Project submitted in partial fulfillment for the award of degree
DECLARATIO Tax Planning in India with I hereby declare that this project report titled, Income Tax respect to Individual Assessee submitted by me to the Department of Business
Management of XXXXX, is a bonafide work undertaken by me and it is not submitted to any other University o r Institute for the ward ward of any an y degree diploma!certificate or published any time before"
Date#
!""""#
1
AC$O%LED&E'ET
work well begun is half done" $hese encouraging words from my project supervisor and guide led me to churn out this concise yet comprehensive study" I sincerely thank %hri XXX, &aculty, Department of Business Management at XXXX, for his support and guidance all through this study and for his unbiased feedback on my presentations all through the MB course" I e'tend my sincere gratitude to all the members of Department of Business Management for e'tending their co(operation for successful completion of my project" $his project would not have been possible without the regular reading of $a' )olumns from the business related newspapers* hence, I am thankful to all the authors who contributed such informative articles which helped me accomplish my this assignment" +eartfelt thanks to my parents and all my well wishers who made this project possible" our our contributions have been bee n immensely helpful"
2
AC$O%LED&E'ET
work well begun is half done" $hese encouraging words from my project supervisor and guide led me to churn out this concise yet comprehensive study" I sincerely thank %hri XXX, &aculty, Department of Business Management at XXXX, for his support and guidance all through this study and for his unbiased feedback on my presentations all through the MB course" I e'tend my sincere gratitude to all the members of Department of Business Management for e'tending their co(operation for successful completion of my project" $his project would not have been possible without the regular reading of $a' )olumns from the business related newspapers* hence, I am thankful to all the authors who contributed such informative articles which helped me accomplish my this assignment" +eartfelt thanks to my parents and all my well wishers who made this project possible" our our contributions have been bee n immensely helpful"
2
IDE"
TA(LE O) COTET*
-" /" 0" 4" 5" 3" 6" 9"
.ist of $ables" $ables"""""""" """""""""""""" """"""""""""" """"""""""""" """""""""""""" """""""""""""" """"""""""""" """"""""""""" """""""""""""" """"""""""""" """"""""""""" """""""""""""" """""""""""""" """"""""""""" """"""""""""" """"""""""""""i """""""i Introductio Introduction"""""" n""""""""""""" """"""""""""" """"""""""""" """""""""""""" """""""""""""" """"""""""""" """"""""""""" """""""""""""" """""""""""""" """"""""""""" """"""""""""" """""""""""""" """"""""""""" """"""""""""" """""""""""""""""""""""""""n 1'tract from Income $a' $a' ct, ct, -23-""""""""""""" -23-""""""""""""""""""" """"""""""""" """""""""""""" """""""""""""" """"""""""""" """"""""""""" """""""""""""""""""""3 """"""""""""""3 )omputation )omputation of $otal $otal Income""""""""""""" Income""""""""""""""""""" """"""""""""" """""""""""""" """""""""""""" """"""""""""" """"""""""""" """"""""""""""""" """""""""""""""""""""""""""-0 """""""""""""""""-0 Deductions Deductions from $a'able $a'able Income"""""""""""" Income""""""""""""""""""" """""""""""""" """""""""""""" """"""""""""" """"""""""""" """""""""""""" """""""""""""""" """""""""""""""""""""43 """"""""""""43 )omputation )omputation of $a' $a' .iability" .iability"""""""" """"""""""""" """"""""""""" """""""""""""" """"""""""""" """"""""""""" """""""""""""" """""""""""""" """"""""""""" """"""""""""" """""""""""""" """""""""""""50 """"""50 $a' $a' 7lanning ( 8ecommendations 8ecommendations and Useful Useful $ips""""" $ips"""""""""""" """""""""""""" """"""""""""" """"""""""""" """"""""""""""""""""""59 """""""""""""""59 Bibliography Bibliography""""""" """"""""""""" """"""""""""" """""""""""""" """"""""""""" """"""""""""" """""""""""""" """""""""""""" """"""""""""" """"""""""""" """""""""""""" """""""""""""""""" """"""""""""""""""""""""""""""""93 """""""""""""""""""""93
3
List of Tables •
$able -# $a' 8ates for "" /::6(:9 ( &or 8esident Male Individuals below 35 years
•
of age""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""54 $able /# $a' 8ates for "" /::6(:9 ( &or 8esident &emale Individuals below 35
•
years of age""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""54 $able 0# $a' 8ates for "" /::6(:9 ( &or 8esident %enior )iti;ens
•
or more at any time during the &inancial ear /::6(:9="""""""""""""""""""""""""""""""""""""""""""""55 $able 4# %ample $a' .iability )alculations ( &or 8esident Male Individuals below 35
•
years of age""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""55 $able 5# %ample $a' .iability )alculations ( &or 8esident &emale Individuals below
•
35 years of age"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""53 $able 3# %ample $a' .iability )alculations ( &or 8esident %enior )iti;ens
• • •
years age at any time during &"" /::6(:9="""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""53 $able 6# $a' 7lanning $ools Mi' by age group"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""3/ $able 9# $erm 7lan 8eturns )omparison"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""32 $able 2# $raditional 1ndowment 7lan 8eturns""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""6/
4
C+APTER , ITROD-CTIO • • • •
bstract >eed for %tudy ?bjectives %cope @ .imitations
5
Abstract
Income $a' ct, -23- governs the ta'ation of incomes generated within India and of incomes generated by Indians overseas" $his study aims at presenting a lucid yet simple understanding of ta'ation structure of an individualAs income in India for the assessment year /::6(:9"
Income $a' ct, -23- 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 market" 1very individual should know that ta' planning in order to avail all the incentives provided by the overnment of India under different statures is legal"
$his project covers the basics of the Income $a' ct, -23- as amended by the &inance ct, /::6 and broadly presents the nuances of prudent ta' planning and ta' saving options provided under these laws" ny other hideous means to avoid or evade ta' is a cogni;able offence under the Indian constitution and all the citi;ens should refrain from such acts"
6
eed for *tud.
In last some years of my career and education, I have seen my colleagues and faculties grappling with the ta'ation issue and complaining against the ta' deducted by their employers from monthly remuneration" >ot eCuipped with proper knowledge of ta'ation and ta' saving avenues available to them, they were at mercy of the +8!dmin departments which never bothered to do even as little as take advise from some good ta' consultant"
$his prodded me to study this aspect leading to this project during my MB course with the university, hoping this concise yet comprehensive write up will help this salaried individual assessee class to save whatever e'tra rupee they can from their hard(earned monies"
7
Objecti/es •
$o study ta'ation provisions of $he Income $a' ct, -23- as amended by &inance
•
ct, /::6" $o e'plore and simplify the ta' planning procedure from a laymanAs perspective" $o present the ta' saving avenues under prevailing statures"
•
8
*cope 0 Limitations $his project studies the ta' planning for individuals assessed to Income $a'" • $he study relates to non(specific and generali;ed ta' 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 assessees" $his study may include comparative and analytical study of more than one ta' saving
•
•
plans and instruments" $his study covers individual income ta' assessees only and does not hold good for corporate ta'payers" $he ta' rates, insurance plans, and premium are all subject to & /::6(:9 only"
9
C+APTER 1 A E"TRACT )RO' ICO'E TA" ACT2 ,34, • • • • •
•
$a' 8egime in India )hargeability of Income $a' %cope of $otal Income $otal Income )oncepts used in $a' 7lanning $a' 1vasion o $a' voidance o $a' 7lanning o $a' Management o $he Income $a' 1Cuation
10
Ta5 Regime in India
$he ta' regime in India is currently governed under $he Income $a', -23- as amended by $he &inance ct, /::6 notwithstanding any amendments made thereof by recently announced Union Budget for assessment year /::9(:2"
Chargeabilit. of Income Ta5
s per Income $a' ct, -23-, income ta' is charged for any assessment year at prevailing rates in respect of the total income of the previous year of every person" 7revious year means the financial year immediately preceding the assessment year" *cope of Total Income
Under the Income $a' ct, -23-, total income of an y previous year of a person who is a resident includes all income from whatever source derived which# •
is received or is deemed to be received in India in such year by or on behalf of such
•
person* or accrues or arises or is deemed to accrue or arise to him in India during such year* or accrues or arises to him outside India during such year#
•
7rovided that, in the case of a person not ordinarily resident in India, the income which accrues or arises to him outside India shall not be included unless it is derived from a business controlled in or a profession set up in India"
Total Income 11
&or the purposes of chargeability of income(ta' and computation of total income, $he Income $a' ct, -23- classifies the earning under the following heads of income#
• • • • •
%alaries Income from house property )apital gains 7rofits and gains of business or profession Income from other sources
Concepts used in Ta5 Planning
Ta5 E/asion
$a' 1vasion means not paying ta'es as per the provisions of the law or minimi;ing ta' by illegitimate and hence illegal means" $a' 1vasion can be achieved by concealment of income or inflation of e'penses or falsification of accounts or by conscious deliberate violation of law"
$a' 1vasion is an act e'ecuted knowingly willfully, with the intent to deceive so that the ta' reported by the ta'payer is less than the ta' payable under the law"
E5ample6 Mr" , having rendered service to another person Mr" B, is entitled to receive a
sum of say 8s" 5:,:::!( from Mr" B" tells B to pay him 8s" 5:,:::!( in cash and thus does not account for it as his income" Mr" has resorted to $a' 1vasion"
12
Ta5 A/oidance
$a' voidance is the art of dodging ta' without breaking the law" hile remaining well within the four corners of the law, a citi;en so arranges his affairs that he walks out of the clutches of the law and pa ys no ta' or pays minimum ta'" $a' avoidance is therefore legal and freCuently resorted to" In any ta' avoidance e'ercise, the attempt is always to e'ploit a loophole in the law" transaction is artificially made to appear as falling sCuarely in the loophole and thereby minimi;e the ta'" In India, loopholes in the law, when detected by the ta' authorities, tend to be plugged by an amendment in the law, too often retrospectively" +ence ta' avoidance though legal, is not long lasting" It lasts till the law is amended"
