amount
contributed11,000 or 10% of adjusted gross
total income i.e., 45,129 whichever is 5,500
lower)
Total deductions 10,600

Adjusted Gross Total income = Gross Total income – Deductions under sections 80C and 80D=
5,99,160- 1,47,870 = 4,51,290

Why Old Regime over New Regime?

One of the biggest reasons for choosing Old Tax Regime while preparing this salary structure is to not let
go of the deductions and exemptions. As the individual’s net income is less than Rs. 5.00.000; the new
tax regime would not benefit him. In fact, choosing the new tax regime would have increased the
individual’s tax liability in this case

Challenges faced while drafting - Salary Package

1. Understanding ITR: We started with understanding how to file an ITR and it was a big challenge
since all of us have not ever filed one. So, first we took our parents help to understand the basic
terminology of a tax return.
2. Deciding other stream of income: After deciding on the basic salary, we were confused as to
what our other stream of income should be because more heads mean more income and more
exemptions/ deductions and complexities.
3. To study in depth the exemptions and deductions: The available deductions and exemptions
were to be understood very keenly in order to design the package because they come with a bar
and limits under which an individual can claim them

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 4. Tax Saving Avenues: Deciding on the type and number of deductions and exemption became a
challenge when we started brain storming on this because the percentage calculations were not
easy.

Opportunities
While designing this salary structure, we came across various sources that we could have added as an
income source for Mr. Rahul. However, we decided to go ahead with a non-conventional Income Source,
one that we had not heard of before, i.e., Income from Lease of Vehicles. In addition, we added other
sources as well such as Commission on turnover, Gift from an employer, Interest from Bank Investments,
etc. Designing a salary structure on our own gave us the autonomy and potential understanding of the
various heads of income, perquisites and deductions

Impact of other income

Mr. Rahul has various sources of income. Besides his Basic Salary, his other income includes:

 Commission on turnover: Rs. 25,000

 Gratuity: Rs. 30,000
 Interest from PPF: Rs. 15,000
 Gift of a gold ring: Rs. 10,000
 Lease of 2 light good vehicles: Rs. 1,80,000
 Interest on Bank FDRs: Rs. 5,860
 Interest from debentures: Rs. 7,540
Other than his Basic Salary + Bonus, he earns income from 7 other specific sources.

Conclusion
To conclude, with the help of this activity, we found the impact of Other Income on Basic Salary and we
could understand the importance of taking various deductions and exemptions as various tax saving
avenues. Calculating Income Tax based on both Old Tax Regime and New Tax Regime gave us
perspective on how either of these tax regimes could be beneficial to different individuals, based on their
personal salary structure. Therefore, it is important to take into account both these regimes, and choose
whichever suits the individual better.

Part B – ITR Analysis of Two Individuals

ITR 1
Individual’s Background Info
The subject of study belongs to a middle-class family, aged 43 years, and is a director of a private family-
based company. The ITR is for Assessment year 2020-21. He gets a director salary of Rs. 120,000
annually.
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 He has ownership rights of one self-occupied property and is also an owner of two let out property that
have generated a rental income of Rs. 420,000 together over the year to be assessed. He has a housing
loan on the two self-occupied properties worth 45,00,000 for construction work.
He also has a small farm house on the outskirts of the city that he utilizes for residential purposes and
sometimes his family visit and stays there. The subject has sold the farm house during the year and has
earned a gain of Rs. 1,12,446.
The business has earned a profit of Rs. 89825 after sale of insecticides and pesticides.
The amount that was received from the sale of farmhouse was endorsed to a lender at an interest and has
resulted in interest income of Rs. 2,34,729 and the subject also has savings account on which the interest
is Rs. 1908 generated. So, in total the interest income amounted to be Rs. 236,637.
The subject also has a capital loss of Rs. 234790. He has also invested Rs. 2,00,000 in LIC and has a health
insurance of Rs.5,00,000.
Although, he is not a farmer, he also has agricultural income Rs.1,70,000 as he produces few crops and
sells them in market.
He filed his ITR under old regime and has taken the exemptions and deductions available under this

Benefits as per Old Regime: Exemptions & Deductions- Claimed

The subject has filed Income Tax Return under old regime and the benefits that he claimed are as follows-
1. Under income from salary for Rs.1,20,000 he is eligible to a standard deduction of 50,000 which
brings the income from salary down to Rs. 70,000.

