project report on taxation

7/29/2019 Project Report on taxation

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INTRODUCTION

Abstract

Need for Study

Objectives

Scope & Limitations


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Abstract

Income Tax Act, 1961 governs the taxation of incomes generated within India and o

incomes generated by Indians overseas. This study aims at presenting a lucid yet simpl

understanding of taxation structure of an individuals income in India for the assessment yea

2013-14.

Income Tax Act, 1961 is the guiding baseline for all the content in this report and the ta

saving tips provided herein are a result of analysis of options available in current marke

Every individual should know that tax planning in order to avail all the incentives provide

by the Government of India under different statures is legal.

This project covers the basics of the Income Tax Act, 1961 as amended by the Finance Ac

2007 and broadly presents the nuances of prudent tax planning and tax saving option

provided under these laws. Any other hideous means to avoid or evade tax is a cognizabl

offence under the Indian constitution and all the citizens should refrain from such acts.


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Need for Study

In last some years of my career and education, I have seen my colleagues and facultie

grappling with the taxation issue and complaining against the tax deducted by the

employers from monthly remuneration. Not equipped with proper knowledge of taxation an

tax saving avenues available to them, they were at mercy of the HR/Admin department

which never bothered to do even as little as take advise from some good tax consultant.

This prodded me to study this aspect leading to this project during my MBA course with th

university, hoping this concise yet comprehensive write up will help this salaried individua

assesse class to save whatever extra rupee they can from their hard-earned monies.


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Objectives

To study taxation provisions of The Income Tax Act, 1961 as amended by Finance Act,

2007.

To explore and simplify the tax planning procedure from a laymans perspective.

To present the tax saving avenues under prevailing statures.


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Scope & Limitations

This project studies the tax planning for individuals assessed to Income Tax.

The study relates to non-specific and generalized tax planning, eliminating the need of

sample/population analysis.

Basic methodology implemented in this study is subjected to various pros & cons, and

diverse insurance plans at different income levels of individual assesses.

This study may include comparative and analytical study of more than one tax saving

plans and instruments.

This study covers individual income tax assesses only and does not hold good for

corporate taxpayers.

The tax rates, insurance plans, and premium are all subject to AY 2013-14 only.


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COMPANY PROFILE

IFIANS Corporate Service Pvt . Ltd. team is a professional firm since 1997,

offering services and has been synthesizing the learning from a vast experience-

base and converting that into advantage for its clients.

With a watchword of commitment, we provide all sort of services related to

Accounting, Auditing, Taxation, Business process outsource, Income Tax,

Financial services, Company law matters, Fringe Benefit Tax, Wealth Creation,

Real Estate Matter for Residents & NRI's etc. thereby freeing up valuable time of

yours to apply in running your business.

The sphere of our service network includes Corporate Houses, Banks, Co-Op

Societies, Public Sector Undertakings, NGO, NRI's and individuals. We are

committed to provide tailor made services to the individual needs of each client.

Our aim is to provide a professional service to our clients at a reasonable cost

using state of the art technology.

Our team offers a formidable range of expertise and experience. Everything

from business accounting and taxation to business start-ups and corporate

finance. We keep a close eye on all the essentials for you and offer proactive

advice on how you can improve your personal, family, or business finances.

We have experienced, professionally focused team of finance professionals

supported by senior Chartered Accountants, Advocates, Company Secretary,

Attorney's who are dedicated to provide efficient services in a consistent manner.


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We provide foll owing income tax services for Resident I ndians:

Filling of Income return for Individuals, HUF, Firms, Trust, Co-Op. Soc.,

Private Limited & Limited Companies (including MNCs).

Income tax returns for Landlords, Rental income, Professionals ,Doctors,

Architects.

Electrical & Engg. Contractors.

Rectification, Revision or Appeal of Income tax orders.

To follow up for income tax refunds.

To get the clearance certificate for going abroad.

Payments on which income tax deduction at source required.

Annual return for TDS in electronic form ( eTDS ).

Registration of trust for charitable purposes.

Advance tax computation.

Obtaining advance Ruling.

Tax planning, Specific advice on taxation & Consultancy in TDS matters.

Other Compliances as per Income Tax Act.


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Management Team

Our clients

At ifians, we specialize in Financial Accounting, Service tax, Income tax and

Investment Advisory Services. Few of our premier clients are:

Elements

M/s Lisa Home Solutions Pvt. Ltd. (www.lisahomesolutions.com)

ASC Computers TXIS (Technology Xpress Info Systems) Pvt. Ltd.

Jain Excellency Services

M/s Ashwamegh Travels

Virtual HR Services

Lily Chilly

We also expertise in f i l ing salary returns and investment consul tation. We are

providing services to more than 3000 customers across Pune Mumbai,

Hyderabad and Bangalore. Our cl ients work with vari ous organizations as:

Director Mr.Praveen Nagpal

Associate Director Mrs.Puneet Nagpal

Hr ManagerMiss. Anuja DudhaneMiss. Apurva Khote

No. of Senior Employees 8 nos.

No. of Junior Employees 6 nos.

Office Helping Staff 4 nos.


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Tech Mahindra Ltd

Infosys Technologies Ltd.

Avaya India Pvt Ltd

Amdocs development Centre India Pvt. Ltd

Cognizant Technology Solutions India Ltd

Wipro Technologies

Accenture India Pvt. Ltd.

IBM India Pvt ltd.

Oracle Financial Solutions India Ltd.

Tata Consultancy services (TCS) ltd.

System Plus India Pvt. Ltd.

BMC Software Ltd.

Persistent Systems India Ltd.]

SunGard India Pvt Ltd.