E5ample6 Mr" , having rendered service to another person Mr" B, is entitled to receive a
sum of say 8s" 5:,:::!( from Mr" B" Mr" As other income is 8s" /::,:::!(" Mr" tells Mr" B to pay cheCue of 8s" 5:,:::!( in the name of Mr" ) instead of in the name of Mr" " Mr" ) deposits the cheCue in his bank account a nd account for it as his income" But Mr" ) has no other income and therefore pays no ta' on that income of 8s" 5:,:::!(" By diverting the income to Mr" ), Mr" has resorted to $a' voidance"
Ta5 Planning
$a' 7lanning has been described as a refined form of Eta' avoidanceA and implies arrangement of a personAs financial affairs in such a way that it reduces the ta' liability"
13
$his is achieved by taking full advantage of all the ta' e'emptions, deductions, concessions, rebates, reliefs, allowances and other benefits granted b y the ta' laws so that the incidence of ta' is reduced" 1'ercise in ta' planning is based on the law itself and is therefore legal and permanent"
E5ample6 Mr" having other income of 8s" /::,:::!( receives income of 8s" 5:,:::!(
from Mr" B" Mr" to save ta' deposits 8s" 3:,:::!( in his 77& account and saves the ta' of 8s" -/,:::!( and thereby pays no ta' on income of 8s" 5:,:::"
Ta5 'anagement
$a' Management is an e'pression which implies actual implementation of ta' planning ideas" hile that ta' planning is only an idea, a plan, a scheme, an arrangement, ta' management is the actual action, implementation, the reality, the final result"
E5ample6 ction of Mr" depositing 8s" 3:,::: in his 77& account and saving ta' of
8s" -/,:::!( is $a' Management" ctual action on $a' 7lanning provision is $a' Management"
To sum up all these four e5pressions2 we ma. sa. that6 •
$a' 1vasion is fraudulent and hence illegal" It violates the spirit and the letter of the
•
law" $a' voidance, being based on a loophole in the law is legal since it violates only the spirit of the law but not the letter of the law" 14
•
•
$a' 7lanning does not violate the spirit nor the letter of the law since it is entirely based on the specific provision of the law itself" $a' Management is actual implementation of a ta' planning provision" $he net result of ta' reduction by taking action of fulfilling the conditions of law is ta' management"
The Income Ta5 E7uation6
&or the understanding of any layman, the process of computation of income and ta' liability can be outlined in following five steps" $his project is also designed to follow the same"
• • • • •
)alculate the ross total income deriving from all resources" %ubtract all the deduction @ e'emption available" pplying the ta' rates on the ta'able income" scertain the ta' liability" Minimi;e the ta' liability through a perfect planning using ta' saving schemes"
15
C+APTER 8 CO'P-TATIO O) TOTAL ICO'E • • • • •
Income from %alaries Income from +ouse 7roperty )apital ains 7rofits and ains of Business or 7rofession Income from ?ther %ources
16
Income from *alaries
Incomes termed as *alaries6
1'istence of Emaster(servantA or Eemployer(employeeA relationship is absolutely essential for ta'ing income under the head F%alariesG" here such relationship does not e'ist income is ta'able under some other head as in the case of partner of a firm, advocates, chartered accountants, .I) agents, small saving agents, co mmission agents, etc" Besides, only those payments which have a ne'us with the employment are ta'able under the head E%alariesA"
%alary is chargeable to income(ta' on due or paid basis, whichever is earlier"
ny arrears of salary paid in the previous year, if not ta'ed in any earlier previous year, shall be ta'able in the year of payment" Ad/ance *alar.6
dvance salary is ta'able in the year it is received" It is not included in the income of recipient again when it becomes due" +owever, loan taken from the employer against salary is not ta'able" Arrears of *alar.6
%alary arrears are ta'able in the year in which it is received"
17
(onus#
Bonus is ta'able in the year in which it is received"
Pension #
7ension received by the employee is ta'able under E%alaryA Benefit of standard deduction is available to pensioner also" 7ension received by a widow after the death of her husband falls under the head EIncome from ?ther %ources"
Profits in lieu of salar.6
ny compensation due to or received by an employee from his employer or former employer at or in connection with the termination of his employment or modification of the terms and conditions relating thereto*
ny payment due to or received by an employee from his employer or former employer or from a provident or other fund to the e'tent it does not consist of contributions by the assessee or interest on such contributions or any sum!bonus received under a Heyman Insurance 7olicy"
ny amount whether in lump sum or otherwise, due to or received by an assessee from his employer, either before his joining employment or after cessation of employment"
18
Allowances from *alar. Incomes
Dearness Allowance9Additional Dearness !DA#6
ll dearness allowances are fully ta'able
Cit. Compensator. Allowance !CCA#6
)) is ta'able as it is a personal allowance granted to meet e'penses wholly, necessarily and e'clusively incurred in the performance of special duties unless such allowance is related to the place of his posting or residence"
)ertain allowances prescribed under 8ule /BB, granted to the employee either to meet his personal e'penses at the place where the duties of his office of employment are performed by him or at the place where he ordinarily resides, or to compensate him for increased cost of living are also e'empt"
+ouse Rent Allowance !+RA#6
+8 received by an employee residing in his own house o r in a house for which no rent is paid by him is ta'able" In case of other employees, +8 is e'empt up to a certain limit Entertainment Allowance6
1ntertainment allowance is fully ta'able, but a ded uction is allowed in certain cases"
19
Academic Allowance6
llowance granted for encouraging academic research and other professional pursuits, or for the books for the purpose, shall be e'empt u!s -:<-4=" %imilarly newspaper allowance shall also be e'empt"
Con/e.ance Allowance6
It is e'empt to the e'tent it is paid and utili;ed for meeting e'penditure on travel for official work"
20
Income from +ouse Propert.
Incomes Termed as +ouse Propert. Income6
$he annual value of a house property is ta'able as income in the hands of the owner of the property" +ouse property consists of any building or land, or its part or attached area, of which the assessee is the owner" $he part or attached area may be in the form of a courtyard or compound forming part of the building" But such land is to be distinguished from an open plot of land, which is not charged under this head but under the head EIncome from ?ther %ourcesA or EBusiness IncomeA, as the case may be" Besides, house property includes flats, shops, office space, factory sheds, agricultural land and farm houses"
+owever, following incomes shall be ta'able under the head EIncome from +ouse 7roperty"
-" Income from letting of any farm house agricultural land appurtenant thereto for any purpose other than agriculture shall not be deemed as agricultural income, but ta'able as income from house property"
/" ny arrears of rent, not ta'ed u!s /0, received in a subseCuent year, shall be ta'able in the year"
21
1ven if the house property is situated outside India it is ta'able in India if the owner( assessee is resident in India"
Incomes E5cluded from +ouse Propert. Income6
$he following incomes are e'cluded from the charge of income ta' under this head# • • •
nnual value of house property used for business purposes Income of rent received from vacant land" Income from house property in the immediate vicinity of agricultural land and used as a store house, dwelling house etc" b y the cultivators
Annual :alue6
Income from house property is ta'able on the basis of annual value" 1ven if the property is not let(out, notional rent receivable is ta'able as its annual value"
$he annual value of any property is the sum which the property might reasonably be e'pected to fetch if the property is let from year to year"
In determining reasonable rent factors such as actual ren t paid by the tenant, tenantAs obligation undertaken by owner, ownersA obligations undertaken by the tenant, location of the property, annual rateable value of the property fi'ed by municipalities, rents of similar properties in neighbourhood and rent which the property is likely to fetch having regard to demand and supply are to be considered"
Annual :alue of Let;out Propert.6 22
here the property or any part thereof is let out, the annual value of such property or part shall be the reasonable rent for that property or part or the actual rent received or receivable, whichever is higher"
Deductions from +ouse Propert. Income6
Deduction of +ouse Ta59Local Ta5es paid6
In case of a let(out property, the local ta'es such as municipal ta', water and sewage ta', fire ta', and education cess levied by a local authority are deductible while computing the annual value of the year in which such ta'es are actually paid by the owner"
Other than self;occupied properties
8epairs and collection charges# %tandard deduction of 0:J of the net annual value of the property"
Interest on (orrowed Capital6
Interest payable in India on borrowed capital, where the property has been acCuired constructed, repaired, renovated or reconstructed with such borrowed capital, is allowable
Amounts not deductible from +ouse Propert. Income6
ny interest chargeable under the ct payable out of India on which ta' has not been paid or deducted at source and in respect of which there is no person who may be treated as an agent"
1'penditures not specified as specifically deductible" &or instance, no deduction can be claimed in respect of e'penses on electricity, water supply, salary of liftman, etc"
*elf Occupied Properties
>o deduction is allowed under section /4<-= by way of repairs, insurance premium, etc" in respect of self(occupied property whose annual value has been taken to be nil under section /0
In case of self(occupied property acCuired or constructed with capital borrowed on or after -"4"-222 and the acCuisition or construction of the house property is made within 0
24
years from the end of the financial year in which capital was borrowed the ma'imum deduction for interest shall be 8s" -,5:,:::" &or this purpose, the assessee shall furnish a certificate from the person e'tending the loan that such interest was payable in respect of loan for acCuisition or construction of the house, or as refinance loan for repayment of an earlier loan for such purpose"
$he deduction for interest u!s /4<-= is allowable as unde r#
i" %elf(occupied property# deduction is restricted to a ma'imum of 8s" -,5:,::: for property acCuired or constructed with funds furrowed on or after -"4"-222 within 0 years from the end of the financial year in which the funds are borrowed" In other cases, the deduction is allowable up to 8s" 0:,:::"
ii" .et out property or part there of# all eligible interests are allowed"