2. Under income from house property for Rs.4,20,000 he is eligible to get a 30% of standard
deductions as considered maintenance cost of worth Rs.1,26,000 which brings down the income
from house property for Rs.2,94,000.

3. Under Income from business or profession the amount will be same as Rs.89,925

4. Under Income from capital gain amount will be 1,12,446 and since the subject has a capital loss
of 2,34,790 that would be adjusted against the capital gain and the left amount of Rs. 1,22,344
will be carry forward as capital loss.

5. Under Income from other sources for Rs.2,36,637 the amount Rs. 1908 will be deducted and
not computed under tax liability calculation as under section 80 TTA any individual/ HUFs can
claim a deduction up to 10,000 under old regime.

6. Under the Deductions mentioned under Chapter VI section 80C- the subject has claimed a
deduction of Rs. 1,50,000 as he has invested in Life Insurance Premium.

7. Under the Deductions mentioned under Chapter VI section 80D- the subject has claimed an
income tax benefit for Rs. 25,000 as he has invested into medical insurance also
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Exemption & Deductions – Suggested under old regime
The subject can claim a deduction of up to 2 lakhs on their home loan interest as they have used the loan
for construction purposes which will make the taxable income drop by Rs. 2,00,000 and the taxable income
will be Rs. 3,38,550 which will bring him under the slab of 5% tax and ultimately result in total rebate of
tax and hence, he would be in a better off situation then he is in present. However, it must be ensured that
loan must be taken post 1 April, 1999 and construction must be completed within 5 years from the end of
the financial year in which the loan was taken

Why old Regime over new regime

Personally, new regime is not advisable for the subject since foremost he will have to forego the standard
deduction of Rs. 50,000 and he will also have to forego Rs. 1,50,000 deductions under 80C. Along with
this interest will be charged on self- occupied property of Rs. 2,00,000 and increasing the taxable income.
Although, it will give a lower slab rate but still it will increase the taxable income and it’s not a viable
option as compared to Old regime.

ITR 2
Individual’s Background Info
The subject of study belongs to an upper middle-class family, aged 64 years and is an employee in a
government hospital. The ITR is for Assessment year 2020-21. He gets a doctor salary and salary from
dispensary amounting to be Rs. 578850 and Rs. 616864 respectively making a total of Rs. 1195714
annually.
He also gets a uniform allowance for Rs. 16200.
The subject has also invested in shares and have sold them during the Year under assessment for Rs. 89762
which were purchased for Rs. 97975 that generated a short-term capital loss of Rs. 8213.
The subject has a long-term capital loss of 20149 that happened in the year of 2019-20 as the transactions
made in stock market generated loss.
He has a saving account and has generated an interest of Rs. 20,823 and has also deposited amount in
bank fixed deposits and yielded an interest of Rs. 72918.
He has invested in LIC amount worth Rs. 260428. He has also invested in pension scheme of central
government Rs. 100000 and has also invested Rs. 50,000 in the New pension fund scheme of government.
He has made donations to a charity fund amounting to be Rs. 101000 which are entitled a 50% deduction.
He filed his ITR under old regime and has taken the exemptions and deductions available under this.

Benefits as per Old Regime: Exemptions & Deductions- Claimed

The subject has filed Income Tax Return under old regime and the benefits that he claimed are as follows-

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 1. Under income from salary for Rs.1195714 he claimed a deduction of Rs. 16200 under section
10 of income tax act pertaining to the uniform allowance. He is also eligible to a standard
deduction of 50,000 which brings the income from salary down to Rs 1129514.