Pimpari Chinchwad Municipal Corporation

GKN Sinter Metals Ltd.

V-Life Sciences India Pvt Ltd.

EDS India Pvt Ltd.

Benninger India Pvt. Ltd

Websym technologies Pvt. Ltd

Foseco India Pvt. Ltd

Symantec India Pvt. Ltd.

John Deere India

Cap Gemini

Mahindra Satyam


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INTRODUCTION OF INCOME TAX

Income tax in India is levied by the Government of India on taxable income of

individuals, companies, Hindu Undivided Families (HUFs), co-operative

societies, firms, and trusts (recognized as association of persons and body of

individuals) and any other artificial person. Imposition of tax is different for

every individual. Income tax imposition is regulated by the Indian Income Tax

Act, 1961. The Central Board of Direct Taxes (CBDT) has the overall

responsibility of regulating the Income Tax Department in India. It is a division

of the Department of Revenue under the Ministry of Finance, Government of

India. Income tax is a tax payable, at the rate enacted by the Union Budget

(Finance Act) for every Assessment Year, on the Total Income earned in the

Previous Year by every Person.


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MEANING AND DEFINITION

In Income Tax in India are divided in to two types they are:

1. Direct Taxes

2. Indirect Taxes.

Income Tax, Wealth Tax, etc., where the entire burden falls in the taxpayer

directly is called as Direct Taxes, whereas like Service Tax, VAT, etc., are

called as indirect taxes as these will be passed on through a third party.

Income tax can be defined as all sources of income other than agricultural

income which Central Government collects levies on that and shares the same

with the states.

As per Income Tax Act of 1961, all persons who are considered as an assessee

determined on the basis of the persons residential status in India and their

when their income exceeds the maximum exemption in the prescribed limit and

the income tax will be levied at the prescribed rates according to finance act,

such type of income tax has to be paid on the total income in the previous year

to be paid in relevant assessment year.


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HISTORY

The history of taxation system shows that taxes were levied on either on the

sale and purchase of merchandise or livestock. Further it suggests that the

process of levying and the manner of tax collection were unorganized. But it

suggests that all historical leaders and head countrymen collected taxes to run

its authority. In other words taxes on income, sale, purchase and properties

were collected to run the ruling Government machineries. Further, these taxes

were collected to meet their military and civil expenditure and also to meet the

common needs of the subjects like maintenance of roads, drainage system,government buildings, administration of justice and other functions of the

region.

Although, there were no homogeneous tax rate structures but it depended on

the production capacity and commodity of that particular country and/or

region. These taxes were collected in cash or in kind and it entirely depended

on the type of commodity or service on which it was levied upon. The history

of taxation suggests these were done to store government buffer stocks to meet

emergencies. Taxes were levied on all classes of citizens. Taxes were paid in

the form of gold-coins, cattle, grains, raw-materials and even by rendering

personal service.

In India, the tradition of taxation has been in force from ancient times. There

was a perfect admixture of direct taxes with indirect taxes and they were varied

in nature. India's history of taxation suggests existence of a large and

composite taxable population. With the advent of the moguls in India the


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country witnessed a sea of change in the taxation system of India. Although,

they also practiced the same norm of taxation but it was more homogeneous in

structure and collection.

The period of British rule in India witnessed some remarkable change in the

whole taxation system of India. Although, it was highly in favor of the British

government and its exchequer but it incorporated modern and scientific method

of taxation tools and systems. In 1922, the country witnessed a paradigm shift

in the overall Indian taxation system. Setting up of administrative system and

taxation system was first done in the history of taxation system in India. Theperiod thereafter witnessed rapid growth and modernization of the Indian

taxation system and the present.


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OBJECTIVES OF TAXES

Raising revenue:The primary purpose of taxes is to raise the revenue

for the government. The modern government has to perform several functionsfor the welfare of the public. The performance of these functions involves

substantial amount of public expenditure.

Regulation of consumption and production: Taxes are sometimes used

to discourage the consumption and production of unnecessary or harmful goods

like liquor, tobacco etc. This also results in the diversion of production form

luxury goods to necessities.

Encouraging domestic industries: Taxes in the form of custom duties

are used to reduce the import of certain goods that are domestically available

and thereby the domestic industries for the production of these goods. For

example, high customs duties on goods like TV, AC etc switch over the

demand for the foreign brands.

Stimulating investments: The instrument of taxation can also be used in

the stimulating investment of the private sector. This can be done by providing

various tax-incentives in the form of tax-holidays, investment allowance and

lower profits.

Reducing income inequali ties: Taxation policy of the government is

often used in reducing the income inequalities of incomes and assets.

Inequality of income can be reduced by the system of progressive taxation

under which the rich people are required to pay much more taxes than poor.The taxes collected from the rich can further be utilized for providing social

services which benefit the low income groups.

Promoting economic growth: Taxation policy can also be used for

promoting economic development of the country. The revenue collected by the


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government can be used in promoting development of industries and

agriculture. The government can also use these funds in building a better

infrastructure like transport and communication, power etc.

Development of backward regions: Tax system can be used in ensuring

the development of backward regions. Entrepreneurs can be motivated to set up

their industries in the backward regions by providing tax concessions to them.

Ensuring pr ice stabil ity: Direct taxes like income tax can be used to

ensure price stability. These taxes reduce the disposable income of individuals

and thereby reduce their purchasing power. This results in the fall in aggregate

demand in the economy and thereby reducing demand-pull inflation.
http://indiastudychannel.com/resources/124537-Causes-Inflation-its-control.aspxhttp://indiastudychannel.com/resources/124537-Causes-Inflation-its-control.aspx


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CHARACTERISTICS OF GOOD TAX SYSTEM

A good tax system should adhere to certain principle that becomes

the characteristics of good tax system. These principles are called canons of

taxation.

