Indian Income Tax - Rules and Guidelines

Tax Payers Information Series-7
Filing
your
Tax Return
INCOME TAX DEPARTMENT

Directorate of Income Tax (PR, PP & OL)
6th Floor, Mayur Bhawan, Connaught Circus,
New Delhi-110001
Tax Payers Information Series-7
Filing Your Tax

Return

6th Floor, Mayur Bhawan, Connaught Circus,
New Delhi-110001
Index of Chapters
This publication should not be construed as an exhaustive

statement of the Law. In case of doubt, reference should always
be made to the relevant provisions of the Income Tax Act 1961,
Income Tax Rules 1962, Wealth Tax Act 1957, and Wealth Tax
Rules 1957, and, wherever necessary, to Notifications issued from
time to time.
1.
The Scheme for Filing of Tax Returns
2.
What are Tax Returns
3.
Due Dates for Filing Tax Returns
4.
Some Helpful Tips for filing Income-Tax Returns
12
5.
Manner of filing of Returns
18
6.
How to Fill PAN Form
21
7.
How to Fill up A Tax Challan
25
8.
Exemptions from Income
26
9.
Income from Salary at a glance
35
10. Income from House Property at a Glance
37
11. Income from Capital Gains at a Glance
39
12. Income from Business or Profession at a Glance
41
13. Income from Other sources at a Glance
43
14. Deductions from Total Income
45
15. Income-Tax on Fringe Benefits
51
16. Some Helpful Tips for filing Wealth Tax Returns
60
17. Important prescribed Forms under I.T. Rules, 1962
64
PREFACE
Lack of awareness amongst taxpayers is often cited as one of
the main reasons for low level of compliance towards tax laws. It
has been a constant endeavour of the Directorate of Income Tax
(PR, PP & OL) to increase the awareness of the taxpayers about
the provisions of tax laws and the steps taken by the government
to reduce the complexities of tax laws and improve Tax Payer
Service. The booklets published under the Tax Payers Information
Series have proved to be an effective and convenient tool to educate
the tax payers in discharging their tax liabilities relating to Direct
Taxes.
Filing Your Tax Return is one of the most popular booklets
among the taxpayers. As reflected in the name, the booklet mainly
deals with the procedure for filing of the tax returns. Besides, it also
guides the reader about filling up the relevant forms/ challans
correctly. In addition, the booklet gives a brief idea about various
heads of income and the allowable deductions, and also the
taxability of Fringe Benefits. Guidance has also been given in this
booklet about the taxability of wealth and filing of wealth tax
returns. The present edition incorporates the amendments in law
made upto the Finance Act, 2008 including changes made in the
procedure for filing of returns of income. The booklet is primarily
based upon the position of law and tax rates as applicable for two
years, i.e., Assessment Years 2008-09 and 2009-10. However,
some important provisions pertaining to earlier years have also been
discussed. Smt. Batsala Jha Yadav, Addl. CIT has taken keen
interest in updating the edition.
It is hoped that this publication will prove to be more useful for
the readers. The Directorate of Income Tax (Public Relations,
Printing & Publications and Official Language) would welcome any
suggestion to further improve this publication.
New Delhi
Dated: July 4 2008
(Amitabh Kumar)
Director of Income-Tax (PR, PP & OL))
CHAPTER 1
THE SCHEME FOR FILING OF

TAX RETURNS
The filing of income tax/wealth-tax return is a legal obligation of
every person whose total income and wealth tax during the previous
year exceeds the maximum amount which is not chargeable to income
tax or wealth tax under the provisions of I.T. Act, 1961 or Wealth Tax
Act 1957, as the case may be. The return should be furnished in the
prescribed form on or before the due date(s).
At present, there is an emphasis on self compliance on the part
of the taxpayers. The assessing officer will accept the returns, u/s 143(1)
of the I.T. Act or u/s 16(1) of W.T. Act, as the cases, may be, on the
basis of the returns/documents submitted by the assesses. That is the
end of the matter for a majority of the cases, except in the small number
of cases selected for scrutiny. It is, therefore, advisable for the taxpayers
to furnish correct and complete particulars in the Income-Tax/WealthTax
return itself.
INCOME TAX RETURN
It is compulsory for every company to furnish return of income.
Every person, other than a company, whose total income from all
sources of income exceeds the maximum amount which is not
chargeable to income tax in any previous year ending on 31st March is
liable to file the Income-tax Return. The maximum limit of income not
chargeable to tax under the provisions of the Income Tax Act, 1961 is
Rs. 1,10,000 (except in case of resident women below 65 years of age
and resident senior citizens above 65 years of age) for assessment year
2008-09.
WHAT ARE THE RATES OF INCOME-TAX ?
In the case of Individuals, HUFs, AOPs and BOIs other than those
covered under the following two parts of this table :
A.Y. 2008-09
Nil
10%
Upto Rs. 1,10,000

Rs. 1,10,001 to Rs. 1,50,000
1
Rs. 1,50,001 to Rs. 2,50,000

Above Rs. 2,50,000
20%
30%
For Women, resident in India and below the age of 65 years :

Upto Rs. 1,45,000
Nil
Rs. 1,45,001 to Rs. 1,50,000
10%
Rs. 1,50,001 to Rs. 2,50,000
20%
Above Rs. 2,50,000
30%
For Senior Citizen and Women, age 65 years or more :
Upto Rs. 1,95,000
Nil
Rs. 1,95,001 to Rs. 2,50,000
20%
Above Rs. 2,50,000
30%
Surcharge on Income tax:- @10% shall be levied when income
mentioned in the above tables exceeds Rs. 10 lakhs.
Education Cess @ 2% on income-tax is also chargeable and an
additional levy of Secondary and High Education Cess is also payable
@1% for the A.Y. 2008-09.
The rates of tax for A.Y. 2009-10 shall be as follows :
In the case of Individuals, HUFs, AOPs and BOIs not covered under the
following two parts of this table :
Income Range
Rate of Income Tax

A.Y. 2009-10
Nil
10%
20%
30%
Upto Rs. 1,50,000

Rs. 1,500,01 to Rs. 3,00,000/Rs. 3,00,001 to Rs. 5,00,000/Above Rs. 5,00,000/-
For women, resident in India and below the age of 65 years :

Income Range
Rate of Income Tax

A.Y. 2009-10
Nil
10%
20%
30%
Upto Rs. 1,80,000

For senior citizen and women, aged 65 years or more:

Income Range
Rate of Income Tax

A.Y. 2009-10
Upto Rs. 2,25,000

Nil
10%
20%
30%
The Surcharge, Education Cess and Secondary and Higher

Education Cess will be the same as for the assessment year 2008-09.
For the A.Y. 2008-09 and 2009-10, two partnership firms and
domestic companies the tax rate shall be 30%, but surcharge of 10% will
be levied only if the net income of the partnership firm or the domestic
company exceeds Rs 1 crore, education cess will be levied at 2% and
an additional Secondary and higher education cess of 1% shall be
levied.
WEALTH TAX RETURN
Every Individual, Hindu Undivided Family and Company whose
net wealth exceeds the maximum amount which is not chargeable to
wealth tax in any previous year ending of 31st March is liable to file the
wealth tax return. The maximum limit of net wealth not chargeable to tax
under the provisions of the Wealth tax Act, 1957 is Rs. 15 lakhs at
present.
WHAT IS NET WEALTH ?
Net wealth is the aggregate value, computed under the provisions
of the W.T. Act, 1957, of all assets (including deemed assets), belonging
to the assessee on the valuation date, MINUS the aggregate value of
all debts owed by the assessee on the valuation date which have been
taken in relation to the assets attracting wealth tax.
HOW IS WEALTH TAX CHARGED ?
It is charged @ 1% of the amount by which the net wealth exceeds
Rs. 15 Lakhs.
income but are liable to file return of

fringe benefits
CHAPTER 2
WHAT ARE TAX RETURNS

ITR-V
Through Latest Amendments, the Central Board of Direct Taxes
(CBDT) has prescribed new return of income forms for the assessment
years 2008-09 onwards, as shown in the table below:
FORM
FOR WHOM
Where the data of the return of income

or Fringe benefits in Forms ITR-1, ITR2, ITR-3, ITR-4 ITR-5, ITR-6 &ITR-8 is
transmitted electronically without digital
signature.
The above forms are not required to be filed in duplicate. But

where the return form is filed in paper format, acknowledgement slip
attached should be duly filled in.
ITR-1
Individuals having salary, pension,

family pension or interest income.
ITR-2
Individuals and Hindu undivided family

(HUFs) not having income from
business or profession.
Where a return of income or return of fringe benefits, relates to

the assessment year commencing on the 1st day of April, 2007 or any
earlier assessment year, it shall be furnished in the appropriate form as
applicable in that assessment year.
ITR-3
Individuals and HUFs who is a partner

in partnership firm but does not carry
on a proprietary business or profession.
ITR-4
Individuals and HUFs carrying on a

proprietory business or profession.
All these Forms (except Form ITR-7) have been designed as

annexure-less so as to make them amenable for electronic filing. Thus
except form ITR-7, which is in respect of charitable/religious trusts,
political parties and other non-profit organizations, all the forms can be
electronically filed.
ITR-5
Partnership firms, Association of

Persons (AoP) and Body of Individuals
(BoI).
Form prescribed for filing return of wealth tax :
ITR-6
Companies other than companies

claiming exemption under section 11.
ITR-7
Persons including companies which are

charitable or religious trust, political
party, scientific research association,
news agency, hospital, trade union,
university, college or other institution
specified in sub-section (4A), (4B), (4C)
and (4D) of section 139 of the Act.
Persons not liable to file return of
ITR-8
Form No. BA: For filing net wealth of individuals/HUFs and companies
from Assessment year 1993-94 onwards.
The form is available at website: www.incometaxindia.gov.in
CHAPTER 3
DUE DATES FOR FILING

TAX RETURNS
WHAT ARE THE DUE DATES FOR FILING OF RETURNS ?
The Due dates for filing Income Tax returns are:I.
Where the assessee is a Company
31st October of the

Assessment Year.
II. Where the assessee is a person other than a company:a) 1. where accounts of the assessee
are to be Audited or
31st October of the

Assessment Year.
2. a working partner of a firm

whose accounts are required to
be audied under the Income
Tax Act or any other law
INTEREST U/S. 234-A FOR LATE

OR NON-FURNISHING
OF INCOME TAX RETURN
For defaults in furnishing
Return of income
b) Where the return has to be filed

under the one-by-six criteria
Discontinued w.e.f.
A.Y. 2006-07
c) Any other assessee
31st July of the

Assessment Year.
Vide Finance Act, 2008, the due date for filing of return for the
following categories of assessees has been specified as 30th September of the assessment year instead of 31st October of the
assessment year (w.e.f. 1-4-2008):
(i) a company;
(ii) a person (other than a company) whose accounts are to
be audited
(iii) a working partner of a firm whose accounts are to be
audited
6
CONSEQUENCES OF SUBMISSION OF RETURN AFTER DUE

DATE
If a return is submitted after the due date, the following
consequences will be applicable:
1. The assessee will be liable for penal interest under section 234
A.
2. A penalty of Rs 5,000 may be imposed under section 271 F if
belated return is submitted after the end of the assessment year.
3. If the return of loss is submitted after the due date, a few losses
cannot be carried forward.
4. If the return is submitted belated, deductions allowable under
certain sections will not be available.
Simple interest @ 1% for every

month or Part thereof from the
due date of filing of the Return to
the date of furnishing of the
return & in case return is not
filed, it is upto the date of
completion of assessment u/s 144.
The interest is calculated on the
amount of the tax on the total
assessed income as determined
under sub-section (1) of section
143 or on regular assessment u/s
143(3) as reduced by the Advance
Tax, if any, paid and any tax
deducted or collected at source.
IF AN ASSESSEE DOES NOT FILE HIS RETURN OF INCOME, IS

ANY PENALTY IMPOSABLE UPON HIM ?
Yes, Penalty of Rs. 5000 is imposable for non-filing of return within
the assessment year. Interest is also chargeable for non-filing or late
filing, as shown above.
7
IS TAX TO BE PAID DURING THE FINANCIAL YEAR ON THE

BASIS OF PAY AS YOU EARN ?
Yes, Such payments have to be made in instalments and are
known as Advance-Tax payments. However the liability for payment
of advance tax arises only where the amount of such tax payable by the
assessee during that year is Rs. 5,000 or more.
The due dates and the percentage of instalments of Advance Tax
for assessees other than Companies are as below :Due Date of instalments
Amount payable
1st on or before 15th September.
Amount not less than 30% of

such advance tax.
2nd on or before 15th December.
Amount not less than 60% of

such advance tax after deducting
amount paid in earlier instalment.
3rd on or before 15th March.
Entire balance amount of such

advance tax.
IF THE TAX PAYER FAILS TO PAY 90% TAX PLUS APPLICABLE

INTEREST THEN HOW IS INTEREST FOR SHORT PAYMENT OF
SUCH ADVANCE-TAX CALCULATED ?
INTEREST U/S. 234-B FOR SHORT PAYMENT OF ADVANCE

TAX
Shortfall in payment of
Advance tax of more than
10%.
Simple interest @ 1% for month

or part thereof is chargeable w.e.f.
1st April of the Assessment Year
to the date of determination of
income u/s. 143(1) or regular
assessment u/s 143(3) on the
assessed tax.
Assessed tax means the tax on
the total income determined under
sub section (1) of section No. 143
or on regular assessment u/s 143(3),
as reduced by the amount of tax
deducted or collected at source.
In case of companies, there are 4 instalments of advance tax

payable on or before 15th June (15%); 15th Sept. (45%); 15th Dec.
(75%); & balance amount of Advance Tax payable by 15th March. Also,
any amount paid by way of Advance Tax on or before the 31st March
of that year, is treated as Advance Tax Paid during that Financial Year.
The percentages of 45% and 75% specified with reference to dates of
15th Sept. and 15th Dec. include the amount of advance tax paid earlier
during the year.
HOW IS INTEREST FOR DEFERMENT OF ADVANCE-TAX

CALCULATED ?
(A) INTEREST U/S. 234-C FOR DEFERMENT OF ADVANCE
TAX (Non Corporate assessees)
1. If no advance tax is paid or the Simple interest @ 1% p.m.
advance tax paid in 1st installment is chargeable on the amount
on or before 15th September is less of shortfall for a period of 3
than 30% of the tax payable on the months.
returned income as reduced by taxes
deducted at source.
2. If no advance tax is paid or if the Simple interest @ 1% p.m. is
advance tax paid in 2nd installment chargeable on the amount
on or before 15th December is less of shortfall for a period of 3
than 60% inclusive of 1st installment months.
of the tax payable on the returned
income as reduced by taxes deducted
at source.
3. If the advance tax paid on the Simple interest @ 1% is
current income on or before the 15th chargeable on the amount
day of March is less than the tax due of shortfall from the tax due
on the returned income.
However, no interest is leviable if the short fall in payment of

advance-tax is on account of under estimation or failure to estimate the
amount of capital gains or any income from winnings from lotteries,
crossword puzzles, races, and other games including an entertainment
program on television or electronic mode, in which people compete to
win prizes etc., and the assessee has paid the tax on such income as part
of the remaining instalments of advance tax which are due or if no
instalment is due, by 31st March, of the Financial Year.
WHAT ARE THE DUE DATES FOR FILING OF WEALTH TAX
RETURNS ?
The due dates for filing Wealth Tax returns by different assessees,
are the same as that given above for filing Income Tax returns.
WHAT ARE THE CONSEQUENCES OF NOT FILING OR LATE
FILING OF WEALTH TAX RETURNS ?
Where the assessee had defaulted in timely furnishing of his
return of wealth, then penal interest @ 1% for every month or part of
a month of delay is chargeable for Non/Late filing of return.
B. INTEREST U/S 234C FOR THE CORPORATE ASSESSEES

1. If advance tax paid on or before
June 15th is less than 12%.
Simple interest @ 1% p.m.

is chargeable on the amount
of shortfall for a period of
three months.

Sept. 15th is less than 36%.
Simple interest @ 1% p.m. is

chargeable on the amount
three months.

Dec., 15th is less than 75%.
Simple interest @ 1% p.m.

is chargeable on the amount
three months.

March 15th is less than tax due on
returned income (100%).
Simple interest @ 1% is
chargeable on the amount
of shortfall from the tax due
10
11
CHAPTER 4
SOME HELPFUL TIPS FOR

FILING INCOME TAX RETURNS
SOME HELPFUL TIPS FOR INCOME TAX RETURN
Income-tax return is a legal document and it should be filed by the
assessee with due care and caution. There should be no corrections or
overwriting and it should be properly signed and verified by the person
authorized to do so under the provisions of the Income-tax Act. The
following important points may be taken care of while filling up the
return forms:
1. Assessment year to which New Forms are applicable
The new ITRs notified are applicable for the assessment years
2008-09 onwards only, for return of income relating to earlier assessment
years return is to be furnished in the appropriate form as applicable in
that assessment year. Each assessee has to identify the correct ITR
Form applicable in its case before filing the return of income.
2. No enclosures to the return
Rule 12(2) of the I.T Rules provides that the return of income and
return of fringe benefits required to be furnished in Form No. ITR-1,
ITR-2, ITR-3, ITR-4, ITR-5, ITR-6, or ITR-8 shall not be accompanied
by a statement showing the computation of tax payable on the basis of
return, or proof of tax, if any, claimed deducted or collected at source
or the advance tax or tax on self assessment, if any, claimed to have
been paid or any document or copy of any account or form or report
of audit required to be attached with the return of income or return of
fringe benefits under any provisions of the Act.
3. For timely delivery of refunds, ensure correct address and
account number on your Return of Income
(available during working hours for delivery) to ensure speedy delivery

of refunds. In the case of taxpayers who opt for refunds through ECS,
it will be credited directly to the bank account for which correct MICR
code/ Bank Account Number has to be furnished on the Return.
4. Manner of filing the new Forms
These Forms can be submitted in the following manner:
(i)
(ii)
(iii)
a paper form;
e-filing
a bar-coded paper return.
Returns can be e-filed through the internet. E-filing of return is

mandatory for companies and firms requiring statutory audit u/s 44AB.
E-filing can be done with or without digital signaturea)
b)
c)
If the returns are filed using digital signature, then no further

action is required from the tax payers.
If the returns are filed without using digital signature, then
the tax payers have to file ITR-V with the department within
15 days of e-filing.
The tax payers can e-file the returns through an e-intermediary who would e-file and assist him in filing of ITR-V within
15 days.
Where the form is furnished by using bar coded paper return then the
tax payers need to print two copies of Form ITR-V. Both copies should
be verified and submitted. The receiving official shall return one copy
after affixing the stamp and seal.
5. Filling out acknowledgement
Where the return is furnished in paper format, acknowledgement
slip attached with the return should be duly filled in. The new forms are
not required to be filed in duplicate.
6. Intimation of processing under section 143(1)
From 1.10.07 onwards, all income tax refunds in Bangalore,

Chennai, Delhi, Kolkata and Mumbai will be delivered by the Refund
Banker directly at the communication address mentioned on the Return
of Income. Taxpayers are requested to fill in the correct address
The acknowledgement of the return is deemed to be the intimation of processing under section 143(1). No separate intimation will be
sent to the taxpayer unless there is a demand or refund.
12
13
7. Furnishing details of high value transactions

In the return the details of high value transactions need to be
compulsorily stated, which are ordinarily reported through the annual
information return (AIR) and these details are cross checked and
matched with the data in the AIR.
8. Filing your return through Tax Return Preparers (TRPs)
If you are an individual or an HUF assessee and you are not
required to get your accounts audited (called eligible person) under
the provisions of the Income Tax Act, then you can use the services
of a Tax Return Preparer (TRP). However, if the eligible person is not
a resident in India during the previous year relevant to such assessment
year, he can not avail of the services of a TRP.
disbursable is less than two hundred and fifty rupees, we can charge
the difference between rupees two hundred fifty and the amount
disbursable.
9. Verification
The verification must be signed by the authorized person before
furnishing the return and the name and designation of the person
signing the return should also be written. Any person making false
statement is liable to be prosecuted under section 277 of the Act.
WHO CAN VERIFY AND SIGN THE INCOME TAX RETURN ?
a)
If you are filing your returns through a TRP then you should
ensure that:
i)
You are eligible to file return of Income under this Scheme;
ii)
You give your consent to any Tax Return Preparer to prepare

your return of income for any assessment year;
iii)
You verify that the facts mentioned in the return are true and
correct before you sign the return;
iv)
You certify the amount which has been paid by you under this
Scheme to the Tax Return Preparer for preparing and furnishing
of the return of income; and
v)
You take a receipt of the payment made to the Tax Return

Preparer and produce the same before the Resource Centre or
Assessing Officer, if required,
Individual : The individual filing his Income Tax Return has to sign
the return. In case the individual is mentally incapable, then the
return may be signed by his Guardian or by any other person
competent to act on his behalf.
In case the individual is absent from India or because of any other
reason he is not able to sign and verify his return of income, then
any person duly empowered by him through valid Power of
Attorney may sign on his behalf. In such a case, a certified copy
of the Power of Attorney must accompany the return.
b)
Hindu Undivided Family : By the Karta or where he is absent

from India or is mentally incapacitated from attending to his
affairs, by any other adult member of such family.
c)
Company : In this case by the following :1)
Resident : Managing Director or, where there is no Managing

Director or he is not able to sign and verify the return due
to any unavoidable reason, by any director thereof.
The Tax Return Preparer shall charge a fee of two hundred and
fifty rupees for any assessment year from the eligible person for
preparing and furnishing his return of income for that assessment year:
2)
Non-Resident : The return may be signed and verified by a

person holding a valid Power of Attorney from the Company,
which should be attached to the return.
Provided that he will charge no fees for preparing and furnishing

the return for any eligible assessment year if the amount disbursable to
him as per the scheme notified by the government for that eligible
assessment year exceeds two hundred and fifty rupees. If the amount
3)
Wound up/taken over by the Govt. : The return should be

signed and verified by the Liquidator or the Principal Officer
as the case may be.
Incentive to Tax Return Preparers
14
15
d)
Firm : Managing Partner, or where there is no Managing Partner

or due to some unavoidable reasons, he is not able to sign and
verify the return, by any partner thereof not being a minor.
e)
Local Authority : By the Principal Officer.
f)
Association of Persons : By any member of the Association or the

Principal Officer thereof.
10.
The name of the employer needs to be mentioned. Salaried

employees to mention whether they are pensioners/Sr. Citizens.
11.
Details of bank account to be mentioned to help in issue of

electronic refunds.
It may, however, be noted that the new return forms on mentioned

in Chapter-2 are not required to be filed in duplicate and no annexures
are to filed with such forms.
Documents to be enclosed with return:
WHERE TO FILE THE INCOME TAX RETURNS ?
1.
Acknowledgment slip in duplicate.
2.
Statement of Computation of Income and Tax.
3.
Ensure that Challan Identification Number (CIN) is mentioned in

your Income-tax Challan. Attach copy of the acknowledgment of
Challan.
4.
Attach original T.D.S. Certificate in Form No. 16 or 16A or 16AA

as applicable.
5.
Certificates/Receipts of payment of insurance premium, provident

fund, purchase of NSCs, new equity shares, mutual fund, NSS,
medical insurance, donations etc. in support of deductions/rebates
claimed. Requisite evidence where ever prescribed by law in
support of your claim for any deduction/exemption, must be
attached alongwith the return. Failure to do so may deprive you
of the deduction and such evidence, even if produced later may
not be entertained by the Assessing Officer.
An existing assessee must file his Income-Tax Return with the

Assessing Officer who had previously assessed him or with the Assessing
Officer where his case stands transferred. A new assessee should file
the Return with the Assessing Officer having territorial jurisdiction
over the area where he resides or his principal place of business is
situated or with the Assessing Officer having special jurisdiction over
specific assessees or classes of income. For example, where the major
source of income of an assessee is the income from contract business,
the IT Return should be filed with the assessing officer having jurisdiction
over the contractor circles. A doctor or C.A. or an Advocate should file
the returns in professional circles if any specified.
6.
Certificate of interest on housing loan from the lender, in support

of deduction from house property income.
7.
Other documents/statements as specified in the return itself and

in support of income.
8.
Quote your PAN clearly and correctly.
9.
In case the assessee has applied for PAN but has yet not received
allotment, a copy of PAN application form filed earlier and its
acknowledgment should be enclosed with the return.
16
The return may be delivered at the counter in the concerned

Range/Circle or it may be sent by registered post. The return is attached
with two acknowledgement forms which should be duly filled in by the
assessee. One copy of the acknowledgement form is to be returned by
the official at the counter duly signed, stamped, numbered and dated in
support of having received the return. In case of any doubt or problem,
the taxpayer should contact the Public Relations Officer for guidance
and help.
17
CHAPTER 5
MANNER OF FILING OF
RETURNS
MANNER OF FURNISHING RETURNS
Rule 12(3) provides that the return of income or return of fringe
benefits referred to in rule 12(1) may be furnished in any of the following
manners namely:
Any person may, at his option, on or before the due date, furnish
a return of income under section 139(1) in accordance with the scheme
specified by the Board. Under this scheme, return has to be submitted
in a computer readable media( including on a floppy, diskette, magnetic
cartridge tape, CD-ROM or any other computer readable media) and
such return shall be deemed to be a return furnished u/s 139(1).
This is an optional scheme and under this scheme, an eligible
taxpayer can furnish his return to one of the intermediaries authorized
for this purpose, who will transcribe the data from paper return to the
Income-tax department. The intermediary will then submit the paper
return to the department. The intermediary will also provide the facility
of preparing the returns of income of taxpayers at their request on the
basis of the documents provided by such taxpayers.
(i)
furnishing the return in a paper form;
(ii)
furnishing the return electronically under digital signature;
(iii)
transmitting the data in the return electronically and thereafter submitting the verification of the return in Form ITR-V
Filing of return in electronic form
furnishing a bar-coded return in a paper form:
for:
(iv)
Provided that(a)
(b)
a firm required to furnish the return in Form ITR-5 and to

whom provisions of section 44AB are applicable or a company required to furnish the return in Form ITR-6 shall
furnish the return in the manner specified in clauses (ii) or
(iii) above.
Section 139 D provides that the Board may make rules providing
(a)
the class or classes of persons who shall be required to

furnish the return in electronic form;
(b)
the form and the manner in which the return in electronic

form may be furnished;
(c)
the documents, statements, receipts, certificates or audited

reports which may not be furnished along with the return in
electronic form but shall be produced before the Assessing
Officer on demand;
(d)
the computer resource or the electronic record to which the

return in electronic form may be transmitted.
A person required to furnish the return in Form ITR-7 shall

furnish the return in the manner specified in clause (i).
Filing of Bulk Return by Employer [Section 139 (1A)]

Under section 139(1A) the Board has specified a scheme for Bulk
filing of returns by employer, wherein the eligible employee at his option
may furnish a return together with documents to his employer and such
employer shall furnish returns received by him on or before the due date
on computer readable media using the authorized Bulk Return Preparation Software (BRPS).
Scheme of filing returns by salaried employees (getting Form No.

16AA) through employer
Filing of return of income on computer readable medium [Section

139(1B)]
The scheme is optional and provides an additional mode of

furnishing returns of income by persons deriving income from salaries.
An eligible employee (having gross salary upto Rs 1,50,000) may at his
option furnish his return through he employer under the Scheme, as
follows:
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19
(1)
(2)
(3)
On receipt of TDS in Form 16AA from the employer, he shall

verify the information given and furnish the same after
signing and verifying to the employer before the due date.
On receipt of the duly signed and verified Form 16 AA, the
employer shall furnish the return of i9ncome to the incometax department and receive an acknowledgement.
The employer shall ensure that the return is furnished before
the due date and distribute the acknowledgement to the
respective eligible employees and the date on which the
employer furnished the return shall be treated as the date of
filing of return by the eligible employee.
CHAPTER 6
HOW TO FILL PAN FORM

WHO HAS TO APPLY FOR PAN?
The following persons should apply for allotment of PAN in
Form 49AEvery person whose assessable income exceeds the maximum
amount which is not chargeable to tax or any person carrying
out business or profession whose total sales/turnover is likely
to exceed Rs 5,00,000 in a year.
A person who is required to furnish return under sub-section
(4A) of section 139.
An employer who is required to furnish return of fringe
benefits tax.
The Central Government has power to specify by notification
any class or classes of persons by whom tax is payable under
the Income-tax Act or any tax or duty is payable under any
other law for the time being in force.
WHAT ARE THE IMPORTANT POINTS TO REMEMBER
WHILE FILLING THE PAN FORM (FORM NO. 49A) ?
The PAN form should be filled in by the assessee with due care
and caution. There should be no corrections or overwriting and it
should be properly signed and verified by the persons who is authorized
to do so, under the provisions of IT Act. The following important
points may be taken care of while filling up the form :
NAME & ADDRESS :
The name and address must be written in block letters and while
filling up the same, one cage may be left blank after each word. No
initials are allowed to be used while filling in the same. Full name has
to be given.
STATUS
Correct code number of the assessees status/residential status
may be filled in.
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21
DATE OF BIRTH :
Date of birth is very important and should be filled correctly.
Company : In this case by the following :i)
Resident : The Managing Director or, where there is no Managing

Director or he is not able to sign and verify the PAN form due to
any unavoidable reason, by any director thereof.
SOURCES OF INCOME :
A person should have at least one source of income to apply for
PAN. So the relevant box should be checked in the form.
ii)
Non-Resident : The PAN form may be signed and verified by a

person holding a valid Power of Attorney from the Non-Resident,
which should be attached to the PAN form.
IN CASE OF COMPANIES, THE FOLLOWING ADDITIONAL

DETAILS HAVE TO BE FILLED IN THE FORM
The ROC registration number of the company.
The date of incorporation of the company.
The date of commencement of business by the company.
In which business activity the company is engaged in.
iii) Wound up/taken over by the Govt.: The PAN form should be
signed and verified by the Liquidator or the Principal Officer as
the case may be.
iv)
Firm : Managing Partner, or, where there is no Managing Partner

or due to some unavoidable reasons, he is not able to sign and
verify the PAN form, by any partner thereof, not being a minor.
VERIFICATION :
v)
Local Authority : By the Principal Officer
The verification must be signed by the authorized person, and

other particulars viz. Name, Assessment Year, Capacity, Place and Date
should be correctly filled therein. Please note that any person making
a false statement is liable-to be prosecuted under Section 277 of the
Income-Tax Act.
vi)
Association of Persons : By any member of the Association or the

Principal Officer thereof.
FATHERS NAME :
Fathers name has to be given even in case of married ladies.
WHO CAN VERIFY AND SIGN THE PAN FORM ?

Individual : The individual filling his PAN form has to sign it. In
case the individual is mentally incapable, then the PAN form may be
signed by his Guardian or by any other person competent to sign on his
behalf.
Incase the individual is absent from India or because of any other
reason, he is not able to sign and verify his PAN form, then any person
duly empowered by him through valid Power of Attorney may sign on
his behalf. In such case, a certified copy of Power of Attorney must
accompany the PAN form.
Hindu Undivided Family : By the Karta or where he is absent
from India or he is mentally incapacitated from attending to his affairs,
by any other adult member of such family.
22
WHERE TO FILE THE PAN FORM ?