It is, therefore, suggested that a property for self, residence may be acCuired with borrowed funds, so that the annual interest accrual on borrowings remains less than 8s" -,5:,:::" $he net loss on this account can be set off against income from other properties and even against other incomes"
If buying a property for letting it out on rent, raise borrowings from other family members or outsiders" $he rental income can be safely passed off to the other family
25
members by way of interest" If the interest claim e'ceeds the annual value, loss can be set off against other incomes too"
t the time of purchase of new house property, the same should be acCuired in the name
26
Capital &ains
ny profits or gains arising from the transfer of capital assets effected during the previous year is chargeable to income(ta' under the head F)apital gainsG and shall be deemed to be the income of that previous year in which the transfer takes place" $a'ation of capital gains, thus, depends on two aspects K Ecapital assetsA and transferA"
Capital Asset6
E)apital ssetA means property of any kind held by an assessee including property of his business or profession, but e'cludes non(capital assets"
Transfers Resulting in Capital &ains
•
%ale or e'change of assets* 8elinCuishment of assets* 1'tinguishment of any rights in assets* )ompulsory acCuisition of assets under any law* )onversion of assets into stock(in(trade of a business carried on by the owner of
•
asset* +anding over the possession of an immovable property in part performance of a
•
contract for the transfer of that property* $ransactions involving transfer of membership of a group housing society, company,
• • • •
etc"", which have the effect of transferring or enabling enjoyment of any immovable property or any rights therein *
27
•
Distribution of assets on the dissolution of a firm, body of individuals or association
•
of persons* $ransfer of a capital asset by a partner or member to the firm or ?7, whether by way
•
of capital contribution or otherwise* and $ransfer under a gift or an irrevocable trust of shares, debentures or warrants allotted by a company directly or indirectly to its employees under the 1mployeesA %tock ?ption 7lan or %cheme of the company as per )entral ovt" guidelines"
)apital gains form part of the ta'able income of the previous year in which the transfer giving rise to the gains takes place" $hus, the capital gain shall be chargeable in the year in which the sale, e'change, relinCuishment, etc" takes place"
here the transfer is by way of allowing possession of an immovable property in part performance of an agreement to sell, capital gain shall be deemed to have arisen in the year in which such possession is handed over" If the transferee already holds the possession of the property under sale, before entering into the agreement to sell, the year of ta'ability of capital gains is the year in which the agreement is entered into"
Classification of Capital &ains6
*hort Term Capital &ain6
28
ains on transfer of capital assets held by the a ssessee for not more than 03 months <-/ months in case of a share held in a company or any other security listed in a recogni;ed stock e'change in India, or a unit of the U$I or of a mutual fund specified u!s -:
Long Term Capital &ain6
$he capital gains on transfer of capital assets held by the assessee for more than 03 months <-/ months in case of shares held in a company or any other listed security or a unit of the U$I or of a specified mutual fund="
Period of +olding a Capital Asset6
enerally speaking, period of holding a capital asset is the duration for the date of its acCuisition to the date of its transfer" +owever, in respect of following assets, the period of holding shall e'clude or include certain other periods"
Computation of Capital &ains6
-" s certain the full value of consideration received or accruing as a result of the transfer" /" Deduct from the full value of consideration(
29
• •
$ransfer e'penditure like brokerage, legal e'penses, etc", )ost of acCuisition of the capital asset!inde'ed cost of acCu isition in case of long( term capital asset and )ost of improvement to the capital asset!inde'ed cost of improvement in case of long term capital asset" $he balance left(over is the gross
•
capital gain!loss" Deduct the amount of permissible e'emptions u!s 54, 54B, 54D, 541), 541D, 54&, 54 and 54+"
)ull :alue of Consideration6
$his is the amount for which a capital asset is transferred" It may be in money or mone yAs worth or combination of both" &or instance, in case of a sale, the full value of consideration is the full sale price actually paid b y the transferee to the transferor" here the transfer is by way of e'change of one asset for another or when the consideration for the transfer is partly in cash and partly in k ind, the fair market value of the asset received as consideration and cash consideration, if an y, together constitute full value of consideration"
In case of damage or destruction of an asset in fire flood, riot etc", the amount of money or the fair market value of the asset received by way of insurance claim, shall be deemed as full value of consideration"
-" &air value of consideration in case land and! or building* and /" $ransfer 1'penses" 30
Cost of Ac7uisition6
)ost of acCuisition is the amount for which the capital asset was originally purchased by the assessee"
)ost of acCuisition of an asset is the sum total of amount spent for acCuiring the asset" here the asset is purchased, the cost of acCuisition is the price paid" here the asset is acCuired by way of e'change for another asset, the cost of acCuisition is the fair market value of that other asset as on the date of e'change"
ny e'penditure incurred in connection with such purchase, e'change or other transaction e"g" brokerage paid, registration charges and legal e'penses, is added to price or value of consideration for the acCuisition of the asset" Interest paid on moneys borrowed for purchasing the asset is also part of its cost of acCuisition"
here capital asset became the property of the assessee before -"4"-29-, he has an option to adopt the fair market value of the asset as on -"4"-29-, as its cost of acCuisition"
Cost of Impro/ement6
)ost of improvement means all capital e'penditure incurred in making additions or alterations to the capital assets, by the assessee" Betterment charges levied by municipal
31
authorities also constitute cost of improvement" +owever, only the capital e'penditure incurred on or after -"4"-29-, is to be considered and that incurred before -"4"-29- is to be ignored"
Inde5ed cost of Ac7uisition9Impro/ement6
&or computing long(term capital gains, EInde'ed cost of acCuisition and EInde'ed cost of ImprovementA are reCuired to deducted from the full value of consideration of a capital asset" Both these costs are thus reCuired to be inde'ed with respect to the cost inflation inde' pertaining to the year of transfer"
32
Rates of Ta5 on Capital &ains6 *hort;term Capital &ains
%hort(term )apital ains are included in the gross total income o f the assessee and after allowing permissible deductions under )hapter LI(" 8ebate under %ections 99, 99B and 99) is also available against the ta' payable on short(term capital gains"
Long;term Capital &ains
.ong(term )apital ains are subject to a flat rate o f ta' /:J +owever, in respect of long term capital gains arising from transfer of listed securities or units of mutual fund!U$I, ta' shall be payable /:J / :J of the capital gain computed after allowing inde'ation benefit or -:J of the capital gain computed without giving the benefit of inde'ation, whichever is less"
Capital Loss6
$he amount, by which the value of consideration for transfer of an asset falls short of its cost of acCuisition and improvement !inde'ed cost of acCuisition and improvement, and the e'penditure on transfer, represents the capital loss" )apital .ossA may be short(term or long(term, as in case of capital gains, depending upon the period of holding of the asset"
*et Off and Carr. )orward of Capital Loss
33
•
ny short(term capital loss can be set off against any capital gain
•
short term= and against no other income" ny long(term capital loss can be set off only against long(term capital gain and
•
against no other income" ny short(term capital loss can be carried forward to the n e't eight assessment years
•
and set off against Ecapital gainsA in those years" ny long(term capital loss can be carried forward to the ne't eight assessment year and set off only against long(term capital gain in those years"
Capital &ains E5empt from Ta56
Capital &ains from Transfer of a Residential +ouse
ny long(term capital gains arising on the transfer of a residential house, to an individual or +U&, will will be e'empt from ta' if the assessee has within a period of one year before b efore or two years after the date of such transfer purchased, or within a period of three years constructed, a residential house"
Capital &ains from Transfer of Agricultural Land
34
ny capital gain arising from transfer of agricultural land, shall be e' empt from ta', if the assessee purchases within / years from the date of such transfer, any other agricultural land" ?therwise, the amount can be deposited under )apital ains ccounts %cheme, -299 before the due date for furnishing the return"
Capital &ains from Compulsor. Ac7uisition of Industrial -nderta=ing
ny capital gain arising from the transfer by wa y of compulsory acCuisition of land or building of an industrial undertaking, shall be e'empt, if the assessee purchases!constructs within three years from the the date of compulsory acCuisition, any building or land, forming part of industrial undertaking" ?therwise, ?therwise, the amount can be deposited under the E)apital ains ccounts %cheme, -299A before the due date for furnishing the return"
Capital &ains from an Asset other than Residential +ouse
ny long(term capital gain arising to an individual or an +U&, from the transfer of any asset, other than a residential house, shall be e 'empt if the whole of the net consideration is utili;ed within a period of one year before or two years after the date of transfer for purchase, or within 0 years in construction, of a residential house"
Ta5 Planning for Capital &ains
35
•
n assessee should plan transfer of his capital assets at such a time that capital gains
•
arise in the year in which his other recurring incomes are below ta'able limits" ssessees having income below 8s" 3:,::: should go for short(term capital gain instead of long(term capital gain, since income up to 8s" 3:,::: is ta'able -:J whereas long(term capital gains are ta'able at a flat rate of /:J" $hose having
•
income above 8s" -,5:,::: should plan their capital gains vice versa" %ince long(term capital gains enjoy a concessional treatment, the assessee should so arrange the transfers of capital assets that they fall in the categor y of long(term capital
•
assets" n assessee may go for a short(term capital gain, in the year when there is already a short(term capital loss or loss under any other head that can be set off against such