Canons of equali ty: Canon of equality states that persons should be

allowed to pay their taxes as per their ability to pay. The burden of tax should

be fair and just. Equality of tax burden can be achieved if the rich people are

taxed more than the poor people not only in terms of tax but also in the terms

of tax rate. This canon tries to achieve the objectives of economic justice.

Canon of certainty: The canon of certainty implies that the tax-payer

should be informed about every detail relating to the payment of each and

every kind of taxes.

Canon of economy: Every tax has a system of cost of collection which is

the administrative cost of collection. The canon of economy should be such

that the cost of collection should be minimum . It will be useless to impose a

tax that involves huge expenditure in its collection.

Canon of productivity: All taxes should be productive. The canon of

productivity implies two things. In the first place, the tax system should be able

to generate enough revenue to meet the required expenditure. Secondly, taxes

should be imposed in such a way as not to obstruct and discourage production.

Canon of elastici ty: The canon of elasticity implies that the taxes shouldbe levied that the yields of the taxes can be easily increased or decreased as per

the need of the government.


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Canon of diversity: The canon of diversity requires that the tax system

should be such that the government depends on the number of the taxes so that

every class of citizen may be called upon to contribute something towards the

state revenue.

Canon of simplicity: The tax system should be easy and simple so that

the tax payer can easily understand its implication, the basis and the method of

calculation etc. without the costly help of the expert

WHO IS LIABLE TO PAY INCOME TAX?

There are seven categories of persons chargeable to tax under the Act.

a) an individual

b) a Hindu undivided family

c) a company

d) a firm

e) an association of person or body of individuals ,whether incorporated or

not

f) a local authority

g) every artificial juridical person not falling within any of the preceding

categories.

Therefore any person not falling in the above mentioned categories, may still

fall in the four corners of the term person and accordingly may be liable totax under section 4.

The person by whom income tax or other sum of money is payable under the

Act is the ASSESSEE


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RESIDENTIAL STATUS

The three residential status, viz.,

Resident OrdinarilyResidents

Under this category,

person must be living in India at

least 182 days during previous

year Or must have been in India

365 days during 4 years

preceding previous year and 60

days in previous year. Ordinary

residents are always taxable on

their income earned both in

India and Abroad.

Resident but notOrdinarily Residents

Must have been a non-

resident in India 9 out of 10

years preceding previous year or

have been in India in total 729 or

less days out of last 7 years

preceding the previous year. Not

residents are taxable in relation

to income received in India orincome accrued or deemed to be

accrue or arise in India and

income from business or

profession controlled from India.

Non Residents Non Residents are exempt

ResidentialStatus

Resident Ordinarily ResidentsResident but not Ordinarily

Residents Non Residents


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from tax if accrue or arise or

deemed to be accrue or arise

outside India. Taxable if income

is earned from business or

profession setting in India orhaving their head office in India.


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INDIVIDUAL HEADS OF INCOME

Income from Salary

All income received as salary under Employer-Employee relationship is taxed

under this head. Employers must withhold tax compulsorily, if income exceeds

minimum exemption limit, as Tax Deducted at Source (TDS), and provide their

employees with a Form 16 which shows the tax deductions and net paid

income. In addition, the Form 16 will contain any other deductions provided

from salary such as:

1. Medical reimbursement: Up to 15,000 per year is tax free if supported by

bills.

2. Transport allowance: Up to 800 per month (9,600 per year) is tax

free if provided as transport allowance. No bills are required for this

amount.

3. Conveyance allowance: is tax exempt.

Heads

of

income

Incomefrom

Salary

IncomefromHouseproperty

Incomefrom

BusinessorProfessio

n

Income

fromCapitalGains

IncomefromOther

Sources
http://en.wikipedia.org/wiki/Tax_Deducted_at_Sourcehttp://en.wikipedia.org/wiki/Tax_Deducted_at_Source


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4. Professional taxes: Most states tax employment on a per-professional

basis, usually a slabbed amount based on gross income. Such taxes paid are

deductible from income tax.

5. House rent allowance: the least of the following is available as

exemption

Actual HRA received

50%/40%(metro/non-metro) of basic salary

Rent paid minus 10% of 'salary'. basic Salary for this purpose is

basic+DA forming part + commission on sale on fixed rate.

The exemption for HRA u/s 10(13A) is the least of all the above three factors.

Perquisites and Exemptions u/s 10

The term "Perquisite" includes value of any benefit or amenity/value of any

concession provided by the employer to the employees. Perquisite Valuation

does not include certain medical benefits. Section 10 exemptions are available

for the following perquisites:

1. Leave Travel Concession u/s 10(5)

2. Perquisites paid to Indian Citizens Employed Abroad 10(7) no

3. Tax Paid on Behalf of Any Employee by the Employer 10(10CC)

4. Any sum received under Life Insurance Company

Income from House property

Income from House property is computed by taking into account what is

called Gross Annual Value of the property. The annual value in case of a selfoccupied house is to be taken as NIL. (However if there is more than one self

occupied house then the annual value of the other house/s is taxable.) From

this, deduct Municipal Tax paid and you get the Net Annual Value. From this

Net Annual Value, deduct:
http://law.incometaxindia.gov.in/DIT/File_opener.aspx?page=ITAC&schT=&csId=699405d7-8ff0-4938-9079-87a944f5f27a&rdb=sec&yr=e5be6bdb-1fc4-42d6-ac7b-34a44fd65485&sec=10&sch=&title=Taxmann%20-%20Direct%20Tax%20Lawshttp://en.wikipedia.org/wiki/Gross_Annual_Valuehttp://en.wikipedia.org/wiki/Gross_Annual_Valuehttp://law.incometaxindia.gov.in/DIT/File_opener.aspx?page=ITAC&schT=&csId=699405d7-8ff0-4938-9079-87a944f5f27a&rdb=sec&yr=e5be6bdb-1fc4-42d6-ac7b-34a44fd65485&sec=10&sch=&title=Taxmann%20-%20Direct%20Tax%20Laws