Presently, the Pan application may be submitted at the UTIISL
counters along with the following.
a)
Two photographs of stamp size in case of Individual.
b)
Proof of identity and proof of residence & date of Birth
c)
Payment of fee of Rs. 60/- + Rs. 5/- (application form cost)
The tamper proof high security PAN card will be issued within
15 days from the date of filing of the application.
There is a Tatkal Scheme under which the PAN card will be issued
within 2 days on payment of D.D of Rs. 150/- in case of urgency.
To know the position of allotment, one may enquire with PAN
query centre or PRO in Income Tax Offices. Further, there is a website
available - www.incometaxindia.gov.in.
In case of transfer of an assessee from one Region to another, the
fact of transfer has to be informed at the old station with a request for
23
transfer of PAN to the present Region.

WHEN CAN ASSESSING OFFICER ALLOT PAN SUO MOTO?
The Assessing Officer may allot PAN to any person by whom tax
is payable (or with effect from June 1, 2006 tax not payable). Besides,
persons who are registered under the Central Sales Tax Act (CST) or
general sales tax law or register after 11th Dec, 2001, then before making
an application under the CST Act or general sales tax law should apply
for PAN.
CHAPTER 7
HOW TO FILL UP A TAX

CHALLAN
All the columns in the challans form should invariably be filled in
such as PAN No., assessment year, Assessing Officer, and his code,
status and full address of the assessee in capital letters. The relevant
columns of tax, interest etc. should also be filled in properly.
ONLINE TAX ACCOUNTING SYSTEM (OLTAS)
The Department and the RBI with the participation of 31 commercial
banks have introduced the OLTAS, for simplifying the payment of taxes
from 1st June 2004. The new simplified single copy challan for this
purpose is available with Income-tax offices. The counterfoil will be
returned to the taxpayer after stamping the Challan Identification
Number (CIN). The CIN is to be quoted in the return.
For payment of Advance-tax or self assessment tax, taxpayers will
fill in challan form ITNS 280 specifying the type of payment i.e.
Advance-tax or Self assessment tax.
For depositing TDS or tax collection at source tax-payers will fill
the challan form ITNS 281.
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25
CHAPTER 8
EXEMPTIONS FROM INCOME

For the sake of guidance, brief details of certain exemptions are
discussed as under:GRATUITY SECTION 10(10)
a)
Any Death-cum-Retirement gratuity to Govt. Employees : Wholly

exempt.
b)
Any gratuity received by the employees covered under Payment

of Gratuity Act, 1972. Least of the following is exempt:15 days salary (7 days in case of seasonal employment) for each
completed year of service or part in excess of 6 months.
a)
Govt. Employees : wholly exempt.
b)
Non-government Employees : Exemption is available in respect of

the least of the following :
Cash equivalent of the leave salary in respect of the period
of earned leave to the credit of the employee at the time of
retirement but not exceeding 30 days for each year of actual
service and also not exceeding for a period of ten months;
The Amount calculated on the basis of 10 months average
salary immediately preceding his retirement;
Rs. 3,00,000 if date of retirement is on or after 1.4.98;
Leave encashment actually received.
RETRENCHMENT COMPENSATION SECTION 10 (10B) :
Rs. 3,50,000.
Amount of gratuity actually received
c)
LEAVE ENCASHMENT ON RETIREMENT WHETHER ON

SUPERANNUATION OR OTHERWISE SEC, 10 (10AA)
Any other gratuity, (not covered under (a) or (b)):

Least of the followings is exempt:Rs 3,50,000
Half months salary for each completed year of service
Amount of gratuity actually received.
COMMUTED PENSION SECTION 10 (10A)

a)
Government Employees : Wholly exempt.
b)
Non-Govt. Employees :
i)
Where the employee receives gratuity, amount not exceeding

the commuted value to the extent of 1/3rd of the pension is
exempt.
ii)
In other cases : the commuted value of of pension is

exempt.
26
The retrenchment compensation received by a workman is exempt

provided that in general it does not exceed the sum calculated on the
basis provided in Section 25F(b) of Industrial Disputes Act, 1947 or any
such amount as is specified by the Central Govt. by a Notification,
whichever is less. The maximum exemption is Rs. 5 lakhs where
retrenchment is on or after 1-1-1997.
PAYMENT RECEIVED ON VOLUNTARY RETIREMENT SECTION 10
(10C):
Any amount received by an employee of a Public Sector Company
or of any other company at the time of voluntary retirement is exempt
to the extent such amount does not exceed Rs. 5 lacs, provided the
scheme of such voluntary retirement is in accordance with the guidelines
prescribed under rule 2BA of Income Tax Rules 1962. If an exemption
has been allowed under this section for any assessment year, no
exemption there under is allowable in relation to any other assessment
year. Further, the benefit of the exemption has been extended to
employees of an authority established under a Central, State or Provincial
Act, or a local authority or to employees of a Co-operative society,
university, Indian institute of Technology and notified Institute of
Management.
27
SPECIAL ALLOWANCE/BENEFIT SEC. 10 (14) :

Any special allowance or benefit specifically granted to the
employee to meet the expenses in the performance of duties of an office
or employment of profit (as is prescribed in the I.T. Rules, 1962) is
exempt to the extent of actual expenditure incurred.
ANNUAL ACCRETION TO PROVIDENT FUND ACCOUNT
Schedule IV : Part - A Rule 6 :
a)
Employers contribution to the extent of 12% of the salary
b)
Interest on the credit balances at the notified rate of 12%.
Any income by way of rewards/awards given by the Central

or State government. Section 10 (17A).
Annual value of any one palace occupied by a former ruler.
Section 10 (19A).
Income of a local authority. Section 10 (20).
Any income of an authority whether known as Khadi and
village Industries Board or by any other name for the
development of Khadi or village industries. Section
10 (23BB).
HOUSE RENT ALLOWANCE SEC 10 (13A) READ WITH RULE 2A

:
Any income by way of property income and income from

other sources of a registered trade union or an association of
registered trade unions. Section 10(24).
When the employee is occupying a rented residential

accommodation, the amount of house rent allowance received by him
is exempt to the extent of least of the following amounts:
Income received by a person on behalf of statutory provident

fund, recognized provident fund, approved superannuation
fund, approved gratuity fund etc. Section 10(25).
a)
Income of Employees State Insurance Fund. Section 10(25A).
b)
c)
50% of the salary where residential house is situated at Bombay,

Calcutta, Madras or Delhi and 40% of the salary where residential
house is situated at any other place.
House Rent Allowance actually received by the Employee in
respect of the period during which the residential accommodation
is occupied by him during the year.
Amount of rent paid in excess of 10% of the salary.
Besides the above, there are certain other incomes also, which are
totally exempt or exempt subject to fulfillment of certain conditions.
A list of such incomes is given below:Agricultural income. Section 10 (1).
Sums received from family income by a member of a Hindu
undivided family. Section 10 (2).
Payment by way of compensation received by victims of
Bhopal gas leak disaster. Section 10 (10BB).
Scholarship granted to meet the cost of education. Section
10 (16).
28
Any Income of National Minorities Development and Finance

Corporation. Section 10(26BB).
(whether Central or State).
There are certain other incomes which are also exempt but subject
to fulfilment of given conditions. Some of these are listed herein below:
Interest received by a non-resident from specified securities
or bonds. Section 10(4)(i).
Interest received by a person who is resident outside India
on amounts credited in Non-resident (External) Account.
Sec. 10(4)(ii).
In the case of an Indian citizen or a person of Indian origin
being a non-resident, the interest from notified Savings
Certificates subscribed in, foreign currency or other foreign
exchange remitted from outside through official channels
(issued before 1-6-2002). Section 10 (4B).
The value of leave travel concession provided by an employer
to his Indian citizen employee. Section 10(5).
29
Remuneration received by foreign diplomats of all categories.

Section 10(6)(ii).
Any amount from provident fund paid to retiring employee.

Section 10(11).
Remuneration received by a non-resident foreign citizen in

India as an employee of a foreign enterprise, provided his
stay in India does not exceed 90 days. Section 10(6)(vi).
Accumulated balance of a recognized Provident Fund subject

to Rule 8 of Part A of the Fourth Schedule. Section 10(12).
Income by way of salary received by a non-resident foreign

citizen as a member of ships crew provided his total stay in
India does not exceed 90 days. Section 10 (6) (viii).
Remuneration received by an employee, who is a foreign
national, of a foreign government deputed in India for
training in a Government concern or Public Sector
undertaking. Section 10(6)(xi).
Tax paid on behalf of foreign companies drawing income by
way Royalty or technical services with effect from the
assessment year 1984-85 received before 1-6-2002. Section
10(6A).
In the case of non-resident/foreign company, tax paid by
Government or Indian concern before 1-6-2002. Section 10(6B).
Income arising to certain foreign companies by way of
royality or fees for technical services provided in or outside
India, in respect of projects connected with security of India.
Section 10(6C).
Foreign allowance or perquisites granted by the Government
of India to its employees rendering services outside India.
Sec. 10(7).
Sums by way of remuneration received from a foreign
Government by an individual who is in India in connection
with any sponsored co-operative technical assistance program
with Govt. of a foreign state and income of family members
of such employee out side India. Section 10(8) & 10(9).
Remuneration/fees received by non-resident consultants and
their employers. Sections 10(8A)/10(8B).
Any sum (including bonus) on life insurance policy (subject
to certain exceptions). Section 10 (10D)
30
Amount from an approved superannuation fund to legal

heirs of the employee, who is beneficiary of the fund. Section
10(13).
House rent allowance subject to certain limits. Section 10(13A).
Special allowance or benefit granted to an employee. Section
10(14).
Interest from certain exempted securities prescribed in Section
10(15).
Any payment made by an Indian company, engaged in the
business of operation of aircraft, to acquire an aircraft on
lease from a foreign government or foreign enterprise, under
approved agreement. Section 10(15A).
Any income by way of daily allowance of a Member of
Parliament or State Legislature (entire amount is exempt). In
case of a member of parliment any other allowance received
is also exempt. Section 10(17).
Any income of an approved scientific research association.
Section 10(21).
Income of a notified news agency subject to fulfillment of
certain conditions. Section 10(22B).
Any income (other than income from property, income received
for rendering any specific services and income by way of
interest or dividends) of professional bodies, approved by
the Central Govt. by notification. Section 10(23A).
Income received by any person on behalf of any Regimental
Fund or non-public fund established by the armed forces of
the Union for the welfare of the past and present members
of such forces or their dependents. Section 10(23AA).
31
Any income of pension fund setup by LIC. or any other

insurer approved by the Controller of Insurance or by
Insurance Regulatory Development Authority (IRDA). Section
10(23AAB).
Income of fund established for welfare of employees. Section
10(23AAA).
Any business income of a public charitable trust or a society
approved by Khadi and Village Industries Commission.
Section 10(23B).
Income of the European Economic Community derived in
India by way of, interest, dividends or capital gains in certain
cases. Section 10(23BBB).
Any income arising to anybody or authority established,
constituted or appointed under any enactment for the
administration of public religious or charitable trusts or
endowments or societies for religious or charitable purposes.
Section 10(23BBA).
income by way of dividend and interest on securities. Section

10(26).
Any income accruing or arising to any resident of Ladakh
from any source therein or out of India before the assessment
year 1989-90, provided that such person was resident in
Ladakh in the previous year relevant to the assessment year
1962-63. Section 10(26A).
Any income of a statutory Central or State corporation or of
a body/institution, financed by the Government formed for
promoting the interest of Scheduled Castes/Tribes. Section
10(26B).
Income of co-operative society formed for promoting interests
of members of Scheduled Castes/Scheduled Tribes. Section
10(27).
Income by way of subsidy from Tea Board for replanting or
replacement of tea bushes or for the purpose of rejuvenation
or consolidation of areas used for cultivation of tea in India.
Section 10(30).
Income of SAARC Fund for Regional Projects, set up by

Colombo Declaration. Section 10(23BBC).
Subsidy received by planters of Rubber, Coffee, Cardamon.

Section 10(31).
Any income of Secretariat of Asian Organisation of Supreme

Audit Institutions. Section 10(23BBD).
Income of a minor child up to Rs. 1,500 in respect of each

minor child whose income is includible under section 64(1A).
Section 10(32).
Any income received by any person on behalf of specified

national funds and approved public charitable trust or
institution. Section 10(23C).
Any income by way of Capital gains on transfer of US-64

units. Section 10(33).
Income of Mutual Fund set up by a public sector bank

or a public financial institution. Section 10(23D).
Any income by way of dividend, or long term capital gains
of venture capital funds and venture capital companies.
Section 10(23F).
Income of a member of Scheduled Tribe, living in Nagaland,
Manipur, Tripura, Arunachal Pradesh and Mizoram from any
source arising by reason of his employment therein and
32
Dividend on or after April, 2003 from domestic companies.

Section 10(34).
Income on units of Mutual Funds on or after April 1, 2003.
Section 10(35).
Long term Capital gains on transfer of listed Equity Shares
purchased during 1-3-2003 to 29-2-2004. Section 10(36).
Capital gain to individual/HUF on compensation received on
compulsory acquisition of urban agriculture land. Section
10(37).
33
Long term capital gain in some cases. Section 10(38).
CHAPTER 9
INCOME FROM SALARY AT A

GLANCE
Sum received without consideration from international

sporting event held in India. Section 10(39).
Income of Industrial Units situated in trade-free zones,
specified technology parks etc. Section 10A.
Income from specified 100% export oriented undertakings
Section 10B.
Salary is the remuneration received/or accruing periodically by/

to an individual for service rendered as a result of expressed or implied
contract. The Income-Tax Act has stipulated that salary includes:
Income from property held for approved charitable or

religious purposes. Section 11.
Salary, including advance salary and arrears of salary;

Wages,
Specified Income of Registered political parties. Section

13A.
Fees;
Commission;
Pension or Annuity;
Perquisite or Profits in lieu of Salary;
Receipt from Provident Fund;
Retrenchment compensation;
Compensation as a result of variation in service contract;
Contribution of employer to Recognised Provident Fund in excess
of notified rates;
Encashment of leave;
Value of any prescribed fringe benefit or amenity;
Contribution by Central Government towards pension fund.
The definition of Salary is inclusive and not exclusive.
Income from salaries is computed after making the following deductions:
(a)
Eliminitation of Standard Deduction for Salaried Employees:

Standard deduction u/s 16(i) is not available from A.Y 2006-07
(b)
34
Entertainment Allowance [Under Section 16(ii)]
35
The entertainment allowance received is first included in the

employees income and then a deduction is allowed in case of Government servants only, for a sum equal to 1/5th of the salary (exclusive of
any allowance, benefit or other perquisite), or Rs.5,000, or actual allowance received, whichever is less.
Other assesses (i.e., assessees who are not in receipt of salary
from the Government)- No deduction from AY 2002-03.
(c)
Tax on Employment (Profession Tax) [Section 16(iii)]
Where an employee has paid tax on employment under the

relevant State Law, the tax so paid or recovered from his salary is
deductible from his gross salary income. The deduction is available in
the year in which the tax is actually paid by the employee.
Perquisites- is gain or profit incidentally made from employment
in addition to regular salary or wages. It is defined in section 17(2) of
the Act. Perquisites can be broadly divided in following three categories:(i)
Rent-free accommodation -section 17(2)(i)
(ii)
Concession in rent section 17(2)(ii)
(iii) Benefit or amenity given to a specified employee-section

17(2)(iii).
The valuation of perquisites is provided in Rule 3 of the Incometax Rules.
With effect from A.Y. 2006-07 the Fringe Benefits prescribed for
the purpose of Section 17(2)(vi) exclude the Fringe Benefits chargeable
to tax under Chapter XII-H. The Fringe benefits prescribed u/s 17(2)(vi)
include - (i) interest free or concessional loan. (ii) Use of moveable asset
(iii) Transfer of moveable asset. (Detailed Provisions of Fringe Benefit
Tax introduced by the Finance Act, 2005 have been given in a separate
chapter).
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CHAPTER 10
INCOME FROM HOUSE

PROPERTY AT A GLANCE
CHARGEABILITY UNDER THE HEAD INCOME FROM HOUSE
PROPERTY:
Under the Income-tax Act, the owner of a house property
(consisting of any building or land appurtenant thereto) is taxed on the
income in the form of its annual value under the head Income from
house property.
It is therefore clear that following conditions must be satisfied
before the rental income from property can be taxed under this head(1)
The property must consist of buildings or lands appurtenant

thereto;
(2)
The assessee must be the owner of such property;
(3)
The property may be used by the owner for any purpose but
any portion of such property shall not be used by the owner
for the purposes of business or profession carried on by him,
the profits of which are chargeable to tax.
BASIS OF COMPUTATION OF INCOME FROM HOUSE PROPERTY

1. Gross Annual Value (Section 23):
(a)
Reasonable expected rent and is deemed to be the sum for

which the property might reasonably be expected to be let
out from year to year;
(b)
Rent actually received or receivable, if this sum is in excess

of the sum referred to in clause (a), then the amount so
received or receivable;
(c)
If due to vacancy during the whole or part of the year, the

actual rent received or receivable is lower than the reasonable
expected rent, then such rent is taken as the Gross annual
value.
37
Unrealized rent (which the owner could not realize) shall be

excluded from rent received or receivable in clauses (a)&(b),
above.[Expln. To section 23(1)]
However, if the owner is in self occupation of the house property
for his residential use, or cannot actually occupy it owing to his
employment, business or profession carried on at any other place and
he has to reside in a building not owned by him, then the annual value
of such house shall be taken to be Nil.
2. Deduct municipal taxes- From the Gross annual value, deduct
municipal taxes (including service tax) levied by any local authority,
only if these taxes are borne by the owner and actually paid by him
during the previous year.
3. Deduction under section 24-
CHAPTER 11
INCOME FROM CAPITAL GAINS

AT A GLANCE
Any profit or gain arising from sale or transfer of a Capital Asset
is chargeable to tax under the head Capital Gains. The income under
this head is deemed to be the income of the year in which the transfer
takes place.
Capital gains are chargeable to tax on accrual basis whether the
consideration is received or not, especially in the case of gains from
sale of shares and securities.
Capital gains are of two kinds, namely:
The following two deductions are available u/s 24:

(a)
Standard deduction- 30% of the net annual value irrespective

of any expenditure incurred by the taxpayer; and
(b)
Interest on borrowed capital is allowed as deduction on

accrual basis, if capital is borrowed for the purpose of
purchase, construction, repair, renewal or reconstruction of
house property. For self-occupied house, deduction allowable
is of Rs 30,000, if the capital is borrowed prior to 01.04.1999,
the maximum ceiling of deduction is Rs1,50,000, if the capital
is borrowed after 01.04.1999 for acquiring or constructing a
house property, and the construction, acquisition is completed
within 3 years from the end of the financial year in which the
capital was borrowed and further that the person extending
the loan certifies that such interest was advanced for
acquisition or construction of the house property or refinance of the principal amount outstanding under an earlier
loan.
Short term Capital gains, if the assets like shares and securities,
are held by the assessee for a period not exceeding 12 months or
36 months in the case of other assets.
Long term Capital gains, if the assets like shares and securities,
are held by the assessee for a period exceeding 12 months or 36
months in the case of other assets. Units of UTI and specified
mutual funds will now be eligible for treatment as long term
capital assets if they are held for a period exceeding 12 months.
Long term Capital gains are computed by deducting from the full
value of consideration for the transfer of a capital asset the
following :
Expenditure connected exclusively with the transfer;
The indexed cost of acquisition of the asset, and
The indexed cost of improvement, if any, of that asset.
In the case of shares, expenditure in connection with the transfer
includes the stock brokers commission but the salary of an employee
is not deducted in computing capital gains though the employee may
have helped in the transfer of the shares.
38
39
Cost of acquisition, in such cases includes the price-paid, cost

of share transfer stamps, cost of postage for sending the shares for
transfer to the transfer-agents of the company, legal expenses etc.
Indexed cost of acquisition means an amount which bears to
the cost of acquisition the same proportion as Cost Inflation Index for
the year in which the asset is transferred bears to the Cost Inflation
Index for the first year in which the asset was held by the assessee.
CHAPTER 12
INCOME FROM BUSINESS OR

PROFESSION AT A GLANCE
Income from business, profession or vocation is taxed under this
head. It includes the following:Profits or gains of a business;
Any compensation or such payment due/received by any person
in connection with modification/termination of his management;
etc.
Income derived by a trade, professional association from specific
services for its members;
Export incentives;
Value of any benefit arising during carrying out of business;
Any interest, salary, bonus, commission or remuneration due/
received by a partner from the firm in which he is partner;
Any sum received under Keyman insurance Policy;
Income from speculation business, etc.
HOW IS INCOME FROM BUSINESS OR PROFESSION COMPUTED ?
Income chargeable to tax is computed after deducting the following:-
40
1.
Expenditure incurred during the previous year wholly and

exclusively for the purpose of the business;
2.
After deducting allowances and deductions provided in Sections

30 to 43D of the I.T. Act. 1961;
41
3.
The following expenses are not alloweable:-
CHAPTER 13
INCOME FROM OTHER

SOURCES AT A GLANCE
Expenditure relating to a discontinued business;

Expenditure incurred before setting up of a business;
Provisions, anticipated losses, reserves or contingent
liabilities, bad debts etc. which have not arisen during the
previous year.
It is residuary head of Income which must satisfy the following

conditions:1.
There must be an income;
2.
This income is NOT exempt under the IT Act 1961; and
3.
This income is not chargeable to tax under the other heads

of income viz. Salary, House property, Business or
Profession and Capital Gains.
WHAT ARE SOME EXAMPLES OF THIS SOURCE ?

Some examples of certain incomes normally taxed under this head
are given below:Interest on bank deposits, loans or company deposits,
Dividend;
Family pension (received by legal heirs of an employee),
Income from sub-letting of house property by a tenant,
Agricultural income from agricultural land situated outside
India,
Interest received from IT Dept. on delayed refunds,
Remuneration received by Members of Parliament,
Casual receipts and receipts of non-recurring nature,
Insurance commission,
Examiner-ship fees received by a teacher (not from
employer),
Income from royalty,
42
43
Directors commission for standing as guarantor to bankers,
CHAPTER 14
Winnings from Lotteries, Crossword Puzzles, Horse Races

and Card Games,
DEDUCTIONS FROM TOTAL

INCOME
Interest on securities,
Income from letting out of machinery, plant or furniture, etc.
From A.Y. 2007-08 onwards, any sum of money exceeding in
aggregate Rs. 50,000 received without consideration on or
after 1-4-2006. Some exception are mentioned in section 56(2)
(vi).
On or after 1st April, 2006, any sum exceeding Rs. 50,000/- received
without consideration shall be treated as income provided that the
sum of money is not received from any relative or on the occasion
of marriage of the individual or under a will or inheritance etc.
HOW IS INCOME FROM OTHER SOURCES COMPUTED ?
WHAT DEDUCTIONS FROM TOTAL INCOME ARE AVAILABLE TO

TAXPAYERS ?
Some of the various deductions available to a taxpayer are
enumerated below:
DEDUCTION IN RESPECT OF LIFE INSURANCE PREMIA,
DEFERRED ANNUITY, CONTRIBUTIONS TO PROVIDENT
FUND, SUBSCRIPTION TO CERTAIN EQUITY SHARES OR
DEBENTURES, ETC. [SEC. 80C, APPLICABLE FROM THE
ASSESSMENT YEAR 2006-07]
1.
Under section 80C, deduction would be available from gross total

income.
Income from this source is computed after deducting the following:1.
Expenditure incurred during the previous year;
2.
Only an individual or a Hindu undivided family can claim

deduction under section 80C.
2.
Expenditure incurred wholly and exclusively for the purpose

of earning the said income;
3.
3.
After deducting allowances and deduction provided in Section

57 of the IT Act 1961;
Qualifying investment - The investments eligible for deduction

under section 80C are largely the same as those which were earlier
entitled for rebate under section 88. These include life insurance
premia, contributions to provident fund or schemes for deferred
annuities, purchase of infrastructure bonds, payment of tuition
fees, repayment of principal amount of housing loans, contribution
towards NSC VIII issue (including accrued interest for first 5
years), etc. However, in order to minimize distortions, there are no
sectoral caps in the new section and the assessee is free to invest
in any one or more of the eligible instruments within the overall
ceiling specified.
4.
Investment may or may not be out of chargeable income - Amount

invested in these investments would be allowed as deduction
irrespective of the fact whether (or not) such investment is made
out of income chargeable to tax.
5.
Amount deductible under section 80C - Amount deductible under

section 80C is equal to (a) 100 per cent of the qualifying
investment, or (b) Rs. 1 lakh, whichever is lower.
And after disallowing the following:A)
expenditure relating to personal expenses
B)
interest, salary payable outside India on which TDS not

made,
C)
Income/Wealth Tax paid, excessive-payments to relatives

etc.
D)
Expenditure in respect of royalty and technical fees received

by a foreign company;
E)
expenditure in respect of winning from lottery.
44
45
6.
Maximum amount deductible under sections 80C, 80CCC and

80CCD - The maximum amount deductible under sections 80C,
80CCC and 80CCD cannot exceed Rs. 1 lakh.
Finance Act, 2006 has included

1)
2)
term deposits for five years or more with scheduled banks in

Section 80C.
investment ceiling in respect of annuity plan (Section 80CCC)
increased to Rs. 1,00,000/-. Overall limit for Sections 80C, 80CCC
and 80CCD to be Rs. 1,00,000/-
Changes made as per Finance Act, 2008:

The Finance Act, 2008 has enlarged the scope of eligible saving
instruments u/s 80C of the Act by including the following investments
within the qualifying investments subject to the overall ceiling of
Rs. 1,00,000/i)
ii)
5 year time deposit in an account under Post Office Time

Deposit Rules, 1981 and
Deposit in an account under the Senior Citizens Savings
Scheme Rules, 2004
Further, it has also been provided that where any amount is

withdrawn by the assessee from such account before the expiry of a
period of 5 years from the date of its deposit, the amount so withdrawn
shall be deemed to be income of the assessee of the previous year in
which the amount is withdrawn and shall be liable to tax. If such amount
has suffered taxation in any of the earlier years, such amount shall not
be taxed again.
The amendment shall apply to investments made during the
Financial Year 2007-08 and subsequent years.
Deduction in respect of medical insurance premia
The Finance Act, 2008 has amended section 80D of the Act and
substituted it with a new section 80D providing for the following :
The provisions of section 80D provide for a deduction of
46
Rs. 15,000/- to an individual or HUF to keep in force an insurance on

the health of the assessee or spouse or dependent parents or dependent
children of the assessee provided the payment for the insurance is made
through a mode other than cash and out of the taxable income of the
assessee. This deduction is allowed upto Rs.20,000/- in case of health
insurance for senior citizens.
Now it has been provided in the Finance Act, 2008 to allow an
additional deduction of Rs. 15,000/- to an individual on the payment
made to keep in force an insurance on the health of parent(s). The earlier
existing condition of dependent with respect to parent(s) has been
dispensed with. In case of senior citizens, the same shall be allowed
upto Rs, 20,000/-. This deduction shall be in addition to existing
deduction available to the individual on medical insurance for himself,
spouse and dependent children.
This amendment shall take effect from 1st April, 2009 and will
accordingly apply to assessment year 2009-10 and subsequent
assessment years.
DEDUCTION FOR PHYSICALLY HANDICAPPED & DISABLED
DEPENDENT
Till A.Y. 2003-04, a deduction of Rs. 40,000 u/s 80DD was allowed
to an Individual or HUF in respect of expenditure incurred on medical
treatment of a handicapped dependent.
Now, w.e.f. 1.4.04 i.e. for A.Y. 2004-05 and subsequent years, a total
deduction of Rs. 50,000 will be available to the parents, spouse,
Children, brothers & sisters or any one of such dependents in respect
of either medical expenditure incurred on medical treatment of or for the
deposits for future needs of the disabled or handicapped dependent.
However in case of 80% or more of disability a sum of Rs. 75,000 is
allowed. For details, section 80 DD may be referred to.
DEDUCTION FOR MEDICAL TREATMENT OF SERIOUS AILMENTS
U/S 80DDB
With effect from assessment year 2004-05, section 80DDB provides
that if a resident individual or HUF actually pays any amount for the
medical treatment of a specified disease or ailment for himself or
dependent or a member of HUF (in case of HUF assessee), then the
47
amount actually paid or Rs. 40,000/- (Rs.60,000/- if the patient is a senior

citizen), whichever is less shall be allowed as deduction. For availing
this deduction, a certificate in prescribed form has to be furnished along
with return of income from the concerned specialist working in a govt
hospital.
DEDUCTION U/S 80CCC FOR NEW PERSONAL CUM-FAMILY
PENSION SCHEME
Section 80CCC provided that if an assessee being an individual
pays or deposits any amount out of his income chargeable to tax to
effect or keep in force a contract for any annuity plan of Life Insurance
Corporation of India or any other insurer for receiving pension from the
fund referred to in section 10(23 AAB), he shall be allowed a deduction
of the amount equal to the deposit or Rs. one lakh whichever is less.
The amount of pension received in the hands of the contributor
or the nominees shall be taxable.
Section 80CCC has been amended with effect from A.Y. 2006-07 so
as to provide that where any amount paid or deposited by the assessee,
has been allowed as a deduction u/s 80CCC, then a deduction of such
amount shall not be allowed u/s 80C.
DEDUCTION IN RESPECT OF INTEREST ON LOAN TAKEN FOR
HIGHER EDUCATION [SEC. 80E. AS SUBSTITUTED FROM THE
ASSESSMENT YEAR 2006-07]
Section 80E has been substituted by a new Section with effect
from the A.Y. 2006-07. The provisions of new Section are given belowConditions - The following conditions should be satisfied 1.
The taxpayer is an individual.
2.
He had taken a loan for the purpose of pursuing his higher

education. Higher education for this purpose means 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.
3.
The aforesaid loan was taken from any bank, an approved charitable
institution or a financial institution notified by the Government.
4.
During the previous year, the taxpayer has paid interest on such
loan.
48
5.
Such interest is paid out of his income chargeable to tax.
Amount deductible - If the above conditions are satisfied, the entire

amount paid by way of interest is deductible under section 80E.
However, the following points should be noted1.
The above deduction is allowed in computing the taxable income

of the initial assessment year (i.e., the assessment year relevant to
the previous year in which the assessee starts paying the interest
on the loan) and 7 immediately succeeding assessment years (or
until the above interest is paid in full, whichever is earlier).
2.
From the assessment year 2006-07, no deduction will be available

under section 80E in respect of repayment of principal amount.
3.
From assessment year 2008-09 onwards, deduction under this

section is also allowable for interest or Loan for higher education
of assessees relative
DEDUCTION FOR DONATIONS MADE TO NATIONAL SPORTS