•
income" $he assessee should take the ma'imum benefit of o f e'emptions available u!s 54, 54B,
•
54D, 541D, 541), 54&, 54 and 54+" void void claiming short(term capital loss against long(term capital g ains" Instead claim it against short(term capital gain and if possible, either create some short(term capital
•
gain in that year or, defer long(term capital gains to ne't year" %ince the income of the minor children is to be clubbed in the hands of the parent, it would be better if the minor children have no or lesser recurring income but have income from capital gain because the capital gain will be ta'ed at the flat rate of /:J and thus the clubbing would not increase the ta' incidence for the parent"
36
Profits and &ains of (usiness or Profession
Income from (usiness or Profession6
$he following incomes shall be chargeable under this head •
7rofit and gains of any business or profession carried on by the assessee at any time
•
during previous year" ny compensation or other payment due to or received by any person, in connection with the termination of a contract of managing agency or for vesting in the
•
•
overnment management of any property or business" Income derived by a trade, professional or similar association from specific services performed for its members" 7rofits on sale of 817 licence!1'im scrip, cash assistance received or receivable against e'ports, and duty drawback of o f customs or e'cise received or receivable
•
against e'ports" $he value of any benefit or perCuisite, whether convertible into money or n ot, arising
•
from business or in e'ercise of a profession" ny interest, salary, bonus, commission commission or remuneration due to or received by a partner of a firm from the firm to the the e'tent it is allowed to be deducted from the firmAs income" ny interest salary etc" which is not allowed to be deducted u!s 4:
•
the income of the partners shall be adjusted to the e'tent of the amount so disallowed" ny sum received or receivable in cash or in kind under an agreement for not carrying out activity in relation to any business, b usiness, or not to share any know(how, patent, copyright, trade(mark, licence, franchise or any other business or commercial right of, similar nature of information or techniCue likely to assist in the manufacture or processing of goods or provision for services e'cept when such sum is ta'able under 37
the head Ecapital gainsA or is received as compensation from the multilateral fund of
• •
the Montreal 7rotocol on %ubstances that Deplete the ?;one .ayer" ny sum received under a Heyman Insurance 7olicy referred to u!s -:<-:D=" ny allowance or deduction allowed in an earlier year in respect of loss, e'penditure or trading liability incurred by the assessee and subseCuently received by him in cash
•
• •
or by way of remission or cessation of the liability during the previous year" 7rofit made on sale of a capital asset for scientific research in respect of which a deduction had been allowed u!s 05 in an earlier year" mount recovered on account of bad debts allowed u!s 03<-=
E5penses Deductible from (usiness or Profession6
&ollowing e'penses incurred in furtherance of trade or profession are admissible as
• • •
deductions" 8ent, rates, ta'es, repairs and insurance of buildings" 8epairs and insurance of machinery, plat and furniture" Depreciation is allowed on# Building, machinery, plant or furniture, being tangible assets, Hnow how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets, acCuired on or after
• • •
•
-"4"-229" Development rebate" Development allowance for $ea Bushes planted before -"4"-22:" mount deposited in $ea Development ccount or 4:J profits and gains from business of growing and manufacturing tea in India, mount deposited in %ite 8estoration &und or /:J of profit, whichever is less, in case of an assessee carrying on business of prospecting for, or e'traction or production of, petroleum or natural gas or both in India" $he assessee shall get his 38
accounts audited from a chartered accountant and furnish an audit report in &orm 0
• •
D" 8eserves for shipping business" %cientific 8esearch 1'penditure on scientific research related to the business of assessee, is deductible in that previous year" ?ne and one(fourth times any sum paid to a scientific research association or an approved university, college or other institution for the purpose of scientific research, or for research in social science or statistical research" ?ne and one(fourth times the sum paid to a >ational .aboratory or a University or an Indian Institute of $echnology or a specified person with a specific direction that the said sum shall be used for scientific research under a programme approved in this behalf by the prescribed authority" ?ne and one half times, the e'penditure incurred up to 0-"0"/::5 on scientific research on in(house research and development facility, by a company engaged in the business of bio(technology or in the manufacture of any drugs, pharmaceuticals, electronic eCuipments, computers telecommunication eCuipments, chemicals or other
•
notified articles" 1'penditure incurred before -"4"-229 on acCuisition of patent rights or copyrights, used for the business, allowed in -4 eCual instalments starting from the year in which
•
it was incurred" 1'penditure incurred before -"4"-229 on acCuiring know(how for the business, allowed in 3 eCual instalments" here the know(how is developed in a laboratory,
•
University or institution, deduction is allowed in 0 eCual instalments" ny capital e'penditure incurred and actually paid by an assessee on the acCuisition of any right to operate telecommunication services b y obtaining licence will be allowed as a deduction in eCual instalments over the period starting from the year in which payment of licence fee is made or the year in which business commences 39
where licence fee has been paid before commencement and ending with the year in
•
which the licence comes to an end" 1'penditure by way of payment to a public sector company, local authority or an approved association or institution, for carrying out a specified project or scheme for promoting the social and economic welfare or upliftment of the public" $he specified projects include drinking water projects in rural areas and urban slums, construction of dwelling units or schools for the economically weaker sections, projects of non( conventional and renewable source of energy systems, bridges, public highways,
•
roads promotion of sports, pollution control, etc" 1'penditure by way of payment to association and institution for carrying out rural development programmes or to a notified rural deve lopment fund, or the >ational
•
Urban 7overty 1radication &und" 1'penditure incurred on or before 0-"0"/::/ by way of payment to associations and institutions for carrying out programme of conservation of natural resources or
•
afforestation or to an approved fund for afforestation" mortisation of certain preliminary e'penses, such as e'penditure for preparation of project report, feasibility report, feasibility report, market survey, etc", legal charges for drafting and printing charges of Memorandum and rticles, registration e'penses, public issue e'penses, etc" 1'penditure incurred after 0-"0"-299, shall be deductible up to a ma'imum of 5J of the cost of project or the capital e'ployed, in 5 eCual
•
instalments over five successive years" ?ne(fifth of e'penditure incurred on amalgamation or demerger, by an Indian company shall be deductible in each of five successive years beginning with the year in which amalgamation or demerger takes place"
40
•
?ne(fifth of the amount paid to an employee on his voluntary retirement under a scheme of voluntary retirement, shall be deductible in each of five successive years
• • •
beginning with the year in which the amount is paid" Deduction for e'penditure on prospecting, etc" for certain minerals" Insurance premium for stocks or stores" Insurance premium paid by a federal milk co(operative society for cattle owned by a
•
member" Insurance premium paid for the health of employees by cheCue under the scheme
•
framed by "I")" and approved by the )entral overnment" 7ayment of bonus or commission to employees, irrespective of the limit under the
•
7ayment of Bonus ct" Interest on borrowed capital" 7rovident and superannuation fund contribution" pproved gratuity fund contributions" ny sum received from the employees and credited to the employees account in the
•
relevant fund before due date" .oss on death or becoming permanently useless of animals in connection with the
• • •
•
business or profession" mount of bad debt actually written off as irrecoverable in the accounts not including
•
provision for bad and doubtful debts" 7rovision for bad and doubtful debts made by special reserve created and maintained by a financial corporation engaged in providing long(term finance for industrial or agricultural development or infrastructure development in India or b y a public
• • •
company carrying on the business of providing housing finance" &amily planning e'penditure by compan y" )ontributions towards 1'change 8isk dministration &und" 1'penditure, not being in nature of capital e'penditure or personal e'penditure of the assessee, incurred in furtherance of trade" +owever, any e'penditure incurred for a purpose which is an offence or is prohibited by law, shall not be deductible"
41
•
• • •
• • • •
1ntertainment e'penditure can be claimed u!s 06<-=, in full, without any limit!restriction, provided the e'penditure is not of capital or personal nature" 7ayment of salary, etc" and interest on capital to partners 1'penses deductible on actual payment only" ny provision made for payment of contribution to an approved gratuity fund, or for payment of gratuity that has become payable during the year" %pecial provisions for computing profits and gains of civil contractors" %pecial provision for computing income of truck owners" %pecial provisions for computing profits and gains of retail business" %pecial provisions for computing profits and gains of shipping business in the case of
•
non(residents" %pecial provisions for computing profits or gains in connection with the business of
•
e'ploration etc" of mineral oils" %pecial provisions for computing profits and gains of the bu siness of operation of
•
aircraft in the case of non(residents" %pecial provisions for computing profits and gains of foreign companies e ngaged in
• •
the business of civil construction, etc" in certain turnkey projects" Deduction of head office e'penditure in the case of non(residents" %pecial provisions for computing income by way of royalties etc" in the case of foreign companies
1'penses deductible for authors receiving income from royalties In case of Indian authors!writers where the amount of ro yalties receivable during a • previous year are less than 8s" /5,::: and where detailed accounts regarding e'penses incurred are not maintained, deduction for e'penses may be allowed up to /5J of such amount or 8s" 5,:::, whichever is less" $he above deduction will be