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30% of Net value as repair cost (This is a mandatory deduction)

No other deduction available

Interest paid or payable on a housing loan against this house

In the case of a self occupied house interest paid or payable is subject to a

maximum limit of Rs.1,50,000 (if loan is taken on or after 1 April 1999 and

construction is completed within 3 years) and Rs.30,000 (if the loan is taken

before 1 April 1999). For l non self-occupied homes, all interest is deductible,

with no upper limits.

The balance is added to taxable income.

Income from Business or Profession

Income arising from profits and gains of any Business or Profession; income

derived by a Trade/ Professional/ similar Association by performing specific

services for its members; any benefit from business whether convertible into

money or not, incentives for exporters; any salary, interest, bonus, commission

or remuneration received by Partner of a firm; any amount received under a

Key man Insurance Policy which also covers Bonus; income from managing

agency and speculative transactions; is taxable.

Income from Capital Gains

Under section 2(14) of the I.T. Act, 1961, Capital asset is defined as property

of any kind held by an assesse such as real estate, equity shares, bonds,

jewellery, paintings, art etc. but does not consist of items like stock-in-trade for

businesses or for personal effects. Capital gains arise by transfer of such capital

assets.

Long term and short term capital assets are considered for tax purposes. Long

term assets are those assets which are held by a person for three years except in

case of shares or mutual funds which becomes long term just after one year of


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holding. Sale of long term assets give rise to long term capital gains which are

taxable as below:

As per Section 10(38) of Income Tax Act, 1961 long term capital gains

on shares/securities/ mutual funds on which Securities Transaction Tax (STT)

has been deducted and paid, no tax is payable. Higher capital gains taxes will

apply only on those transactions where STT is not paid.

For other shares & securities, person has an option to either index costs

to inflation and pay 20% of indexed gains, or pay 10% of non indexed gains.

For all other long term capital gains, indexation benefit is available and

tax rate is 20%

Income from Other Sources

This is a residual head , under this head income which does not meet criteria to

go to other heads is taxed. There are also some specific incomes which are to

be taxed under this head.

1. Income by way of Dividends

2. Income from horse races3. Income from winning bull races

4. Any amount received from key man insurance policy as donation.

5. Income from shares (dividend other than Indian company)


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Personal Tax Rates:

For Individuals,HUF, Associations Of Persons(AOP) and Body Of Individuals

(BOI)

The chargeability is based on nature of income, i.e., whether it is revenue or

capital.

The rates of taxation of income are-:

Income Tax Rates/Slabs Rate (%) (as per A.Y.2013-2014)

Up to 2,00,000(for men & women) = 0%,

2,00,0015,00,000 = 10%,

5,00,001 10,00,000 = 20%,

10,00,001 upwards = 30%,

Up to 2,50,000 (for resident individual of 60 years or above)= 0,

Up to 5,00,000 (for very senior citizen of 80 years or above)= 0.

Education cess is applicable @ 3 per cent on income tax, surcharge = NA


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TAX DEDUCTION

There are various India Tax Deductions or tax exemptions provided by the

Indian Income Tax Act. The tax deductions help to deduct an amount from the

taxable income and help to save tax. Each year, one can save thousands of

rupees in income tax through income tax exemptions.

The Central Board for Direct Taxes (CBDT) governs the Indian Income Tax

department. The department is also part of the Department of Revenue which is

managed under the Indian Revenue Service (IRS) under the Ministry of finance

govt. Of india.

Income taxes are imposed by the government of India on taxable income of

Hindu Undivided Families (HUFs), companies, individuals, firms, co-operative

societies and trusts (which are identified as a body of Individuals and

Association of Persons) and any other artificial person. There are separate levy

of taxes on each persons which are governed by the Indian income tax act

1961.

Some of the income tax deductions and tax exemption limits for the financial

year 2012-2013 are given below

Income Tax deductions

Section 80c of

the I ndian

Section 80C is one of the most common income tax

deductions. This is quite popular as it encourages


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I ncome Tax

Act

monthly savings from income. If someone has a

taxable income in the highest tax bracket, the

deductions under this section can help one reduce the

taxable income by 1 lakh rupees.

This deduction can be availed if one has invested

money in Life Insurance premium, Provident Funds,

mutual fund investments in ELSS (Equity Linked

Savings scheme), bank deposits (more than 5 years),

National Saving Certificate (NSC), tuition fees,

principal part of EMI on housing loan, ULIPS (Unit

Linked Insurance Plans). The maximum tax

deduction or tax exemption Limit is 100000.

Section 80D of

the I ndian

I ncome Tax Act

This section of India Tax Deduction is helpful if

there is no coverage of health and medical expenses.

It is better if one gets health and medical insurance

for oneself, spouse, dependent parents and dependent

children. Through this one can claim deduction

till `15000/- per annum for the insurance premium.

The limit for senior citizens is Rs20,000.