FUND
Besides other funds, hundred percent deduction for donations
made to National Sports Fund is now available u/s 80-G.
DEDUCTION OF RENTS PAID U/S 80GG
A deduction in respect of any expenditure incurred by an assessee,
who is not in receipt of any income falling within clause (13A) of Section
10 of the Act, in excess of 10% of his total income towards payment of
rent in respect of any furnished or unfurnished accommodation occupied
by him for the purpose of his own residence to the extent of Rs. 2,000
per month or 25% of his total income, whichever is less, will be allowed
under Section 80GG. This deduction is allowable to only those assessees
who do not own any residential accommodation.
DEDUCTION U/S 80JJA
Section 80JJA provides a deduction of whole of profits to an
assessee in business of collecting, processing and treating biodegradable
waste for the specified purpose for a period of 5 consecutive assessment
years from the year of commencement of business.
49
CHAPTER 15
DEDUCTION U/S 80JJAA

Section 80JJAA provides a deduction to Indian companies on
employing new regular workmen. This section is applicable from
assessment year 1999-2000 onwards. This deduction is allowable of 30%
of additional wages paid to the new regular workmen employed by the
assessee for 3 assessment years, including the assessment year in
which such employment is provided.
DEDUCTION IN RESPECT OF INTEREST ON CERTAIN SECURITIES
AND DIVIDENDS- SECTION 80L
No deduction under section 80L is admissible from A.Y. 2006-07,
as it is omitted vide Finance Act, 2005, w.e.f.1-4-2006.
DEDUCTION IN CASE OF A PERSON WITH DISABILITY- SECTION
80U
Deduction is available to a resident individual with disability of
Rs 50,000 and in cases of severe disability the deduction available is
Rs 75,000/-.
DEDUCTION FOR DONATION FOR NATIONAL URBAN POVERTY
ERADICATION FUND
The government is setting up a fund called National Urban
Poverty Eradication Fund. Donations made to this fund would qualify
for 100% deduction u/s 80-GGA. This deduction is only available to tax
payers other than those deriving income from business or profession.
DEDUCTION FOR PROFITS FROM INDUSTRIAL UNDERTAKING
OR ENTERPRISE ENGAGED IN INFRASTRUCTURE DEVELOPMENT
A deduction of 100% of profits and gains derived from such
business is allowable for 10 consecutive assessment years. If the
assessee develops, or operates and maintains, or develops, operates
and maintains any specified infrastructure facility then the deduction of
100% of profits and gains derived from such business is allowable for
any ten consecutive assessment years out of 20 years beginning with
the year in which the undertaking or enterprise developes and begin to
operate the infrastructure facility. (for details section 80 IA may be
refereed to).
50
INCOME-TAX ON FRINGE
BENEFITS
INCOME-TAX ON FRINGE BENEFIT (SEC. 115W TO 115 WL,
APPLICABLE FROM THE A.Y. 2006-07 ONWARDS]
Employees enjoy many fringe benefits at the cost of the employers.
In some cases, the entire expenditure incurred by the employer is taxable
in the hands of the employees. In some other cases, these perquisites
are taxable in the hand of the employees at concessional mode of
valuation provided by rule 3. Some of them are exempt and not
chargeable to tax because of specific provisions under rule 3 or because
of executive instructions.
The new provisions of Fringe Benefit tax with the amendments in
the Act are as below:
Amendment of section 17 and rule 3(7) - Section 17 (2) defines
perquisite. Sub-clause (vi) of this section has been amended with effect
from the A.Y. 2006-07. Rule 3(7) has also been amended. The cumulative
impact of these changes as applicable for the assessment year 2008-09
is as under:
Section 17(2) (vi) - It includes the value of any other fringe
benefit or amenity (excluding the fringe benefits chargeable to tax under
Chapter XII-H) as may be prescribed.
Fringe benefits prescribed for the purpose - The following fringe
benefits have been prescribed:
1. Interest free or concessional loan (except some specified
exemptions)
2. Travelling, touring, accommodation and any other expenses for
any holiday availed of by employee or his family member
(except some specified exemptions)
3. Free food or non-alcoholic beverages (except some specified
exemptions)
4. Gift, voucher or token (except some specified exemptions)
5. Credit card (except some specified exemptions)
6. Club expenditure (except some specified exemptions)
51
7. Any other benefit or amenity, service, right or privilege except

expenses on telephones and a mobile phone actually incurred
by the employer.
Definition of employer as given in Section 115W - For the purpose
of fringe benefit tax, the term employer means
a. a company;
b. a firm;
c. an association of persons or a body of individuals, whether
incorporated or not [but it does not include any fund or trust
or institution which is eligible for exemption under Section
10(23C) or registered under section 12AA];
d. a local authority; and
e. every artificial juridical person, not falling within any of the
above.
The following points should be noted
1. A company, firm, local authority and an artificial juridical
person are liable for fringe benefit tax even if they do not have
any income which is chargeable to income-tax. For instance,
a company having only agricultural income (which is exempt
under Section 10) is liable for payment of fringe benefit tax if
other conditions are satisfied.
2. The following cannot be employers for the purpose of
fringe benefit tax (in other words, fringe benefit tax is not
applicable in the case of following employers) a. an individual (whether or not books of account are
audited);
b. a Hindu undivided family (whether or not books of account
audited);
c. an AOP/BOI whose income is eligible for exemption under
Section 10(23C) or which is registered under Section
12AA;
d. Central Government;
e. a State Government.
Basis of charge as given under Section 115WA - As per Section
115WA, fringe benefit tax is applicable if the following conditions are
satisfied
1. Fringe benefits are provided (or deemed to be provided) by an
employer.
52
2. These benefits are provided to his/its employees.

3. These benefits are provided during the previous year.
If these conditions are satisfied, the employer would be liable for
fringe benefit tax with effect from the A.Y. 2006-07. The tax will be
calculated at the rate of 30 percent (+SC+EC) on the value of fringe
benefits. This is in addition to regular income-tax. Fringe benefit tax is
not applicable if a person does not have any employee during the
previous year.
Meaning of fringe benefits and value of fringe benefits as given
in Section 115WB and 115WC - Section 115WB(1) defines fringe
benefits which are narrated in Column 1 of Part A of the table given
below. Section 115WB(2) defines deemed fringe benefits which are
given in Column 1 of Part B of the table. Section 115WC defines value
of fringe benefits. These values are given in Column 2 of Parts A and
B of the table. Fringe benefit tax liability is calculated at the rate of 30
percent (+ SC + EC) of the value given in Column 2
Part A
Fringe benefits, as per Section
115WB(1), means any consideration
for employment provided by way of
Value as per section

115WC
Any privilege, service, facility or No value given.

amenity, directly or indirectly, provided
an employer, whether by way of
reimbursement or otherwise, to his
employees
(including
former
employees) [not being expenses
mentioned in Note 1]
Any free or concessional ticket
provided by the employer for private
journeys of his employees or their
family members
100% (cost at which the same

benefit is provided to the
general public) minus any
recovery from the employee
Any contribution by the employer to The amount of contribution

an approved superannuation fund for which exceeds Rs 1 lac in
employees
respect of each employee.
Any specified security or sweat equity The fair market value of the
shares allotted or transferred, directly specified security or sweat
or indirectly, by the employer free of equity shares on the date of
53
cost or at concessional rate to his vesting of option with the

employees (including former employee employees as reduced by the
amount actually paid by, or
or employees)
recovered from the employee
in respect of such security or
shares
Part B
Deemed fringe benefits [the following
shall be deemed to have been Value as per section 115WC
provided by the employer to his
employees if the employer has in the
course of his business and profession
(whether or not such activity is
carried on with the object of deriving
income) incurred these expenses] as
per section 115WB(2)
Entertainment
20%
Provision of hospitality of every kind 20% (hotels 5%, carriage of

by the employer to any person, passengers or goods by
whether by way of provision of food aircraft and ship 5%)
or beverages or in any other manner
whatsoever and whether or not such
provision is made by reason of any
express or implied contract or custom
or usage of trade (but does not include
any expenditure on, or payment for,
food or beverages provided by the
employer to his employees in office or
factory and any expenditure on or
payment through paid vouchers which
are not transferable and usable only
at eating joints or outlets)
Conference (not being fee for 20%
participation by the employees in any
conference)
[Any expenditure on conveyance, tour
and travel (including foreign travel),

on hotel, or boarding and lodging in
connection with any conference shall
be deemed to be expenditure incurred
for the purposes of conference]
Sales promotion including publicity 20%
(not being the expenditure mentioned
in Note 2)
Employees welfare (not being any 20%
expenditure incurred or payment made
to fulfil any statutory obligation or
mitigate occupational hazards or
provide first aid facilities in the hospital
or dispensary run by the employer)
Conveyance
20% (construction business
5%, business of manufacture/
production of pharmaceuticals 5%, manufacture/production of computer software
5%)
Use of hotel, boarding and lodging 20% (business of manufacfacilities
ture/production of pharmaceuticals 5%, manufacture/
production of computer software 5%, carriage of passengers and goods by aircraft
and ship 5%
Repair, running (including fuel), 20% (business of carriage of
maintenance of motorcars and the passengers or goods by air
craft : Nil)
amount of depreciation thereon
Repair, running (including fuel), 20% (business of carriage of
maintenance of aircrafts and the passengers or goods by aircraft
amount of depreciation thereon
Use of telephone (including mobile 20%
phone) other than expenditure on
leased telephone lines
Maintenance of any accommodation 20%
54
55
in the nature of guest house (other

than accommodation used for training
purpose) (Not applicable w.e.f. A.Y.
2009-10
h.
Festival celebrations
Use of health club and similar facilities
50%
Use of any other club facilities
50%
Gifts
50%
Scholarships
50%
Tour, Travel, foreign travel (from

A.Y. 2007-08)
5%
Note 1 -
The privilege, service, facility or amenity does not include

perquisites in respect of which tax is paid or payable by the
employee.
Note 2 - The following expenditure on advertisement shall not be
taken as deemed fringe benefit a.
the expenditure (including rental) on advertisement of any form
in any print (including journals, catalogues or price lists) or
electronic media or transport system.
b.
the expenditure on the holding of, or the participation in, any
press conference or business convention, fair or exhibition;
c.
the expenditure on sponsorship of any sports event or any other
event organized by any Government agency or trade association
or body;
d.
e.
f.
g.
the expenditure on the publication in any print or electronic

media of any notice required to be published by or under any
law or by an order of a court or tribunal.
the expenditure on advertisement by way of signs, art work,
painting, banners, awnings, direct mail, electric spectaculars,
kiosks, hoardings, bill boards or by way of such other medium
of advertisement; and
the expenditure by way of payment to any advertising agency
for the purposes of (a) to (e) above;
the expenditure on distribution of samples either free of cost or
at concessional rate; and
56
the expenditure by way of payment to any person of repute for

promoting sale of goods or services of the business of the
employer.
Return of fringe benefits - Every employer who has paid (or made
provisions for payment) fringe benefits to his employees during the
previous year shall submit the return of fringe benefits to the Assessing
Officer on or before the due dates given below
Different employers
Due date of the

assessment year
If the employer is a company

September 30
If the employer is a person other
September 30
than company and books of account
are required to be audited
If the employer is a person other than
July 31
company and books of account are not
required to be audited
The due date for filing of return of fringe benefits provided in
section 115WD(1) of the Act has also been advanced from 31st Oct. of
the assessment year to 30th Sept. of the assessment year in the case
of following categories of assessees :
i)
a Company;
ii)
a person (other than a company) whose accounts are to be
audited;
This amendment has taken effect from 1st April, 2008.
Note: Notice can be issued by the Assessing Officer if return is not
submitted.
Belated return and revised return - Belated return and revised
return can be submitted within the following time-limit
1. Within one year from the end of the relevant assessment year;
or
2. Before the completion of the assessment, whichever is earlier
Assessment The provisions of summary assessment, regular
assessment, reassessment, notice for reassessment are given in sections
115WE, 115WF, 115WG and 115WH. These provisions have been
incorporated on similar lines as given in sections 139, 143, 144, 147 and
148.
Advance payment of fringe benefits tax:

(a)
All companies who are liable to pay advance tax on current

57
Where the return of fringe benefits for any assessment year under
section 115WD is furnished after the due date, or is not furnished, the
employer shall be liable to pay simple interest at the rate of one percent
for every month or part of a month. Interest is payable for the period
commencing on the date immediately following the due date and ending
on the date of furnishing of the return or where no return is furnished
ending on the date of completion of the assessment. Interest is payable
on the amount of fringe benefit tax determined on regular/ summary
assessment as reduced by the advance tax paid.
Changes made as per Finance Act, 2008 :

The earlier existing provisions of section 115WB(2) of the Income-tax
Act provided that wherein employer incurs any expenditure, inter-alia
for the purpose of entertainment, hospitality, conference and sale
promotion, such employer shall be deemed to have provided Fringe
Benefits to its employees.
1. The Finance Act, 2008 has made following amendments to section
115WB(2):i) any expenditure on or payment through prepaid electronic Meal
Card shall be excluded from the hospitality expenditure for
calculation of the value of fringe benefit. Such electronic meal
card should not be transferable and should be useable only at
eating joints or outlets.
ii) Explanation to Clause (E) has been amended to provide that any
expenditure incurred or payment made to Provide creche facility for the children of the employee;
Sponsor a sportsman, being an employee;
Organize sports events for the employees,
shall not be considered as expenditure for employees welfare for the
purpose of calculation of the fringe benefits.
iii) Clause (K) has beeen omitted. Hence any expenditure on or
payment made for maintenance of any accommodation in the
nature of guest house shall not be included in fringe benefit.
Further, amendment has been made in section 115WC(1)(c)(d) to
provide that value of fringe benefits on account of expenditure on
festival celebration shall be 20% against the existing rate of 50%.
These amendments shall take effect from 1st April, 2009.
II. A new section 115WKB has also been inserted to provide that
where fringe benefit tax (with respect to allotment or transfer of specified
security or sweat equity shares) has been paid by the employer and
subsequently recovered from the employee, the recovery of fringe
benefit tax shall be deemed to be the tax paid by such employee in
relation to value of fringe benefits provided to him. The deeming
provisions shall apply only to the extent to which the amount of
recovery relates to the value of the fringe benefits provided to such
employee and the employee shall not be entitled to any refund for such
deemed payment of tax and shall also not be entitled to claim any credit
of such deemed payment of tax against tax liability on other income or
against any other tax liablity
This amendment has taken effect from 1st April,2008.
58
59
fringe benefits have to pay the same in four instalments as

below:
Due date of installment
Amount payable
(Progressive)
On or before 15th June
15%
On or before 15th September
45%
On or before 15th December
75%
On or before 15th March
100%
(b) In the case of other assesses (other than companies), the
same has to be paid in three instalments, i.e; Before 15th
September(30%), Before 15th December (60%), and before 15th
March (100%).
Interest for short/non payment of advance tax - If an assessee
does not pay or pays less than ninety percent of the assessed tax as
advance tax on fringe benefits during the relevant financial year, he shall
be liable to pay simple interest at the rate of one percent for every month
or part of a month from 1st April of the assessment year to the date of
assessment.
Interest for deferment of advance tax - If an assessee does not pay or
pays less than the required progressive amount of advance tax on fringe
benefits to be paid by each of the specified dates of 15th June/ 15th
Sept./15th December in the case of a company and 15th Sept./ 15th
December in other cases during a financial year, he shall be liable to pay
simple interest at the rate of three percent on the amount of shortfall in
respect of each such progressive amount of payment required to be
made on each such date.
Further, If an assessee does not pay or pays less than the total amount
of advance tax on fringe benefits required to be paid by 15th March
during a financial year, he shall be liable to pay simple interest at the
rate of one percent on the amount of shortfall in required payment.
Interest for default in furnishing return of fringe benefits -
CHAPTER 16
MOVABLE PROPERTY
SOME HELPFUL TIPS FOR

FILING WEALTH TAX RETURNS
Furnish in the given columns the details of all movable property

held by the assessee, including those mentioned in, Section 2(e) which
are not assets for purposes of the Wealth tax Act, whether located in
India or outside India, whether assessable or exempt under section 5.
Besides the precautions to be taken for filing Income Tax Returns

given in Chapter-4 of this book, other specific points to be kept in mind
are given here-in-below:-
Details of similar assets belonging to any other person but

includible in the net wealth of the assessee under section 4.
The W.T. return for Individuals, Hindu Undivided Families and

Companies is to be filed in Form BA. Value of an asset for an
assessment year is to be declared as on the relevant Valuation Date i.e.
31st March of each year. Thus, for the assessment year 2002-03, the
valuation date will be 31.3.2002, while for the A.Y. 2003-04, the
valuation date will be 31.3.2003 & for A.Y. 2004-05, it will be 31.3.04.
Value of an asset, other than cash, is to be determined on the
basis of the rules of Schedule III. The details of calculation of the value
of each asset under the relevant rule of this schedule should be attached
with the return. Also, Wherever any rule of this schedule prescribes that
a particular document in support of the valuation is to be attached with
the return, the same must be so attached.
The assessee must sign all attached documents.
IMMOVABLE PROPERTY
Furnish in the given columns the details of all immovable
properties held by the assessee, including agricultural land whether
located in or outside India, and whether assessable or exempt.
Details of similar assets belonging to any other person but
includible in net wealth of the assessee should be given.
Value of movable property should be declared as per rules 1, 2

and 17 to 21 of Schedule III. Where the assets are held as assets of
business for which accounts are maintained regularly, the valuation
should be done as per rule 14 of Schedule III.
HELD AS ASSETS OTHER THAN IN BUSINESS OR
PROFESSION
Indicate amount of cash in hand.
Indicate the form of gold, silver, platinum or other precious
metal, its gross and net weight in grams and its value as per rule 20 of
Schedule III. Valuation of jewellery is to be done as per rules 18 and
19 of Schedule III. In support of the valuation of jewellery; the
prescribed form to be attached with the return is:Where the value of the jewellery on the valuation date is upto Rs.
5 lakhs, a statement in Form No. 0-8A as prescribed by rule 13
(c), signed by the assessee, or
Where the value of the jewellery on the valuation date exceeds
Rs. 5 lakhs, a report of Registered Valuer in Form 0-8, as prescribed
by rule 8D.
HELD AS ASSETS OF BUSINESS OR PROFESSION
Indicate in the given column details of movable properties held as
assets of business or profession carried on by the assessee as proprietor.
Value of immovable property should be declared as per rule 3 to

8, 20 and 21 of Schedule III. Where the assets are held as assets of
business for which accounts are maintained regularly, the valuation
should be done as per rule 14 of this Schedule.
Indicate here the value of each asset as calculated on the basis

of the provisions of the relevant rule of Schedule III.
60
61
A copy of the balance sheet or trial balance as on the valuation

date and a copy of the auditors report if any, must be attached.
Where the assets are held as assets of business for which

accounts are maintained regularly, rule 14 of Schedule III will apply for
purposes of valuation. Give the description of movable property and
also of claimed exemptions.
After showing such assets, if any as the case may be, these
should be claimed as exempt.
The amount of tax, penalty or interest payable in consequence of
any order passed under certain Direct Taxes Acts, which is outstanding
on the valuation date, and
If the amount is disputed in appeal, revision or other proceedings,
or
Though not disputed as above, if the amount is outstanding for
more than 12 months on the valuation date, it should be clearly
indicated.
In case space provided under any item of the Return Form is

found insufficient, then give computation in respect of such item on
separate sheet (s) using the columns indicated for that purpose under
the said item in the return Form and attach that to the return. The sum
totals of such computation done should be indicated in the columns
provided under the relevant item in the Return Form.
Similarly, any other information asked for in the, Form, which
cannot be completely furnished on account of paucity of space, maybe
furnished on a separate, sheet.
STATEMENT OF TAXES
Wealth-tax payable on the net wealth arrived at is to be indicated.
The tax should be calculated according to the rates specified in Part I
of Schedule I. Indicate interest chargeable for late filing of return. The
net tax/interest payable or refund due, as the case may be, is to be
indicated.
Indicate the net amount of debt, which is deductible in the

computation of net wealth. Indicate in the given columns details,
in respect of the following debts:-
LIST OF DOCUMENTS/STATEMENTS ATTACHED
a)
Those which are secured or incurred in relation to assets

other then assets of business of profession carried on by the
assessee, and
WHY HAS INTEGRATION OF THE RETURNS OF INCOME

AND WEALTH IN A SINGLE FORM NOT BEEN CONSIDERED?
b)
Those which are not related to any asset, e.g. a loan taken
for purposes of marriage or education of children or any
other personal loans.
Please give complete particulars of documents attached to the

return of Wealth.
The question of integrating in a single Form, was duly considered

but found not feasible for the following reasons:I)
The number of Income tax assessees is far larger than the

number of Wealth Tax assessees. Therefore, an integrated
Form will mean unnecessary and redundant space in the
return, resulting in wastage of stationery and storage space,
besides causing inconvenience to majority of taxpayers who
may be liable to Income Tax only;
II)
Major amendment would be needed in IT & WT Act and
OTHER GENERAL POINTS TO BE REMEMBERED ARE :

There should be no corrections or overwriting and it should be
properly signed and verified by the person who is authorized to do so
under the provisions of I.T. Act.
The permanent Account Number (PAN) given to the taxpayer
and under the Income-tax Act, 1961 and Ward/Circle/Range are to be
quoted here.
All parts and Columns must be filled in. If any part or column does
not apply, please mention NA (Not Applicable) and do not put any
other mark or symbol.
62
III) The purpose of better enforcement through simultaneous

scrutiny of Returns of income and wealth was achieved by
making it mandatory for taxpayers who are liable to both
Income & Wealth Taxes, to file their Returns of income and
wealth together.
63
(a) is not more than Rs. 1,50,000

16
26A(2)(a)
[Sec. 192(2C)
(b) is more than Rs. 1,50,000
12BA 26A(2)(b)
[Sec. 192 (2C)]
Form No. 12BA should accompany the return of income of the
employees
4. Income under the heads of income
Not
26B
other than Salaries for deduction
prescribed
of tax at source [Section 192(2B)]
(b) Certificate of (1) deduction of tax at
source: & (2) payment of tax u/s
192(1A) by the employer on behalf
of the employee, u/s 203
16
31(1)(a)
(c) Annual return of deduction of tax form
24
37
Salaries u/s 206
CHAPTER 17
IMPORTANT PRESCRIBED
FORMS UNDER I.T. RULES 1962
Subject
Prescribed
Refer
Form No. I.T. Rules
I.
II.
Charitable &Religious trusts etc.:

(a) Notice for accumulation of income to be
given to the Assessing Officer/the
prescribed authority u/s 11(2) or
under the said provisions as applicable to
sections
10(21)
10
(b) An application u/s 12A (1)(aa) for registration

of charitable
or religious trusts etc.
(c) The auditors report u/s 12A(b)
(d) Application for approval/continuance
u/s 80G(5)(vi)
[in triplicate]
(e) Application for approval/continuance
u/s 10(23AAA)
[in triplicate]
(f) Application for grant of exemp./conti.
thereof u/s 10(23C)(vi)/(via) [in quatraplicate]
(g) Application for approval u/s 10(23G) by
an enterprise
[in duplicate]
10A
17A
10B
10G
17B
11AA(1)
16C(3)
Salary:
(a) Furnishing of particulars of 1. Income u/s 192(2A) for claiming
relief u/s 89 by
an employee.
2. Salaries received from other employer
or employers to the person responsible
for deduction of tax at source (i.e.
present employer) [Sec. 192(2)]
3. Perquisites and/or profits in lieu of salary
provided to the employee, where the
amount of salary paid/payable.
64
17
III.
56D
2CA(2)
56E
2E(1)
10E
12B
21AA
26A(1)
Business/profession :
(a) Report of audit of the accounts:1 u/s 33AB(2)
2 u/s 33ABA(2)
3 u/s 35D(4)/35E(6) [for assessee other
than a company & co-operative society]
4 u/s 44AB [Tax audit], in the case of
a person who carries on business or
profession:A. Who is required by or under any
other law to get accounts audited
B. Who is not required by or under
any other law to get accounts
The particulars to be furnished u/s 44AB
5 u/s 142(2A)
6 u/s 80HHB(3)(i) [For assessee other
7 u/s 80HHBA(2)(i) [For assessee other
8 u/s 80HHC (4), 80HHC(4A)(a)
9 u/s 80HHD(6)
1 0 u/s 80HHE(4)80HHE(4A)(i)
1 1 u/s. 80-I(17) or 80-IA(7) [Other than u/s.
80-IB(7A), 80-IB(7B) and 80-IB (11B)
1 2 80JJAA(2)(b)
(b) Report from an accountant certifying that
the deduction has been correctly claimed1 u/s. 10A(5)
2 u/s 10(B)(5)
3 u/s 32(I)(iia)[i.e. additional depreciation]
4 u/s. 80HHF(4)
5 u/s. 80-IB(7A)
65
3AC
3AD
5AC
5AD
3AE
6AB
3CA
6G(1)(a)
3CB
3CD
6B
6G(1)(b)
6G(2)
14A
10CCA 18BBA(I)
10CCAA
10CCAC
10CCAD
10CCAF
18BBA(1A)
18BBA(3)
18BBA(4)
18BBA(7)
10CCB 18BBB(1)
10DA 19AB
56F
56G
3AA
10CCAI
10CCBA
16D
16E
5A
18BBA(9)
18DB(2)
(c) Report from an accountant u/s. 115JB(4)

certifying that the book profit has been
computed in accordance with the
29B
provisions of section 115JB
(d) Report of accountant u/s. 50B(3) certifying
that net worth has been correctly arrived
3CEA
(e) Report from an accountant to be furnished
u/s 92E relating to international transaction(s) 3CEB
(f) Certificate from the Export/trading House
which is required to be furnished by the
supporting manufacturer u/s. 80HHC(4A)(b)
10CCAB
(g) Certificate from the person making payment 10CCAE
to an assessee, engaged in the business of
a hotel or of a tour operator or of a travel
agent u/s. 80HHD(2A)
(h) Certificate from the exporting company which
is required to be furnished by the supporting 10CCAG
software developer u/s. 80 HHE(4A)(ii)
(i) Certificate referred to in section 80 HHB(3)(ia)
from an accountant certifying that deduction 10CCAH
has been correctly claimed u/s. 80HHB
(j) Certificate from an accountant u/s. 80-1A(6), 10CCC
specifying the amount credited to reserve
account and the amount utilised during the
previous year for the highway project.
(k) A person carrying on medical profession to
3C
keep and maintain a daily case register
IV.
Deduction of tax at source on payment of income

other than Salaries:
(a) Application to the Assessing Officer for
certificate for deduction of tax at lower
rates by a person u/s 197 (I)
(b) Application by non-resident/foreign
company for certificate authorizing
receipt of interest or other sums (not
being salary)
without deduction of tax
(c) Declaration in duplicate u/s. 197A (1),
to be made by a resident individual
claiming receipt of
1 Dividends without deduction of tax
2 Payment of any amount referred to in
section 80CCA(2)(a) [i.e. National
Savings Scheme, 1987] without
deduction of tax
(d) Declaration in duplicate u/s. 197A (1C)
to be made by an Individual for payment,
without deduction of tax at source of
66
13
interest on securities [Section 193]

or interest other than interest on
securities [Section
194A] or income in respect of units
[Section 194K]
(e) Certificate for deduction of tax at source
u/s. 203 in respect of payment of income
by way of : Interest on securities [Sec.
193], dividend [Sec. 194A], winning
from any lottery or crossword puzzle or
any card game/other game of any sort
[Sec. 194B], winnings from horse race
[Sec. 194BB], contractors/subcontractors [Sec. 194C], insurance
commission [Sec. 194D], withdrawals
from National Savings Scheme, 1987
[Sec. 194EE], repurchase of units
referred to in section 80CCB [Sec.
194F], commission etc. on sale of lottery
tickets [Sec. 194G], commission or
brokerage [Sec. 194H], rent [Sec. 194-I],
fees for professional or technical
services [Sec. 194J] & income in respect
of units [Sec. 194K]
(f) Application in duplicate for allotment of
tax deduction account number u/s. 203A
40B
6H
10E
18BBA(2)
18BBA(6)
18BBA(8)
18BBA(1B)
18BBE(3)
6F(3)(i)
V.
28(I)
VI.
15C/15D 29B(3)
15G
15-G
29C(1)
29C(1)
Annual return of deduction of tax at source

to be furnished u/s. 206 from:
(a) Annual return of deduction
u/s 192 from Salaries
(b) In cases other than salaries
15H
29C(1A)
16A
31(1)(b)
49B
114A(I)
24
37
26
37
Collection of tax at source u/s 206C :

(a) Application in duplicate for allotment of a
49B
tax collection account number u/s. 206CA(I)
(b) Declaration for no collection of tax at
27C
source under section 206C (IA)
(c) Certificate for collection at source to be given 27D
by the person collecting tax u/s. 206C(5)
(d) Application by a buyer for certificate for
13
Collection of tax at lower rate u/s. 206C(9)
(e) Certificate to be issued by AO in lieu of
-application made by the buyer under
rule 37G
(f) Annual return of tax collection at
27E
source u/s 206C
67
114AA(I)
37C(I)
37D
37G
37H
37E
VII.
VIII.
Deduction from gross total income under

Chapter VI A:
(a) U/s. 80DDB-Furnishing of certificate from the 10I
prescribed authority i.e. doctor registered with
the Indian Medical Association with postgraduate qualification
(b) U/s. 80G(5C)(V)-Report of audit in respect 10AA
of details of accounts u/s. 80G(5C)(v)
(c) U/s 80GG-Declaration to be filed by the
10BA
assessee claiming deduction u/s. 80GG
XI
11DD(2)
18AAAA(2)
11B
Appeals:
(a) To the Commissioner (Appeals) in duplicate 3 5
(b) To the Appellate Tribunal (in triplicate)
(with challan for fees paid)
36
(c) A memorandum of cross-objections
u/s 253(4) to the Appellate Tribunal
36A
(in triplicate)
Returns as prescribed in Income Tax Rule

12(1) for A.Y.2008-09 are as below:
FOR WHOM
ITR-1
IX
Individuals having salary, pension, family pension or

interest income.
ITR-2
Individuals and Hindu undivided family (HUFs) not
having income from business or profession.
ITR-3
Individuals and HUFs who is a partner in partnership
firm but does not carry on a proprietary business or profession.
ITR-4
Individuals and HUFs carrying on a proprietory business or
profession.
ITR-5
Partnership firms, Association of Persons (AoP) and Body
of Individuals (BoI).
ITR-6
Companies other than companies claiming exemption under
section 11.
ITR-7
Persons including companies which are charitable or
religious trust, political party, scientific research association,
news agency, hospital, trade union, university, college or
other institution specified in sub-section (4A), (4B), (4C)
and (4D) of section 139 of the Act.
ITR-8
Persons not liable to file return of income but are liable to
file return of fringe benefits.
ITR-V
Where the data of the return of income or Fringe benefits in
Forms ITR-1, ITR-2, ITR-3, ITR-4 ITR-5, ITR-6 &ITR-8
is transmitted electronically without digital signature.
Payment of advance tax :
(a) Notice of demand u/s 156 to be served
28
38
upon the assessee in pursuance of an order
u/s 210(3)/(4)
(b) Intimation which an assessee has to send to 28A
39
the Assessing Officer u/s 210(5) in pursuance
of an order received u/s 210(3)/(4)
Refunds
A claim for refund of tax under section 239
68
30
47(1)
47(2)
The Forms prescribed under the I.T Rules are available at the site
www.incometaxindia.gov.in
Return of income for A.Y.2008-09
FORM
45(1)
41(1)
69
Tax Payers Information Series 31
Taxation of
Salaried Employees
Pensioners
and
Senior Citizens