•
allowed without calling for any evidence in support of e'penses" If the amount of royalty receivable e'ceeds 8s"/5,::: only the actual e'penses incurred shall be allowed"
42
*et Off and Carr. )orward of (usiness Loss6
If there is a loss in any business, it can be set off against profits of any other business in the same year" $he loss, if any, still remaining can be set off against income under any other head"
+owever, loss in a speculation business can be adjusted only against profits of another speculation business" .osses not adjusted in the same year can be carried forward to subseCuent years"
43
Income from Other *ources
Other *ources
$his is the last and residual head of charge of income" Income of every kind which is not to be e'cluded from the total income under the Income $a' ct shall be charge to ta' under the head Income &rom ?ther %ources, if it is not chargeable under any of the other four heads(Income from %alaries, Income &rom +ouse 7roperty, 7rofits and ains from Business and 7rofession and )apital ains" In other words, it can be said that the residuary head of income can be resorted to only if none of the specific heads is applicable to the income in Cuestion and that it comes into operation only if the preceding heads are e'cluded"
Illustrati/e List
&ollowing is the illustrative list of incomes chargeable to ta' under the he ad Income from ?ther %ources#
ny dividend declared, distributed or paid by the company to its shareholders is chargeable to ta' under the head EIncome from ?ther %ourcesG, irrespective of the fact whether shares are held by the assessee as investment or stock in trade" Dividend is
44
deemed to be the income of the previous year in which it is declared, distributed or paid" +owever interim dividend is deemed to be the income of the year in which the amount of such dividends unconditionally made available by the company to its shareholders"
+owever, any income by way of dividends is e'empt from ta' u!s-:<04= and no ta' is reCuired to be deducted in respect of such dividends"
( v ) here any sum of money e'ceeding twenty(five thousand rupees is received without consideration by an individual or a +indu undivided family from any person on or after
45
the -st day of %eptember, /::4, the whole of such sum, provided that this clause shall not apply to any sum of money received
DirectorAs fees from a company, directorAs commission for standing as a guaran tor to bankers for allowing overdraft to the company and directorAs commission for
• •
underwriting shares of a new company" Income from ground rents" Income from royalties in general"
46
Deductions from Income from Other *ources6
$he income chargeable to ta' under this head is computed after making the following deductions#
-" In the case of dividend income and interest on securities# any reasonable sum paid by way of remuneration or commission for the purpose of rea li;ing dividend or interest"
/" In case of income in the nature of family pension# 8s"-5, :::or 00"5J of such income, whichever is low"
0" In the case of income from machinery, plant or furniture let on hire#
4" ny other e'penditure
47
C+APTER > DED-CTIO* )RO' TA"A(LE ICO'E • • • • • • • • • •
Deduction under section 9:) Deduction under section 9:))) Deduction under section 9:D Deduction under section 9:DD Deduction under section 9:DDB Deduction under section 9:1 Deduction under section 9: Deduction under section 9: Deduction under section 9: Deduction under section 9:))1
48
Deduction under section ?@C
$his new section has been introduced from the &inancial ear /::5(:3" Under this section, a deduction of up to 8s" -,::,::: is allowed from $a'able Income in respect of investments made in some specified schemes" $he specified schemes are the same which were there in section 99 but without any sectoral caps
•
)ontribution towards premium on life insurance
•
)ontribution towards 7ublic 7rovident &und"
•
)ontribution towards 1mployee 7rovident &und!eneral 7rovident &und
•
Unit .inked Insurance 7lan
•
>%) LIII Issue
•
Interest accrued in respect of >%) LIII Issue
•
1Cuity .inked %avings %chemes <1.%%="
•
8epayment of housing .oan <7rincipal="
•
$uition fees for child education"
•
Investment in companies engaged in infrastructural facilities"
49
>otes for %ection 9:)
-" $here are no sectoral caps
/" mount invested in these instruments would be allowed as deduction irrespective of the fact whether
0" %ection 9:) deduction is allowed irrespective of assessees income level" 1ven persons with ta'able income above 8s" -:,::,::: can avail benefit of section 9:)"
4" s the deduction is allowed from ta'able income, the e'act savings in ta' will depend upon the ta' slab of the individual" $hus, a person in 0:J ta' stab can save income ta' up to 8s" 0:,3::
Deduction under section ?@CCC
Deduction in respect of contribution to certain 7ension &unds# Deduction is allowed for the amount paid or deposited by the assessee during the previous year out of his ta'able income to the annuity plan
mount of Deduction# Ma'imum 8s" -:,:::!(
Deduction under section ?@D
Deduction in respect of Medical Insurance 7remium Deduction is allowed for any medical insurance premium under an approved scheme of eneral Insurance )orporation of India popularly known as M1DI).IM= or of any other insurance company, paid by cheCue, out of assesseeAs ta'able income during the previous year, in respect of the following
In case of an individual K insurance on the health of the assessee, or wife or husband, or dependent parents or dependent children"
In case of an +U& K insurance on the health of any member of the family
mount of deduction# Ma'imum 8s" -:,:::, in case the person insured is a senior citi;en
Deduction under section ?@DD
Deduction in respect of maintenance including medical treatment of handicapped dependent#
Deduction is allowed in respect of K any e'penditure incurred by an assessee, during the previous year, for the medical treatment training and rehabilitation of one or more dependent persons with disability* and 51
mount deposited, under an approved scheme of the .ife Insurance )orporation or other insurance company or the Unit $rust of India, for the benefit of a dependent person with disability"
mount of deduction# the deduction allowable is 8s" 5:,::: <8s" 4:,::: for "" /::0( /::4= in aggregate for any of or both the purposes specified above, irrespective of the actual amount of e'penditure incurred" $hus, if the total of e'penditure incurred and the deposit made in approved scheme is 8s" 45,:::, the deduction allowable for "" /::4( /::5, is 8s" 5:,:::
Deduction under section ?@DD(
Deduction in respect of medical treatment resident individual or +indu Undivided family deduction is allowed in respect of during a year for the medical treatment of specified disease or ailment for himself or a dependent or a member of a +indu Undivided &amily"
mount of Deduction mount actually paid or 8s" 4:,::: whichever is less
Deduction under section ?@E
52
Deduction in respect of 8epayment of .oan taken for +igher 1ducation n individual assessee who has taken a loan from any financial institution or any approved charitable institution for the purpose of pursuing his h igher education i"e" full time studies for any graduate or post graduate course in engineering medicine, management or for post graduate course in applied sciences or pure sciences including mathematics and statistics"
mount of Deduction# ny amount paid by the assessee in the previous year, out of his ta'able income, by way of repayment of loan or interest thereon, subject to a ma'imum of 8s" 4:,:::
Deduction under section ?@&
Donations#
-:: J deduction is allowed in respect of donations to# >ational Defence &und, 7 rime MinisterAs >ational 8elief &und, rmenia 1arthCuake 8elief &und, frica &und, >ational &oundation of )ommunal +armony, an approved University or educational institution of national eminence, )hief MinisterAs earthCuake 8elief &und etc"
In all other cases donations made Cualifies for the 5:J of the donated amount for deductions"
Deduction under section ?@&& 53
Deduction in respect of 8ent 7aid# ny assessee including an employee who is not in receipt of +"8"" u!s -:<-0= mount of Deduction# .east of the following amounts are allowable# • • •
8ent paid minus -:J of assesseeAs total income 8s" /,::: p"m" /5J of total income
Deduction under section ?@&&A
Donations for %cientific 8esearch or 8ural Development# In respect of institution or fund referred to in clause
$his deduction is not applicable where the gross total income of the assessee includes the income chargeable under the head 7rofits and gains of business or profession" In those cases, the deduction is allowable under the respective sections specified above"
Deduction under section ?@CCE
new %ection 9:))1 has been inserted from &/::5(:3" s per this section, the ma'imum amount of deduction that an assessee can claim under %ections 9:), 9:))) and 9:))D will be limited to 8s -::,:::"
54
C+APTER CO'P-TATIO O) TA" LIA(ILIT<
• • •
$a' 8ates for "" /::6(:9 %ample $a' .iability )alculations &iling of Income $a' 8eturn
55
Ta5 Rates for AB
&ollowing rates are applicable for computing ta' liability for the current &inancial ear ending on March 0- /::6, <ssessment ear /::6(:9=" Table ,6 )or Resident 'ale Indi/iduals below 4 .ears of age et Income Range
Income Ta5
Up to 8s" -,-:,:::
>il
8s" -,-:,::: to 8s" -,5:,:::
Plus *urcharge
Plus Education Cess
>il
>il
-:J of Income above 8s" -,-:,:::
>il
0J of Income $a'
8s" -,5:,::- to 8s" /,5:,:::
8s" 4,::: O /:J of Income above 8s" -,5:,:::
>il
0J of Income $a'
8s" /,5:,::- to 8s" -:,::,:::
8s" /4,::: O 0:J of Income above 8s" /,5:,:::
>il
0J of Income $a'
bove 8s" -:,::,:::
8s" /,42,::: O 0:J of Income above 8s" -:,::,:::
-:J of Income $a'
0J of Income $a' and surcharge
Table 16 )or Resident )emale Indi/iduals below 4 .ears of age et Income Range
Income Ta5
Up to 8s" -,45,:::
>il
8s" -,45,::- to 8s" -,5:,:::
Plus *urcharge
Plus Education Cess
>il
>il
-:J of Income above 8s" -,45,:::
>il
0J of Income $a'
8s" -,5:,::- to 8s" /,5:,:::
8s" 5:: O /:J of Income above 8s" -,5:,:::
>il
0J of Income $a'
8s" /,5:,::- to 8s" -:,::,:::
8s" /:,5:: O 0:J of Income above 8s" /,5:,:::
>il
0J of Income $a'
bove 8s" -:,::,:::
8s" /,45,::: O 0:J of Income above 8s" -:,::,:::
-:J of Income $a'
0J of Income $a' and surcharge
56
Table 86 )or Resident *enior Citiens !who are 4 .ears or more at an. time during the )inancial
Income Ta5
Up to 8s" -,25,:::
>il
8s" -,25,::- to 8s" /,5:,:::
Plus Education Cess
Plus *urcharge
>il
>il
/:J of Income above 8s" -,25,:::
>il
0J of Income $a'
8s" /,5:,::- to 8s" -:,::,:::
8s" --,::: O 0:J of Income above 8s" /,5:,:::
>il
0J of Income $a'
bove 8s" -:,::,:::
8s" /,03,::: O 0:J of Income above 8s" -:,::,:::
-:J of Income $a'
0J of Income $a' and surcharge
Note: The rules for “Senior Citizen” are the same as for ‘Men’ as well as ‘omen’. !n" person who turns #$ on an" %a" prior to or on March &' **+ will be treate% as a Senior Citizen.