Section 80G of

the I ndian

I ncome Tax Act

According to Section 80G in the India tax deduction

rules, donations to National Children Foundation,

University or educational institution of national

importance, Prime Minister's Relief Fund, charitable

institutions etc are deductible from the taxable

income. Income tax deduction for 50% of the


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donated amount is eligible for other donations. The

maximum tax deduction or tax exemption limit is

100%. For various funds and 50% for other

donations.

Section 80DDB

of I ncome Tax

Act:

Pay lower if

someone is il l

If you have a dependent who suffers from any of the

ailments specified under Section 80DDB, the Income

tax Act allows you to claim an annual deduction of

Rs 40,000. The deduction is higher at Rs 60,000 if

the patient is a senior citizen.

Conditions: The IT Act has defined certain diseasesto claim this deduction, which include neurological

diseases, malignant cancers, full-blown AIDS,

chronic kidney failure and haematological disorders.

Dependents can include spouse, children, parents and

siblings. However, there are a few conditions.

The patient should be wholly or mainly dependent on

the taxpayer and should not have separately claimed

deduction for the disability. If the amount spent is

reimbursed by the employer or an insurance

company, there is no deduction.

Section 80GGC

(80GGB for

corporates) of

I ncome Tax

Act:Political

aff il iations can

You can you lower your tax if you have political

affiliations. Amount contributed to a recognized

political party can be claimed as a deduction without

any ceiling under Section 80GGC (80GGB for

corporate). The donation can also be made to the

electoral trust which works for the purpose of


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be some times

beneficial

conducting elections. There is a ceiling to the

deduction a taxpayer can claim in a year.

Condition: Only cash donations are taken into

account. Food, clothes and medicines do not qualify.

Under Section 80G, donations to charitable

organizations get deduction ranging from 50% to

100%. It is good to know how much deduction you

can claim before you sign a cheque. The quantum of

deduction is limited to 10% of the gross total income

of the donor.

Set off Long

term gains by

shor t term

capital losses

According to Income Tax Act if you have made any

long-term capital gains from sale of property, gold or

debt funds, you can set them off against short-term

capital losses made on stocks and bring down your

tax liability. This can be especially useful for

someone who has booked profits on gold ETFs and

physical Gold for the year.

Section 80E of

I ncome Tax

Act:

Use educati on

loan to lower

your tax

liabilities

The interest paid on an education loan is fully

deductible from taxable income under Section 80E.

This deduction now includes loans taken for

vocational courses. Say, if a parent or legal guardian

takes the loan, he can claim deduction for the interest

paid for upto8 successive years, starting with the year

in which interest is first paid.

Condition: Loans taken for siblings and other

relatives and from employers or individuals are nt


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qualifying for deduction.

Disabil i ties can

lower your tax

bracket

If a taxpayer suffers from a disability, he can claim

deduction of Rs 75,000 under Sec 80U. If he has a

disabled dependent, he can claim the deduction under

Sec 80DD. Disability includes blindness, low vision,

leprosy, hearing impairment, loco-motor disability,

mental retardation and mental illness and deduction

is available only if the impairment is at least 40%. If

the disability is severe (80% or above), the deduction

is Rs 1 lakh a year. The dependent could include thetaxpayer's spouse, children, parents and even

siblings.

Condition: Incidentally, the deduction is offered as a

lump sum and does not depend on the actual amount

that the taxpayer may spend on himself or on the

disabled dependent. However, the disabled person

should be wholly or mainly dependent on the

taxpayer for maintenance, and should not have

claimed deduction for the disability under Section

80U separately.


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Take unlimited

deduction for

your second

home loan

When it comes to buying a second house, the taxman

can be very encouraging. Under Section 24b, one can

claim deduction of up to Rs 1.5 lakh for interest paid

on a home loan. But if the taxpayer buys a second

house through another home loan and gives it on rent,

the entire interest paid on the home loan during a

given year can be claimed as a deduction. Also if you

have more than one house, any one is deemed to be

rented out. So the interest income on the home loan

for that house can be claimed entirely for deduction,

provided the rental income or a deemed income is

charged to tax.


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TAX EXEMPTIONS

According to Income Tax Act, 1961 there is a provision of exemptions in

income tax. Tax Exemption induces reduction of the tax burden on a specific

section of the society to achieve some level of equilibrium among all. To

encourage some economic activities through the process of reduction of the tax

burden on some organizations or individuals involved in that activity is also

another cause for Tax Exemptions.

Tax Exemptions have the authority to bring about social and economic

changes within the society followed by unprecedented consequences. However,for such exemptions on tax some conditions are mandatory to follow. Some of

them are like -

The age of the individual taxpayer

The public services performed by the individual taxpayers

The type of property owned by the individual

The geographic location of property

The net income of the individual paying the tax

The value of the taxable property

India tax exemptions are specified incomes on which a person can get

exemptions. It means that at the time of calculating annual income, this type of

income will not come under the purview of tax.

Some of these exempted incomes are as follows:

Agriculture Income.

Share of partner in total income of a firm which is assessed separately.


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Interest on securities and bonds including premium on redemption of bonds

by Non Residents.

Interests on amounts in Non-resident (External) account in any bank in

India being maintained as per FERA, 1973.

Interest on specified central Government's savings certificates which were

subscribed to in convertible foreign exchange remitted from a country outside

India as per FERA by an individual citizen.

Income of individuals engaged in research work in India under duly

approved research schemes and remuneration received from foreign

government for training in a government office or undertaking as employee.

Gratuity not exceeding Rs.3.5 lakh.

Receipt in respect of commutation of pension as per specified limits.

Leave encashment not exceeding 8 months salary and subject to specified

conditions.

Receipt of amount on voluntary retirement up to ` 5,00,000.

