Case Study for Section

80c
Let’s study some examples for how
to invest on the section 80c.
Mr.Ashok is working for a software
company in Bangalore and his salary is
Rs.750000 per year. He is planning to
avail the maximum tax benefits for his
earnings and he is not much aware of
the income tax rules and various
sections. Think Plan Invest will suggest
him ths suitable investment plans for
Ashok.
Solution
The plans may vary for different
persons depends on the financial
status of a person and income.
Before start, learn about the tax
slab for the male candidate as per
income tax law
Income tax slabs under the new tax regime for all individuals for FY 2020-
21 (AY 2021-22)

Income Tax Slab Tax Rate

Rs 5 lakh to Rs 7.5
10%
lakh
Rs 7.5 lakh to Rs 10
15%
lakh
Rs 10 lakh to Rs 12.5
20%
lakh
Rs 12.5 lakh to Rs 15
25%
lakh
 He falls under the first option of paying
10% tax for his Rs.750000 taxable
income. If he opt for no tax planning,
will end up paying Rs.75000 (750000 *
(10/100)) for entire year.
Many people not understanding the tax
savings properly. That is the main
reason why they are not very successful
in saving the tax money. Every person
is liable to pay tax for their income.
Normally the amount you have to pay
tax is called taxable income. If the
taxable income is more, the tax will be
more. Income tax act provides certain
exemptions where you can reduce the
taxable income by implementing those
exemption strategies.
For example, suppose if you are
investing Rs.100000 on Life insurance
premium every year, then Rs.100000
will be deducted from your taxable
income and pay the tax for remaining
amount. In our case, Ashok will have to
pay the tax for Rs.650000(750000-
100000) which is Rs. 65000. He saves
Rs.10000 from the tax. When the
income increase the tax liability also
will increase.
HISTORY OF INCOME TAX IN INDIA
Income – tax Act of 1961:
On the basis of the recommendations
made by the various committees, a
new Act of Income-tax had been
passed during the year 1961 termed as
the “Income - Tax Act, 1961”. This
Act came into force from 1st April,
1962. This Act contains more than
400 sections and a number of sub-
sections and 10 schedules. The Income
– Tax department framed 121 rules
for the effective application of this
Act. These rules are termed as
“Income - Tax Rules of 1962”. It also
includes a number of sub - rules.
INCOME TAX LAW AND SCHEME OF
TAXATION
The study of income tax law in India will include following: -

 The Income Tax Act, 1961 – with latest amendments

 The Income Tax Rules, 1962 - with latest amendments
 Circulars, notifications and other clarifications issued by Central Board of
Direct Taxes (CBDT)
 Judicial decisions
The income tax law and the rules there under are being amended annually
and sometimes even more frequently due to the exigencies of governance of
this country. Sometimes the Government is not sure of its own actions and
thus they have to amend the laws from time to time. In any case the taxation
laws of India have become very complicated and one needs to devote a
lifetime to become well conversant with the provisions of the laws.
Union Budget and Finance Bill: This is an
annual feature. The Union Finance Minister
presents the Union Budget (proposals for revenue
and expenditure of the GOI and the tax proposals)
including the Finance Bill on each 28th February
for the next year commencing on April 01. The
finance bill makes various changes in the existing
tax laws (Income-tax, Wealth tax, Service tax,
Central Excise and Customs Duty) for raising
additional revenues from taxation in order to meet
the ever increasing expenditure (both
developmental as well as non-developmental) of
the Government of India and for financing various
subsidies given to States of the Union and other
sectors. It is to be noted that a major part of the
revenue of the GOI is spent on its own employees.
 DEFINITION OF TAX

 A Tax is a compulsory levy payable by an

economic unit to the government without
any corresponding entitlement to receive a
definite and direct quid pro quo from the
government.
Inorder to be a tax, the absence of a quid pro
quo is a must.
A tax has no connection with the benefit received by the tax payer
Canons / Principles of Taxation
 Canon of Equality
 Canon of Certainity
 Canon of Convenience
 Canon of Economy
 Canon of Productivity
 Canon of Buoyancy
 Canon of Flexibility
 Canon of Simplicity
 Canon of Diversity
 Tax