*ample Ta5 Liabilit. Calculations Table >6 )or Resident 'ale Indi/iduals below 4 .ears of age Annual Ta5able Income
Income Ta5
*urcharge
Education Cess
Total
--::::
:
:
:
:
-45:::
05::
:
-:5
03:5
-5::::
4:::
:
-/:
4-/:
-25:::
-0:::
:
02:
-002:
/:::::
-4:::
:
4/:
-44/:
/5::::
/4:::
:
6/:
/46/:
0:::::
02:::
:
--6:
4:-6:
4:::::
32:::
:
/:6:
6-:6:
5:::::
22:::
:
/26:
-:-26:
-::::::
/42:::
:
646:
/5346:
57
--:::::
/62:::
/62::
2/:6
0-3-:6
Table 6 )or Resident )emale Indi/iduals below 4 .ears of age Annual Ta5able Income
Income Ta5
*urcharge
Education Cess
Total
--::::
:
:
:
:
-45:::
:
:
:
:
-5::::
5::
:
-5
5-5
-25:::
25::
:
/95
2695
/:::::
-:5::
:
0-5
-:9-5
/5::::
/:5::
:
3-5
/---5
0:::::
055::
:
-:35
03535
4:::::
355::
:
-235
36435
5:::::
255::
:
/935
29035
-::::::
/455::
:
6035
/5/935
--:::::
/655::
/655:
2:2/
0-/-4/
Table 46 )or Resident *enior Citiens !o/er 4 .ears age at an. time during )B
Income Ta5
*urcharge
Education Cess
Total
--::::
:
:
:
:
-45:::
:
:
:
:
-5::::
:
:
:
:
-25:::
:
:
:
:
/:::::
-:::
:
0:
-:0:
/5::::
--:::
:
00:
--00:
0:::::
/3:::
:
69:
/369:
4:::::
53:::
:
-39:
5639:
5:::::
93:::
:
/59:
9959:
-::::::
/03:::
:
6:9:
/40:9:
58
--:::::
/33:::
/33::
9669
0:-069
)iling of Income Ta5 Return
-" &iling of income ta' return is compulsory for all individuals whose gross annual income e'ceeds the ma'imum amount which is not chargeable to income ta' i"e" 8s" -,45,::: for 8esident omen, 8s" -,25,::: for %enior )iti;ens and 8s" -,-:,::: for other individuals and +U&s" /" $he last date of filing income ta' return is Nuly 0-, in case of individuals who are not covered in point 0 below" 0" If the income includes business or professional income reCuiring ta' audit
59
C+APTER 4 TA" PLAI& ; RECO''EDATIO* AD -*E)-L TIP*
• •
•
$a' 7lanning $a' 7lanning $ools %trategic $a' 7lanning Insurance o 7ublic 7rovident &und o 7ension 7olicies o &ive year &i'ed Deposits <&Ds=, >ational %avings %cheme <>%)=, other bonds o 1Cuity .inked %avings %cheme <1.%%= o Income +ead(wise $a' 7lanning $ips
60
Ta5 Planning
7roper ta' planning is a basic duty of every person which should be carried out religiously" Basically, there are three steps in ta' planning e'ercise"
$hese three steps in ta' planning are# •
)alculate your ta'able income under all heads i"e", Income from %alary, +ouse 7roperty, Business @ 7rofession, )apital ains and Income from ?ther %ources"
•
)alculate ta' payable on gross ta'able income for whole financial year
•
fter you have calculated the amount of your ta' liability" ou have two options to choose from# -" 7ay your ta' <>o ta' planning reCuired= /" Minimise your ta' through prudent ta' planning"
Most people rightly choose ?ption B" +ere you have to compare the advantages of several ta'(saving schemes and depending upon your age, social liabilities, ta' slabs and personal preferences, decide upon a right mi' of investments, which shall reduce your ta' liability to ;ero or the minimum possible"
1very citi;en has a fundamental right to avail all the ta' incentives provided by the overnment" $herefore, through prudent ta' planning no t only income(ta' liability is reduced but also a better future is ensured due to compulsory savings in highly safe
61
overnment schemes" e should plan our investments in such a way, that the post(ta' yield is the highest possible keeping in view the basic parameters of safety and liCuidity"
&or most individuals, financial planning and ta' planning are two mutually e'clusive e'ercises" hile planning our investments we spend considerable amount of time evaluating various options and determining which suits us best" But when it comes to planning our investments from a ta'(saving perspective, more often than not, we simply go the traditional way and do the e'act same thing that we did in the earlier years" ell, in case you were not aware the guidelines governing such investments are a lot different this year" nd lethargy on your part to rework your investment plan could cost you dear"
hy are the stakes higher this yearP Until the previous year, ta' benefit was provided as a rebate on the investment amount, which could not e'ceed 8s -::,:::* of this 8s 0:,::: was e'clusively reserved for Infrastructure Bonds" lso, the rebate reduced with every rise in the income slab* individuals earning over 8s 5::,::: per year were not eligible to claim any rebate" &or the current financial year, the 8s -::,::: limit has been retained* however internal caps have been done away with" Individuals have a much greater degree of fle'ibility in deciding how much to invest in the eligible instruments" $he other significant changes are# •
$he rebate has been replaced by a deduction from gross total income, effectively" $he higher your income slab, the greater is the ta' benefit"
•
ll individuals irrespective of the income bracket are eligible for this investment" $hese developments will result in higher ta'(savings"
62
e should use this 8s -::,::: contribution as an integral part of your overall financial planning and not just for the purpose of saving ta'" e should understand which instruments and in what proportion suit the reCuirement best" In this note we recommend a broad asset allocation for ta' saving instruments for different investor profiles"
)or persons below 8@ .ears of age6
In this age bracket, you probably have a high appetite for risk" our disposable surplus maybe small %)!77&"
)or persons between 8@ ; > .ears of age6
our appetite for risk will gradually decline over this age bracket as a result of which your e'posure to the stock markets will need to be adjusted accordingly" s your compensation increases, so will your contribution to the 17&" $he life insurance
63
component can be maintained at the same level* assuming that you would have already taken adeCuate life insurance and there is no need to add to it" In keeping with your reducing risk appetite, your contribution to 77&!>%) increases" ?ne benefit of the higher contribution to 77& will be that your account will be maturing %)" +owever, it is important that you continue to allocate some money to stocks" $he reason being that even at age 55, you probably have -5 ( /: years of retired life* therefore having some portion of your money invested for longer durations, in the high risk ( high return categor y, will help in building your nest egg for the latter part of your retired life"
)or persons o/er .ears of age6 64
ou are to retire in a few years* then you will have to depend on your investments for meeting your e'penses" $herefore the money that you have to invest under %ection 9:) must be allocated in a manner that serves both near term income reCuirements as well as long(term growth needs" Most of the funds are therefore allocated to >%)" our 77& account probably will mature early into your retirement
Investing the 8s -::,::: in a manner that saves both ta'es as well as helps you achieve your long(term financial objectives is not a difficult e'ercise" ll it reCuires is for you to give it some thought, draw up a plan that suits you best and then be disciplined in e'ecuting the same"
65
Ta5 Planning Tools
&ollowing are the five ta' planning tools that simultaneously help the assessees ma'imi;e their wealth too"
Most of what we do with respect to ta' saving, planning, investment whichever way you call it is going to be of little or no use in years to come"
$he returns from such investments are likely to be minuscule and or they may not serve any worthwhile use of your money" $a' planning is very strategic in nature and not like the last minute fire fighting most do each year"
&or most people, ta' planning is akin to some kind of a burden that they want off their shoulders as soon as possible" s a result, the attitude is whatever seems ok and will help save ta' K EletAs go for itA ( the basic mantra" hat is really foolhardy is that saving ta' is a larger prerogative than that of utilisation of your hard earned money and the future of such monies in years to come"
.ike each year we may continue to do what we do or give ourselves a choice this year round" .etAs think before we put down our investment declarations this time around" .ike each year product manufacturers will be on a high note enticing you to buy their products and save ta'" s usual the market will be flooded b y agents and brokers having solutions
66
for you" +ere are some guidelines to help you wade through the various options and ensure the following#
-" $a' is saved and that you claim the full benefit of your section 9:) benefits /" 7roduct are chosen based on their long term merit and not like fire fighting options undertaken just to reach that 8s - lakh investment mark 0" 7roducts are chosen in such a manner that multiple life goals can be fulfilled and that they are in line with your future goals and e'pectations 4" 7roducts that you choose help you optimise returns while you save ta' in the immediate future"
*trategic Ta5 Planning
%o far with whatever you have done in the past, it is important to understand the future implications of your ta' saving strategy" ou cannot do much about the statutory commitments and contribution like provident fund <7&= but a ll the rest is in your control"
,B Insurance
If you have a traditional money back policy or an endowment type of policy understand that you will be earning about 4J to 3J returns on such policies" In years to come, this will be lower or just eCual to inflation and hence you are not creating any wealth, infact you are destroying the value of your wealth rapidly"
67