Payment on a Life insurance policy, including bonus thereon but excluding

therefrom amounts received u/s 80DDA(3).

Receipt of Payment from Public provident fund or Statutory Provident

Fund.

Receipt of Payment from superannuation fund.

Special benefits and allowance to employee viz., house rent allowance.

Interest payable to any bank incorporated outside India and approved by

RBI.

Scholarships granted to meet the cost of education

Receipt of any amount in connection with an award instituted by

Government etc.

Income of a university or other educational institution.


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Income of a hospital or other such institution working exclusively for

philanthropic purposes.

Income of news agency having been set up in India for the sole purpose of

collection & distribution of news.

Income of specified mutual funds registered and/or set up under /by SEBI

Act, 1992.

Income of Exchange risk administration fund having been set up by public

financial institutions either jointly or separately as per specified conditions.

Some other categories includes combat-pay to military officers,

inheritances, payments for personal injuries, employee discounts, and income

from local bonds. There are a number of protected classes like widows, people

above 65, war-retired persons, and disabled persons

However, one should not get confused with the concepts of Tax Deduction and

Tax Exemption, as when an expense received by a taxpayer is deduced from

the gross income it results in the lowering of the net taxable income it is tax

deduction and not Tax Exemption. There are many types of income and

benefits being exempted from income taxes to a limited extent.


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FORMS OF INCOME TAX

ITR-1 SAHAJ

Indian Individual

Income tax Return

This Return Form is to be used by an individual whose

total income for the assessment year 2013-14 includes:-

(a) Income from Salary/ Pension; or

(b) Income from One House Property (excluding caseswhere loss is brought forward from previous years); or

(c) Income from Other Sources (excluding Winningfrom Lottery and Income from Race Horses)

This Return Form cannot be used by any resident having

any asset (including financial interest in any entity)

located outside India or signing authority in any accountlocated outside India.

Note: Further in a case where income of another person

like spouse, minor child, etc. is to be clubbed with the

assessee this return form can be used only if the incomebeing clubbed falls in to above income categories

Note:-Those who have total income below 5 lakh rupees &

those people who have exemption under sec. 10/c is less

than 5,000 Rupees they require to fill the ITR -I form

ITR-2 ForIndividuals and

HUFs not havingIncome from

Business or

Profession

This Return Form is to be used by an individual or aHindu Undivided Family whose total income for the

assessment year 2013-14 includes:-

(a) Income from Salary / Pension; or

(b) Income from House Property; or(c) Income from Capital Gains; or

(c) Income from Other Sources (including Winningfrom Lottery and Income from Race Horses).

Further, in a case where the income of another person

like spouse, minor child, etc. is to be clubbed with theincome of the assessee, this Return Form can be usedwhere such income falls in any of the above categories.

This Return Form should not be used by an individual

whose total income for the assessment year 2013-14includes Income from Business or Profession.


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Note:-Those who have total income above 5 lakh rupees &

those people who have exemption under sec. 10/c is

above than 5,000 Rupees they require to fill the ITR -IIform & it is mandatory to do E filling.

ITR-3 For Individuals/HUFs being partners in firms and notcarrying out business or profession under any

proprietorship

ITR-4 SUGAM (ITR-4S)

Sugam - Presumptive Business Income tax Return

ITR-4For individuals and HUFs having income from aproprietory business or profession

ITR-5 For firms, AOPs and BOIs

ITR-6 For Companies other than companies claimingexemption under section 11

ITR-7 person including a company whether or not registered

under section 25 of the Companies Act, 1956required to file a return under sub-section (4A) or sub-section (4B) or sub-section (4C) or sub-section (4D) of

section 139


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TAX RETURNS

There are five categories of Income Tax returns.

1. Normal Return

2. Belated Return

3. Revised Return

4. Defective Return

5. Returns In Response To Notices

1. Normal ReturnReturns filed within the return filing due date. that is 31 July of

concerned previous year.

2. Belated ReturnIn case of failure to file the return on or before the due date, belated

return can be filed before the expiry of one year from the end of the

relevant assessment year.

3. Revised ReturnIn case of any omission or any wrong statement mentioned in the normal

return can be revised at any time before the expiry of one year from the

end of the relevant assessment year.

4.

Defective Return

Assessing Officer considers that the return is defective, he may intimate

the defect. One has to rectify the defect within a period of fifteen days

from the date of such intimation. If the assessee wants more time, he can


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file an application to the A O and a further 15 days can be granted at the

instance of the A O.

5. Returns In Response To NoticesAssessing officer in the process of making assessment, may serve a

notice under various sections like 142(1), 148(1), 153A(a) or 153C.

Returns are required to be furnished within the date specified on the

respective notices.


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ONLINE TAX IN INDIA

In India, online tax filing has become an integral part of the process of

registering tax returns. With the increasing penetration of internet and rising

levels of web awareness and work pressure among tax payers, many people

now prefer to fill the tax according to their convenience and avoid the cues.

HOW TO FILE ONLINE TAX IN INDIA

The basic steps for filing tax returns online in India can be mentioned as below:

Customers need to sign up with the service provider to be able to avail

their services

After signing up, customers need to enter their financial details. The

returns will be generated on the basis of the entries.

Once the data is entered the software reviews it.

After the computation is done, the clients need to give the payment on

the basis of the filing plan chosen by them.

Next, the user needs to authorize the service provider to file the tax

returns on their behalf.

The acknowledgment will be provided via e-mail once the process is

completed and the document is signed digitally. The customer receives

an ITR-V if the document is not signed digitally.