Direct Tax Indirect Tax

Income Tax Excise Duty

Wealth Tax Customs Duty
Service Tax
Sales Tax / STVAT

Income Tax Expenditure Tax

Taxation is levied at various levels
 Union Government or Govt of India
(Income Tax, Wealth Tax, Central Excise Duty, Customs
Duty, Service tax on various specified services)
 State Governments (VAT or Sales Tax, State
Excise Duty)
 Local Governments (House Tax, Water Tax,
Octroi etc)
Concepts of TAX PLANNING
Three Methods commonly used to avoid
Taxes:

 TAX EVASION
 TAX AVOIDANCE
 TAX PLANNING
TAX PLANNING & TAX MANAGEMENT

TAX PLANNING is OPTIONAL

BUT

TAX MANAGEMENT is MANDATORY

Objectives of TAX PLANNING
 Reduction of Tax Liability
 Minimisation of Litigation
 Productive Investment
 Healthy Growth of Economy
 Economic Stability
 Scheme of taxation
Every person, whose total income of the previous year
exceeds the maximum amount which is not chargeable to
income-tax, is an assessee and chargeable to income-tax at
the rate or rates prescribed in the Finance Act for the
relevant assessment year. However, his total income shall
be determined as per his residential status in India.
Income Tax is levied in India in
the following manner:
 Income earned by every person is chargeable to income tax provided it exceeds the
maximum amount which is not chargeable to tax.
 It is chargeable on the total income of the previous year but it is taxable in the next
following assessment year at the rates applicable to such assessment year.
 Income Tax is charged at two rates ie Normal Rates in the form of slab rates fixed by
the annual Finance Act & Special Rates are given in the Income Tax Act.
 Tax is charged on the total income computed in accordance with the provisions of the
Act.
 Total income of a person is determined on the basis of the Residential Staus in India.
 Although the income of the previous year is chargeable to tax in the asssessment year
but the assessee pay the tax in the same previous year in which income is earned.It is
paid in the form of advance tax and deduction of tax at source (TDS)
An analysis of the above statement reveals following
important concepts: -

Person;
Assessee;
Assessment year;
Previous year;
Rate or rates of tax;
Charge of income-tax;
Maximum amount which is not chargeable to income-tax;
Total income;
Residential status.
Explanation of above said concepts:

 Person: includes (i) an Individual, (ii) a Hindu Undivided

Family, (iii) a Company,
 (iv) a Firm (partnership firm), (v) an Association of Persons
(AOP) or a Body of Individuals (BOI) whether incorporated
or not, (vi) a Local Authority, and (vii) Every artificial
juridical person not falling within any of the preceding sub-
clauses.
 Assessee: means a person by whom any tax or any other sum
of money (say interest or penalty) is payable under the
Income-tax Act and includes a person in respect of whom any
proceedings under the Income-tax Act has been taken for the
assessment of his income or the income of any other person
in respect of which he is assessable, or to determine the loss
sustained by him or by such other person, or to determine the
amount of refund due to him or such other person.
 Charge of Income-tax:
 No tax can be levied or collected in India except under the
authority of law. Section 4 of the Income-tax Act, gives such
authority for charging of income-tax. Where any Central Act
(Act passed by the Parliament of India) enacts that income-
tax shall be charged for any assessment year at any rate or
rates, income-tax at that rate or rates shall be charged for that
year in accordance with this Act in respect of the total income
of the previous year of every person. It has been earlier
explained that the Union Government presents a Finance Bill
every year along with the budget in the Parliament on each
28th February. This Finance Bill when passed by both the
houses of the Parliament becomes the Finance Act of that
year and on receiving the accent of the President of India
becomes the law. The charge of income-tax is under the
authority of the Income-tax Act. However, the rate or rates of
tax are prescribed by the Finance Act.
In case a Finance Bill of a particular
year is not passed, the Finance Act of
the immediate previous year will
continue to remain in force until the
new Finance Act comes into force.
Thus there will be no holiday from
income-tax in any year. There is a
detailed discussion given in the text
book regarding other charges like
penalties, interest etc which can not be
termed as tax.
 Total income: The concept of total income covers all
types of income of a person resident in India whether the
income has been earned inside India or outside India.
Income earned outside India but not remitted to India is
also considered as a part of total income. In fact, most
countries in the world tax the total world income of their
residents. Income earned by any person resident in India,
anywhere in the world, will be taxable.
 For the purpose of the Income-tax Act, the following is
important: -
 Definition of Income
 Concept of Income
 Gross Total Income
 Deductions permissible from Gross Total Income
RESIDENTIAL STATUS
 RESIDENTIAL STATUS (SECTION – 6)

Residential Status
Resident Non-Resident

Ordinarily Resident Not- ordinarily Resident

 In case of Individuals/H.U.F

 RESIDENT

1.Resident but Ordinarily Resident

2.Resident but Not Ordinarily Resident

 NON-RESIDENT
Residential Status of Firm,AOP,BOI
Companies and any other persons
 RESIDENT

 NON-RESIDENT
 Basic rules for determining the residential
status of an assessee

 Residential status is determining for each category of persons separately.