%uch policies should ideally be restructured and making them paid up is a good option" ou can buy term assurance plan which will serve your need to obtaining life cover and all the same release unproductive cash flow to be deployed into more productive and wealth generating asset classes" Be careful of U.I7%* invest if you are under 05 years of age, else as and when the stock markets are down or enter into a downward phase" our U.I7 will turn out to be very e'pensive as your age increases" gain I am sure you did not know this"
1B Public Pro/ident )und !PP)#
$his has been a long time favourite of most people" It is a no(brainer and hence most people prefer this but note this" $he current returns are 9J and Cuite likely that sooner or later with the implementation of the e'empt ta' <11$= regime of ta'ation investments in 77& may become redundant, as returns will fall significantly"
+ow this will be implemented is not clear hence the best option is to go easy on this one" %imply place a nominal sum to keep your account active before there is clarity on this front" 11$ may apply to insurance policies as well"
8B Pension Policies
$his is the greatest mistake that many people make" $here is no pension policy today, which will really help you in retirement" $hat is the cold fact" $ulip pension policies may
68
help you to some e'tent but I would give it a rating of four out of ten" It is Cuite likely that you will make a si;eable sum by the time you retire but that is where the problem begins"
$he problem with pension policies is that you will get a measly /J or 4J annuity when you actually retire" $o make matters worse this will be ta'ed at full marginal rate of income ta' as well" .iCuidity and fle'ibility will just not be there" >o insurance company or agent will agree to this but this is a cold fact"
%teer clear of such policies" 1ither make the m paid up or stop paying $ulip premiums, if you can" Divest the money to more productive assets based on your overall risk profile and general preferences" Bite this K 8s -:: today will be worth only 8s 0/ say in /: years time considering 5J inflation"
>B )i/e .ear fi5ed deposits !)Ds#2 ational *a/ings *cheme !*C#2 other bonds
$hese products are fair if your risk appetite is really low and if you are not too keen to build wealth" enerally speaking, in all that we do wealth creation should be the underlying motive"
B E7uit. Lin=ed *a/ings *cheme !EL**#
$his is a good option" ou save ta' and returns are ta'(free completely" ou get to build a lot of wealth" +owever, note that this is fraught with risk" $hough it is said that this
69
investment into an 1.%% scheme is locked(in for three years you should be mentally prepared to hold it for five to -: years as well"
It is an eCuity investment and when your three years are over, you may not have made great returns or the stock markets may be down at that point" If that be the case, you will have to hold much longer" +ence if you wish to use such funds in three(four years time the calculations can go wrong"
>evertheless, strange as it may seem, the high(risk investment has the least ta' liability, infact it is nil as per the current ta' laws" If you are prepared to hold for long really long like five(ten years, surely you will make super normal returns"
$hat said ideally you must have your financial goal in mind first and then see how you can meet your goals and in the process take advantage of ta' savings strategies"
$here is so much to be done while you plan your ta'" .ook at 9:) benefits as a composite tool" .ook at this as a ta' management tool for the family and not just yourself" ou have section 9:) benefit for yourself, your spouse, your +U&, your parents, your fatherAs +U&" $here are so many 8s - lakh to be planned and hence so much to benefit from good ta' planning"
$raditionally, buying life insurance has always formed an integral part of an individuals annual ta' planning e'ercise" hile it is important for individuals to have life cover, it is 70
eCually important that they buy insurance keeping both their long(term financial goals and their ta' planning in mind" $his note e'plains the role of life insurance in an individuals ta' planning e'ercise while also evaluating the various options available at ones disposal"
Term plans
term plan is the most basic type of life insurance plan" In this plan, only the mortality charges and the sales and administration e'penses are covered" $here is no savings element* hence the individual does not receive any maturity benefits" term plan should form a part of every individuals portfolio" n illustration will help in understanding term plans better"
Co/er .ourself with a term plan Table 6 Term Plan Returns Comparison Tenure !
20
25
30
ICICI Prudential LIC !Anmol !Life &uard# ee/an I#
20
25
30
20
25
*(I Life !*hield#
30
20
25
$ota= 'ahindra Old 'utual !Preferred Term plan# 30
20
25
30
Age 1 /,6/: /,66: /,9/: /,266 /,266 0,-5: /,544 /,93- > -,25 /,-9 > /,4/4 /,505 /,655 4 : Age 8 0,59: 4,-/: 4,65: 4,:69 4,2:: > 4,3-0 5,504 > 0,54 4,06 > 0,646 4,-99 4,602 / 5 Age > 6,3/:
∼
∼
>
>
>
>
>
>
> > 9,05 > 4
> 6,626 9,26:
The premiums ,iven in the table are for a sum assure% of -s '****** for a health" nonsmo/in, male. Ta0es as applicable ma" be levie% on some premium 1uotes ,iven above.
71
>
∼
The premium 1uotes are as shown on websites of the respective insurance companies. 2n%ivi%uals are a%vise% to contact the insurance companies for further %etails.
.et us suppose an individual aged /5 years, wants to buy a term plan for tenure of /: years and a sum assured of 8s -,:::,:::" s the table shows, a term plan is offered by insurance companies at a very affordable rate" In case of an eventuality during the policy tenure, the individuals nominees stand to receive the sum assured of 8s -,:::,:::"
Individuals should also note that the term plan offering differs across life insurance companies" It becomes important therefore to evaluate all the options at their disposal before finali;ing a plan from any one company" &or e'ample, some insurance companies offer a term plan with a ma'imum tenure of /5 years while other companies do so for 0: years" certain insurance company also has an upper limit of 8s -,:::,::: for its sum assured"
-nit lin=ed insurance plans !-LIPs#
Unit linked plans have been a rage of late" ith the advent of the private insurance companies and increased competition, a lot has happened in terms of product innovation and aggressive marketing of the same" U.I7s basically work like a mutual fund with a life cover thrown in" $hey invest the premium in market(linked instruments like stocks, corporate bonds and government securities <secs="
$he basic difference between U.I7s and traditional insurance plans is that while traditional plans invest mostly in bonds and secs, U.I7s mandate is to invest a major
72
portion of their corpus in stocks" Individuals need to understand and digest this fact well before they decide to buy a U.I7"
+aving said that, we believe that eCuities are best eCuipped to give better returns from a long term perspective as compared to other investment avenues like gold, property or bonds" $his holds true especially in light of the fact that assured return life insurance schemes have now become a thing of the past" $oday, policy returns really depend on how well the company is able to manage its finances"
+owever, investments in U.I7s should be in tune with the individuals risk appetite" Individuals who have a propensity to take risks could consider buying U.I7s with a higher eCuity component" lso, U.I7 investments should fit into an individuals financial portfolio" If for e'ample, the individual has already invested in ta' saving funds while conducting his ta' planning e'ercise, and his financial portfolio or his risk appetite doesnt permit him to invest in U.I7s, then what h e may need is a term plan and not unit linked insurance"
Pension9retirement plans
7lanning for retirement is an important e'ercise for any individual" retirement plan from a life insurance company helps an individual insure his life for a specific sum assured" t the same time, it helps him in accumulating a corpus, which he receives at the time of retirement"
73
7remiums paid for pension plans from life insurance companies enjoy ta' benefits up to 8s -:,::: under %ection 9:)))" Individuals while conducting their ta' planning e'ercise could consider investing a portion of their insurance money in such plans"
Unit linked pension plans are also available with most insurance companies" s already mentioned earlier, such investments should be in tune with their risk appetites" +owever, individuals could contemplate investing in pension U.I7s since retirement planning is a long term activity"
Traditional endowment9endowment t.pe plans
Individuals with a low risk appetite, who want an insurance cover, which will also give them returns on maturity could consider buying traditional endowment plans" %uch plans invest most of their monies in corporate bonds, secs and the money market" $he return that an individual can e'pect on such plans should be in the 4J(6J range as given in the illustration below"
Table ?6 Traditional Endowment Plan Returns Age !
*um Assured !Rs#
Premium !Rs#
Tenure !
'aturit. Amount !Rs#F
Actual rate of return !G#
Compan. A
0:
-,:::,:::
35,:6:
-5
-,394,:::
3"55
Compan. (
0:
-,:::,:::
35/:/
-5
-,633,552
6":2
∼
∼
∼
The maturit" amounts shown above are at the rate of '*3 as per compan" illustrations. -eturns calculate% b" the compan" are on the premium amount net of e0penses. Ta0es as applicable ma" be levie% on some premium 1uotes ,iven above. 2n%ivi%uals are a%vise% to contact the insurance companies for further %etails.