Following are the major benefits for tax payers who use the tax filing portals:

These companies provide the users in depth knowledge of tax laws


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The technology used by these companies is comparable to the best

banks across the world

Tax computation services are provided free of cost. Tax payers only

need to pay when they are filing the tax returns

They do not put the users off with unnecessary pop-ups or

advertisements

Majority of these sites are backed by the Income Tax Department. This

means that these companies are authorized to file tax returns with the IT

department on behalf of their customers

Tax returns can be prepared and filed by customers from any income

class.


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E-FILLING

A. Select appropriate type of Return.

B. Download Return Preparation Software for selected Return Form.C. Fill your return offline and generate a XML file.

D. Register and create a user id/password AT Incomtaxindiaefiling.gov.in

E. Login and select relevant Assessment year on left panel under "Submit

Return"

F. In Next screen ,select the form Name (whichever is applicable in your

case)

(i) Select digital signature NO

(ii) In next screen Browse and select XML file prepared by you and click on

"Upload" button

G. On successful upload acknowledgement details would be displayed.

Click on "Print" to generate printout of acknowledgement/ITR-V Form.

H. In case the return is digitally signed, on generation of

"Acknowledgement" the Return Filing process gets completed.

I. In case the return is not digitally signed, on successful uploading of e-

Return, the ITR-V Form would be generated which needs to be printed by the

tax payers. This is an acknowledgement cum verification form.

A duly signed ITR-V form should be mailed to

Income Tax Department CPC, Post Bag No - 1, Electronic City Post Office,

Bengaluru - 560100, Karnataka, BY ORDINARY POST OR SPEED POSTONLY within 120 days of transmitting the data electronically.

ITR-V sent by Registered Post or Courier will not be accepted.

No Form ITR-V shall be received in any other office of the Income-tax

Department or in any other manner. In case, Form ITR-V, is furnished after the
https://incometaxindiaefiling.gov.in/portal/index.jsphttps://incometaxindiaefiling.gov.in/portal/index.jsp


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INCOME TAX RETU

above mentioned period, it will be deemed that the return in respect of which

the Form ITR-V has been filed was never furnished and it shall be incumbent

on the assessee to electronically re-transmit the data and follow it up by

submitting the new Form ITR-V within 120 days. This completes the Return

filing process for non-digitally signed Returns.


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http://1.bp.blogspot.com/-ZLX5I3E3i8w/T5rWcK3v4uI/AAAAAAAAB48/2fK8aAXu32Q/s1600/eFiling+income+tax+return+process.jpg


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THE PROCESS OF TAX FILLING IN INDIA

Many people are, naturally, unhappy to see the tax deducted at source (TDS)

eroding their salaried income. They are a bit happy too, in a way, as they feel

the major task of paying tax is finished with & they need not worry about

anything. Well, they are so wrong! Anybody who pays tax has to also file

income tax returns.

Every single person who pays tax in India has to file his/her income tax. Do not

assume that just because you do not have your own business and are getting asalary working for somebody, that you dont need to file the tax returns. Yes,

even a salaried individual in India has to file income tax returns.

Many salaried people think that the tax is deducted at source (called TDS), but

are unaware that it is not only their income from a job that is taxed. Their

income from any other source is also liable for tax, such as if they are earning a

part-time income from an online job, are having fixed deposits in a Bank, etc.

So you must file your income tax returns before the end of the financial year.

The process of tax filing involves submission of tax along with necessary

documents declaring yearly income of the individual or company. In India the

process of tax filing is governed by the Ministry of Finance. The Ministry of

Finance of Government of India has different departments that are involvedwith the process of tax collection.

The most important department that is associated with the process of tax filing

in India is the Department of Income Tax, Government of India. The corpus


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accumulated from individuals and companies as income tax are forwarded to

the Ministry of Finance, Government of India. The revenue so collected is used

to run the Government of India machineries. The whole process of tax filing in

India is done in accordance with the Income tax acts and rules as promulgated

by the Department of Income Tax, Government of India. The main purpose of

filing tax returns in India is to have records of structured information. The tax

of an individual or a company is submitted against an account number which is

an unique combination of alpha-numeric character called Permanent Account

Number (PAN). This PAN enables the taxing authority to record each and

every relevant details pertaining to tax declaration of a particular person or

company in India. This is a fool proof process and there is no place for

discrepancies.

Over the years the process of tax filing in India has made tremendous progress.

Gone are the days when one had to wait for endless hours to see his yearly tax

declaration being verified and accepted. Today, the department of Income Tax

under the government of India has facilitated its citizens with e-fling process.

The procedure involves filing of income tax returns over Internet. This has in

fact simplified the arduous mechanical tax declaration process in India. Now an

individual or company can file his tax according to his convenience by simply

quoting the unique PAN. All the required information regarding filing process

and necessary documents are mentioned therein. The concerned individual or

company should fill-up the relevant electronic form according to the

instructions given therein.


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The important declarations that are to be made while undertaking the process

of e-filing tax are as follows -

Information required for individual tax payer -

A copy of last year's tax return

Bank Statement

TDS certificates

Savings certificates / Deductions

Interest statement showing interest paid to the individual throughout the

year

Information required for corporate tax payer -

A copy of last year's tax return

Bank Statement

TDS certificates

Savings certificates/Deductions

Interest statement showing interest paid to the corporate throughout the

year

Profit and Loss Account

Balance Sheet


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Is there a fine for not filing income tax returns in India?

Yes, there definitely is a fine for not filing income tax returns in India. For

every month delayed, you are paying 1.5% per month. If you do not file your

income tax returns before the last date of the assessment year (March 31st),

you will have to pay a fine of Rs.5000/-.