6th Floor, Mayur Bhawan, Connaught Circus
New Delhi-110001
PREFACE
Lack of awareness amongst taxpayers is often cited as the
main reason for low level of compliance towards tax laws. It has
been a constant endeavour of the Directorate of Income Tax (PR,
PP & OL) to increase the awareness of the taxpayers about the
provisions of tax laws and the steps taken by the government to
reduce the complexities of tax laws and improve Tax Payer Service.
The booklets published under the Tax Payers Information Series
have proved to be an effective and convenient tool to educate the
tax payers in discharging their tax liabilities relating to Direct Taxes.
This publication should not be construed as an

exhaustive statement of the Law. In case of doubt,
reference should always be made to the relevant
provisions of the Income Tax Act, 1961, Income Tax
Rules, 1962, Wealth Tax Act, 1957 and Wealth Tax
Rules, 1957, and, wherever necessary, to Notifications
issued from time to time.
Taxation of Salaried Employees, Pensioners and Senior

Citizens is one of the most popular booklets among the taxpayers.
Its last edition was brought out in the year 2008. The present edition
incorporates further amendments made upto the Finance Act, 2010?
This edition has been updated by Smt. Garima Bhagat, Add. CIT,
New Delhi.
It is hoped that this publication will prove to be more useful
for the readers. The Directorate of Income Tax (Public Relations,
Printing & Publications and Official Language) would welcome
any suggestion to further improve this publication.
(Amitabh Kumar)
Director of Income Tax (PR, PP & OL)
New Delhi
Dated : November 11, 2010
CHAPTER 1
AN INTRODUCTION TO TAXATION
CONTENTS
1.1 INTRODUCTION
Topic
Page No.
Chapter 1
An Introduction to Taxation
Chapter 2
Salary Income, Perquisites & Allowances
13
Chapter 3
Overview of Income from House Property
27
Chapter 4
Overview of Capital Gains
30
Chapter 5
Deductions under Chapter VIA
36
Chapter 6
Tax Rebate & Relief
46
Chapter 7
Permanent Account Number
50
Chapter 8
Taxability of Retirement Benefits
52
Income tax is an annual tax on income. The Indian Income

Tax Act (Section 4) provides that in respect of the total income of
the previous year of every person, income tax shall be charged
for the corresponding assessment year at the rates laid down by
the Finance Act for that assessment year. Section 14 of the Incometax Act further provides that for the purpose of charge of income
tax and computation of total income all income shall be classified
under the following heads of income:
A.
B.
C.
D.
E.
Salaries
Income from house property
Profits and gains of business or profession.
Capital gains
Income from other sources.
The total income from all the above heads of income is

calculated in accordance with the provisions of the Act as they
stand on the first day of April of any assessment year.
58
In this booklet an attempt is being made to discuss the various

provisions relevant to the salaried class of taxpayers as well as
pensioners and senior citizens.
Chapter 10 Taxation of Expatriates
61
1.2 FILING OF INCOME TAX RETURN
Chapter 11 Income tax on Fringe Benefits
67
Chapter 12 Some relevant Case laws
70
Chapter 9
Pensioners & Senior Citizens
Section 139(1) of the Income-tax Act, 1961 provides that

every person whose total income during the previous year
exceeded the maximum amount not chargeable to tax shall furnish
a return of income. The Finance Act, 2003 has introduced Section
139(1B) which provides for furnishing of return of income on
computer readable media, such as floppy, diskette, magnetic
cartridge tape, CD- ROM etc., in accordance with the e-filing

scheme specified by the Board in this regard.
1.3 DUE DATES FOR PAYMENT OF ADVANCE TAX &

FILING OF RETURN
The return of income can be submitted in the following manner:

(i) a paper form;
(ii) e-filing
(iii) a bar-coded paper return.
Liability for payment of advance tax arises where the amount

of tax payable by the assessee for the year is Rs.10,000/- or more.
The due dates for various instalments of advance tax are given
below:
Where the return is furnished in paper format,

acknowledgement slip attached with the return should be duly filled
in. Returns in new forms are not required to be filed in duplicate.
Returns can be e-filed through the internet. E-filing of return
is mandatory for companies and firms requiring statutory audit u/s
44AB. From A.Y. 2011-12, it is now also mandatory for all business
entities (including individuals/HUF) liable to tax audit to e-file their
return of income. E-filing can be done with or without digital signaturea)
If the returns are filed using digital signature, then no

further action is required from the tax payers.
b)
If the returns are filed without using digital signature,

then the tax payers have to file ITR-V with the
department within 15 days of e-filing.
c)
The tax payer can e-file the returns through an

e-intermediary also who will e-file and assist him in filing
of ITR-V within 15 days.
Where the return of income is furnished by using bar coded

paper return, then the tax payers need to print two copies of Form
ITR-V. Both copies should be verified and submitted. The receiving
official shall return one copy after affixing the stamp and seal.
DUE DATE
AMOUNT PAYABLE
(i) On or before 15th September

of the previous year
Amount not less than 30%

of such advance tax payable
(ii) On or before 15th December

of the previous year
Amount not less than 60%

of such advance tax payable
(iii) On or before 15th March of

the previous year
Entire balance amount of

such advance tax payable
Also, any amount paid by way of advance tax on or before

31st March is treated as advance tax paid during the financial year.
The due date of filing of return of income in case of salaried
employees is 31st of July. If the return of income has not been
filed within the due date, a belated return may still be furnished
before the expiry of one year from the end of the assessment year
or completion of assessment, whichever is earlier.
1.4 FORMS TO BE USED:- The forms to be used for filing the
return of income from A.Y. 2009-10 onwards are mentioned below:Form No.
The Finance Act, 2005 has provided that w.e.f. 01.04.2006

every person shall file a return of income on or before the relevant
due date even if his total income without giving effect to the
provisions of Chapter VI-A (please see Chapter 5 of this
booklet) exceeds the maximum amount not chargeable to tax.
A.Y.
A.Y.
Heading
2009-10 2010-11
ITR 1
ITR 1 For A.Y. 2009-10 - For individuals having
(SARAL 2) income from salary, pension, family pension
and interest.
For A.Y. 2010-11 - For individuals having
income from salary, pension, income from
ITR 2
ITR 3
ITR 4
ITR 5
ITR 6
ITR 7
ITR 8
ITR V
Acknow
ledge
ment
one house property excluding b/f losses/

income from other sources excluding
winning from lottery or income from race
horses.
ITR 2 For individuals and HUFs not having income
from Business or Profession.
ITR 3 For Individuals and HUFs being partners in
firms and not carrying out business or
profession under any proprietorship.
ITR 4 For individuals & HUFs having income from
a proprietary business or profession
ITR 5 For firms, AOPs and BOIs
ITR 6 For Companies other than companies
claiming exemption under section 11
ITR 7 For persons including companies required
to furnish return under Section 139 (4A) or
Section 139 (4B) or Section 139 (4C) or
Section 139 (4D).
N.A. Return for Fringe Benefits
ITR V Where the data of the Return of Income/
Fringe Benefits in Form ITR-1, ITR-2,
ITR-3, ITR-4, ITR-5, ITR-6, ITR-7 &
ITR-8 is transmitted electronically without
digital signature.
Acknowl- Acknowledgement for e-Return and non
ledge e-Return.
ment
CHALLAN FORMS:- The following are the new computerized

challan forms:Challan No. Nature of Payment
ITNS 280
(0020) Income Tax on Companies
(Corporation Tax)
(0021) Income Tax (Other than Companies)
4
ITNS 281
(0020) Tax Deducted/Collected at Source from

Company Deductees
(0021) Non-Company Deductees
ITNS 282
(0034) Securities Transaction Tax

(0023) Hotel Receipts Tax
(0024) Interest Tax
(0028) Expenditure/other Tax
(0031) Estate Duty
(0032) Wealth Tax
(0033) Gift Tax
ITNS 283
(0036) Banking Cash Transaction Tax

(0026) Fringe Benefits Tax
All the columns in the challan form should invariably be

filled in, details such as PAN, assessment year, Assessing Officer
and his code, status and full address of the assessee in capital
letters, the relevant columns of tax, interest etc., should also be
filled in properly.
1.5 RATES OF INCOME TAX :(A) The rates for charging income tax for A.Y. 2010-11 shall
be as follows :I. In the case of every individual other than those covered under
II and III below:Rates of Income Tax
(1) Where the total income
does not exceed
Rs. 1,60,000
Nil
(2) Where the total income 10 per cent of the amount by

exceeds Rs. 1,60,000 but which the total income
does not exceed
exceeds Rs. 1,60,000/-.
Rs. 3,00,000
(3) Where the total income Rs. 14,000 plus 20 per cent of
exceeds Rs. 3,00,000 but the amount by which the total
does not exceed
income exceeds Rs. 3,00,000.
Rs. 5,00,000
exceeds Rs. 5,00,000
Rs. 54,000 plus 30 per cent of

the amount by which the total
II. In the case of every individual, being a woman resident of

India, and below the age of sixty five years at any time during the
previous year:Rates of Income Tax
does not exceed
Rs. 1,90,000
Nil
(2) Where the total income 10 per cent of the amount by

exceeds Rs. 1,90,000 but which the total income exceeds
does not exceed
Rs. 1,90,000/-.
Rs. 3,00,000
(3) Where the total income Rs. 11,000 plus 20 per cent of
exceeds Rs. 3,00,000 but the amount by which the total
does not exceed
Rs. 5,00,000
Rs. 51,000 plus 30 per cent of

III. In the case of every individual, being a resident in India, who

is of the age of sixty-five years or more at any time during the
previous year:-
Rates of Income Tax

does not exceed
Rs.2,40,000
Nil

but does not exceed
Rs. 3,00,000
10 per cent of the amount by

which the total income
exceeds Rs. 2,40,000/-.

but does not exceed
Rs. 5,00,000
Rs. 6,000 plus 20 percent of


Rs. 46,000 plus 30 percent of

Further, No surcharge on income tax is now leviable in case

of individual/HUF. However, Education cess and higher education
cess is leviable @ 2% and 1% respectively on tax.
(B) The rates for charging income tax for F.Y. 2010-11 i.e.
A.Y. 2011-12 will be as follows:Upto Rs. 1,60,000/Rs. 1,60,001/- to Rs. 5,00,000/Rs. 5,00,001/- to Rs. 8,00,000/Above Rs. 8,00,000/-
In the case of every individual, being a woman resident in

India, and below the age of sixty-five years at any time during the
previous year, the new rates of income-tax on total income in such
cases shall be as under:Upto Rs. 1,90,000/Rs. 1,90,001/- to Rs. 5,00,000/-
NIL
10 per cent.
20 per cent.
30 per cent.
NIL
10 per cent.
Rs. 5,00,001/- to Rs. 8,00,000/Above Rs. 8,00,000/-
20 per cent.
30 per cent.
In the case of every individual, being a resident in India,

who is of the age of sixty-five years or more at any time during
the previous year, the new rates of income tax on total income in
such cases shall be as under:Upto Rs. 2,40,000/Rs. 2,40,001/- to Rs. 5,00,000/Rs. 5,00,001/- to Rs. 8,00,000/Above Rs. 8,00,000/-
NIL
10 per cent.
20 per cent.
30 per cent.
Education cess @ 2% and Secondary and Higher Education

Cess @ 1% shall be levied on the amount of tax.
1.6 CALCULATION OF INTEREST
The Income Tax Act provides for charging of interest for
non- payment/short payment/deferment in payment of advance
tax which is calculated as below:
(i)
INTEREST U/S 234A:
For late or non furnishing of return, simple interest @ 1% for

every month or part thereof from the due date of filing of return to
the date of furnishing of return, on the tax as determined u/s 143(1)
or on regular assessment as reduced by TDS/advance tax paid or
tax reliefs, if any, under Double Tax Avoidance Agreements with
foreign countries.
paid/ TDS or tax reliefs, if any, under Double Tax Avoidance

Agreements with foreign countries.
(iii) INTEREST U/S 234C:
For deferment of advance tax. If advance tax paid by 15th
September is less than 30% of advance tax payable, simple interest
@ 1% is payable for three months on tax determined on returned
income as reduced by TDS/TCS/Amount of advance tax already
paid or tax relief, if any, under Double Tax Avoidance Agreement
with forgiving contribution. Similarly, if amount of tax paid on
or before 15th December is less than 60% of tax due on returned
income, interest @ 1% per month is to be charged for 3 months
on the amount stated as above. Again, if the advance tax paid
by 15th March is less than tax due on returned income, interest
@ 1% per month on the shortfall is to be charged for one month.
(iv) INTEREST U/S 234D:
Interest @ 0.5% is levied under this Section when any refund
is granted to the assessee u/s 143(1) and on regular assessment it
is found that either no refund is due or the amount already refunded
exceeds the refund determined on regular assessment. The said
interest is levied @ 0.5% on the whole or excess amount so refunded
for every month or part thereof from the date of grant of refund to
the date of such regular assessment.
1.7 IMPORTANT CONCEPTS
UNDER THE INCOME TAX ACT
&
PROCEDURES
(ii) INTEREST U/S 234B:
1.7.1
For short fall in payment of advance tax by more than 10%,

simple interest @ 1% per month or part thereof is chargeable from
1st April of the assessment year to the date of processing u/s 143(1)
or to the date of completion of regular assessment, on the tax as
determined u/s 143(1) or on regular assessment less advance tax
Assessee (Section 2(7)): An assessee is a person

by whom any tax or any other sum of money is
payable under the Act.
1.7.2
Assessment Year (Section 2(9)): Assessment year

means the period of 12 months starting from 1st
April of every year and ending on 31st March of
the next year.
1.7.3
Previous year (Section 3): Income earned in a year

is taxable in the next year. The year in which
income is earned is known as the previous year
and the next year in which income is taxable is
known as the assessment year.
1.7.4
Receipt Vs. accrual of income: Income is said to

have been received by a person when payment has
been actually received whereas income is said to
have accrued to a person if there arises in the
person a fixed and unconditional right to receive
such income.
1.7.5
Belated Return: Section 139(4) provides that a

return which has not been furnished by the due
date may still be furnished as a belated return
before the expiry of one year from the end of the
assessment year or before the completion of
assessment, whichever is earlier. However, on any
return of income that has not been filed by the end
of the relevant assessment year, penalty of
Rs.5000/- u/s 271F shall be levied.
1.7.6
Revised Return: If a person having filed his return

within the due date, discovers any omission or
wrong statement therein, he may file a revised
return before the expiry of one year from the end
of the assessment year or completion of
assessment whichever is earlier.
1.7.7
Processing u/s 143(1): The Finance Act 2008 has

reintroduced provisions in respect of correcting
arithmetical mistakes or internal inconsistencies at
the stage of processing of returns. It has, thus
been provided that, during the stage of processing,
the total income shall be computed after making
adjustments in respect of any arithmetical error in
10
the return or any incorrect claim apparent from

information in the return and if on such
computation, any tax or interest or refund is found
due on adjustment of TDS or advance tax or self
assessment tax, then an intimation specifying the
amount payable shall be prepared/generated or
issued to the assessee. If any refund is found due,
it is to be sent along with an intimation to such
effect. If no demand or no refund arises, the
acknowledgement of the return is deemed to be
an intimation. Such intimation is to be sent within
one year from the end of the financial year in which
the return is filed.
1.7.8
Assessment u/s 143(3): If the Assessing Officer,

on the basis of the return filed by the assessee,
considers that it is necessary to ensure that the
assessee has not understated his income, he shall
serve on the assessee a notice u/s 143(2) and, after
obtaining such information as he may require,
complete the assessment ( commonly referred as
scrutiny assessment) u/s 143(3).
1.7.9
Rectification of mistake u/s 154: If any order passed

by an income tax authority suffers from a mistake
apparent from record, the assessee may make an
application for rectifying the same before the expiry
of four years from the end of the financial year in
which the above order was passed. The Finance
Act 2001 has provided that where an application
for rectification under this Section is made by the
assessee on or after 1.6.2001, the same shall have
to be acted upon by the income tax authority within
a period of six months from the end of the month
in which the application is received.
11
1.7.10
1.7.11
Interest on refunds u/s 244A: If the refund due to

the assessee is more than 10% of the tax payable
by him, he shall be entitled to receive simple
interest thereon at rate of 0.5% per month
(substituted in place of 0.67% per month w.e.f.
8.9.2003) or part thereof, from 1st April of the
assessment year to the date on which the refund is
granted.
Tax Return Preparers Scheme:- For enabling
specified classes of tax payers in preparing and
furnishing income tax returns, the Board has
notified the Tax Return Preparer Scheme under
which specially trained and authorized Tax Return
Preparers will provide assistance to tax payers in
this regard. Details of the Scheme may be viewed
at www.incometaxindia.gov.in.
CHAPTER-2
SALARY INCOME, PERQUISITES

& ALLOWANCES
2.1 WHAT IS SALARY
Salary is the remuneration received by or accruing to an
individual, periodically, for service rendered as a result of an
express or implied contract. The actual receipt of salary in the
previous year is not material as far as its taxability is concerned.
The existence of employer-employee relationship is the sine-quanon for taxing a particular receipt under the head salaries. For
instance, the salary received by a partner from his partnership
firm carrying on a business is not chargeable as Salaries but as
Profits & Gains from Business or Profession. Similarly, salary
received by a person as MP or MLA is taxable as Income from
other sources, but if a person received salary as Minister of State/
Central Government, the same shall be charged to tax under the
head Salaries. Pension received by an assessee from his former
employer is taxable as Salaries whereas pension received on
his death by members of his family (Family Pension) is taxed as
Income from other sources.
2.2 WHAT DOES SALARY INCLUDE
Section 17(1) of the Income tax Act gives an inclusive and
not exhaustive definition of Salaries including therein (i) Wages
(ii) Annuity or pension (iii) Gratuity (iv) Fees, Commission,
perquisites or profits in lieu of salary (v) Advance of Salary (vi)
Amount transferred from unrecognized provident fund to
recognized provident fund (vii) Contribution of employer to a
Recognised Provident Fund in excess of the prescribed limit (viii)
Leave Encashment (ix) Compensation as a result of variation in
Service contract etc. (x) Contribution made by the Central
12
13
Government to the account of an employee under a notified

pension scheme.
2.3 DEDUCTION FROM SALARY INCOME
The following deductions from salary income are admissible
as per Section 16 of the Income-tax Act.
(i)
Professional/Employment tax levied by the State Govt.
(ii) Entertainment Allowance- Deduction in respect of this

is available to a government employee to the extent of Rs.
5000/- or 20% of his salary or actual amount received,
whichever is less.
It is to be noted that no standard deduction is available
from salary income w.e.f. 01.04.2006 i.e. A.Y.2006-07
onwards.
2.4 PERQUISITES
Perquisite may be defined as any casual emolument or
benefit attached to an office or position in addition to salary or
wages.
Perquisite is defined in the section17(2) of the Income tax
Act as including:
(i)
Value of rent-free/concessional rent accommodation provided

by the employer.
(ii) Any sum paid by employer in respect of an obligation which

was actually payable by the assessee.
(iii) Value of any benefit/amenity granted free or at concessional
rate to specified employees etc.
(iv) The value of any specified security or sweat equity shares
allotted or transferred, directly or indirectly, by the employer,
or former employer, free of cost or at concessional rate to
the assesssee.
14
(v) The amount of any contribution to an approved superannuation

fund by the exployer in respect of the assessee, to the extent
it exceeds one lakh rupees; and
(vi) the value of any other fringe benefit or amenity as may be
prescribed.
2.5 VALUATION OF PERQUISITES
As a general rule, the taxable value of perquisites in the hands
of the employees is its cost to the employer. However, specific
rules for valuation of certain perquisites have been laid down in
Rule 3 of the I.T. Rules. These are briefly given below.
2.5.1
Valuation of residential accommodation provided

by the employer:(a) Union or State Government Employees- The
value of perquisite is the license fee as determined
by the Govt. as reduced by the rent actually paid
by the employee.
(b) Non-Govt. Employees- The value of perquisite
is an amount equal to 15% of the salary in cities
having population more than 25 lakh, (10% of
salary in cities where population as per 2001 census
is exceeding 10 lakh but not exceeding 25 lakh and
7.5% of salary in areas where population as per
2001 census is 10 lakh or below). In case the
accommodation provided is not owned by the
employer, but is taken on lease or rent, then the
value of the perquisite would be the actual amount
of lease rent paid/payable by the employer or
15% of salary, whichever is lower. In both of
above cases, the value of the perquisite would be
reduced by the rent, if any, actually paid by the
employee.
15
2.5.2
2.5.3
2.5.4
Value of Furnished Accommodation- The value

would be the value of unfurnished accommodation
as computed above, increased by 10% per annum
of the cost of furniture (including TV/radio/
refrigerator/AC/other gadgets). In case such
furniture is hired from a third party, the value of
unfurnished accommodation would be increased
by the hire charges paid/payable by the employer.
However, any payment recovered from the
employee towards the above would be reduced
from this amount.
Value of hotel accommodation provided by the
employer- The value of perquisite arising out of
the above would be 24% of salary or the actual
charges paid or payable to the hotel, whichever is
lower. The above would be reduced by any rent
actually paid or payable by the employee. It may
be noted that no perquisite would arise, if the
employee is provided such accommodation on
transfer from one place to another for a period of
15 days or less.
Perquisite of motor car provided by the
employer- W.e.f. 1-4-2008, if an employer
providing such facility to his employee is not liable
to pay fringe benefit tax, the value of such perquisite
shall be :
a)
Nil, if the motor car is used by the employee

wholly and exclusively in the performance of
his official duties.
b)
Actual expenditure incurred by the employer

on the running and mainenance of motor car,
including remuneration to chauffeur as
increased by the amount representing normal
16
wear and tear of the motor car and as reduced

by any amount charged from the employee
for such use (in case the motor car is
exclusively for private or personal purposes
of the employee or any member of his
household).
c)
Rs. 1800- (plus Rs. 900-, if chauffeur is also

provided) per month (in case the motor car is
used partly in performance of duties and partly
for private or personal purposes of the
employee or any member of his household if
the expenses on maintenance and running of
motor car are met or reimbursed by the
employer). However, the value of perquisite
will be Rs. 2400- (plus Rs. 900-, if chauffeur
is also provided) per month if the cubic
capacity if engine of the motor car exceeds
1.6 litres.
d)
Rs. 600- (plus Rs. 900-, if chauffeur is also

provided) per month (in case the motor car is
used partly in performance of duties and partly
for private or personal purposes of the
employee or any member of his household if
the expenses on maintenance and running of
motor car for such private or personal use
are fully met by the employee). However, the
value of perquisite will be Rs. 900- (plus
Rs. 900-, if chauffeur is also provided) per
month if the cubic capacity of engine of the
motor car exceeds 1.6 litres.
If the motor car or any other automotive conveyance is owned

by the employee but the actual running and maintenance charges
are met or reimbursed by the employer, the method of valuation
of perquisite value is different. (See Rule 3(2)).
17
2.5.5
Perquisite arising out of supply of gas, electric

energy or water: This shall be determined as the
amount paid by the employer to the agency
supplying the same. If the supply is from the
employers own resources, the value of the
perquisite would be the manufacturing cost per unit
incurred by the employer. However, any payment
received from the employee towards the above
would be reduced from the amount [Rule 3(4)]
2.5.6
Free/Concessional Educational Facility: Value of

the perquisite would be the expenditure incurred
by the employer. If the education institution is
maintained & owned by the employer, the value
would be nil if the value of the benefit per child is
below Rs. 1000/- P.M. or else the reasonable cost
of such education in a similar institution in or near
the locality. [Rule 3(5)].
2.5.7
Free/Concessional journeys provided by an

undertaking engaged in carriage of passengers or
goods: Value of perquisite would be the value at
which such amenity is offered to general public as
reduced by any amount, if recovered from the
employee. However, these provisions are not
applicable to the employees of an airline or the
railways.
2.5.8
Provision for sweeper, gardener, watchman or

personal attendant: The value of benefit resulting
from provision of any of these shall be the actual
cost borne by the employer in this respect as
reduced by any amount paid by the employee for
such services. (Cost to the employer in respect
to the above will be salary paid/payable).
[Rule 3(3)].
18
2.5.9
Value of certain other fringe benefits:

(a) Interest free/concessional loans- The value of the
perquisite shall be the excess of interest payable
at the prescribed interest rate over, interest, if any,
actually paid by the employee or any member of
his household. The prescribed interest rate would
be the rate charged by State Bank of India as on
the 1st Day of the relevant Previous Year in respect
of loans of the same type and for same purpose
advanced by it to general public. Perquisite to be
calculated on the basis of the maximum
outstanding monthly balance method. However,
loans upto Rs. 20,000/-, loans for medical
treatment specified in Rule 3A are exempt
provided the same are not reimbursed under
medical insurance.
(b) Value of free meals- The perquisite value in respect
of free food and non-alcoholic beverages provided
by the employer, not liable to pay fringe benefit
tax, to an employee shall be the expenditure
incurred by the employer as reduced by the amount
paid or recovered from the employee for such
benefit or amenity. However, no perquisite value
will be taken if food and non-alcoholic beverages
are provided during working hours and certain
conditions specified under Rule 3(7)(iii) are
satisfied.
(c) Value of gift or voucher or token- The perquisite
value in respect of any gift, or voucher, or taken
in lieu of which such gift may be received by the
employee or member of his household from the
employer, not liable to pay fringe benefit tax, shall
be the sum equal to the amount of such gift,
19
voucher or token. However, no perquisite value

will be taken if the value of such gift, voucher or
taken is below Rs. 5000- in the aggregate during
the previous years.
(d) Credit card provided by the employer- The
perquisite value in respect of expenses incurred
by the employee or any of his household members,
which are charged to a credit card provided by the
employer, not liable to pay fringe benefit tax,
which are paid or reimbursed by such employer
to an employee shall be taken to be such amount
paid or reimbursed by the employer. However, no
perquisite value will be taken if the expenses are
incurred wholly and exclusively for official purposes
and certain conditions mentioned in Rule 3(7)(v)
are satisfied.
(e) Club membership provided by the employer- The
perquisite value in respect of amount paid or
reimbursed to an employee by an employer, not
liable to pay fringe benefit tax, against the expenses
incurred in a club by such employee or any of his
household members shall be taken to be such
amount incurred or reimbursed by the employer as
reduced by any amount paid or recovered from
the employee on such account. However, no
perquisite value will be taken if the expenditure is
incurred wholly any exclusively for business
purposes and certain conditions mentioned in Rule
3(7)(vi) are satisfied.
2.5.10
The value of any other benefit or amenity provided

by the employer shall be determined on the basis
of cost to the employer under an arms length
transaction as reduced by the employees
contribution.
20
2.5.11
The fair market value of any specified security or

sweat equity share, being an equity share in a
company, on the date on which the option is
exercised by the employee, shall be determined
as follows:-
(a) In a case where,on the date of exercising of the

option, the share in the company is listed on a
recognized stock exchange, the fair market value
shall be the average of the opening price and closing
price of the share on the date on the said stock
exchange.
(b) In a case where, on the date of exercising of the
option, the share in the company is not listed on a
recognized stock exchange, the fair market value
shall be such value of the share in the company as
determined by a merchant banker on the specified
date.
(c) The fair market value of any specified security,
not being an equity share in a company, on the date
on which the option is exercised by the employee,
shall be such value as determined by a merchant
banker on the specified date.
2.6 PERQUISITES EXEMPT FROM INCOME TAX
Some instances of perquisites exempt from tax are given
below:
Provision of medical facilities (Proviso to Sec. 17(2)): Value
of medical treatment in any hospital maintained by the Government
or any local authority or approved by the Chief Commissioner of
Income-tax. Besides, any sum paid by the employer towards
medical reimbursement other than as discussed above is exempt
upto Rs.15,000/-.
21
Perquisites allowed outside India by the Government to a

citizen of India for rendering services outside India (Sec. 10(7)).
place in India by the shortest route to that place is

exempt. This is subject to a maximum of the air
economy fare or AC 1st Class fare (if journey is
performed by mode other than air) by such route,
provided that the exemption shall be available only
in respect of two journeys performed in a block of
4 calendar years.
Rent free official residence provided to a Judge of High Court

or Supreme Court or an Official of Parliament, Union Minister or
Leader of Opposition in Parliament.
No perquisite shall arise if interest free/concessional loans
are made available for medical treatment of specified diseases in
Rule 3A or where the loan is petty not exceeding in the aggregate
Rs.20,000/No perquisite shall arise in relation to expenses on telephones
including a mobile phone incurred on behalf of the employee by
the employer.
2.7 ALLOWANCES
House Rent Allowance:- Provided that expenditure

on rent is actually incurred, exemption available
shall be the least of the following :
(i)
HRA received.
(ii) Rent paid less 10% of salary.

(iii) 40% of Salary (50% in case of Mumbai, Chennai,
Kolkata, Delhi) Salary here means Basic +
Dearness Allowance, if dearness allowance is
provided by the terms of employment.
2.7.2
Certain allowances given by the employer to the

employee are exempt u/s 10(14). All these exempt
allowance are detailed in Rule 2BB of Incometax Rules and are briefly given below:
For the purpose of Section 10(14)(i), following allowances

are exempt, subject to actual expenses incurred:
(i)
Allowance is defined as a fixed quantity of money or other

substance given regularly in addition to salary for meeting specific
requirements of the employees. As a general rule, all allowances
are to be included in the total income unless specifically exempted.
Exemption in respect of following allowances is allowable to the
exent mentioned against each :2.7.1
2.7.3
Allowance granted to meet cost of travel on tour or on

transfer.
(ii) Allowance granted on tour or journey in connection with

transfer to meet the daily charges incurred by the employee.
(iii) Allowance granted to meet conveyance expenses incurred
in performance of duty, provided no free conveyance is
provided.
(iv) Allowance granted to meet expenses incurred on a helper
engaged for performance of official duty.
(v) Academic, research or training allowance granted in
educational or research institutions.
(vi) Allowance granted to meet expenditure on purchase/
maintenance of uniform for performance of official duty.
Under Section 10(14)(ii), the following allowances have
been prescribed as exempt.
Leave Travel Allowance: The amount actually

incurred on performance of travel on leave to any
22
23
Amount exempt
Type of Allowance
(i)
(ii)
(iii)
(iv)
Special Compensatory
Allowance for hilly
areas or high altitude
allowance or climate
allowance.
Rs.800 common for various

areas of North East, Hilly areas
of U.P., H.P. & J&K and Rs.
7000 per month for Siachen area
of J&K and Rs.300 common
for all places at a height of 1000
mts or more other than the
above places.
Border area allowance

or remote area
allowance or a difficult
area allowance or
disturbed area
allowance.
Various amounts ranging from

Rs.200 per month to Rs.1300
per month are exempt for
various areas specified in
Rule 2BB.
Tribal area/Schedule
area/Agency area
allowance available in
M.P., Assam, U.P.,
Karnataka, West
Bengal, Bihar, Orissa,
Tamilnadu, Tripura
Rs.200 per month.
Any allowance granted 70% of such allowance upto a

maximum of Rs.6000 per
to an employee
month.
working in any
transport system to
meet his personal
expenditure during duty
performed in the course
of running of such
transport from one
place to another place.
24
Rs.100 per month per child upto

a maximum 2 children.
(v)
Children education
allowance.
(vi)
Rs.300 per month per child upto

Allowance granted to
meet hostel expenditure a maximum two children.
on employees child.
(vii)
Compensatory field
area allowance
available in various
areas of Arunachal
Pradesh, Manipur
Sikkim, Nagaland,
H.P., U.P. & J&K.
Rs.2600 per month.
(viii) Compensatory modified Rs.1000 per month

field area allowance
available in specified
areas of Punjab,
Rajsthan, Haryana,
U.P., J&K, H.P., West
Bengal & North East.
Rs.3900 Per month
(ix)
Counter insurgency
allowance to members
of Armed Forces.
(x)
Rs.800 per month.