2. The short-term capital loss has been calculated as a difference of acquisition of shares cost-
consideration received. (97975-89762 = -8213) Along with this there is also a long-term loss
that amounted to be Rs. 20149. Making a total of Rs. 28362.
3. The subject claimed deductions under chapter VI of income tax act amounting to be Rs.
260500.
a. Rs. 10,000 deduction on interest of savings account.
b. He donated 101000 in the charity fund which were entitle 50% deductions, so Rs. 50500 will
be deducted.
c. Rs 1,00,000 in LIC would be deducted
d. As per section 80CCD(1) and 80CCD(1B) a total of 100000 would be deducted from the
computed income to give benefits to the subject as he invested 50,000 in national pension
scheme and 50,000 in the central funds.

Exemption & Deductions – Suggested under old regime

The subject can use Indexation to increase the purchase value thereby increasing the loss incurred in the
current year. This can help in reducing the profits for the next year as it has to be adjusted/ set off against
capital gains.
One important point of concern here is the investment habits of the individual. If he decides to divert
money investments from fixed deposits in bank to the debt funds and mutual funds, he may not only get
a deduction of Rs. 150000 but can also get the interest at par and also higher in some cases. And the debt
funds are less risky also. And if he thinks that his money is safe only in banks then he can invest in tax
saving schemes promoting fixed deposits with banks like kotak Mahindra.

Why old Regime over new regime

In this case, as of now under the old regime the tax liability comes under the slab of 30% on
approximate 10.5 lakhs and if we calculate the taxable income under the new regime, it would also come
under the slab of 25% as the total income would be greater than 12.5 lakhs when calculated under new
regime.
So as of now the new regime is not benefitable for the subject, but if the salary income increases or the
total income increases owing to any circumstances, say they reach 1600000 then in that case the subject
can apply under new regime. Because in that case above 15lakh would be straight away 30% slab and in
the old regime it will also be a 30%, but in old regime it will be 30% for any amount above 10lkhs. So, it
will be less in new regime.

Conclusion to the Report

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A general statement that could be made based on the study is that every individual attempt to find ways
to invade tax, avoid tax, manage tax and also plans tax well in advance. Especially for the salaried family,
income tax exemptions have a variety of ways to save money on taxes. Through the assistance of these
credits and allowances, a person's tax liability will be significantly reduced.
The significant deductions and benefits applicable to salaried individuals in order to limit their income tax
burden in this report are-
Exemption of Allowances Allowable Deductions
House Rent Allowance Section 80C, 80CCC and 80CCD (1)
Medical Expenditure and Insurance Premium (Section
Standard Deduction 80D)
Leave Travel Allowance (LTA) Interest on Home Loan (Section 80C and Section 24)
Deduction for Loan for Higher Studies (Section 80E)
Mobile reimbursement
Donations (Section 80G)
Books and Periodicals
Deduction on Savings Account Interest (Section 80TTA)
Food coupons Interest on Home Loan (Section 80EE)
Relocation allowance

Children allowance
Just like a coin has two sides, both the regimes have their own pros and cons. While the old regime has
many exemptions and deductions under numerous sections, the new regime gives more flexibility and is
a comparatively simple process. Considering the subject claims a lot of deductions under the old regime,
he should stick to it and save better as per the calculations. Along with this a comparison could be drawn
between the new and the old regime highlight the drastic contrast between the two.
Table showing whom does the old/new regime benefit.
Old regime New Regime
Better for high- income earners who make high Benefit middle class tax payers with income up to
investments and have many deductions. 1500000 without much deductions.
Good for people with investment in life insurance Good for people who make low investments in tax
like subject of ITR 1, Mediclaim, house on loan – saving schemes.
give higher tax deductions and lower tax outgo

In light of the above and considering the new income tax regime, if taxpayers want to opt for the
concessional tax rates, they may evaluate both regimes. Hence, it is advisable to do a comparative
evaluation and analysis under both regimes and then choose the most beneficial one as it may vary from
person to person.

Bibliography
Professor’s study notes and family guidance.

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Annexures.
ITR 1

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ITR 2

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