variant of endowment plans are child plans and money back plans" hile they may be presented differently, they still remain endowment plans in essence" %uch plans purport to 74
give the individual either a certain sum at regular intervals
Ta5 benefitsF
7remiums paid on life insurance plans enjoy ta' benefits under %ection 9:) subject to an upper limit of 8s -::,:::" $he ta' benefit on pension plans is subject to an upper limit of 8s -:,::: as per %ection 9:)))
Income +ead;wise Ta5 Planning Tips
*alaries +ead# &ollowing propositions should be borne in mind#
-"
It should be ensured that, under the terms of employment, dearness allowance and
dearness pay form part of basic salary" $his will minimi;e the ta' incidence on house rent allowance, gratuity and commuted pension" .ikewise, incidence of ta' on employerAs contribution to recogni;ed provident fund will be lesser if dearness allowance forms a part of basic salary"
/"
$he %upreme )ourt has held in estetner Duplicators
commission payable as per the terms of contract of employment at a fi'ed percentage of 75
turnover achieved by an employee, falls within the e'pression FsalaryG as defined in rule /
0"
n uncommuted pension is always ta'able* employees should get their pension
commuted" )ommuted pension is fully e'empt from ta' in the case of overnment employees and partly e'empt from ta' in the case of government employees and partly e'empt from ta' in the case of non government employees who can claim relief under section 92"
4"
n employee being the member of recogni;ed provident fund, who resigns before
5 years of continuous service, should ensure that he joins the firm which maintains a recogni;ed fund for the simple reason that the accumulated balance of the provident fund with the former employer will be e'empt from ta', provided the same is transferred to the new employer who also maintains a recogni;ed provident fund"
5"
%ince employersA contribution towards recogni;ed provident fund is e'empt from
ta' up to -/ percent of salary, employer may give e'tra benefit to their employees by raising their contribution to -/ percent of salary without increasing any ta' liability"
76
3"
hile medical allowance payable in cash is ta'able, provision of ordinary
medical facilities is no ta'able if some conditions are satisfied" $herefore, employees should go in for free medical facilities instead of fi'ed med ical allowance"
6"
%ince the incidence of ta' on retirement benefits like gratuity, commuted pension,
accumulated unrecogni;ed provident fund is lower if they are paid in the beginning of the financial year, employer and employees should mutually plan their affairs in such a wa y that retirement, termination or resignation, as the case may be, takes place in the beginning of the financial year"
9"
n employee should take the benefit of relief available section 92 wherever
possible" 8elief can be claimed even in the case of a sum received from U87& so far as it is attributable to employerAs contribution and interest thereon" lthough gratuity received during the employment is not e'empt u!s -:<-:=, relief u!s 92 can be claimed" It should, however, be ensured that the relief is claimed only when it is beneficial"
2"
7ension received in India by a non resident assessee from abroad is ta'able in
India" If however, such pension is received by or on behalf of the employee in a foreign country and later on remitted to India, it will be e'empt from ta'"
-:"
s the perCuisite in respect of leave travel concession is not ta'able in the hands
of the employees if certain conditions are satisfied, it should b e ensured that the travel
77
concession should be claimed to the ma'imum possible e'tent without attracting any incidence of ta'"
--"
s the perCuisites in respect of free residential telephone, providing use of
computer!laptop, gift of movable assets
-/"
%ince the term FsalaryG includes basic salary, bonus, commission, fees and all
other ta'able allowances for the purpose of valuation of perCuisite in respect of rent free house, it would be advantageous if an employee goes in for perCuisites rather than for ta'able allowances" $his will reduce valuation of rent free house, on one hand, and, on the other hand, the employee may not fall in the category of specified employee" $he effect of this ingenuity will be that all the perCuisites specified u!s -6
+ouse Propert. +ead6 $he following propositions should be borne in mind#
-"
If a person has occupied more than one house for his own residence, only one
house of his own choice is treated as self(occupied and all the other houses are deemed to be let out" $he ta' e'emption applies only in the case of on self(occupied house and not in the case of deemed to be let out properties" )are should, therefore, be taken while
78
selecting the house< ?ne which is having higher L normally after looking into further details = to be treated as self(occupied in order to minimi;e the ta' liability"
/"
s interest payable out of India is not deductible if ta' is not deducted at source
0"
s amount of municipal ta' is deductible on FpaymentG basis and not on FdueG or
FaccrualG basis, it should be ensured that municipal ta' is actually paid during the previous year if the assessee wants to claim the deduction"
4"
s a member of co(operative society to whom a building or part thereof is allotted
or leased under a house building scheme is deemed owner of the property, it should be ensured that interest payable
5"
If an individual makes cash a cash gift to his wife who purchases a house property
with the gifted money, the individual will not be deemed as fictional owner of the property under section /6
79
house property, even without adeCuate consideration, he can escape the deeming provision of section /6
3"
Under section /6
to his!her spouse
Capital &ains +ead6 $he following propositions should be borne in mind
80
-"
%ince long(term capital gains bear lower ta', ta'payers should so plan as to
transfer their capital assets normally only 03 months after acCuisition" It is pertinent to note that if capital asset is one which became the property of the ta'payer in any manner specified in section 42<-=, the period for which it was held by the previous owner is also to be counted in computing 03 months"
/"
$he assessee should take advantage of e'emption u!s 54 by investing the capital
gain arising from the sale of residential property in the pu rchase of another house
0"
In order to claim advantage of e'emption under sections 54B and 54D it should
be ensured that the investment in new asset is made only after effecting transfer of capital assets"
4"
In order to claim advantage of e'emption under sections 54, 54B, 54D, 541),
541D, 541&, 54 and 54 the ta' payer should ensure that the newly acCuired asset is not transferred within 0 years from the date of acC uisition" In this conte't, it is interesting to note that the transfer
81
ta'payer should obtain loan against the security of such asset
5"
In / cases, surplus arising on sale or transfer of capital assets is chargeable to ta'
as short(term capital gain by virtue of section 5:" $hese cases are#
$a' on short(term capital gain can be avoided if K nother capital asset, falling in that block of assets is acCuired at any time during the previous year* or Benefit of section 54 is availed
$a' payers desiring to avoid ta' on short(term capital gains under section 5: on sale or transfer of capital asset, can acCuire another capital asset, falling in that block of assets, at any time during the previous year" 3"
If securities transaction ta' is applicable, long term capital gain ta' is e'empt
from ta' by virtue of section -:<09=" )onversely, if the ta'payer has generated long(term capital loss, it is taken as eCual to ;ero" In other words, if the shares are transferred, in national stock e'change, securities transaction ta' is applicable and as a conseCuence, the long(term capital loss is ignored" In such a case, ta' liability can be reduced, if shares are transferred to a friend or a relative outside the stock e'change at the market price
82
stack e'change, long term loss can be set(off and the ta' liability will be reduced=" .ater on, the friend or relative, who has purchased shares, may transfer shares in a stock e'change"
Clubbed Incomes +ead6 $he following propositions should be borne in mind
-"
Under section 34<-=
concern in which such individual has a substantial interest, either individually or jointly with his relatives, is ta'able in the hands of the individual" $o avoid this clubbing, as far as possible spouse should be employed in which employee does not have any interest" In such a case this section will not be attracted, even if a close relative of the individual has substantial interest in the concern" lternatively, the spouse may be employed in a concern which is inter related with the concern in which the individual has substantial interest"
/"
Income from property transferred to spouse is clubbed in the hands of transferor"
+owever, it has been held that income from savings out of pin money
83
clubbed in the hands of transferor" It may be noted that the e'pression F to live apartG is of wider connotation and covers even voluntary agreement to live apart"
0"
1'change of asset between one spouse and another is outside the clubbing
provisions if such e'change of assets is for adeCuate consideration" $he spouse within higher marginal ta' rate can transfer income yielding asset to other spouse in e'change of an eCual value of asset which does not yield any income" &or instance, X
4"
7rovisions of section 34 <-=
individual to his son in law or daughter in law of his brother"
5"
If trust is created for the benefit of minor child and income during minority of the
child is being accumulated and added to corpus and income such increased corpus is given to the child after his attaining majority, the provisions of section 34
3"
1'planation 0 to section 34 <-= lays down the method for computing income to be
clubbed on the basis of value of assets transferred to the spouse as on the first day of the
84
previous year" $his offers attractive approach for minimi;ing income to be clubbed by transfers for temporary periods during the course of the previous year"
6"
If a trust is created by a male member to settle his separate property thereon for
the benefit of +U&, with a stipulation that income shall accrue for a specified period and the corpus going to the trust afterwards, provisions of section 34 are not attracted"
9"
If gifts are made by +U& to the wife, minor child, or daughter in law of any of its
male or female members
2"
If an individual transfers property without adeCuate consideration to sonAs wife,
income from the property is always clubbed in the hands of the transferor" If, however, an individual transferAs property without consideration to his +U& and the transferred property is subseCuently partitioned amongst the members of the family, income derived from the transferred property, as is received by sonAs wife, is not clubbed in the hands of the transferor" It may be noted that uneCual partition of property amongst family members is not rare under the +indu law and it does not amount to transfer as generally understood under law, and, conseCuently, if, at the time of partition, greater share is given out of the transferred property to sonAs wife or sonAs minor child, the transaction would be outside the scope of section 34 <-=
In cases covered in section 34, income arising to the transferee, from property
transferred without adeCuate consideration, is ta'able in the hands of transferor"
85
+owever, income arising from the accretion of such transferred assets or from the accumulated income cannot be clubbed in the hands of the transferor"
--"
loan is not a FtransferG for the purpose of section 34"
-/"
here the assessee withdrew funds lying in capital account of firm in which he
was a partner and advanced the same to his +U& which deposited the said funds back into firm, the said loan by the assessee to his +U& could not be treated as a transfer for the purpose of section 34 and income arising from such deposits was not assessable in the hands of the assessee"
(usiness and Profession head6 $he following propositions should be borne in mind to
save ta'" -"
$he )ompany is defined under section /<-6= as to mean the following#
•
any Indian )ompany * or
•
any body corporate incorporated under the laws of a foreign country * or
•
any institution, association or a body which is assessed or was assessable! assessed as a company for any assessment year commencing on or before pril -, -26:* or
•
any institution, association or a body, whether incorporated or not and whether Indian or non Indian, which is declared by general or special order of the )BD$ to be a company" 86
/"
n Indian )ompany means a company formed and registered under the
companiesA act -253"
0" Domestic )ompany means an Indian company or any other company which, in respect ?f its income liable to ta' under the ct, has made prescribed arrangements for the declaration and payment of dividends within India in accordance with section-24"
4" !rran,ement for %eclaration an% pa"ment of %ivi%en%4 $hree reCuirements are to be satisfied cumulatively by a company before it can be said to be a company which has made the necessary arrangements for the declaration and payment of dividends in India within the meaning of section -24#
a" $he share register of the company for all share holders should be regularly maintained at its principal place of business in India, in respect of any assessment year, at least from pril - of the relevant assessment year"
b" $he general meeting for passing of accounts of the relevant previous year and the declaring dividends in respect therefore should be held only at a place within India"
c" $he dividends declared, if any, should be payable only at a place within India to all share holders
87
5" Foreign compan means a company which is not a domestic company"
3 ! Industrial compan is a company which is mainly engaged in the business of generation or distribution of electricity or any other form of p ower or in the construction of ships or in the manufacture or processing of goods or in mining"
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COCL-*IO t the end of this study, we can say that given the rising standards of Indian individuals and upward economy of the country, prudent ta' planning before(hand is must for all the citi;ens to make the most of their incomes" +owever, the mi' of ta' saving instruments, planning hori;on would depend on an individualAs total ta'able income and age in the particular financial year"
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