Transport Allowance
granted to an employee
to meet his expenditure
for the purpose of
commuting between the
place of residence &
duty.
(xi)
Transport allowance
granted to physically
disabled employee for
the purpose of
Rs.1600 per month.
25
CHAPTER-3
commuting between
place of duty and
residence.
(xii)
Underground allowance Rs.800 per month.

granted to an employee
working in under ground
mines.
(xiii) Special allowance in the Rs. 1060 p.m. (for altitude of

nature of high altitude
9000-15000 ft.) Rs.1600 p.m.
allowance granted to
(for altitude above 15000 ft.)
members of the armed
forces.
(xiv) Any special allowance
granted to the members
of the armed forces in
the nature of special
compensatory highly
active field area
allowance
Rs. 4,200/- p.m.
OVERVIEW OF INCOME FROM

HOUSE PROPERTY
3.1 INTRODUCTION
Under the Income Tax Act what is taxed under the head
Income from House Property is the inherent capacity of the
property to earn income called the Annual Value of the property.
The above is taxed in the hands of the owner of the property.
3.2 COMPUTATION OF ANNUAL VALUE
(i)
GROSS ANNUAL VALUE(G.A.V.) is the highest of

(a) Rent received or receivable
(b) Fair Market Value.
(c) Municipal valuation.
(xv) Special allowance

Rs. 3,250/- p.m.
granted to members of
armed forces in the
nature of island duty
allowance.
(in Andaman & Nicobar
& Lakshadweep Group
of Islands)
(If however, the Rent Control Act is applicable, the G.A.V.

is the standard rent or rent received, whichever is higher).
It may be noted that if the let out property was vacant for
whole or any part of the previous year and owing to such vacancy
the actual rent received or receivable is less than the sum referred
to in clause(a) above, then the amount actually received/receivable
shall be taken into account while computing the G.A.V. If any
portion of the rent is unrealisable, (condition of unrealisability of
rent are laid down in Rule 4 of I.T. Rules) then the same shall not
be included in the actual rent received/receivable while computing
the G.A.V.
(ii) NET VALUE (N.A.V.) is the GAV less the municipal taxes
paid by the owner.
Provided that the taxes were paid during the year.
26
27
(iii) ANNUAL VALUE is the N.A.V. less the deductions available

u/s 24.
3.3 DEDUCTIONS U/S 24:- Are exhaustive and no other
deductions are available:(i)
A sum equal to 30% of the annual value as computed above.
(ii) Interest on money borrowed for acquisition/construction/

repair/renovation of property is deductible on accrual basis.
Interest paid during the pre construction/acquisition period
will be allowed in five successive financial years starting
with the financial year in which construction/acquisition is
completed. This deduction is also available in respect of a
self occupied property and can be claimed up to maximum
of Rs.30,000/-. The Finance Act, 2001 had provided that
w.e.f. A.Y. 2002-03 the amount of deduction available under
this clause would be available up to Rs.1,50,000/- in case
the property is acquired or constructed with capital borrowed
on or after 1.4.99 and such acquisition or construction is
completed before 1.4.2003. The Finance Act 2002 has further
removed the requirement of acquisition/ construction being
completed before 1.4.2003 and has simply provided that
the acquisition/construction of the property must be
completed within three years from the end of the financial
year in which the capital was borrowed.
3.4 SOME NOTABLE POINTS
In case of one self occupied property, the annual value is
taken as nil. Deduction u/s 24 for interest paid may still be claimed
therefrom. The resulting loss may be set off against income under
other heads but can not be carried forward.
If more than one property is owned and all are used for self
occupation purposes only, then any one can be opted as self
occupied, the others are deemed to be let out.
28
Annual value of one house away from workplace which is

not let out can be taken as NIL provided that it is the only house
owned and it is not let out.
If a let out property is partly self occupied or is self occupied
for a part of the year, then the value in proportion to the portion of
self occupied property or period of self occupation, as the case
may be is to be excluded from the annual value.
From assessment year 1999-2000 onwards, an assessee who
apart from his salary income has loss under the head Income
from house property, may furnish the particulars of the same in
the prescribed form to his Drawing and Disbursing Officer who
shall then take the above loss also into account for the purpose of
TDS from salary.
A new section 25B has been inserted with effect from
assessment year 2001-2002 which provides that where the
assessee, being the owner of any property consisting of any
buildings or lands appurtenant thereto which may have been let
to a tenant, receives any arrears of rent not charged to income tax
for any previous year, then such arrears shall be taxed as the income
of the previous year in which the same is received after deducting
therefrom a sum equal to 30% of the amount of arrears in respect
of repairs/collection charges. It may be noted that the above
provision shall apply whether or not the assessee remains the owner
of the property in the year of receipt of such arrears.
3.5 PROPERTY INCOME EXEMPT FROM TAX
Income from farm house (Sec.2(1A)(c) read with sec. 10(1)).
Annual value of any one palace of an ex-ruler (Sec.10(19A)).
Property income of a local authority (Sec.10(20)), university/
educational institution (Sec.10(23C)), approved scientific research
association (Sec.10(21)), political party (sec.13A). Property used
for own business or profession (Sec.22). One self occupied
property (sec.23(2)). House property held for charitable purposes
(sec.11).
29
CHAPTER-4
OVERVIEW OF CAPITAL GAINS

4.1 CAPITAL GAINS
Profits or gains arising from the transfer of a capital asset
during the previous year are taxable as Capital Gains under
section 45(1) of the Income Tax Act. The taxability of capital
gains is in the year of transfer of the capital asset.
4.2 CAPITAL ASSET
4.4 COMPUTATION OF CAPITAL GAINS (Sec.48)

Capital gain is computed by deducting from the full value of
consideration, for the transfer of a capital asset, the following:(a) Cost of acquisition of the asset(COA):- In case of Long Term
Capital Gains, the cost of acquisition is indexed by a factor
which is equal to the ratio of the cost inflation index of the
year of transfer to the cost inflation index of the year of
acquisition of the asset. Normally, the cost of acquisition is
the cost that a person has incurred to acquire the capital asset.
However, in certain cases, it is taken as following:
(b) Personal effects, being moveable property (excluding

Jewellery, archaeological collections, drawings, paintings,
sculptures or any other work of art) held for personal use.
When the capital asset becomes a property of an

assessee under a gift or will or by succession or
inheritance or on partition of Hindu Undivided Family
or on distribution of assets, or dissolution of a firm, or
liquidation of a company, the COA shall be the cost for
which the previous owner acquired it, as increased by
the cost of improvement till the date of acquisition of
the asset by the assessee?
(c) Agricultural land, except land situated within or in area upto

8 kms, from a municipality, municipal corporation, notified
area committee, town committee or a cantonment board with
population of at least 10,000.
(ii) When shares in an amalgamated Indian company had

become the property of the assessee in a scheme of
amalgamation, the COA shall be the cost of acquisition
of shares in the amalgamating company.
(d) Six and half percent Gold Bonds, National Defence Gold
Bonds and Special Bearer Bonds.
(iii) Where the capital asset is goodwill of a business,

tenancy right, stage carriage permits or loom hours the
COA is the purchase price paid, if any or else nil.
As defined in section 2(14) of the Income Tax Act, it means

property of any kind held by the assessee except:
(a) Stock in trade, consumable stores or raw materials held for
the purpose of business or profession.
4.3 TYPES OF CAPITAL GAINS

When a capital asset is transferred by an assessee after having
held it for at least 36 months, the Capital Gains arising from this
transfer are known as Long Term Capital Gains. In case of shares
of a company or units of UTI or units of a Mutual Fund, the
minimum period of holding for long term capital gains to arise is
12 months. If the period of holding is less than above, the capital
gains arising therefrom are known as Short Term Capital Gains.
30
(i)
(iv) The COA of rights shares is the amount which is paid

by the subscriber to get them. In case of bonus shares,
the COA is nil.
(v) If a capital asset has become the property of the
assessee before 1.4.81, the assessee may choose either
the fair market value as on 1.4.81 or the actual cost of
acquisition of the asset as the COA.
31
(b) Cost of improvement, if any such cost was incurred. In case

of long term capital assets, the indexed cost of improvement
will be taken.
(c) Expenses connected exclusively with the transfer such as
brokerage etc.
4.5 SOME IMPORTANT EXEMPTIONS FROM LONG
TERM CAPITAL GAINS
(a) Section 54: In case the asset transferred is a long term capital
asset being a residential house, and if out of the capital gains,
a new residential house is constructed within 3 years, or
purchased 1 year before or 2 years after the date of transfer,
then exemption on the LTCG is available on the amount of
investment in the new asset to the extent of the capital gains.
It may be noted that the amount of capital gains not
appropriated towards purchase or construction may be
deposited in the Capital Gains Account Scheme of a public
sector bank before the due date of filing of Income Tax
Return. This amount should subsequently be used for
purchase or construction of a new house within 3 years.
(b) Section 54F: When the asset transferred is a long term capital
asset other than a residential house, and if out of the
consideration, investment in purchase or construction of a
residential house is made within the specified time as in
sec. 54, then exemption from the capital gains will be
available as:
(i)
(ii)
If cost of new asset is greater than the net consideration

received, the entire capital gain is exempt.
Otherwise, exemption = Capital Gains x Cost of new
asset/Net consideration.
It may be noted that this exemption is not available, if on the

date of transfer, the assessee owns any house other than the new
asset. It may be noted that the Finance Act 2000 has provided that
32
with effect from assessment year 2001-2002, the above exemption

shall not be available if assessee owns more than one residential
house, other than new asset, on the date of transfer. Investment in
the Capital Gains Account Scheme may be made as in Sec.54.
(c) Section 54EA: If any long term capital asset is transferred
before 1.4.2000 and out of the consideration, investment in
specified bonds/debentures/shares is made within 6 months
of the date of transfer, then exemption from capital gains is
available as computed in Section 54F.
(d) Section 54EB: If any long term capital asset is transferred
before 1.4.2000 and investment in specified assets is made
within a period of 6 months from the date of transfer, then
exemption from capital gains will be available as :(i) If cost of new assets is not less than the Capital Gain, the
entire Capital Gain is exempt.
(ii) Otherwise exemption = Capital Gains x
Cost of New asset

Capital Gains
(e) Section 54EC: This section has been introduced from

assessment year 2001-2002 onwards. It provides that if any
long term capital asset is transferred and out of the
consideration, investment in specified assets (any bond issued
by National Highway Authority of India or by Rural
Electrification Corporation redeemable after 3 years), is made
within 6 months from the date of transfer, then exemption
would be available as computed in Sec. 54EB.
The Finance Act, 2007 has laid an annual ceiling of Rs. 50
lakh on the investment made under this section w.e.f. 1.4.2007.
(f)
Section 54ED: This section has been introduced from

assessment year 2002-03 onwards. It provides that if a long
term capital asset, being listed securities or units, is transferred
and out of the consideration, investment in acquiring equity
33
shares forming part of an eligible issue of capital is made

within six months from the date of transfer, then exemption
would be available as computed in Sec. 54EB. As per the
Finance Act 2006 it has been provided that with effect from
assessment year 2007-08, no exemption under this Section
shall be available.
4.6 LOSS UNDER CAPITAL GAINS
Can not be set off against any income under any other head
but can be carried forward for 8 assessment years and be set off
against capital gains in those assessment years.
4.7 EXEMPT INCOME
The Finance Act 2003 has introduced S.10(33) w.e.f.
01.04.2003 which provides that income arising from certain types
of transfer of capital assets shall be treated as exempt income.
S.10(33) provides for exemption of income arising from transfer
of units of the US 64 (Unit Scheme 1964). S.10(36) inserted by
the Finance Act, 2003 w.e.f. 1.4.2004 provides that income arising
from transfer of eligible equity shares held for a period of 12
months or more shall be exempt.
The Finance Act, 2004 has introduced section 10(38) of the
I.T. Act which provides that no capital gains shall arise in case of
transfer of equity shares held as a long term capital asset by an
individual or HUF w.e.f. 01.04.2005 provided such transaction is
chargeable to securities transaction tax.
34
COST INFLATION INDEX:

The Central Government has notified the Cost Inflation
Index for the purpose of long term Capital Gain as follows:
Financial Year
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
Cost Inflation Index

100
109
116
125
133
140
150
161
172
182
199
223
244
259
281
305
331
351
389
406
426
447
463
480
497
519
551
582
632
35
CHAPTER-5
Deposit made by an
employee in his pension
account to the extent of
10% of his salary.
80CCF
Subscription to long term Subscription made by

individual or HUF to the
infrastructure bonds
extent of Rs. 20,000 to
notified long term
infrastructure bonds is
exempt from A.Y. 201112 onwards.
80D
Payment of medical
insurance premium.
Deduction is available
upto Rs.15,000/ for self/
family and also upto Rs.
15,000/- for insurance in
DEDUCTIONS UNDER CHAPTER VIA

5.1 INTRODUCTION
The Income Tax Act provides that on determination of the
gross total income of an assessee after considering income from
all the heads, certain deductions therefrom may be allowed. These
deductions detailed in chapter VIA of the Income Tax Act must
be distinguished from the exemptions provides in Section 10 of
the Act. While the former are to be reduced from the gross total
income, the latter do not form part of the income at all.
5.2 The chart given below describes the deductions allowable
under chapter VIA of the I.T. Act from the gross total income of
the assessees having income from salaries.
SECTION
80CCC
NATURE OF
DEDUCTION
REMARKS
Payment of premium for

annunity plan of LIC or
any other insurer
Deduction is available
upto a maximum of
Rs.10,000/-
The premium must be

deposited to keep in
force a contract for an
annuity plan of the LIC
or any other insurer for
receiving pension from
the fund.The Finance
Act 2006 has enhanced
the ceiling of deduction
under Section 80CCC
from Rs.10,000 to
Rs.1,00,000 with effect
from 1.4.2007.
36
Where the Central

Government makes any
contribution to the
pension
account,
deduction of such
contribution to the
extent of 10% of salary
shall be allowed.
Further, in any year
where any amount is
received from the
pension account such
amount shall be charged
to tax as income of that
previous year. The
Finance Act, 2009 has
extended benefit to any
individual assesse, not
being
a
Central
Government employee.
80CCD
37
The premium is to be
paid by any mode of
payment other than cash
and the insurance
scheme should be
framed by the General
respect of parent/ Insurance Corporation

parents of the assessee. of India & approved by
the Central Govt. or
Scheme framed by any
other insurer and
approved by the
Insurance Regulatory &
Development Authority.
The premium should be
paid in respect of health
insurance of the
assessee or his family
members. The Finance
Act 2008 has also
provided deduction upto
Rs. 15,000/- in respect of
health
insurance
premium paid by the
assessee towards his
parent/parents. W.e.f.
01.04.2011, contributions
made to the Central
Government Health
Scheme is also covered
under this section.
80DD
Deduction of Rs.40,000/
- in respect of (a)
expenditure incurred on
medical treatment,
(including nursing),
training
and
rehabilitation
of
handicapped dependant
relative. (b) Payment or
38
The
handicapped
dependant should be a
dependant relative
suffering from a
permanent disability
(including blindness) or
mentally retarded, as
certified by a specified
physician or psychiatrist.
deposit to specified
scheme for maintenance
of
dependant
handicapped relative.
W.e.f. 01.04.2004 the
deduction under this
section has been
enhanced to Rs.50,000/
-. Further, if the
dependant is a person
with severe disability a
deduction
of
Rs.1,00,000/- shall be
available under this
section.
Note: A person with

severe disability means
a person with 80% or
more of one or more
disabilities as outlined in
section 56(4) of the
Persons
with
Disabilities (Equal
opportunities, Protection
of
Rights
and Full Participation)
Act.,
80DDB
Deduction of Rs.40,000
in respect of medical
expenditure incurred.
W.e.f. 01.04.2004,
section
shall
be
available to the extent of
Rs.40,000/- or the
amount actually paid,
whichever is less. In
case of senior citizens, a
deduction
upto
Rs.60,000/- shall be
available under this
Section.
Expenditure must be
actually incurred by
resident assessee on
himself or dependent
relative for medical
treatment of specified
disease or ailment. The
diseases have been
specified in Rule 11DD.
A certificate in form 10
I is to be furnished by
the assessee from a
specialist working in a
Government hospital.
80E
Deduction in respect of This provision has been

payment in the previous introduced to provide
year of interest on loan relief to students taking
39
taken from a financial

institution or approved
charitable institution for
higher studies.
loans for higher studies.

The payment of the
interest thereon will be
allowed as deduction
over a period of upto 8
years. Further, by
Finance Act, 2007
section shall be available
not only in respect of
loan for pursuing higher
education by self but
also by spouse or
children of the assessee.
W.e.f.01.04.2010 higher
education means any
course of study pursued
after passing the senior
secondary examination
or its equivalent from
any recognized school,
board or university.
80G
Donation to certain The various donations

funds,
charitable specified in Sec. 80G
institutions etc.
are
eligible
for
deduction upto either
100% or 50% with or
without restriction as
provided in Sec. 80G
80GG
Deduction available is
the least of
(i) Rent paid less 10% of
total income
40
(1) Assessee or his

spouse or minor
child should not
own
residential
(ii) Rs.2000 per month accommodation at the

(iii) 25% of total income place of employment.
(2) He should not be in
receipt of house rent
allowance.
(3) He should not have
a
self
occupied
residential premises in
any other place.
80U
Deduction of Rs.50,000/
- to an individual who
suffers from a physical
disability (including
blindness) or mental
retardation.Further, if the
individual is a person
with severe disability,
deduction of Rs.75,000/
- shall be available u/s
80U. W.e.f. 01.04.2010
this limit has been raised
to Rs. 1 lakh.
Certificate should be
obtained on prescribed
format from a notified
Medical authority.
80RRB
Deduction in respect of
any income by way of
royalty in respect of a
patent registered on or
after 01.04.2003 under
the Patents Act 1970
shall be available as :-Rs.
3 lacs or the income
received, whichever is
less.
The assessee who is a

patentee must be an
individual resident in
India. The assessee must
furnish a certificate in
the prescribed form duly
signed by the prescribed
authority alongwith the
return of income.
41
80QQB
80C
Deduction in respect of
royalty or copyright
income received in
consideration
for
authoring any book of
literary, artistic or
scientific nature other
than text book shall be
available to the extent
of Rs. 3 lacs or income
received, whichever is
less.
This section has been
introduced by the
Finance Act, 2005.
Broadly speaking, this
section
provides
deduction from total
income in respect of
various investments/
expenditures/payments
in respect of which tax
rebate u/s 88 was
earlier available. The
total deduction under
this section is limited to
Rs.1 lakh only.
42
The assessee must be

an individual resident in
India who receives
such income in
exercise
of
his
profession. To avail of
this deduction, the
assessee must furnish
a certificate in the
prescribed form along
with the return of
income.
The following investments/payments are inter alia eligible

for deduction u/s 80C:REMARKS
NATURE OF
INVESTMENT
For individual, policy must be

in the name of self or spouse or
any childs name. For HUF, it
may be on life of any member
of HUF.
Life Insurance Premium
Sum paid under contract for For individual, on life of self,

spouse or any child of such
deferred annuity
individual.
Sum deducted from salary Payment limited to 20% of
payable to Govt. Servant for salary.
securing deferred annuity for
self, spouse or child
Contribution made under

Employees Provident Fund
Scheme
For individual, can be in the

name of self/spouse, any child
& for HUF, it can be in the
name of any member of the
family.
Contribution to PPF
Contribution by employee to a
Recognised Provident Fund.
Subscription to any notified

securities/notified deposits
scheme.
43
Subscription to any notified e.g. NSC VIII issue.

savings certificates.
Contribution to Unit Linked e.g. Dhanrakhsa 1989
Insurance Plan of LIC Mutual
Fund
Contribution to notified deposit
scheme/Pension fund set up by
the National Housing Bank.
Certain payment made by way

of instalment or part payment
of loan taken for purchase/
construction of residential
house property.
Condition has been laid that in

case the property is transferred
before the expiry of 5 years
from the end of the financial
year in which possession of
such property is obtained by
him, the aggregate amount of
deduction of income so allowed
for various years shall be liable
to tax in that year.
Subscription to units of a
Mutual Fund notified u/s
10(23D)
Subscription to deposit scheme

of a public sector company
engaged in providing housing
finance.
Subscription to equity shares/

debentures forming part of any
approved eligible issue of
capital made by a public
company or public financial
institutions.
44
Tuition fees paid at the time of Available in respect of any two

admission or otherwise to any children.
school, college, university or
other educational institution
situated within India for the
purpose of full time education.
Any term deposit for a fixed This has been included in
period of not less than five Section 80C by the Finance Act
years with the scheduled bank. 2006.
Subscription to notified bonds This has been included in
issued by NABARD
Section 80C by the Finance Act
2007 and has come into effect
from 1.4.2008.
Payment made into an account This has been introduced by
under the Senior Citizens Finance Act, 2008 and shall
Savings Scheme Rules, 2004 come into effect from 1.4.2009.
Payment made as five year time This has been introduced by
deposit in an account under the Finance Act, 2008 and shall
Post Office Time Deposit come into effect from 1.4.2009.
Rules, 1981
It may be noted that the aggregate amount of deductions under
sections 80C, 80CCC and 80CCD are subject to an overall ceiling
of Rs.1 lakh.
45
CHAPTER-6
TAX REBATE & RELIEF

6.1 INTRODUCTION
The total income of an assessee is determined after deductions
from the gross total income are made as discussed in the previous
chapter. It is on this total income that the tax payable is computed
at the rates in force. The Income Tax Act further provides for
rebate from the tax payable as computed above, if certain
investments or payments are made. Rebate provided u/s 88 of the
Act must be distinguished from deductions provided in Chapter
VIA of the Act. While the latter reduces the gross total income,
rebate is a reduction from the tax payable.
The Finance Act 2002 introduced some changes in the above
which came into effect from A.Y. 2003-2004. The rate of rebate
has been kept at 20% in case the gross total income, before giving
effect to the deductions under chapter VIA, is below Rs. 1.5 lacs
while the rate would be 15% if gross total income is higher than
Rs. 1.5 lacs but lower than Rs. 5 lacs. On the other hand, if the
gross total income exceeds Rs. 5 lacs, no rebate under this chapter
would be available. It has also been provided that an individual
whose income under the head Salaries is below Rs. 1 lakh during
the previous year and constitutes at least 90% of his gross total
income, shall be entitled to rebate @ 30% on the investments/
payments specified in Section 88. The maximum amount of
investment qualifying for rebate u/s 88 has been enhanced to
Rs.70,000, however, additional rebate on investment upto Rs.
30,000 is available in respect of subscription to specified
infrastructure equity share/debentures.
Investment qualifying for rebate u/s 88 must be out of income
chargeable to tax in the relevant previous year. The above
46
requirement has, however, been deleted by the Finance Act 2002

w.e.f. A.Y. 2003-2004.
With effect from assessment year 2001-2002 onwards a new
section 88C has been inserted. It provides that in case of assessee
being a woman resident in India and below 65 years of age, tax
rebate of an amount of Rs. 5,000 or 100% of tax, whichever is
less, shall be available. The above rebate is to be allowed from
the amount of Income Tax computed before allowing for tax rebate
u/s 88 in respect of various investments expenditures, important
among which are discussed below in paragraph 6.2.
6.2
REMARKS
NATURE OF
INVESTMENT
For individual, policy must be

in self or spouses or any childs
name. For HUF, it may be on
life of any member of HUF.
Life Insurance Premium
Sum paid under contract for For individual, on life of self,

spouse or any child
deferred annuity
Sum deducted from salary Payment limited to 20% of
payable to Govt. Servant for salary.
securing deferred annuity for
self, spouse or children
Contribution made under

Employees Provident Fund
Scheme
Contribution to PPF
For individual, can be in the

name of self/spouse, any child
& for HUF, it can be in the
name of any member of the
family.
47
Contribution by employee to a
Recognised Provident Fund.
Sum deposited in 10 year/

15year account of Post Office
Savings Bank

securities/notified deposits
scheme.

savings certificates
e.g. NSC VIII issue.
Contribution to Unit Linked

Insurance Plan of LIC Mutual
Fund
e.g. Dhanrakhsa 1989
Contribution to notified deposit

scheme/Pension fund set up by
the National Housing Bank.
Certain payment made by way

of instalment or part payment of
loan taken for purchase/
construction of residential
house property.
Qualifying amount limited

to Rs.10,000. The limit has
been raised to Rs.20,000
w.e.f. assessment year
2001-2002.
Contribution to notified annuity

Plan of LIC(e.g. Jeevan Dhara)
or Units of UTI/notified Mutual
Fund.
If in respect of such
contribution, deduction u/s
80CCC has been availed of,
rebate u/s 88 would not be
allowable.
Subscription to units of a
Mutual Fund notified u/s
10(23D)
48
Subscription to deposit scheme

of a Public Sector Company/
Authorised Authority providing
long term house financing.
Subscription to equity shares/

debentures forming part of any
approved eligible issue of
capital made by a public
company or public financial
institutions.
In respect of it, a higher limit

of qualifying investment of
Rs.70,000 (Rs.80,000 w.e.f.
A.Y. 2001-2002) is available as
against Rs.60,000 in case of
other investments.
(w.e.f. 01.04.2004) Tuition fees The qualifying amount limited

paid at the time of admission or to Rs.12,000/- in respect of
otherwise to any school, each child.
college, university or other
educational institution situated
within India for the purpose of
full time education of any two
children.
It is important to note that no tax rebate u/s 88 shall be
available from A.Y.2006-07 onwards. Similarly, sections 88B and
88C providing special rebates to senior citizens and ladies, stand
omitted w.e.f. 01.04.2006.
6.3 RELIEF UNDER SECTION 89 (1):It is available to an employee when he receives salary in
advance or in arrear or when in one financial year, he receives
salary of more than 12 months or receives profits in lieu of salary.
W.e.f. 1.6.89, relief u/s 89(1) can be granted at the time of TDS
from employees of all companies, co-operative societies,
universities or institutions as well as govt./public sector
undertakings, the relief should be claimed by the employee in
Form No. 10E and should be worked out as explained in Rule
21A of the Income Tax Rules.
49
CHAPTER-7
PERMANENT ACCOUNT NUMBER

7.1 WHAT IS P.A.N.
P.A.N. or Permanent Account Number is a number allotted
to a person by the Assessing Officer for the purpose of
identification. P.A.N. of the new series has 10 alphanumeric
characters and is issued in the form of laminated card.
7.2 WHO SHALL APPLY FOR P.A.N.
Section 139A of the Income Tax Act provides that every
person whose total income exceeds the maximum amount not
chargeable to tax or every person who carries on any business or
profession whose total turnover or gross receipts exceed Rs.5 lakhs
in any previous year or any person required to file a return of
income u/s 139(4A) shall apply for PAN. Besides, any person not
fulfilling the above conditions may also apply for allotment of
PAN. With effect from 01.06.2000, the Central Government may
by notification specify any class/classes of person including
importers and exporters, whether or not any tax is payable by
them, and such persons shall also then apply to the Assessing
Officer for allotment of PAN.
PAN has also been introduced w.e.f.1.6.2006 as per which the

assessing officer may allot a Permanent Account No. to any person
whether or not any tax is payable by him having regard to the
nature of transactions.
7.3 TRANSACTIONS IN WHICH QUOTING OF PAN IS
MANDATORY
y
y
y
y
y
y
y
y
Purchase and sale of immovable property.

Purchase and sale of motor vehicles.
Transaction in shares exceeding Rs.50,000.
Opening of new bank accounts.
Fixed deposits of more than Rs.50,000.
Application for allotment of telephone connections.
Payment to hotels exceeding Rs.25,000.
Provided that till such time PAN is allotted to a person, he
may quote his General Index register Number or GIR No.
7.4 HOW TO APPLY FOR PAN
i)
The Finance Act, 2006 has provided that for the purpose of
collecting any information, the Central Govt. may by way of
notification specify any class or classes of persons for allotment
of PAN and such persons shall apply to the Assessing Officer
within the prescribed time. Provision for Suo moto allotment of
Application for allotment of PAN is to be made in Form 49A.

Following points must be noted while filling the above form:Application Form must be typewritten or handwritten in black
ink in BLOCK LETTERS.
ii) Two black & white photographs are to be annexed.
iii) While selecting the Address for Communication, due care
should be exercised as all communications thereafter would
be sent at indicated address.
iv) In the space given for Fathers Name, only the fathers
name should be given. Married ladies may note that
husbands name is not required and should not be given.
v) Due care should be exercised to fill the correct date of birth.
vi) The form should be signed in English or any of the Indian
Languages in the 2 specified places. In case of thumb
impressions attestation by a Gazetted Officer is necessary.
50
51
W.e.f. 01.04.2006 a person liable to furnish a return of fringe

benefits under the newly introduced section 115WD of the I.T.
Act is also required to apply for allotment of PAN. Of course, if
such a person already has been allotted a PAN he shall not be
required to obtain another PAN.
CHAPTER-8
TAXABILITY OF
RETIREMENT BENEFITS
8.1 INTRODUCTION
On retirement, an employee normally receives certain
retirement benefits. Such benefits are taxable under the head
Salaries as profits in lieu of Salaries as provided in section
17(3). However, in respect of some of them, exemption from
taxation is granted u/s 10 of the Income Tax Act, either wholly or
partly. These exemptions are described below:8.2 GRATUITY (Sec. 10(10)):
(i)
Any death cum retirement gratuity received by Central and

State Govt. employees, Defence employees and employees
in Local authority shall be exempt.
(b) Rs.3.5 Lakhs whichever is less.