 Residential status is always determinate for the previous year because we have
to determine the total income of the previous year only.
 Residential status of a person is to be determined for previous year because it
may change from year to year.
 If a person is resident in a previous year relevant to an assessment year in
respect of any source of income, he shall be deemed to be resident in India in the
previous year relevant to the assessement year in respect to each of his other source
of income.
 A person may be a resident of more than one country for any previous year.
 Citizenship of a country and residential status of that country are separate
concepts.
It is the duty of the assessee to place all material facts before the assessing officer to
enable him to determine his correct residential status.
 Important Explanation:
Relevent previous year means the previous year for which the
residential status is being determined.
In computing the period of stay in India,it is not necessary that the
stay should be for a continous periods.
It is not necessary that the stay should be only one place.
In computing the period of 182 days,the day he enters India and the
day he leaves India should both be treated as stay in India.
 In a question where hour of entry and departure is not given,we
should take both day of entry and day of departure as stay in India.
Place and purpose of stay in India is immaterial.
The individual is treated as being in India if he is at any place within
the territorial waters of India
 1 .Individuals
If an individual who satisfies
understated both the conditions of section 6
of the Income-tax Act, then he becomes a
non-resident.

Condition Status

1. He is not in India for 182 days or more during

the relevant previous year. If yes, then he is a
non-resident. (so check the next condition.)

2. He is not in India for 60 days or more during the

previous year and he is not in India for 365
days or more during the 4 years prior to the
previous year. If yes, then he is a non-
resident.
If you are not satisfying any of the
above conditions to become non-
resident, check whether following
assists you to become a non-resident.
In the case of an individual on visit to
India or a member of the crew of an
Indian ship or a person leaving India
for employment outside India, the
requirement of stay in India of 60 days
in condition 2 above is extended to
182 days.
RULE OF RESIDENCE FOR AN INDIVIDUAL
Basic Conditions Additional Conditions

1. Presence of at least 182 days in India during 1. Resident in India in at least 2 out of
the previous year. 10 years immediately preceding the
OR relevant previous year.
2. Presence of at least 60 days in India during the AND
previous year and 365 days during 4 years. 2. Presence of at least 730 days in India during
7 years immediately preceding the relevant
previous year.
Exception of Basic Condition No.- 2 (i.e. not applicable)
 In case of an Indian citizen who leaves India during the previous year for the purpose of employment (or as a member of the
crew of an Indian ship)
 In case of an Indian citizen or a person of Indian origin (who is abroad) who comes on a visit to India during the previous year

Resident and ordinarily resident



At least one basic conditions and both of the additional conditions.

 Resident but not ordinarily resident

At least one basic conditions and one or none of the addl. conditions.
 Non-resident

None of the basic conditions.

2. Hindu Undivided Family
As per section 6(2), a
Hindu undivided family (like an
individual) is either resident in India or
non-resident in India. A resident Hindu
undivided family is either ordinarily
resident or not ordinarily resident.
A Hindu undivided family is
said to be resident in India if control
and management of its affairs is
wholly or partly situated in India.
A Hindu undivided family is non-
resident in India if control and
management of its affairs is wholly
situated outside India.
 Once the HUF is a resident in India, it is
to be further determined whether it is:
1. resident and ordinarily resident of India;
or
2. resident but not ordinarily resident in
India.
When is HUF said to be a resident
and ordinarily resident in India?
 The HUF shall be said to be resident and
ordinarily resident in India if the karta of the
HUF satisfies both the following conditions:
1.He(karta) must be resident in at least 2 out of 10
previous years immediately preceding the
relevant previous year;
And
2.He must be in India for at least 730 days during 7
previous years immediately preceding the
relevant previous year.
When is HUF said to be a resident
but not ordinarily resident in
India?
 A HUF is said to be resident in India, is said to be
resident but not ordinarily resident in India during the
relevant previous year, if the manager (karta) of the HUF
does not satisfy any one, or both, of the conditions
mentioned in clause (a) and (b) above or in other words,
the karta satisfies any of the following two conditions:
1.He has been a non-resident in India in 9 out of 10 previous
year immediately preceding the relevant previous year,
OR
2.He has been in India for a period of 729 days or less in 7
previous year immediately preceding the relevant
previous year.
 3. Firms, Association Of Persons
As per section 6(2), a
partnership firm and an association of
persons are said to be resident in India
if control and management of their
affairs are wholly or partly situated
within India during the relevant
previous year.
They are, however, treated as non-
resident in India if control and
management of their affairs are
situated wholly outside India.
In the case of a firm, the control and
management is in the hands of the
partners and therefore, if the partners
generally meet in India regarding the
affairs of the firm, then the firm is said
to be resident in India
4. Companies