What is the last date of filing income tax returns in India?

1. For those with income above INR 40lakhs, the last date for filing income tax

returns in India is September 31st.

2. For those whose income is below INR 40lakhs, the last date for filing

income tax returns in India is July 31st.

3. For both the above groups of tax payers, they can still file their income tax

returns before March 31st; but then each month delayed means more interest to

be paid on the delayed tax.


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TAX PENALTIES

The major number of penalties initiated every year as a ritual by Income Tax

Authorities is under section 271(1)(c)which is for either concealment of

income or for furnishing inaccurate particulars of income.

"If the Assessing Officer or the Commissioner (Appeals) or the Commissioner

in the course of any proceedings under this Act, is satisfied that any person-

(a) has failed to comply with a notice under sub-section (1) of section 142 or

sub-section (2) of section 143 or fails to comply with a direction issued under

sub-section (2A) of section 142, or

(b) has concealed the particulars of his income or furnished inaccurate

particulars of such income,

he may direct that such person shall pay by way of penalty,-

(ii) in the cases referred to in clause (a), in addition to any tax payable by him,

a sum of ten thousand rupees for each such failure;

(iii) in the cases referred to in clause (b), in addition to any tax payable by him,

a sum which shall not be less than, but which shall not exceed three times, the

amount of tax sought to be evaded by reason of the concealment of particulars

of his income or the furnishing of inaccurate particulars of such income


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MERITS OF DIRECT TAX

Economical:Direct taxes are very economical in the sense that the cost of

collecting these taxes are relatively less as they are usually collected at the

source and they are paid to the government directly.

Certainty: Direct taxes satisfy the canon of certainty. The tax payers know

that how much they have to pay and on what basis they have to pay. The

government also knows fairly the amount of tax it is going to collect.

Equity:Direct taxes can be made to conform to the principle of ability to pay

by choosing the most appropriate rate schedules. By making the rate structure

possible and progressive their burden can be put more on rich than poor.

Reducing inequali ties:Direct taxes are progressive in nature. Rich people

are subjected to higher taxes on the basis of their higher income and hence

reduces the inequalities of income and wealth.

Civic consciousness: When one knows that his taxes shall be well utilized

for the benefit of the public such as the developmental and defense projects ,

infrastructural development, establishment of government schools, hospitals,

maternity homes etc., they take active part in the process of payment of taxes.

They pay their dues on time and pay it will honesty. On the other hand, the in

direct taxes go in the hands of the traders and the citizens do not have any

account whatsoever in the utilization of these taxes. Hence, it acts an

disincentive for them.


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DEMERITS OF DIRECT TAX

Unpopular:Direct taxes are directly imposed on the person. They

cannot be shifted. Tax payers feel their pinch directly.

Possibi li ty of tax evasion: Direct taxes encourage tax evasion. People

conceal their income from the tax official so as to evade taxes. In (India, there

is a large scale tax evasion on the part of the businessman.

I nconvenience:The main drawback of the direct taxes is that they cause

a lot of inconvenience to the tax payers. Sometimes, the tax payers are required

to pay the entire tax in one instalment. Besides, the tax payers have to give and

elaborate documents on their income and expenditure.

Adverse effects on the wil l to work and save: Direct taxes may have an

adverse impact on the will to work and save. Higher rates of income tax may

discourage people to work hard or work overtime. Similarly, the direct taxes

may reduce their willingness to save.


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CONCLUSION

At the end of this study, we can say that given the rising standards of Indian individuals and

upward economy of the country, prudent tax planning before-hand is must for all the citizens to

make the most of their incomes. However, the mix of tax saving instruments, planning horizon

would depend on an individuals total taxable income and age in the particular financial year.


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BIBLIOGRAPHY

Books:

T. N. Manoharan (2007),Direct Tax Laws (7th

edition), Snowwhite Publications P.Ltd.,

New Delhi.

Dr. Vinod K. Singhania (2007), Students Guide to Income Tax, Taxman Publications,

New Delhi

Income Tax Ready ReckonerA.Y. 2007-08, TaxMann Publications, New Delhi

Websites:

http://in.taxes.yahoo.com/taxcentre/ninstax.html

www.efiling.incometaxofinfia.gov.in

emudra

http://in.biz.yahoo.com/taxcentre/section80.html

http://www.bajajcapital.com/financial-planning/tax-planning

http://www.incometaxindia.gov.in
http://in.taxes.yahoo.com/taxcentre/ninstax.htmlhttp://in.taxes.yahoo.com/taxcentre/ninstax.htmlhttp://www.efiling.incometaxofinfia.gov.in/http://www.efiling.incometaxofinfia.gov.in/http://localhost/var/www/apps/conversion/tmp/scratch_7/PROJECT%20%20REPORT.docxhttp://localhost/var/www/apps/conversion/tmp/scratch_7/PROJECT%20%20REPORT.docxhttp://in.biz.yahoo.com/taxcentre/section80.htmlhttp://in.biz.yahoo.com/taxcentre/section80.htmlhttp://www.bajajcapital.com/financial-planning/tax-planninghttp://www.bajajcapital.com/financial-planning/tax-planninghttp://www.incometaxindia.gov.in/http://www.incometaxindia.gov.in/http://www.incometaxindia.gov.in/http://www.bajajcapital.com/financial-planning/tax-planninghttp://in.biz.yahoo.com/taxcentre/section80.htmlhttp://localhost/var/www/apps/conversion/tmp/scratch_7/PROJECT%20%20REPORT.docxhttp://www.efiling.incometaxofinfia.gov.in/http://in.taxes.yahoo.com/taxcentre/ninstax.html

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