Where the gratuity was received in any one or more earlier
previous years also and any exemption was allowed for the same,
then the exemption to be allowed during the year gets reduced to
the extent of exemption already allowed, the overall limit being
Rs. 3.5 Lakhs.
As per Boards letter F.No. 194/6/73-IT(A-1) dated 19.6.73,
exemption in respect of gratuity is permissible even in cases of
termination of employment due to resignation. The taxable portion
of gratuity will quality for relief u/s 89(1).
Gratuity payment to a widow or other legal heirs of any
employee who dies in active service shall be exempt from income
tax(Circular No. 573 dated 21.8.90). Payment of Gratuity
(Amendment) Bill, 2010 has proposed to increase the limit to
Rs. 10,00,000.
8.3 COMMUTATION OF PENSION (SECTION 10(10A)):
(ii) Any gratuity received by persons covered under the Payment

of Gratuity Act, 1972 shall be exempt subject to following
limits:-
In case of employees of Central & State Govt. Local

Authority, Defence Services and Corporation established
under Central or State Acts, the entire commuted value of
pension is exempt.
(a) For every completed year of service or part thereof,

gratuity shall be exempt to the extent of fifteen days
Salary based on the rate of Salary last drawn by the
concerned employee.
(ii) In case of any other employee, if the employee receives

gratuity, the commuted value of 1/3 of the pension is
exempt, otherwise, the commuted value of of the pension
is exempt.
(b) The amount of gratuity as calculated above shall not

exceed Rs.3,50,000(w.e.f.24.9.97).
Judges of S.C. & H.C. shall be entitled to exemption of

commuted value upto of the pension (Circular No. 623 dated
6.1.1992).
(iii) In case of any other employee, gratuity received shall be

exempt subject to the following limits:(a) Exemption shall be limited to half month salary (based
on last 10 months average) for each completed year of
service
52
(i)
8.4 LEAVE ENCASHMENT (Section 10(10AA)):

(i)
Leave Encashment during service is fully taxable in all

cases, relief u/s 89(1) if applicable may be claimed for
the same.
53
(ii) Any payment by way of leave encashment received by Central

& State Govt. employees at the time of retirement in respect
of the period of earned leave at credit is fully exempt.
(iii) In case of other employees, the exemption is to be limited to
the least of following: (a) Cash equivalent of unutilized earned
leave (earned leave entitlement can not exceed 30 days for
every year of actual service) (b) 10 months average salary
(c) Leave encashment actually received. This is further
subject to a limit of Rs.3,00,000 for retirements after
02.04.1998.
(iv) Leave salary paid to legal heirs of a deceased employee in
respect of privilege leave standing to the credit of such
employee at the time of death is not taxable.
For the purpose of Section 10(10AA), the term
Superannuation or otherwise covers resignation (CIT Vs. R.V.
Shahney 159 ITR 160(Madras).
8.5 RETRENCHMENT COMPENSATION (Sec. 10(10B)):
Retrenchment compensation received by a workman under
the Industrial Disputes Act, 1947 or any other Act or Rules is
exempt subject to following limits:(i)
Compensation calculated @ fifteen days average pay for

every completed year of continuous service or part thereof
in excess of 6 months.
(ii) The above is further subject to an overall limit of Rs.5,00,000

for retrenchment on or after 1.1.1997 (Notification No. 10969
dated 25.6.99).
8.6 COMPENSATION ON VOLUNTARY RETIREMENT
OR GOLDEN HANDSHAKE(Sec. 10(10C)):
(i) Payment received by an employee of the following at the
time of voluntary retirement, or termination of service is exempt
to the extent of Rs. 5 Lakh:
54
(a) Public Sector Company.

(b) Any other company.
(c) Authority established under State, Central or Provincial
Act.
(d) Local Authority.
(e) Co-operative Societies, Universities, IITs and Notified
Institutes of Management.
(f)
Any State Government or the Central Government.
(ii) The voluntary retirement Scheme under which the payment

is being made must be framed in accordance with the
guidelines prescribed in Rule 2BA of Income Tax Rules.
In case of a company other than a public sector company
and a co-operative society, such scheme must be approved
by the Chief Commissioner/Director General of Income-tax.
However, such approval is not necessary from A.Y. 20012002 onwards.
(iii) Where exemption has been allowed under above section for
any assessment year, no exemption shall be allowed in
relation to any other assessment year. Further, where any
relief u/s 89 for any assessment year in respect of any amount
received or receivable or voluntary retirement or termination
of service has been allowed, no exemption under this clause
shall be allowed for any assessment year.
8.7 PAYMENT FROM PROVIDENT FUND (Sec. 10(11),
Sec. 10(12)):
Any payment received from a Provident Fund, (i.e. to which
the Provident Fund Act, 1925 applies) is exempt. Any payment
from any other provident fund notified by the Central Govt. is
also exempt. The Public Provident Fund(PPF) established under
the PPF Scheme, 1968 has been notified for this purpose. Besides
55
the above, the accumulated balance due and becoming payable to

an employee participating in a Recognised Provident Fund is also
exempt to the extent provided in Rule 8 of Part A of the Fourth
Schedule of the Income Tax Act.
Liquidity
Entire balance can be withdrawn after

expiry of 3 years from the date of
deposit. Premature encashment can be,
made after one year from the date of
deposit in which case interest on amount
withdrawn will be payable @ 4% from
the date of deposit to the date of
withdrawal.
Other considerations:
Only 1 account can be opened in own

name or jointly with spouse. Account is
to be opened within 3 months of
receiving retirement benefits. Scheme
is operated through branches of SBI and
its subsidiaries and selected branches of
nationalised banks.
8.8 PAYMENT FROM APPROVED SUPERANNUATION

FUND (Sec.10(13)):
Payment from an Approved Superannuation Fund will be
exempt provided the payment is made in the circumstances
specified in the section viz. death, retirement and incapacitation.
8.9 DEPOSIT SCHEME FOR RETIRED GOVT/PUBLIC
SECTOR COMPANY EMPLOYEES:
Section 10(15) of the Income Tax Act incorporates a number
of investments, the interest from which is totally exempt from
taxation. These investments may be considered as one of the
options for investing various benefits received on retirement. One
among them, notified u/s 10(15)(iv)(i), is the DEPOSIT SCHEME
FOR RETIRED GOVT/PUBLIC SECTOR COMPANY
EMPLOYEES which is a particularly attractive option for retiring
employees of Govt. and Public Sector Companies. W.e.f.
assessment year 1990-91, the interest on deposits made under this
scheme by an employee of Central/State Govt. out of the various
retirement benefits received is exempt from Income-tax. This
exemption was subsequently extended to employees of Public
Sector companies from assessment year 1991-92 vide notification
No. 2/19/89-NS-II dated 12.12.1990. Salient features of the
scheme are discussed below:
Rate of Return
Tax free interest @ 9% P.A. payable half

yearly on 30th June and 31st December
Limit of Investment
Minimum Rs.1000.
Maximum not exceeding the total
retirement benefits.
56
[This scheme has been discontinued w.e.f. 10.07.2004 vide

notification F. No.15-01/2004-NS-2, dated 09.07.2004.]
57
CHAPTER-9
PENSIONERS & SENIOR CITIZENS

9.1 PENSION
Pension is described in section 60 of the CPC and section 11
of the Pension Act as a periodical allowance or stipend granted
on account of past service, particular merits etc. Thus monthly
allowance to the younger brother of a ruler was treated as a
maintenance allowance and not pension (Raj Kumar Bikram
Bahadur Singh Vs. CIT 75 ITR 227(MP)). There are three
important features of pension. Firstly, pension is a compensation
for past service. Secondly, it owes its origin to a past employeremployee or master-servant relationship. Thirdly, it is paid on the
basis of earlier relationship of an agreement of service as opposed
to an agreement for service. This relationship terminates only on
the death of the concerned employee.
Pension received from a former employer is taxable as
Salary. Hence, the various deductions available on salary income,
including relief u/s 89(1) for the arrears of pension received would
be granted to pensioners who received their pension from, a
nationalised bank and in other cases their present Drawing &
Disbursing Officers. Similarly, deductions from the amount of
pension of standard deduction and adjustment of tax rebate u/s 88
and 88B shall be done by the concerned bank, at the time of
deduction of tax at source from the pension, on furnishing of
relevant details by the pensioner. Instructions in above regard were
issued by R.B.I.s Pension Circular (Central Service No. 7/C D.R./
1992(Ref. No. DGBA:GA(NBS) No. 60/GA64-(II CVL-91-92
dated 27.4.92).
Pension to officials of UNO is exempt from taxation. Section
2 of the UN (Privilege & Immunities) Act, 1947 grants tax
58
exemption to salaries/emoluments paid by U.N. The Karnataka

High Court had held that u/s 17 of the Income Tax Act, salary has
been defined as including pension, therefore, if salary received
from U.N. is exempt, so shall be the pension. This decision was
accepted by the CBDT vide circular No. 293 dated 10.02.1981.
9.2 FAMILY PENSION
Family pension is defined in Section 57 as a regular monthly
amount payable by the employer to a person belonging to the
family of an employee in the event of death. Pension and family
pension are qualitatively different. The former is paid during the
lifetime of the employee while the latter is paid on his death to
surviving family members. However, in case of family pension,
since there is no employer-employee relationship between the
payer and the payee, therefore, it is taxed as Income from Other
Sources in the hands of the nominee(s). In respect of family
pension, deduction u/s 57(iia) of Rs.15000 or 1/3rd of the amount
received, whichever is less, is available.
9.3 SENIOR CITIZEN
Under the Income Tax Act, a senior citizen is a person who
at any time during the previous year has attained the age of 65
years or more. There are certain benefits available to senior citizen
under the Income Tax Act:(i)
Tax rebate u/s 88B: Rebate under this section to the extent
of Rs.20,000/- was available to all senior citizens whether
they are pensioners or self employed or traders etc.
It may be noted that no rebate u/s 88B is available from

A.Y.2006-07 onwards. However, the maximum amount not
chargeable to tax in respect of senior citizens has been increased
to Rs.2,40,000 w.e.f. A.Y. 2010-11. Thus, no tax is payable by
a senior citizen if the total income is upto Rs.2.4 lacs for the
A.Y. 2010-11.
59
(ii) Benefits provided by Finance Act 2007: The deduction

available u/s 80D for medical insurance premium paid is to
be increased to Rs.20,000 for senior citizens. Secondly, the
deduction available u/s 80DDB in respect of expenditure
incurred on treatment of specified diseases is to be increased
to Rs.60,000 for senior citizens.
CHAPTER-10
TAXATION OF EXPATRIATES
10.1 INTRODUCTION
(iii) In order to resolve the tax issues arising out of the reverse
mortgage scheme introduced by the National Housing
Bank (NHB), the Finance Act 2008 has added a new clause
(xvi) in Section 47 of the I.T. Act which provides that any
transfer of a capital asset in a transaction of reverse
mortgage under a notified scheme shall not be regarded
as a transfer and shall, therefore, not attract capital gains
tax. This ensures that the intention of a reverse mortgage
which is to secure a stream of cash flow against the
mortgage is not contradicted by treating the same as
transfer.
With the globalisation of the world trade and liberalisation

of the Indian economy, the number of persons moving in or out of
India in the exercise of their business, profession or employment
is on the increase. A brief discussion of the taxation of these
expatriates is being attempted below:
The second issue is whether the loan, either in lump sum

or in instalments, received under a reverse mortgage scheme
amounts to income. Receipt of such loan is in the nature of a
capital receipt. However, with a view to providing certainty in
the tax regime pertaining to the senior citizens, the Finance
Act 2008 has amended section 10 of the Income Tax Act to
provide that such loan amounts will be exempt from income
tax.
10.2.1 Resident
An Individual is said to be resident in

India in any previous year if he is in
India for at least 182 days in that year
or during that year he is in India for a
period of at least 60 days & has been in
India for at least 365 days during the 4
years preceding that year. However, the
period of 60 days referred to above is
increased to 182 days in case of Indian
citizens who leave India as members of
the crew of an Indian Ship or for Indian
citizens or persons of Indian origin who,
being outside India, come to visit India
in any previous year.
10.2.2 Non- Resident
A person who is not a resident in terms

of the above provisions is a nonresident.
10.2 RESIDENTIAL STATUS

As in most of the countries, the liability under the Indian
Income tax law is also co-related to the residential status of the
concerned tax payer. Section 6 of the Indian Income-Tax Act
creates 3 categories as far as residential status is concerned.
Consequent to these amendments, a borrower, under a

reverse mortgage scheme, will be liable to income tax (in the
nature of tax on capital gains) only at the point of alienation
of the mortgaged property by the mortgagee for the purposes
of recovering the loan.
These amendments will take effect from the 1st day of
April, 2008 and will accordingly apply in relation to assessment
year 2008-09 and subsequent assessment years.
60
61
10.2.3 Resident but Not A person who is otherwise resident as

Ordinarily Resident
defined in para 10.2.1 would be RNOR
(RNOR)
if he satisfies any of the following two
conditions:
(i)
(iii) Resident but

not ordinary
Resident
He has not been resident in India in 9

out of 10 preceding previous years.
or
(ii) He has not been in India for an aggregate

period of 730 days or more in the
preceding 7 previous years.
W.e.f. 01.04.2004, the status RNOR
has been redefined as follows:An individual shall be said to be RNOR
if he has been a non-resident in India in
9 out of 10 previous years preceding or
period amounting to 729 days or less
during the 7 previous years preceding
that year.
10.3 SCOPE OF TAXATION:
Based on the residential status of payer, his tax liability will
be as follows:Residential status Taxability of Income
(i) Resident
All income of the previous year wherever

accruing or arising or received by him
including incomes deemed to have accrued
or arisen.
(ii)Non-Resident
All income accruing, arising to or deemed

to have accrued or arisen or received in
India.
62
All Income accruing or arising or deemed

to have accrued or arisen or received in
India. Moreover, all income earned outside
India will also be included if the same is
derived from a business or profession
controlled or set up in India.
10.4 EXPATRIATES WORKING IN INDIA

In case of foreign expatriate working in India, the
remuneration received by him, assessable under the head
Salaries, is deemed to be earned in India if it is payable to him
for service rendered in India as provided in Section 9(1)(ii) of the
Income Tax Act. The explanation to the aforesaid law clarifies
that income in the nature of salaries payable for services rendered
in India shall be regarded as income earned in India. Further, from
assessment year 2000-2001 onwards income payable for the leave
period which is preceded and succeeded by services rendered in
India and forms part of the service contract shall also be regarded
as income earned in India. Thus, irrespective of the residential
status of the expatriate employee, the amount received by him as
salary for services rendered in India shall be liable to tax in India
being income accruing or arising in India, regardless of the place
where the salary is actually received. However, there are certain
exceptions to the rule which are briefly discussed below:10.4.1
Remuneration of an employee of a foreign enterprise is

exempt from tax if his stay in India is less than 90 days
in aggregate during the financial year [Sec.10(6)(vi)].
This is subject to further relaxation under the provisions
of Double Taxation Avoidance Agreement entered into
by India with the respective country.
10.4.2
Remuneration received by a foreign expatriate as an

official of an embassy or high commission or consulate
or trade representative of a foreign state is exempt on
reciprocal basis [Sec.10(6)(ii)].
63
10.4.3
Remuneration from employment on a foreign ship

provided the stay of the employee does not exceed 90
days in the financial year [Sec. 10(6)(viii)].
10.4.4
Training stipends received from foreign government

(Sec.10(6)(xi)).
10.4.5
Remuneration under co-operative technical assistance

programme or technical assistance grants agreements
(Sec. 10(8) & (10(8B)).
10.5 SPECIAL PROVISIONS RELATING TO NONRESIDENTS

Chapter XIIA of the Income Tax Act deals with special
provisions relating to certain incomes of non-residents. Sec. 115D
deals with special provisions regarding computation of investment
income of NRIs. Section 115E relates to investments income and
long term capital gains of NRIs, such income being taxed at
concessional flat rates. As per section 115F, capital gain is not
chargeable on transfer of foreign exchange assets under certain
circumstances. The NRIs need not file their return of income if
their total income consist only of investment income or long term
capital gains or both and proper tax has been deducted from this
income(Sec. 115G). Benefits under this chapter are available even
after the assessee becomes a resident (Sec.115H). The provisions
of this chapter would not apply if the assessee so chooses (Sec.
115I).
10.6 DOUBLE TAXATION AVOIDANCE AGREEMENT
(DTAA)
The Central Government acting under the authority of
Law(Sec. 90) has entered into DTAAs with more than 60 countries.
Such treaties serve the purpose of providing protection to the tax
payers from double taxation. As per section 90(2), in relation to
an assessee to whom any DTAA applies, the provisions of the Act
shall apply only to the extent they are more beneficial to the
64
assessee. The provisions of these DTAAs thus prevail over the

statutory provisions.
10.7 INDIAN RESIDENTS POSTED ABROAD
Indian residents who have taken up employment in countries
with which India has got DTAA are entitled to the benefit of the
DTAA entered into by India with the country of employment.
Accordingly, their tax liability is decided.
Indian expatriates working abroad have been granted several
special tax concessions under the Act. Professors, teachers and
research workers working abroad in any university or any
educational institutions are entitled to deduction of 75% of their
foreign remuneration provided the same is brought into India in
convertible foreign exchange within a period of 6 months from
the end of the previous year or such extended time as may be
allowed(Sec. 80-R). Similarly, in case of an Indian Citizen having
received remuneration for services rendered outside India, 75%
of his foreign remuneration is deductible from his taxable income
provided such remuneration is brought to India in convertible
foreign exchange within the time specified above (Sec. 80 RRA).
From assessment year 2001-2002 onwards, there has been a
change in the amount of deduction available under sections 80R/
80RRA. For details, reference may be made to the sections
concerned of the Income Tax Act. No deduction u/s 80R/80RRA
shall be allowed in respect of A.Y. 2005-06 onwards.
It may also be mentioned here that as per section 9(1)(iii)
income chargeable under the head Salary payable by the
Government to a citizen of India for services rendered outside
India is deemed to accrue or arise in India. However, allowances
or perquisites paid or allowed outside India by the Govt. to a citizen
of India for rendering services abroad is exempt from taxation
u/s 10(7).
65
10.8 INCOME TAX CLEARANCE CERTIFICATE

An expatriate before leaving the territory of India is required
to obtain a tax clearance certificate from a competent authority
stating that he does not have any outstanding tax liability. Such a
certificate is necessary in case the continuous presence in India
exceeds 120 days. An application is to be made in a prescribed
form to the Income Tax Authority having jurisdiction for
assessment of the expatriate to grant a tax clearance certificate.
This is to be exchanged for final tax clearance certificate from the
foreign section of the Income Tax Department. Tax Clearance
certificate is valid for a period of 1 month from the date of issue
and is necessary to get a confirmed booking from an airline or
travel agency and may be required to be produced before the
customs authorities at the airport.
CHAPTER- 11
INCOME TAX ON
FRINGE BENEFITS
11.1 INTRODUCTION :The Finance Act 2005 has introduced a new tax called
Income-tax on fringe benefits w.e.f. 01.04.2006. This shall be
in the form of additional income tax levied on fringe benefits
provided or deemed to have been provided by an employer to his
employees during the previous year.
11.2 RATE OF TAX :The tax on fringe benefits shall be levied at the rate of 30%
on the value of fringe benefits provided.
11.3 LIABILITY TO PAY :The liability to pay this tax is to be borne by the employer
including
i) a company
ii) a firm
iii) an association of persons or body of individuals
excluding any fund or trust or institution eligible for
exemption u/s 10(23C) or 12AA.
iv) a local authority
v) an artificial juridical person
11.4 WHAT IS INCLUDED IN FRINGE BENEFITS :Fringe benefits have been defined as including any
consideration for employment provided by way of
a)
66
any privilege, service, facility or amenity provided by an

employer directly or indirectly including reimbursements.
67
b)
any free or concessional ticket provided by the employer for

private journeys of his employees or their family members.
c)
any contribution by the employer to an approved

superannuation fund for employees.
d)
any specified security or sweat equity shares allotted/

transferred, directly or indirectly by the employers free of
cost or at concessional rate to his employees. The detailed
provisions in respect of this are included in Chapter XII H of
the I.T. Act.
through non-transferable electronic meal cards, provision of crche

facility, organizing sports events or sponsoring a sportsman being
an employee. These provisions shall come into effect from A.Y.
2009-10 onwards.
The Finance act, 2009 has withdrawn the Fringe Benefit Tax.
Thus, the FBT stands abolished w.e.f. A.Y. 2010-11 and now such
perquisites are taxable in hands of employees.
Further, fringe benefits shall be deemed to have been

provided if the employer has incurred any expenses or made any
payments for various purposes namely, entertainment, provision
of hospitality, conference, sales promotion including publicity,
employees welfare, conveyance, tour & travel, use of hotel,
boarding & lodging etc.
Various provisions relating to income tax on fringe benefits
have been modified by the Finance Act, 2006. Exceptions in
respect of certain expenditures have been introduced including
expenditure incurred on distribution of free/concessional samples
and payments to any person of repute for promoting the sale of
goods or services of the business of the employer. Similarly, it
has been proposed that expenditure incurred on providing free or
subsidized transport or any such allowance provided by the
employer to his employees for journeys from residence to the place
of work shall not be part of fringe benefits. Another significant
amendment is regarding the contribution by an employer to an
approved superannuation fund to the extent of Rs.1 lakh per
employee which shall not be liable to fringe benefit tax. Further,
in the case of some other expenses incurred such as expenses
incurred on tour and travel, lower rates for valuation of fringe
benefits @ 5% have been provided for. The Finance Act 2008
has introduced further exemption in respect of certain expenditures
from the purview of Fringe Benefit Tax. These include payments
68
69
CHAPTER- 12
SOME RELEVANT CASE-LAWS

12.1 EMPLOYER-EMPLOYEE RELATIONSHIP:
12.4.2
Reimbursement of expenses incurred by the

employee has been intended to be roped in the
definition of Salary by bringing it as part of
Profit in lieu of salary.
(I.E. I Ltd. v CIT (1993) 204 ITR 386(Cal)
The nature and extent of control which is the basic requisite

to establish employer- employee relationship would vary from
business to business. The test which is uniformly applied in order
to determine the relationship is the existence of a right to control
in respect of the manner in which the work is to be done.
12.5 RENT FREE ACCOMMODATION:
(Dharangadhra Commercial Works v State of Saurashtra 1957

SCR 152)
(CIT v B.S. Chauhan 150 ITR 8(Del)).
12.2 LEAVE ENCASHMENT (S.10(10AA)):

Retirement includes resignation. What is relevant is
retirement: how it took place is immaterial for the purpose of this
clause. Therefore, even on resignation, if an employee gets any
amount by way of leave encashment, S.10(10AA) would
apply.(CIT v D.P. Malhotra (1997) 142 CTR 325(Bom)).
(CIT v R.J. Shahney(1986) 159 ITR 160(Mad))
12.3 HOUSE RENT ALLOWANCE (S.10(13A)):
When commission is paid to a person based upon fixed
percentage of turnover achieved by the employee it would amount
to Salary for the purpose of Rule 2 (h) of part A of IV Schedule
(Gestetner Duplicators v CIT 117 ITR 1 (SC)).
12.4 PERQUISITE (S. 17):
12.4.1
One can not be said to allow a perquisite to an

employee if the employee has no vested right to
the same.
A rent free accommodation was provided to the assessee by

his employer but he never occupied it. Held that, unless the
employee expressly forgoes his right to occupying it, the perk
value would be taxable even though he never occupies it.
12.6 DEDUCTION UNDER S.80G:

By the very nature of calculation required to be made u/s
80G(4) it is necessary that all deduction under chapter VIA be
first ascertained and deducted before granting deduction u/s 80G
(Scindia Steam Navigation Co v CIT (1994) 75 Taxman
495(Bom))
12.7 DEDUCTION U/S 80RRA:
Fees received by a consultant or technical for rendering
services abroad would also come within the purview of S. 80RRA
(CBDT v Aditya V. Birla (1988) 170 ITR 137(SC))
12.8 RELIEF U/S 89:
Where arrears of salary are paid under orders of court, the
employee would be entitled to relief u/s 89.
(K.C. Joshi v Union of India (1987) 163 ITR 597(SC).
(CIT v L.W. Russel (1964) 531 ITR 91 (SC)).
70
71
12.9 REVISED RETURN:

A belated return filed u/s 139(4) can not be revised u/s 139(5).
(Kumar J.C. Sinha v CIT (1996) (86 Taxman 122(SC)).
12.10 Return showing income below taxable limit is a valid return.
(CIT v Ranchhoddas Karosands (1959) (361 ITR 869 (SC)).
72
Chapter - 1
INTRODUCTION
1. The Indian Income Tax Act provides for chargeability of tax
on the total income of a person on an annual basis. The quantum of
tax determined as per the statutory provisions is payable as:
a)
b)
Advance Tax
Self Assessment Tax
c)
d)
Tax Deducted at Source (TDS)

Tax Collected at Source (TCS)
e)
Tax on Regular Assessment
Tax deducted at source (TDS) and Tax collection at source

(TCS), as the very names imply aim at collection of revenue at the
very source of income. It is essentially an indirect method of collecting
tax which combines the concepts of pay as you earn and collect
as it is being earned. Its significance to the government lies in the
fact that it prepones the collection of tax, ensures a regular source
of revenue, provides for a greater reach and wider base for tax. At
the same time, to the tax payer, it distributes the incidence of tax
and provides for a simple and convenient mode of payment.
The concept of TDS requires that the person on whom
responsibility has been cast, is to deduct tax at the appropriate rates,
from payments of specific nature which are being made to a specified
recipient. The deducted sum is required to be deposited to the credit
of the Central Government. The recipient from whose income tax
has been deducted at source, gets the credit of the amount deducted
1
in his personal assessment on the basis of the certificate issued by

the deductor.
While the statute provides for deduction of tax at source on a
variety of payments of different nature, in this booklet, an attempt is
being made to discuss various provisions of TDS on payments of
nature other than salaries and of Tax collection at source.
Chapter - 2
PAYMENTS SUBJECT TO T.D.S.

The statutory provision regarding deduction of tax at source
is dealt in Chapter XVII of the Income-tax Act, 1961 which gives the
details of the relevant provision of TDS, the rates and also the
exemptions where no tax is to be deducted.
The following items of payment are subject to tax deduction at
source:-
i)
Interest on securities (S.193),
ii)
Dividends (S.194),
iii)
Interest other than interest on securities (S.194A),
iv)
Winnings from lottery or crossword puzzles (S.194B),
v)
Winnings from horse race (S.194BB),
vi)
Payments to contractors and sub-contractors (S.194C),
vii)
Insurance Commission (S.194D),
viii)
Payments to non-resident sportsmen or sports associations

(S.194E),
ix)
Payments in respect of deposits under National Savings

Scheme etc. (S.194EE),
x)
Payments on account of repurchase of units by a Mutual

Fund or Unit trust of India (S.194F),
xi)
Commission etc. On sale of lottery tickets (S.194G),

3
xii)
Commission or brokerage, etc. (S.194H),
xiii)
Rent (S.194-I),
xiv)
Fees for professional or technical services (S.194J),
xv)
Payment of Compensation on acquisition of certain immovable

property (S.194LA),
xvi)
xvii)
Other sums, for example, payment to a non-resident (not being

a company) or a foreign company, of any interest (not being
interest on securities) or any other sum subject to Incometax (non-salary)(S.195),
Income payable net of tax i.e. Where, under an agreement
or arrangement the income-tax is borne by the person by
whom the income is payable to assessee. This amount of
income-tax would be added to the income of the assessee
and the Income-tax would be deducted on that amount also
(S.195A),
xviii)
Income in respect of units, as referred in Section 115AB,

payable to an Offshore Fund (S.196B),
xix)
Income from foreign currency bonds or shares of Indian

company, referred to in Section 115 AC. (Sec.196C),
xx)
xxi)
Chapter - 3
TDS PROVISIONS APPLICABLE TO

NON-SALARY INCOME
SECTION-WISE LIST
A very brief description of the various categories of
payments(other than salaries) and the relevant sections are being
given below, while detailed discussion on the issues of TDS and
TCS are included in the subsequent chapters.
Section 193 -
TDS from interest on securities. The

Exempted securities are listed in the relevant
Section. Deduction is to be done as per rates in
force.
Income of Foreign Institutional Investors from securities

referred to in Section 115AD. However, if capital gain arises
from transfer of securities referred to in Section 115AD, no
tax is deductible on payment to a Foreign Institutional Investor
(S.196D),
Section 194 -
TDS from Dividend. Certain exemptions exist

as are provided for in the Section where the
aggregate of Dividend during the financial year
does not exceed Rs.2500/- Deduction is to be
made as per the rates in force.
Section 206C prescribes collection of tax at source on

specified items.
Section 194A -
TDS from Interest other than interest on

securities TDS is to be done on Interest
exceeding Rs.5000/-. W.e,f. 01.06.2007, in
respect of deposit with a banking company or a
co-operative society carrying on banking
business, TDS is to be made if the interest
exceeds Rs.10,000/-.
Section 194B -
Exempted categories are listed in the section.