As per section 6(3), an

Indian company is always
resident in India. A foreign
company is resident in India
only if, during the previous year,
control and management of its
affairs is situated wholly in
India. However, a foreign
company is treated as non-
resident if, during the previous
year, control and management of
its affairs is either wholly or
partly situated out of India.
When is a company is said to be resident
in India? A Company is said to be a
resident In India in any previous
year if;
 It is an Indian company, or
 During the relevant previous year, the
control and management of its affairs is
situated wholly in India.
When is a company said to be Non-resident in
India? A Company will be a non-resident
in any previous year if;
 It is not an Indian company; and
 The control and management of its affairs
is situated wholly or partially outside
India.
Scope of Total Income &
Residential Status
Definition of Total Income
Total Income means the total amount of Income
referred to in section 5 , computed in the manner
laid down in the Income-tax Act. Total income is
computed under five heads of income, income
computed under each head is thereafter
aggregated and the aggregate amount is known as
Gross Total Income.
Scope of Total Income/Incidence
of tax [Section 5]
 In case of Resident in India
(resident and ordinarily resident
in case of individual or HUF)
[Section 5(1)]:
 The following incomes from whatever source
derived form part of Total Income in case of
resident in India/ordinarily resident in India:
1. any income which is received or is deemed to
be received in India in the relevant previous
year by or on behalf of such person;
2. any income which accrues or arises or is
deemed to accrue or arise in India during the
relevant previous year;
3. any income which accrues or arises outside
India during the relevant previous year.
 In case of a Resident but not
Ordinarily Resident in
India(in case of individual or
HUF only) [Section 5(1) and
its proviso]:
 The following incomes from whatever source
derived form part of Total Income in case of
resident but not ordinarily resident in India:
1. any income which is received or is deemed to be
received in India in the relevant previous year by
or on behalf of such person;
2. any income which accrues or arises or is deemed
to accrue or arise to him during the relevant
previous year;
3. any income which accrues or arises to him
outside India during the relevant previous year if
it is derived from a business controlled in or a
profession set up in India.
 In the case of Non-Resident
[Section 5(2)]:
 The following incomes from whatever source
derived form part of Total Income in case of
Non-Resident in India:
1. any income which is received or is deemed to be
received in India during the relevant previous
year by or on behalf of such person;
2. any income which accrues or arises or is deemed
to accrue or arise to him in India during the
relevant previous year;
INCIDENCE OF TAX FOR INDIVIDUAL

Whether Taxable

Resident & Resident but not Non-resident in

ordinarily resident ordinarily India
in India resident in India

Income received or deemed to be YES YES YES

received in India whether earned
in India or elsewhere
Income which accrues or arises or YES YES YES
is deemed to accrue or arise in
India during previous year
whether received in India or
elsewhere
Income which accrues or arises outside YES YES NO
India and received outside India from a
business controlled from India
Income which accrues or arises outside YES NO NO
India and received outside India in the
previous year from any other source
INCIDENCE OF TAX FOR INDIVIDUAL

Resident & Resident but not Non-resident in

ordinarily resident ordinarily India
in India resident in India

 Indian income   
 Foreign income

- If it is business income and business is   

controlled wholly or partly from India.

-If it is income from profession which is set   

up in India.