Deduction are to be done as per rates in force.
Section 194E-
Non-resident Sportsmen
associations. TDS @ 10%.
TDS from winnings from lotteries or

crossword puzzles or card game & other
game of any sort. TDS is to be done on payment
of an amount exceeding Rs.5000/-. TDS is
deductible on prize in kind also (w.e.f.1.6.1997).
In cases where the winnings are wholly in kind
or where they are partly in cash and partly in
kind but the part in cash is not sufficient to meet
the liability for tax deduction in respect of the
whole of the winnings, the person responsible
for paying shall, before releasing the winnings
either in cash or in kind, ensure that tax has been
paid in respect of the winnings.
Section 194EE-
Payment in respect of NSS. TDS to be done

on payment above Rs.2,500/- @ 20%.
Section 194F -
Payments for repurchasing units of Mutual

Fund/UTI - @ 20%
Section 194G -
Commission etc. on sale of lottery tickets

exceeding Rs.1,000/- - @10%
Section 194H -
Commission, Brokerage etc. above Rs.2,500/@ 10% N.A. when payments are made by Indl /
HUF, if their business turnover does not exceed
the limits specified in section 44AB. If the
payment made for personal use, no deduction.
Section 194-I -
Rental income TDS to be done on payment

exceeding Rs.1,20,000/- per annum. W.e.f.
1.4.2007, the rate of TDS is to be 10% where
plant or machinery is rented out, 15% in case of
land or building and 20% where the payee is not
an individual or HUF.
Section 194J -
Payment to resident of fees for professional

or technical services exceeding Rs.20,000/-.
Deduction at the rate of 10% . Not applicable, if
payer is individual or HUF and if the business
turnover does not exceed the limits mentioned
in Section 44AB clause (a) or (b) Not applicable
when payment made or credited before 1st
July,1995.
Section 194BB - Winnings from horse races exceeding

Rs.2500/Section 194C-
Section 194D -
Payments to contractors and subcontractors exceeding Rs.20,000/-. For

payments to contractors, the rate of TDS is one
percent in case of advertising and two percent
in other cases. Work includes advertising,
broadcasting and telecasting including
production of programmes for such purpose,
carriage of goods and passengers by any mode
of transport other than by railways and catering.
For payments made by Contractors to sub
contractors rate of TDS is one percent.
The provision is not applicable in case of
payment made by individuals and HUF if the
gross receipts or turnover from the business or
profession does not exceed the monetary limits
specified u/s 44AB clause (a) or (b).
Insurance commission TDS on payments
above Rs.5,000/-
or
sports
Section194 LA- Deduction of tax is to be done @ 10% from

payment to resident of compensation/
consideration on account of compulsory
acquisition under any law of any immovable
property (other than agricultural land) No
deduction if payment is less than Rs.1 lakh
during the financial year.
7
Section 195-
Payments to Non-Resident (Non-company) or

to a foreign Company of interest (other than
interest on security) or any other sum (other than
salary). Deduction is to be done as per rates in
force.
Section 196B -
Units referred to in Section 115AB (Units of

mutual fund/UTI owned by Off shore Fund) - 10%
: includes long-term capital gain on transfer.
Section 196C -
Interest or dividend payable for bonds and

shares referred to in Section 115AC (foreign
currency bonds or shares) and long-term capital
gains. Deduction @ 10% bonds and shares
substituted by words Bonds or GDR with effect
from 1st April 2002. No deduction shall be
made in respect of any dividends referred in
Sec.115-O.
Section 197A(1B) - The provisions of this Sec. shall not apply if the
gross income credited or paid exceeds the
maximum amount which is not chargeable to
income tax.
Section 197A(1C) - No deduction of tax from a resident individual
who is 65 years or more during the previous year
if such individual furnishes a declaration in writing
to the effect that tax on his estimated total income
will be nil.
Section 198 -
TDS is also income received except taxes paid

u/s. 192(1A).
Note
Surcharge as applicable in all the above sections.
Income in respect of securities referred under

section 115AD(1)(a) held by FIIs. Deduction at
the rate of 20%. No deduction shall be made in
respect of any dividends referred in Sec.115-O.
The statute provides that the tax is to be collected

by the seller of the commodities specified at the
time of receipt of the sale proceeds either in cash
or by cheque or draft or by any other mode or at
the time of debit of such amount to the account
of the buyer whichever is earlier. The provisions
of TCS apply to business of :
No TDS on capital gains.
i)
Alcoholic liquor for human consumption
Non-deduction or deduction at a lower rate in

regard to Section 192, 193, 194, 194A, 194C,
194D, 194G, 194H, 194-I, 194J, 194K, 194LA
and 195.- Application to be filed before
Assessing Officer in prescribed form. See Rule
28(1) and 28 AA.
ii)
Tendu leaves,
iii)
Timber obtained under a forest lease,
iv)
Timber obtained by any mode other than

under a forest lease,
Section 197A -
Non-deduction u/s 194 or 194EE on declaration

furnished by a resident individual to the person
responsible for deduction in prescribed form.
v)
any other forest produce not being timber

or tendu leaves.
vi)
Scrap
197A(1A)
Non-deduction on application made by the

person to the person responsible for deduction
in prescribed form in respect of Sections 193,
194A or 194K.
Section 196D -
Section 197 -
Section 206C -
Chapter - 4
PROVISIONS ENJOINING
DEDUCTION OF TAX AT SOURCE
vi)
Any interest payable to an individual, resident of India, on

debentures issued by a Public Limited Company where the
debentures are listed in a recognised stock exchange, if the
interest is paid by an account payee cheque and its amount
does not exceed Rs. 2500/- during the financial year,
vii)
Any interest payable to LIC,
viii) Any interest payable to GIC or any of its four companies,

(ix)
Any interest payable on any security issued by a company,

where the security is in dematerialized form and is listed in
recognized stock exchange in India(Inserted by Finance Act
2008).
x)
Any interest payable to any insurer in respect of any securities

owned by it or in which it has full beneficial interest.
4.1 Interest on securities

Where any payment is made in the nature of Interest on
Securities, the person responsible for making such payment of
income or credit has to make deduction of tax at source before
making such payment or crediting to the account of the payee. The
deduction is to be done as per rates in force on the amount of interest
payable. (Sec.193 of I. T. Act, 1961) However payments from certain
categories of bonds, debentures etc. is exempt from TDS. These
include :.
i)
National Defence Bonds 1972 (4.1/4%), ia) National

Defence Loan 1968, or National Defence Loan 1972
(4.3/4%), ib) National Development Bonds,
ii)
7 year (IV Issue) National Savings Certificates,
iii)
Any interest payable on debentures issued by any institution

or authority or any Public Sector Company or any Co-operative
socieity, including a Co-operative Land Mortgage Bank or Cooperative Land Development Bank, as may be notified by
Central Government in Gazette,
iv)
Gold Bonds, 1977 (6.1/2%), Gold Bonds 1980 (7%),
v)
Interest on any Security of Central Government or State

Government,(However w.e.f. 1.6.07 exemption will not be
available if interest payment exceeds rupees ten thousand
during the F.Y. on 8% savings(Taxable) Bonds 2003.
10
No TDS to be made from any Regimental Fund or non-public

fund established by any Armed forces since income of these
organizations is exempt u/s 10(23AA).
4.2 Dividend income(Sec. 194) - where any amount is

payable in the nature of Dividends by an Indian Company or a
Company that has made arrangement for declaration and payment
of dividend within India (including dividend on preference shares ).
The deduction has to be done of tax at source on such payments
as per rates in force before the payment is made in cash or issue of
cheque or dividend warrant or before making any distribution or
payment to the share holder of any dividend u/s 2(22). Sec. 2(22)
defines dividends as including inter alia distribution by a company
to its share-holder of various sums like accumulated profits (whether
Capitalized or not) by releasing all or part of companys assets or
debentures, debenture stock, deposit certificates, or bonus shares
to preference share-holders to the extent of accumulated profits, or
payments by a Private Limited Company of any advance or loan to
a share-holder being beneficial owner holding not less than 10% of
voting power, or loan or advance to a concern in which such shareholder is a member or partner with substantial interest or payment
by company on behalf of or, for benefit of such share-holder, to the
extent of accumulated profits.
11
Exemption (a) -Exemption from T.D.S. is granted in case of a shareholder who is an individual and the company pays dividend of
Rs.2500/- or less in one financial year and it is paid by account
payee cheque (Rule 28). (b) Further If the Assessing Officer gives a
certificate in writing that total income of the share-holder is
below taxable limit then the person paying the dividend to share
holder is not to deduct tax at source (Rule 28 and Rule 29).
(c) Further no TDS to be done in respect of dividends referred to in
Section 115-O.
or co-operative Society engaged in banking, or a Financial

Corporation or, LIC, or UTI, or company or cooperative society
carrying on insurance business, or any other institution,
association or body notified by the Central Government for
reasons recorded in writing.
iii)
The interest is paid, or credited by, the firm to its partners

account.
iv)
Interest income credited, or paid, by co-operative society to

its members account, or to another co-operative society.
v)
Interest income on deposits under any scheme framed and

notified in Gazette by Central Government.
vi)
Income credited or paid in respect of deposits other than time

deposits, such time deposits made on or after 1-7-1995, with
banking company including any bank nor banking institution
referred to in Section 51 of the Banking Regulation Act,1949.
vii)
Any interest credited or paid by the Central Government under

the Income-tax Act or other allied Acts like Wealth-Tax, EstateDuty,Super Profits Tax, Companies (Profits) Sur-tax or
Interest Tax Act.
4.3 Interest Income other than interest on securitiesThe Interest other than Interest on Securities is subject to tax
deduction at source as per rates in force under Section 194A.
However an individual or Hindu Undivided family is not obliged to
deduct tax at source. But w.e.f. 1.6.2002, an HUF or an individual
whose total sales, gross receipts or turnover from the business or
profession ,carried on by him exceeded monetary limit specified in
clause (a) or clause (b) of section 44AB(Rs. 40 lakh), are also liable
to deduct tax under this Sections. However, any other person (i.e
company,firm,Association of persons, Trust etc.) who is responsible
for paying Interest (other than Interest on Securities) is responsible
for deduction of tax at source. This tax is to be deducted, as usual,
at the time of credit of interest to the account of payee (i.e. Assessee)
or actual payment in cash or by issue of cheque, draft, or any other
mode of payment, whichever is earlier. Even if the amount of interest
is credited to any account whether called interest payable account
or Suspense Account, or by any other name, in the books of the
person who is paying such income(i.e. Payer of the interest), these
provisions of Section 194A will apply.
viii) Interest earned on deposits with;
Exemption - Exemption from this section is allowed:

i)
ii)
if interest, or aggregate of interest during the financial year,

does not exceed Rs.5000/-. However where the payer is a
banking company, a cooperative society engaged in the
business of banking or a post office the exemption limit shall
be Rs. 10,000 (applicable w.e.f. 1.6.2007).
Such interest income is credited or is paid to a banking company
12
ix)
a primary agricultural credit society.
a primary credit society.
a Co-operative land mortgage bank.
a Co-operative land development bank
a Co-operative society engaged in banking business (other

than time deposits on or after 1-7-1995),
Income credited or paid by way of interest on compensation

awarded by the Motor Accidents Claims Tribunal. However,
the aggregate amount of income paid/credited should not exceed
fifty thousand rupees.
13
x)
Income paid/payable by infrastructure capital company /fund

or public sector company in relation to zero coupon bond issued
after1.6.05.
4.4 Lotteries etc. - Under Section 194B, winnings from lottery

or crossword puzzle or card game and other game of any sort
exceeding Rs. 5000/- are also subject to deduction of tax at source,
as per rates in force .
In cases where the winnings are wholly in kind or where they
are partly in cash and partly in kind but the part in cash is not
sufficient to meet the tax liability for tax deduction in respect of the
whole of the winning, the person responsible for paying shall, before
releasing the winning either in cash or in kind, ensure that tax is paid
in respect of the winnings.
4.5 Horse Races - Section 194BB enjoins any person, who

is a bookmaker, or a licensee for horse racing in a race course, or
arranger for wagering or betting in any race course, and is responsible
for paying to any person the winning from such horse race, to deduct
income-tax at source. The deduction is to be done as per rates in
force. The only exemption is for winnings of Rs.2500/or below.
4.6 Contractor - Section 194C applies to a person who is
responsible for paying any sum to a contractor or sub-contractor.
Such contractor or sub-contractor should be a resident.
Definition of residence is given in Section 6 of the Income-tax
Act. It applies to an individual who is in India for 182 days or more in
a financial year or has been in India for more than 365 days in the
last 4 years and for 60 days in the year under consideration. The
HUF, Firm and an AOP is resident in India in any previous year
unless the control and management of its affairs is situated wholly
outside India. A company is a resident if it is an Indian company or
the control and management is wholly situated in India. A person is
termed as contractor if he is carrying out any work including supply
of labour for carrying out any work, in pursuance of a contract with
Central Government/ State Government/ Local Authority/ Corporation/
14
Company /any authority in India engaged in housing or co-operative

society /trust / University or any firm etc. Work includes advertising,
broadcasting and telecasting and production of programmes in such
connection, carriage of goods and passengers by any mode other
than by railway, and catering. These are the persons who are enjoined
to deduct tax at source at the time of credit of any sum to the account
of contractor or at the time of payment either in cash or by cheque or
draft or any other mode. The deduction is to be made @ 2% of
the total payment. In case of advertising, the contract rate of
TDS is 1%.
A contractor who is a resident and is not an individual/HUF
and makes payments to a sub-contractor who is also a resident and
engaged in carrying out or supplying labour for carrying out, whole or
part of the work undertaken by the contractor, is also liable to
deduct tax at source from the payments or credits of the payment
to such sub-contractor @1%. An individual or an HUF whose total
sales/gross receipts/turnover from business and profession carried
on by him exceeded the monetary limits specified under clause (a)
or (b) of section 44AB is liable to deduct income-tax under this
Section.
Even where the credit is made in any account called Suspense
Account or in the books of account of the person liable to pay such
income, such credit will be deemed to be in the account of payee
(contractor or sub-contractor as the case may be) and deduction of
tax will have to be made.
Exemption - If the credit or the payment in pursuance of the contract
does not exceed Rs.20,000/-, no deduction has to be made at source.
No TDS to be done by an Individual or an HUF on a contractual
payment of work which is for personal purposes of the individual or
the HUF.
If the Assessing Officer is satisfied that the total income of
the contractor or the sub-contractor justifies deduction at lower rate
or justifies no deduction of income-tax, then on an application to be
filed by the contractor or sub-contractor in this behalf, the Assessing
Officer can give such certificate as may be appropriate i.e. Deduction
15
at a lower rate or no deduction at all. Hence, when such a certificate

is produced before the person responsible for payment he will deduct
tax at the specified rate, or will not deduct any tax, as the case
may be.
4.7 Insurance Commission (Section 194D)

Any person, who is responsible for paying to a resident any
remuneration or reward, whether called commission or by any other
name, for soliciting or procuring insurance business (including
continuance, renewal or revival of policies of insurance), is enjoined
upon to deduct tax at source at the time of credit of such income to
the account of the payee or at the time of payment thereof in cash or
by issue of a cheque or draft or any other mode, whichever is earlier.
Deduction is to be done as per rates in force. However, if the aggregate
of such account, credited or paid during one financial year is Rs.5000/
- or less, then no tax is required to be deducted at source.
4.8 Payments to Non-resident sportsmen or sports

associations u/s.194E
If a payment is to be made to a non-resident sportsman
(including an athlete) who is not a citizen of India or non resident
sports association and the income is covered by Section 115BBA,
then income-tax is to be deducted at source @ 10% of such payment.
Section 115BBA applies to any tax-payer (assessee) who is not a
citizen of India and who is a non-resident and income is received, or
receivable, for participation in India in any game or sport or income
from advertisement or income form contribution of articles in Indian
Newspapers, magazines and journals or a non-resident sports
association or institution which receives guarantee money for games
or sports played in India.
4.9 Deduction of tax from payment in respect of

National Savings Scheme (Sec. 194EE)
Sec. 194EE has been inserted with effect from 1-10-91. Where
any payment is made by a person of an amount referred to in clause
16
(a) of sub section (2) of sec. 80CCA, then such person will deduct
tax @20% there on at the time of making such payment. The amount
standing to the credit of an assessee under National Saving Scheme
1987 and the interest accrued thereon is covered under this provision.
However in following cases no tax is deductible:
a)
where amount so payable in a financial year is less than

Rs.2500/- or
b)
where payment is made to heirs of a deceased assessee or
c)
where in case of resident individual, tax on his estimated total

income of the previous year including such withdrawal would
be nil and a declaration by him is furnished to that effect in
form 15-G and verified in prescribed manner by the person
responsible for such payment.
4.10 Sec. 194F Payment on account of repurchase

of units of mutual fund or UTI. Deduction of tax at
source is to be done on payment on account of repurchase of
units by mutual fund or UTI @20% at the time of making any
payment, by the person responsible for paying any amount referred
to in Sec. 80 CCB to any person.
4.11 Sec.194G Deduction of tax from commission etc.

on sale of lottery tickets.
The person responsible for paying any income by way of
commission, remuneration or Prize on lottery ticket has to deduct
tax @ 10% at the time of credit to the recipient account, or at the
time of payment in cash or issue of cheque/draft any other mode,
whichever is earlier. However no tax is to be deducted ,if the amount
does not exceed Rs.1000/-.
Further assessee can make an application in Form 13 to the
Assessing Officer, who shall after satisfying himself, issue a
certificate that total income of the person who is or has been stocking,
distributing, purchasing or selling lottery tickets justifies the deduction
of tax at a lower rate or no deduction of tax at all.
17
4.12 Sec. 194H Tax deduction from commission or

brokerage.
With effect from 1-6-2001 any person (other than Individual
and HUF whose accounts are not auditable under clauses (a) or (b)
of section 44AB) responsible for paying any commission or brokerage
to the account of payee or at the time of payment in cash or by
cheque/draft any other mode, whichever is earlier, is to deduct tax
@ of 10%. Where any income is credited to any account whether
called Suspense Account or by any other name in books of the
person liable to pay such income, such crediting shall be deemed to
be credit of such income to the account of the payee.
However no tax is deductible if the amount during the financial
year does not exceed Rs.2500/-. Commission & Brokerage includes
any payment (other than commission referred to in section 194D)
received/receivable directly or indirectly by a person acting on behalf
of another person for services other than professional services
notified by board u/s 44AA or for any services in the course of buying
or selling of the goods or in relation to any transaction relating to
any asset, valuable article or thing, not being Securities. W.e.f.
1.4.2007 no deduction is to be made on any commission or
brokerage payable by M/s. BSNL or M/s. MTNL to their public
call office franchises.
Recipient may apply in Form 13 to get a certificate of lower
TDS or no TDS u/s 197.
4.13 Sec. 194I Deduction of tax from income by way

of Rent.
Any person (not being an individual / HUF whose accounts are
not auditable u/s 44AB, clause (a) or (b), responsible for paying rent
has to deduct tax at source @20%. However where payment is to
an individual or HUF, TDS is to be made @ 15%. TDS is to be done
at the time of credit of such income into payees a/c or at the time of
payment in cash or by chq /draft or any other mode, whichever is
earlier.Credit in payers books to a account called suspense a/c or
by any other name shall be deemed to be credited to payees a/c.
18
However in case where the rent paid/credited does not exceed Rs.
1,20,000/- during the year, no tax is deductible .W.e.f. 1.4.07 the
rate of TDS shall be (a) 10% where any machinery plant or
equipment is let out (b) 15% in case of let out of building or
land appurtenant thereto(including factory building) where the
payee is an individual or HUF. (c) The rate will be 20% in (b)
above in case the payee is not an individual or HUF.
Essential features of rent are that
1)
Payment is made under any lease, sub-lease tenancy, or any

other agreement or arrangement.
2)
Payment is made either for use of land or building (including

factory building) (together or separately) with or without
furniture, fittings & land appurtenant thereto.
3)
Immaterial whether land or part of such building is owned by

the person to whom rent is paid.
Following points require consideration :

1)
If building is let out with furniture & fittings & rent is payable
under two separate agreements, composite rent is subject to
tax.
2)
If a non-refundable deposit is made by tenant, then TDS is

applicable.
3)
If refundable deposit is paid no TDS to be done, but if deposit

carries interest TDS on interest will be governed by Sec. 194A.
4)
If municipal taxes, ground rent etc. are borne by tenant no

TDS on such sum.
5)
Hotel accommodation taken on regular basis by any person

other than Individual/HUF will be in the nature of rent and TDS
is to be done.
6)
No TDS, if payee is Government or local authorities referred to

in section 10(20).
19
7)
Payee can make application to the Assessing Officer in Form

13 for a certificate for deduction of tax at lower rate or to deduct
no tax.
meaning as in Explanation 2 to section 9(1) (vii). On satisfaction,

the Assessing Officer shall issue a certificate for tax deduction at a
lower rate or for no deduction.
Deduction of Tax on Service Tax component of rental income

vide circular No. 4/2008 of CBDT dt. 28.4.2008 it has been clarified
that deduction u/s. 194 I would be required to be made on the amount
of rent paid/payable without including the Service Tax. This is so, as
Service Tax does not partake the nature of income of the landlord.
4.15 Sec. 194LA : Payment of compensation of

acquisition of certain immovable property
4.14 TDS From Profession fee : (Sec. 194J) W.e.f. 1.6.07

TDS has to be done at the rate of 10% on payments made to a
resident of fees for professional or technical services, of royalty
or any sum referred in clause (va) of Section 28 where aggregate
of such payment exceeds Rs.20,000/- in a financial year. However,
it is not applicable to a payer who is an individual or a HUF. But
where the gross sales/turn over from business or profession of such
payers exceeds the monetary limit specified in section 44AB
(Rs. 40,00,000/-) then such individual /HUF is also required to deduct
tax at source as per provisions of this section. Payments made or
credited before 1.7.95 are not covered by this provision.
Professional service means service rendered by a person in
the course of carrying on any of the following professions :
Legal
Where any person is paying to a resident any sum which is in

the nature of compensation, enhanced compensation, consideration,
or enhanced consideration on account of compulsory acquisition of
any immovable property (under any law), then deduction of tax at
source @ 10% on such sum is to be done at the time of payment or
by issue of a cheque/draft or by any other mode, which ever is earlier.
The immovable property specified here should not be agricultural
land. Deduction is to be done where the aggregate amount of such
payment during the F.Y. exceeds one hundred thousand rupees.
4.16 Sec. 195 - Other sums

This section deals with TDS on payments being made to non
residents.
Deduction of tax u/s 195 is to be done at rates in force on
payment made to any non-resident not being a company, or to a
foreign company on payment of any interest or any sum chargeable
under the provisions of IT Act which is not in nature of salaries.
Tax is to be deducted at the time of payment or at the time of
credit to the a/c of payee or interest payable a/c or suspense a/c,
whichever is earlier.
Medical
Architectural
Engineering
Profession of accountancy
Technical consultancy
Interior Decoration
Advertising
Any other profession notified by the Board for purposes of
Section 44AA or of this section. Technical services has the same
20
(However TDS is to be done only at the time of payment in

cash or issue of cheque/draft or any other mode, in case of interest
of mutual fund, or interest payable by Govt / public sector bank or a
public financial institution). However no tax to be deducted in case
of payment of dividend referred in sec. 115(O). Further payee can
make application in Form no. 15C and 15D to Assessing Officer
to obtain certificate for non-deduction or deduction at lower rate of
tax.
21
4.17 Section 196 - TDS from interest or Dividend or

any sum payable to Government/RBI/Certain
Corporations
Section 196 provides that no deduction of tax is to be done
from interest or Dividend or any sum payable to Govt. / RBI / certain
Corporations or Mutual Funds. No TDS from any sum payable to
Government or RBI or corporation established by or under any
Central Act which is exempt from income-tax on its income or a
specified Mutual Fund, provided such sum is payable by way of
interest or any other income accruing or arising to it or as dividend
in respect of securities or shares owned by it or in which it has full
beneficial interest.
4.18 Section 196-B - Income from units - This section

enjoins the payer to deduct tax @ 10% from payments to an off
shore fund in respect of units referred to in section 115AB or
payments by way of long term capital gains arising from transfer of
such units. The deduction is to be done at the time of credit in the
account or at the time of payment in cash, through cheque or draft
or any other mode, whichever is earlier.
4.21 Sale of Liquor / Timber

Section 206C has been introduced w.e.f.1.4.1992 prescribing
collection of tax at source. It applies to business of (i)Alcoholic liquor
for human consumption, (ii) Tendu leaves (iii) Timber obtained under
a forest lease, timber obtained by any mode other than under a
forest lease (iv) Any other forest produce not being timber or tendu
leaves and also on (vi) Scrap.
It enjoins on every person who is a seller of any of the above
six types of items to collect from the buyer of such goods a sum
equal to the following percentage of the amount payable by the buyer
to the seller : i)
Alcoholic liquor
1%
ii)
Tendu leaves
5%
iii)
Timber obtained under forest lease
2.5 %
iv)
Timber obtained by any other mode

(other than under a forest lease)
2.5%
v)
Any other forest produce not being

Timber or tendu leaves
4.19 Section 196C - Income from foreign currency bonds

or shares of Indian Company where any income by way of interest
or dividends in respect of Bonds or Global Depository receipts
referred to in Section 115AC or by way of long term capital gains
arising from their transfer is payable to a non-resident, then TDS @
10% is to be done on such payments, at the time of credit of income
in account or any payment through cash/cheque/draft/any other
mode, which ever is earlier.
vi)
Scrap
1%
4.20 Section 196D : - This section applies to payments in

respect of securities referred to in clause (a) of sub-section(1) of
Section 115AD payable to foreign Institutional Investor. The payer is
required to deduct tax @ 20% of the income when the same is
credited to the account or paid in cash, through cheque or draft etc.
which ever is earlier. No deduction is to be done in respect of dividends
referred in section 115-O.
22
2.5 %
23
Note 2 : The rate of 30% is reduced to 20% or 10% in respect of

royalty or fees for technical services depending on whether the
fees is received pursuant to an agreement made after 31.5.1997
but before 1.6.2005 or whether it is made on or after 1.6.2005. Now,
a foreign company deriving royalty and fees for technical services
have to bifurcate its royalties and fees into 3 parts as follows :-
Chapter - 5
TAXATION OF FOREIGN COMPANIES

Since post assessment collection of taxes is difficult from a
non-resident assessee by virtue of his residence and business
activities being outside India, TDS is an imperative mode of tax
collection. In such cases the rate of TDS also equates the tax rate.
The estimated income approach in Section 44B to 44BBB relating
to taxation of certain categories of income in case of foreign
companies is lined with TDS as a mode of collection.
Section 195 provides for deduction of tax at source as per
rates in force which are specified in Annexure-1.
Following are the sections dealing with presumptive rate of
taxation in regard to income of foreign company. The tax payable
is deducted at the time of remittance.
Section
Nature of Income
% of gross receipt
Chargeable as Tax
and liable for TDS
115A
Non-residents (Not a company)

and foreign company : Dividends/
Interest/income from units
20%
Foreign company : Royalty/fees for

Technical services.
30%
a)
Royalty and fees received pursuant to an agreement made on

or before 31.5.1997 and
b)
Royalty and fees received pursuant to an agreement made

after 31.5.1997 but before 1.6.2005.
c)
Royalty and fees received pursuant to an agreement made on

or after 1.6.2005.
On the first part, tax would be payable @30%; on the second

part, tax would be payable @ 20% and on the third part, tax would
be payable @10%.
Section
Nature of Income
44B
Receipt from shipping business
7.5%
44BB
Business of exploration of Mineral oils
10%
44BBA
Business of operation of Air-craft
5%
44BBB
Approved turn-key Power project
10%
Note 1 : Lower rate provided in Double Taxation Avoidance

agreement would prevail over these rates wherever they exist.
24
25
% of gross receipts
by an individual resident in India who is of age of 65 years or

more during the previous year.
(d)
Chapter - 6
EXEMPTIONS
6.1 Lower deduction/non-deduction of tax
(a)
Section 197 : - Section 197 gives a right to the assessee to

obtain a certificate from the Assessing Officer that tax may be
deducted at a lower rate than prescribed in Sections
192,193,194,194A,194C,194D,194G,194H,194I, 194J,
194K,194LA, and 195, by making an application. He can even
apply for no deduction of income- tax at source. Income-tax
rules have prescribed Form No. 13, under Rule 28 for such
application.
(b)
Section 197A : - Section 197A provides that no deduction of

income-tax at source is to made u/s 194 or194EE in case of
an individual resident of India if the individual gives the
declaration to the person responsible for paying the income
covered by these sections in duplicate in prescribed proforma
and verified showing that the tax, on his estimated total income
of the year, including the income from which tax is to be
deducted will be nil. Form No. 15G under Rule 29C has been
prescribed for such application.
(c)
Section 197A(1A) : - Similarly, for sections 193, 194A and

Section 194K, exemption u/s 197A, from deduction of tax, can
be obtained by any person (except a company or a firm ) on
furnishing a declaration in duplicate and in prescribed proforma
in a similar manner. Similarly for sections 193, 194 ,194A,
194 EE or 194K, exemption from TDS u/s 197A can be obtained
26
Section 197A(1B) : - The provisions of this section shall not

apply when the gross total income of the assessee from all
sources exceeds the maximum amount which is not
chargeable to Income Tax.
The person responsible for paying the income without
deduction of tax is duty-bound to deliver to the Chief
Commissioner of Income-tax or Commissioner of Income-tax,
one copy of such declaration before the 7th day of month
following the month in which the declaration has been furnished
to the payer by payee (i.e. Assessee).
6.2 Interest to Government etc.