-Ifit is business income and business is   

control from outside India

- Any other foreign income (like salary, rent,   

interest, etc.)
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.
 EXAMPLE 1
Sh Agarwal earns the following incomes during AY 2013-14
 Received in India but accrued in Bangladesh Rs 5,000
 Earned in India but received in SriLanka Rs 10,000
 Earned & Received in Japan (from business controlled from India)
Rs 8,000
 Income from House Property in Pakistan & deposited there Rs 2,000
 Earned in England Rs 6,000 but out of which Rs 4,000 brought in
India
Compute his income for the assessment year 2013-14 if he is:
 Resident and Ordinarily resident in India
 Not Ordinarily Resident in India
 Non Resident in India
 EXAMPLE 2
X earns the following income during the financial year 2019-
20
 Interest from an Indian Company received in London
 Pension from former employer in India received in USA
 Profits earned from a business in Paris which is controlled
in India, half of the profits being received in India
 Income from agriculture in Bhutan and remitted to India
 Income from property in England received there
 Past foreign income brought to India
Compute his income for the assessment year 2020-21 if he is:
 Resident and Ordinarily resident in India
 Not Ordinarily Resident in India
 Non Resident in India
INCOME EXEMPT FROM
TAX (SECTION – 10)
Incomes Which Do Not Form Part Of
Total Income (Sections 10, 10 A, 10 B,
and 11 to 13 A)
 Income not included in total income of any
person [section 10]
 Income of newly established industrial
undertaking in FTZ, etc. [section 10A]
 Income of newly established units in SEZ
[section 10AA]
 Income of newly established 100% export
oriented undertaking [section10B]
 Profits and gains derived by an undertaking
from the export of eligible article or things
[section 10BA]
 Income from property held for charitable or
religious purposes [section 11-13]
 Income of political parties [section 13A]
 10(1) Agricultural income
 10(2) Sum received by a member from HUF
 10(2A) Share of profit of a partner from firm
 10(4) Interest on securities or bonds held by a
non-resident/interest on non-resident
(external) account
 10(4B) Interest on savings certificates of non-
resident Indian citizen, etc.
 10(5) Travel concession or assistance
received by an individual from his employer
 10(6) Remuneration to certain persons who
are not citizens of India
 10(6A) Tax payable on royalty or fees for
technical service on behalf of foreign
company
 10(6B) Tax payable on certain income of
and on behalf of a non-resident or a foreign
company.
 10(6BB) Tax payable on income from
leasing of aircraft, etc.
 10(6C) Income of foreign companies
providing technical services in projects
connected with security of India.
 10(7) Allowances or perquisites outside
India.
 10(8) Remuneration under Co-operative
technical assistance programmes.
 10(8A) Remuneration or fee received by
non-resident
 10(8B)and 10(9) ‘consultants', their
employees, and their family members
 10(10) Death-cum-retirement gratuity
received by an employee
 10(10A) Payment in commutation of
pension received by the employees
 10(10AA) Leave Encashment
 10(10B) Compensation on retrenchment
 10(10BB) Payments under Bhopal gas leak
disaster (processing of claims) act, 1985
 10(10BC) Compensation received or
receivable on account of any disaster.
 10(10C) Amount received on voluntary
retirement
 10(10CC) Tax on non-monetary perquisites
paid by employer
 10(10D) Amount received under a life
insurance policy
 10(11) Provident fund
 10(12) Payments from recognized provident
fund
 10(13) Any payment from an approved super
annuation fund
 10(13A) House rent allowance
 10(14) Notified special allowance
 10(15) Interest, premium or bonus on
specified investments
 10(15A) Lease rent for leasing of an aircraft
 10(16) Scholarships granted to meet the
cost of education
 10(17) Daily and constituency allowance,
etc. received by MPs and MLAs
 10(17A) Award or reward
 10(18) Pension received by certain
awardees/any member of their families
 10(19) Family pension received by the family
members of armed forces personnel killed in
action
 10(19A) Annual value of one place of the ex-
ruler
 10(20) Income of a local authority
 10(21) Income of an approved scientific
research association
 10(22B) Income of specified news agency
 10(23A) Income of professional
association/institution
 10(23AA) Income of armed forces fund
 10(23AAA) Income of fund established for
welfare of employee and their dependents
 10(AAB) Income of a fund set-up by life
insurance corporation of India
 10(23B) Income of society or trust existing
for development of khadi or village
industries board etc.
 10(23BB) Income of an authority known as
khadi and village industries board, etc.
 10(23BBA) Income of any body or
authority established under any act for
administration of charity, endowment etc.
 10(23BBB) Income of European economic
community (EEC)
 10(23BBC) Income of SAARC fund.
 HEADS OF INCOME

1. Income under Head Salaries

2. Income from House Property
3. Income from Profits and Gains of
Business or Profession
4. Income from Capital Gains
5. Income from other Sources