Interest or dividend or any other sum payable to the
Government, or Reserve Bank of India or a Corporation established
under a Central Act, or a Mutual Fund specified u/s 10(23D), payable
to it by way of interest or dividend in respect of securities or shares
owned by it or any other income accruing to it, is not subject to
deduction of tax at source (S.196).
27
Chapter - 7
DEPOSIT OF TAX AND

CREDIT OF TDS
bound to furnish this certificate to the person from whose income/

payment the tax has been deducted. The certificate should specify
the amount of tax deducted and rate at which it is deducted.(Form
No. 16A, under Rule 31). On production of this certificate, credit u/s
199, for tax paid, will be given to the person, from whose income
the tax has been deducted, in his income-tax assessment for the
assessment year in which the income (or payment) is assessable.
However where tax has been deducted or paid on or after
1.4.2010 there shall be no requirement to furnish such a
certificate.
7.4 Tax Deduction Account Number (TAN)
7.1 Deposit of Tax

Where tax has been deducted under Sections
193,194,194A,194B,194BB, 194C, 194D, 194E,194EE, 194F, 194G,
194H, 194I, 194J, 194K, 194LA, 195, 196A, 196B, 196C and 196D,
it is duty of the person deducting tax at source to deposit the amount
of tax so deducted within the prescribed time in any branch of
Reserve Bank of India or State Bank of India or any authorised
bank accompanied by prescribed Income-tax challans as per the
time limit and mode specified in Rule 30.
7.2 Credit of TDS

Where taxes have been deducted at source from any payment
of income receivable by an assessee, the amount of tax deducted
at source would be included in the income of the assessee while
computing the income of the assessee and would be deemed to be
the income received (S.198). Further, credit will be given to the
assessee while calculating the net tax payable by him and the tax
deducted at source will be treated as a payment of tax on his
behalf.(i.e. to the Central Government by the payer who has deducted
the tax at source) (S.199).
7.3 TDS Certificate
A person deducting tax at source, if not already allotted a

TAN(or a tax deducation and collection account number) should
apply for allotment of TAN in Form No. 49B. The application has to
be made in duplicate to the Assessing Officer (AO) or to any
particular Assessing Officer where this duty is assigned by the Chief
Commissioner or the Commissioner to that A.O. The application
should be made within one month from the end of the month in
which the tax is deducted for the first time.
TAN should be quoted in all the TDS Certificates, challans,
quarterly statements, correspondence, etc. Non compliance with
the provisions of Section 203A may lead to rigorous imprisonment
for a term not less than 3 months but which may extend to 7 years
and with a fine of Rs.10,000/-.
Reference Section 203 A, Rule 114 A and Rule 114AA.
7.5 Time Limit for Deposit of Tax

Section 200 provides that any person, who has deducted any
sum at source as provided in Sections 192 to 196D, is obliged to
pay the tax deducted at source to the credit of Central Government.
A certificate is prescribed u/s 203, which is to be issued by

person deducting tax at source. Every person deducting tax is duty
Rule 30 of the Income-tax rules lays down the time and the
mode of the payment of the tax deducted at source to the
Government Account. Wherein the deduction is by or on behalf of
28
29
the Government, it has to be credited to the Central Govt. Account

on the same day.
In other cases as per provisions as under :
i)
ii)
In respect of sums deducted u/s.193,194A (interest on

securities), S.194C (payment to contractors and subcontractors),Sections 194D,194E, 194G, 194H,194I,
194J,195,196A,196B,196C, and 196D it has to be credited
within one week from the last day of the month in which
deduction is made. However if the income/sum is credited to
the account of the payee as on the date up to which accounts
of the payers are made, then within two months of the expiry
of the month on which the date falls
In any other case the sum deducted at source is to be credited
to the Central government account within a week from the last
day of the month in which deduction is made.
to non-resident
Income on units referred to in section
115AB or by way of long-term capital
gains arising on transfer of such units
Income from foreign currency bonds
or shares of Indian Companies
Nature of payment
Relevant Section
(1)
(2)
Interest on securities
Interest other than Interest on
securities
Payments to contractors and subcontractors
Insurance Commission
Payment to non-resident sports men
or sports association
Commission, remuneration or prize
on lottery tickets
Commission, brokerage, etc.
Rent
Fee for professional or technical services,
royalty, sum under section 28(va)
Interest or other sum referred to in
Section 195
Income in respect of units of mutual
fund or of the Unit Trust of India payable
30
Due date of deposit
196C
In the case of deduction by or on behalf of the Government, tax deducted

should be deposited on the same day.
The Assessing Officer may, in special cases, and with the approval of the
Joint Commissioner, -
(a)
permit any person to deposit the income-tax deducted from any payment
under section 194A or section 194D or section 194H quarterly on July 15,
October 15, January 15 and April 15, and
(b)
permit an employer to deposit income-tax deducted from salaries quarterly

on June 15, September, 15, December 15 and March 15.
(3)
193
194A
194C
194D
194E
194G
194H
194-I
194J
195
196A
are made, within two

months of the expiry of the
month in which that date
falls.
Income on securities referred in

196D
section 115AD(1)(a)
Within one week from the
Salaries
192
last day of the month in
Dividends
194
which the deduction is
Winnings from lottery or crossword puzzle 194B
made(In case of tax paid
Winnings from horse race
194BB
Payments in respect of deposit
194EE/80CCA(i) under section 192(1A),
within one week from the
made under National Savings Scheme
last day of each month on
Repurchase of units by mutual fund or
194F
which tax is due under
Unit Trust of India
section 192(1B).
Income in respect of units
194K
Compensation on acquisition of
194LA
immovable property
*
Time limit for Deposit of Tax at Source
196B
Within one week from the

last day of the month in
which the deduction is
made. However, if the
same is credited by the
deductor to the account
of the payee as on the
date up to which the
accounts of the payer
31
and shall also be applicable to payment of taxes to Government

account where tax has been deducted at source.
Chapter - 8
3. Tax-payers can make electronic payment of taxes through

the internet banking facility offered by the authorized banks. They
will also be provided with an option to make electronic payment of
taxes through internet by way of credit or debit cards.
8.2 Issue a TDS certificate
Duties of Person
Deducting Tax at Source
8.1 Deduct Tax at Correct Rate and deposit in
Government Account
Every person responsible for deducting tax at source shall at
the time of payment or credit of income, whichever is earlier, verify
whether the payment being made is to be subject to deduction of
tax at source. If it is so, he must deduct such tax as per the prescribed
rates. Further he is required to deposit such tax deducted in the
Central Government Account within the prescribed time as specified
in Rule 30.
Electronic payment of taxes

An optional scheme of electronic payment of taxes for incometax was introduced in 2004. However with a view to expand the
scope of electronic payment of taxes, the scheme of electronic
payment of taxes has been made mandatory for the following
categories of tax-payers(vide notification No. 34/2008 dt. 13.3.2008
of CBDT).
(i)
All corporate assessees;
(ii)
All assessees(other than company) to whom provisions

of section 44AB of the Income Tax Act are applicable.
Further, such person is required to issue a certificate of tax

deduction at source to the person from whose income the TDS has
been done, in the prescribed proforma i.e. Form No.16A, within one
month from the end of the month during which the credit has been
given or the sums have been paid or a cheque/warrant for payment
of any dividend has been issued to a shareholder.
8.3 File Return/Quarterly Statement

Finally, Sec.206 prescribes that every person, e.g. Principal
Officer in the case of a company, prescribed person in case of
Government Office and local authority or public body, and every
other person responsible for deducting tax at source, within a
prescribed time after the end of Financial Year, shall prepare and
deliver or cause to be delivered, a prescribed return in prescribed
form, verified and containing prescribed particulars. This return is
commonly referred as the annual return of TDS. However the
Finance Act 2006 provides that annual return of TDS is to be
furnished only for deductions made before 1st of April 2005.
The law also provides for filing of annual return in computer
readable media, referred as e-filing of annual return.The provisions
of e-filing of annual return of TDS are being given below.
8.4 Filing of Annual Return on Computer Readable

Media
2. The scheme of mandatory electronic payment of taxes for

income-tax payers is to be made applicable from 1st April, 2008
Section 206(2) permits the deductor to file the annual return

of TDS on computer readable media including a floppy, diskette,
magnetic cartridge tape or CD ROM. However, the Finance Act 2003
32
33
has provided that w.e.f. 01.06.2003, a return in computer readable

media is to be filed only in accordance with such scheme and subject
to such conditions and manner, as may be specified by the Board
by notification in official gazette.
Further where the assessing officer considers a return filed
u/s 206(2) to be defective, then he may intimate the defect to the
deductor/employer filing the return, giving him an opportunity to
rectify the defect. This must be rectified within a period of 15 days
from the date of intimation or within such further period which the
assessing officer allows, on an application made by the employer/
deductor. However, on failure to rectify the defect within the period
specified above, the return shall be treated to be invalid and the
provisions of the Act shall apply as if the person had failed to deliver
the return.
As per proviso to section 206(2) , w.e.f. 1.4.2005,the

prescribed person in the case of every office of the government
and the principal officer in the case of every company,
responsible for deducting tax , is mandatorily required to deliver
such returns on the computer readable media, after the end of
each financial year and within the prescribed time.
The scheme of electronic filing of return of the Tax Deducted
at Source (e-TDS) has been notified vide notification no. S.O.
974(e)dt. 26.08.03. Now the Government and the Corporate
deductors are required to file the annual TDS return in electronic
form only with the e-TDS intermediary at any of the TIN Facilitation
Centres
(par ticulars
available
at
the
websites,
www.incometaxindia.gov.in and http://www.tin-nsdl.com
Vide Notification No.238/2007, dated 30.08.2007 of CBDT
the scope of mandatory filing of e-TDS returns has been expanded.
This notification comes into force w.e.f. 1.9.2007. Hence it is
applicable from the second quarter of the F.Y. 2007-08 and for all
subsequent quarters. As per this notification the following classes
of deductors are required to furnish quarterly statements in computer
readable media(e-tds) where the deductor is;
(a)
An office of the Government

34
(b)
A company
(c)
A person required to get its accounts audited u/s. 44AB in the

immediately preceding financial year.
(d)
Where the number of deductees records in quarterly statement

for any quarter during the immediately preceding financial year
is equal to or more than fifty.
8.5 Quarterly statement of TDS

The provisions of quarterly statements of TDS have been
introduced in the statute vide section 200(3) w.e.f. 01/04/2005. Every
person responsible for deducting tax is required to file quarterly
statements of TDS for the quarters ending on 30th June, 30th
September, 31st December and 31st March in each Financial Year.
This statement is to be prepared in Form No.26 Q for TDS other
than salaries,Form No.27 EQ ( for Tax collection at source) and
24Q( for salaries) (relevant rule 31A and 31AA) and is to be delivered
with prescribed income-tax authority or the person authorized by
such authority on or before the 15th July, the 15th October and the
15th January in respect of the first 3 quarters of the Financial Year
and on or before the 15th June following the last quarter of the Financial
Year. However the statement of last quarter in form 27EQ is to be
furnished by 30th April.
With respect to the quarterly statements of TDS, the
following points are noteworthy : z
Every deductor is required to file the quarterly statement of

TDS in prescribed form for each quarter as per the dates
specified above.
In case of every Government and Corporate deductor, the

quarterly statements are to be delivered on computer readable
media (3.5, 1.44 MB floppy diskette or CD-Rom of 650 MB
capacity). The statement in computer readable media is to be
prepared as per data structure provided by the e-filing
Administrator(DGIT Systems) designated by the Board for
purposes of e-TDS Scheme : 2003. Further, a declaration in
35
authorized by the Director General of Income-tax(Systems)],

quarterly statement in Form No. 27EQ on or before the 15th
July, the 15th October, the 15th January in respect of the first
three quarters of the financial year and on or before the 30th
April following the last quarter of the financial year :
Form 27A or 27B is also to be submitted in paper format. This

scheme has been extended to apply to categories of entities/
persons mentioned earlier at para 8.4.
z
A person other than a corporate or government deductor or

that specified in para 8.4 may at his option deliver the quarterly
statements in computer readable media as specified above.
However, it is not mandatory for him to do so.
The quarterly statements are to be furnished in accordance

with the provisions of rule 31A and rule 31AA.
The persons referred to in Rule 37A (who are making payment

to a non-resident or a foreign company) are required to file
quarterly statements in accordance with provisions of rule 37A
and rule 37B.
It is mandatory for the deductor to quote TAN and PAN in the

quarterly statements. However, where the deduction has been
made by or on behalf of the Government, PAN shall not be
required to be quoted in the quarterly statement.
In the quarterly statements, the deductor is also required to

quote the Permanent Account Number (PAN) of all persons in
respect of whom Income-tax has been deducted. However,
PAN of those persons is not required to be quoted who are
specified under second proviso to sub section (5B) to section
139A. These persons include those who are not required to
obtain PAN under any provisions of this Act or those whose
total income is not chargeable to Income-tax.
It is pertinent to note that for quarter ending 30.9.2007 and

thereafter form No. 26Q and 27Q with less than 70% of correct PAN
data will not be accepted and penal consequences under the I.T.
Act will follow(circular No. 8/2007 dt. 15/12/2007). This limit has been
further increased to 85%(from 70%) for and from quarter ending
31.3.2008.
z
A person other than a person referred to in the first proviso,

responsible for collecting tax at source, may at his option,
deliver or cause to be delivered the quarterly statements on
computer media(3.5 1.44 MB floppy diskette or CD-ROM of
650 MB capacity).
The person responsible for collecting tax at source and

preparing quarterly statements shall, (i)
quote his tax deduction and collection account

number(TAN) and permanent account number(PAN) in
the quarterly statement.
(ii)
provided that the permanent account number shall not

be required to be quoted where tax has been collected
by or on behalf of the Government ;
(iii)
furnish particulars of the tax paid to the Central

Government;
The deductor is also required to furnish the particulars of tax

paid to the Central Government in the quarterly statements.
Quarterly statement of collection of tax under subsection( 3) of section 206C

z
The person responsible for collecting tax at source on behalf

of Government and the principal officer in the case of every
company responsible for collecting tax at source shall deliver
or cause to be delivered such quarterly statements on
computer media(3.5 1.44 MB floppy diskette or CD-ROM of
650 MB capacity):
Every person, being a person responsible for collecting tax

under section 206C shall, in accordance with the proviso to
sub-section(3) of Section 206C, deliver or cause to be delivered
to [the Director General of Income-tax(Systems) or the person
36
The person responsible for collecting tax at source and

37
preparing quarterly statements on computer media shall, in

addition to the provisions in sub-rule(2), - prepare the quarterly
statement as per the data structure provided by the e-filing
administrator designated by the Board for the purposes of
administration of Electronic Filing of Returns of Tax collected
at Source Scheme, 2005 supported by a declaration in Form
No. 27A in paper format; Provided that in case any compression
software has been used for preparing the quarterly statement
on computer media, such compression software shall be
furnished on the same computer media.
Chapter - 9
RIGHTS OF TAX-PAYER
If tax has been deducted at source in accordance with the
provisions of Chapter XVII-B of Income Tax Act, 1961, the person
from whose income (payment) the tax has been deducted i.e. Payee
or assessee shall not be asked upon to pay the tax himself to the
extent tax has been deducted(Sec.205). Moreover u/s.199 such tax
deducted at source shall be treated as payment of tax on behalf of
the payee (assessee).
U/s. 203, payee (tax-payer) is entitled to obtain a certificate
from the payer (tax deductor) specifying the amount of tax
deducted and other prescribed particulars. As per the sub
section 203(3) , where the tax has been deducted or paid on or
after the 1st day of April, 2010 there shall be no requirement to
furnish a TDS Certificate as required by section 203 (1) or 203(2).
Further, as per section 203AA the prescribed income tax

authority or the person authorized by such authority (as
referred in section 200(3))will be required to deliver to the
person from whose income the tax has been deducted/paid, a
statement of deduction of tax in the prescribed form. Such
statement as per rule 31AB will be required to be furnished in
Form no.26AS by the 31st July following the financial year
during which the taxes were deducted/paid ( also refer
Notification no. 928 E dt. 30.6.2005 of CBDT )
Form 16A: This form is certificate of deduction of tax under section
193 from Interest on securities, under section 194
from Dividends, under section 194A from Interest
38
39
other than interest on securities, under section 194B

from Winnings from lotteries or crossword puzzles,
under section 194BB from Winnings from horse
races, under section 194C from Payments to any
contractor or sub-contractor, under section 194D from
Insurance commission, under section 194E from
Payments to non-resident sportsmen or sports
associations, under section 194EE from Payments
in respect of deposits under the National Savings
Scheme, etc., under section 194F from Payments on
account of repurchase of units by Mutual Fund or Unit
Trust of India, under section 194G from Commission,
etc., on sale of lottery tickets, under section 194H from
Commission or brokerage, under section 194-I from
Rent, under section 194J from Fees for professional
or technical services, under section 194K from
Income in respect of units and under section 194LA
from Payment of compensation on acquisition of
certain immovable property etc.
Chapter - 10
PENALTY, PROSECUTION AND

OTHER CONSEQUENCES OF NON
DEDUCTION AT SOURCE
10.1 Prosecution etc. : U/s. 276B If a person deducts tax at
source etc. but fails to pay the same to the credit of Central
Government as prescribed, he can be sentenced to rigorous
imprisonment for a term not less than 3 months and extendable
upon 7 years with fine as well. Moreover, u/s 276BB, similar
punishment is provided for a person who fails to pay to the
credit of Central Government taxes collected at source u/s. 206C
being a seller of alcoholic liquor for human consumption, Tendu
leaves, timber merchant, dealer in forest produce and dealer in
scrap etc.
If a person fails to collect tax, he shall be liable to pay the tax
to the Central Government account and also required to pay simple
interest @ 1% per month from the date of such amount of tax was
collectable to the date on which the tax was actually paid. Moreover,
the tax and interest thereon shall be a charge upon the assets of
the seller.
Rule 37E prescribes return regarding tax collected at source.
Like T.D.S, the tax collected at source will also be deemed as
payment on behalf of the person (assessee) from whom the amount
has been collected and certificate will be given by the person (seller)
who has collected the tax at source to the assessee (buyer) from
whom the tax has been collected at source within one month from
and of the month during which buyers account is debited or payment
is received by him.
40
41
A person collecting any amount under this provision is required

to pay the same within 7 days from the last day of the month to the
credit of Central Government after the same has been collected
from the buyer.
10.2 Penalty on Default : In case a person fails to deduct tax

at source or after deducting fails to pay the tax to the Central
Government account as prescribed by the Income-tax Act, he may
be deemed to be an assessee in default in respect of this tax. In
case of a Company, the Principal Officer shall also be treated to be
an assessee in default.
10.3 Penalty : U/s. 221 of the Income-tax Act in such
circumstances can be levied on such defaulter. Of course before
levying any such penalty the defaulter will be given a reasonable
opportunity of being heard and no penalty shall be charged, if such
person/Principal Officer/Company satisfies the Assessing Officer
that the failure to deduct the tax, or pay the same, was not without
good and sufficient reason.
The penalty leviable shall not exceed the amount of tax in
arrears i.e. Tax which was deductible at source as per prescribed
rate of tax so deducted but not paid to the credit of Central
Government Account.
If a person responsible for making TDS fails to deduct either
whole or part of the tax required to be deducted under sections 192
to 195, or fails to furnish appropriate returns of TDS within prescribed
time or fails to issue the TDS certificate to the person from whose
income TDS is made within prescribed time, he will be liable to the
following penalties :
10.4 Section
271C
Nature of
Default
Failure to deduct or
pay the whole or any
part of tax as required
by or under chapter
XVIIB or section 115-O
or section 194B.
Minimum
Penalty
Amount of tax which
such person has
failed to deduct or
pay.
42
Maximum
Penalty
*
272A(2)(C)
Failure to furnish
appropriate return of
TDS within
prescribed time.
Rs.100/- for every

day during which
default continues.
(the amount of
penalty shall
not exceed the
amount of tax
Deductible or
collectible
at source )
272A(2)(g)
Failure to issue the

TDS certificate to the
person from whose
income TDS is made
within prescribed time.
-do-
-do-
272A(2)(K)
Failure to deliver the

-dostatement u/s 200(3)
or the proviso to
sub-section 3 of section
206C within prescribed
time (quarterly statement
of tax collection and
deduction)
-do-
272A(2)(L)
Failure to deliver the

-dostatement u/s 206A(i)
within prescribed
time. (quarterly return in
respect of payment of
interest to residents without
deduction of tax )
-do-
10.5 U/s. 203A, every person making TDS shall obtain Tax
Deduction Account No. (TAN) from his/her Assessing Officer by
making an application in duplicate in Form No.49B within one month
from the end of the month in which the tax is first deducted. Failure
to comply with this provision entails penalty u/s. 272 BB of Rs.10,000.
In addition to the penalty, the failure to deduct the tax or failure
to pay the same after deduction also invites payment of simple
interest @ 12% per annum on the amount of such tax from the date
it was deductible to the date on which it is actually paid (Sec.201(A)).
The tax which has not been paid after it has been deducted,
alongwith the amount of simple interest thereon shall be a charge
upon all the assets of the person/company who has failed to deduct
43
or failed to pay the same to the credit of Central Government after

deduction.
It has also been clarified that in addition to deduction at source
the power to recover the taxes extends to any other mode of recovery
provided under the Act. It means deduction at source is only one of
the several modes of collection and recovery of taxes (Section 202).
Other consequences of non deduction

10.6 Interest on borrowed capital : In computing Business
Income any expenditure laid out exclusively and wholly for the
purposes of business or profession is allowed as a deduction against
the profit and gain from business or profession. This may cover
Royalties, technical fees or other sums.
Moreover, U/s.36(1)(iii) specific provision is made to allow
deduction in computing the income, of the amount of interest paid
in respect of capital borrowed for purposes of business or profession.
This also includes recurring subscription paid periodically by
shareholders or subscriber in Mutual benefit Societies.
Provided that where in respect of any such sum, tax has been
deducted in any subsequent year or, has been deducted in the
previous year but paid in any subsequent year after the expiry of
the time prescribed under sub-section (1) of Section 200, such sum
shall be allowed as a deduction in computing the income of the
previous year in which such tax has been paid.
Similarly for computing income under the Head other sources
u/s.56 and 57 - interest and salaries payable outside India shall be
disallowed if tax at source has not been deducted
(Sec.58(1)(a)(ii)(iii)). It may also be clarified that income of a nonresident by way of interest on notified securities or bonds including
premium on redemption of bonds is not taxable. Same applies to
interest income on Non-resident (External) account in any bank in
India.
10.8 The Finance Act, 2008 has introduced an amendment in
Section 201(w.e.f. 1.6.2002) which clarifies that, in case any employer
or a principal officer of a company
(a)
does not deduct,
10.7 Disallowance of deduction : But if such interest,
(b)
or does not pay
royalty, technical fees or other sums are payable outside India and
the assessee has failed to deduct tax on it under Chapter XVII-B,
the assessee shall not be allowed to deduct such payment while
computing his own income. However if such tax is deducted and
paid in any subsequent year then, in that year while computing his
income the assessee can claim deduction.
(c)
or after so deducting fails to pay the whole or any part of the

tax, then such person shall be deemed to be an assessee in
default. Further penalty to be charged u/s. 221 shall not be
levied by the assessing officer unless he is satisfied that such
failure to deduct and pay tax was without good and sufficient
reasons.
Further as per Sec.40(a)(i), any interest, royalty, commission

or brokerage, fees for professional service or fees for technical
services payable to a resident, or amounts payable to a contractor
or sub-contractor, being resident for carrying out any work (including
supply of labour for carrying out any work), on which tax is deductible
at source and such tax has not been deducted or, after deduction,
has not been paid during the previous year, or in the subsequent
year before the expiry of the time prescribed under sub-section (1)
of Section 200, shall not be allowed to deduct such payment while
computing his own income.
44
45
11.3 e-Administrator, e-Intermediary, TIN Facilitation

Centres
Chapter - 11
e-TDS & QUARTERLY STATEMENTS

OF TDS
For the purpose of administering the scheme of e-TDS, the

Central Board of Direct Taxes has appointed Director-General of
Income-tax (Systems) as the e-Filing Administrator. The e-TDS
return is mandatorily to be prepared in data format issued by the eAdministrator.
The e-Returns are to be submitted at Centres referred as TIN
Facilitation Centres (or TIN FCs) which have been opened by
National Security Depository Ltd. (NSDL) which has also been
designated as e-Intermediary.
11.1 Introduction
11.4 Data Structure of e-TDS, Procedure for filing
e-TDS implies, filing of the TDS return in electronic media as

per prescribed data structure in either a floppy or a CD ROM.
The e-TDS return has to be prepared in the data format issued

by the e-Filing Administrator. This format/software is available on
the website of the Income-tax Depar tment at http:\\
www.incometaxindia.gov.in and that of NSDL at http:\\ www.tinnsdl.com
The aforesaid requirement is essentially a part of the process

of automation of collection, compilation and processing of TDS
returns. Preparation of returns in electronic forms or e-TDS will
eventually be beneficial to the deductor, by cutting down the return
preparation time, reducing the volume of documentation and thereby
economizing the compliance cost. At the same time, it will also
facilitate the Government in better co-relation of taxes deducted
with the taxes finally deposited in the banks and credits of TDS
claimed by the deductees.
11.2 Statutory Requirement of Preparation of e-TDS

As per proviso to section 206(2), w.e.f. 01/04/2005, a deductor
is required to prepare the return of TDS in electronic form. The
comprehensive scheme of e-TDS has been notified vide Notification
No. S.O. 974 (E) dated 26/08/2003. The present statutory provisions
mandate the Government and Corporate deductors to file the TDS
returns in electronic form with the designated e-TDS Intermediary
at any of the TIN facilitation centres. However, for the other deductors
filing of e-TDS is optional.
46
There is also a validation software which is available along

with the data structure. This is required to be used to validate the
data structure of the e-TDS return prepared. Each e-TDS return
filed should also be accompanied by a control chart which should
be in the newly prescribed form 27A or 27B (for tax collection at
source) . The same has to be duly signed by the deductor and
submitted alongwith e-TDS to the e-Intermediary. The following
specific points must also be noted in filing of e-TDS returns.
(a)
Reformatted TAN : All deductors required to e-File TDS

returns have to quote their reformatted Tax Deduction
Account Number (TAN) in their respective TDS returns.
Wherever, reformatted TANs have not been allotted,
application in form 49B should be filed with NSDL for
obtaining the same.
(b)
Each e-TDS return file should be in a separate CD or

floppy and should not span across multiple floppies.
47
Further, label must be affixed on each CD/floppy

mentioning the name of the deductor, his stamp, form
number and the period to which the return pertains.
(c)
(d)
(e)
There should not be any overwriting, striking on form 27

A or 27 B and if there is, then the same should be ratified
by the authorized signatory. Further if any of the controlled
totals mentioned in form No. 27A or 27B) (control chart)
does not match with that in the e-TDS return, then such
returns will not be accepted at the TIN Facilitation
Centres.
Separate Form 27A or 27 B in physical form is furnished

for each e-TDS return.
Form 27A or 27 B duly filled and signed by an authorized

signatory.
Striking and overwriting, if any, on Form 27A or 27B

ratified by the person who has signed the Form .
More than one e-TDS return is not furnished in one CD/

floppy.
While filing form no. 24Q and 26Q, deductor should

furnish physical copies of certificates of no deduction or
deduction at a lower rate of TDS, if any, received from
the deductees.
More than one CD/floppy is not used for furnishing one

e-TDS return.
Label is affixed on CD/floppy containing details of

deductor/collector like name of deductor/collector, TAN,
Form no. and period to which return pertains.
No bank challan, copy of TDS certificate should be

furnished alongwith e-TDS return filed.
e-TDS return is compressed using Winzip 8.1 or ZipItFast

3.0 compression (or higher version) utility only.
TAN quoted in e-TDS return and stated on Form 27A or

27 B (for tax collection at source) is same. Confirm new
TAN by using search facility on ITD website .
Carry copy of TAN allotment letter from ITD or screen

print from ITD website as proof of TAN to avoid
inconvenience at time of furnishing due to minor variation
in way of transcribing the new TAN in e-TDS return.
In case of Government deductors if TAN is not available

at the time of furnishing return, application for TAN (Form
49B) should be made along with e-TDS return or copy of
acknowledgement of TAN application to be submitted.
The e-TDS prepared by the deductor has to be submitted at

the TIN Facilitation Centres opened by NSDL which is the e-TDS
Intermediary. The addresses of the TIN Facilitation Centres are
available at websites of Income-tax Depar tment http:\\
www.incometaxindia.gov.in and of NSDL at http:\\ www.tin-nsdl.com.
It is also to be noted that quarterly TDS returns are also to be filed
in Electronic file with e-TDS Intermediary.
11.5 Checklist for Deductor

After preparing the e-TDS return deductor should check the
following to ensure that the e-TDS return is complete and is ready
for furnishing to TIN-FC :
z
e-TDS return is in conformity with the file format notified

by ITD.
Control totals, TAN and name mentioned in e-TDS return

match with those mentioned on Form 27A or 27 B.
Each e-TDS return (Form 24Q and 26Q) is furnished in

a separate CD/floppy alongwith duly filled and signed
Form 27A in physical form.
In case of Form 24Q and 26Q, copies of certificates of

no deduction of TDS and deduction of TDS at
concessional rate, received from deductees are attached.
48
49
e-TDS return has been successfully passed through the

FVU.
CD/floppy furnished is virus free.
11.6 Quarterly Statements of TDS :

The provisions of quarterly statements of TDS have been
introduced in the statute vide section 200(3) w.e.f. 01/04/2005. Every
person responsible for deducting tax is required to file quarterly
statements of TDS for the quarter ending on 30th June, 30th
September, 31st December, and 31st March in each Financial Year.
This statement is to be prepared in Form No.26 Q (for TDS other
than salaries),Form No.27 EQ ( for Tax collection at source) and
24Q( for salaries), 27Q(for payments other than salary to nonresidents) (relevant rule 31A and 31AA) and is to be delivered with
prescribed income-tax authority or the person authorized by such
authority on or before the 15th July, the 15th October and the 15th
January in respect of the first 3 quarters of the Financial Year and
on or before the 15th June following the last quarter of the Financial
Year. However the statement of last quarter in Form 27EQ is to be
furnished by 30th April.
With respect to the quarterly statements of TDS, the following
points are noteworthy : z
readable media as specified above. However, it is not mandatory

for him to do so. The scheme has been extended to certain
other deductors vide notification 238/2007 dt. 30.8.2007 of
CBDT(as discussed at para 8.4 of this booklet).
z
The quarterly statements are to be furnished in accordance

with the provisions of rule 31A and rule 31AA.
It is mandatory for the deductor to quote TAN and PAN in the

quarterly statements. However, where the deduction has been
made by or on behalf of the Government, PAN shall not be
required to be quoted in the quarterly statement.
In the quarterly statements, the deductor is also required to

quote the Permanent Account Number (PAN) of all persons in
respect of whom Income-tax has been deducted. However,
PAN of those persons is not required to be quoted who are
specified under second proviso to sub section 5B to section
139A. These persons include those who are not required to
obtain PAN under any provisions of this Act or those whose
total income is not chargeable to Income-tax.
The deductor is also required to furnish the particulars of tax

paid to the Central Government in the quarterly statements.
11.7 Frequently Asked Questions
Every deductor is required to file the quarterly statement of

TDS in form specified above for each quarter and as per the
dates specified above.
1. What is e-TDS Return?
In case of every Government and Corporate deductor, the

quarterly statements are to be delivered on computer readable
media (3.5, 1.44 MB floppy diskette or CD-Rom of 650 MB
capacity). The statement in computer readable media is to be
prepared as per data structure provided by the e-filing
Administrator(DGIT Systems) designated by the Board for
purposes of e-TDS Scheme : 2003. Further, a declaration in
Form 27A or 27B is also to be submitted in paper format.
2. Who is required to file e-TDS return?
A person other than a Corporate or Government deductor may

at his option deliver the quarterly statements in computer
50
e-TDS return is a TDS return prepared in form No.24Q, 26Q, 27EQ

or 27Q in electronic media as per prescribed data structure in either
a floppy or a CD ROM. The floppy or CD ROM prepared should be
accompanied by a signed verification in Form No.27A or 27B.
As per Section 206 of Income Tax Act all corporate and government
deductors are compulsorily required to file their TDS return on
electronic media (i.e. e-TDS returns). However for other Deductors,
filing of e-TDS return is optional.
51
3. Under what provision the e-TDS return should be filed?

An e-TDS return should be filed under Section 206 of the Income
Tax Act in accordance with the scheme dated 26.8.03 for electronic
filing of TDS return notified by the CBDT for this purpose. CBDT
Circular No.8 dated 19.9.03 may also be referred.
4. What are the forms to be used for filing annual/

quarterly TDS/TCS returns?
Following are the returns for TDS and TCS and their periodicity:
Form No.
Particulars
Periodicity
Form 24
Annual return of Salaries under

Section 206 of Income Tax Act, 1961
Annual
Form 26
Annual return of deduction of tax under

section 206 of Income Tax Act, 1961 in
respect of all payments other than
Salaries
Annual
Quarterly statement for tax deducted

at source from Salaries
Quarterly
Form 26Q
Quarterly statement of tax deducted at

source in respect of all payments other
than Salaries
Quarterly
Form 27EQ
Quarterly statement of tax collection

at source
Quarterly
Form 27Q
Quarterly statement of deduction of

Quarterly
tax from interest, dividend or any other
sum (other than salary) payable to non-residents
Form 27 A
and 27B
Forms for furnishing information

with the statement of deduction /
collection of tax at source filed on
computer media
Form 24Q
Quarterly
tax(Systems) as e- Filing Administrator for the purpose of the

Electronic Filing of Returns of Tax Deducted at Source Scheme,2003.
11.9 Who is an e-TDS Intermediary?

CBDT has appointed National Securities Depository Ltd.,
Mumbai as e-TDS Intermediary.
11.10 How will the e-TDS returns be prepared?

e-TDS return has to be prepared in the data format issued by
e-Filing Administrator. This is available on the websites of Incometax Department at i.e. http://www.incometaxindia.gov.in and of NSDL
at http://www.tin-nsdl.com/. There is a validation software available
along with the data structure which should be used to validate the
data structure of the e-TDS return prepared. The e-TDS return should
have following features:
z
Each e-TDS return file (Form 24, 26 or 27Q or 27EQ) should

be in a separate CD/floppy.
Each e-TDS return file should be accompanied by a duly filled

and signed (by an authorised signatory) Form 27A/27B in
physical form.
Each e-TDS return file should be in one CD/floppy. It should

not span across multiple floppies.
In case the size of an e-TDS return file exceeds the capacity

of one floppy, it should be furnished on a CD.
In case the e-TDS return file is in a compressed form, it should

be compressed using Winzip 8.1 or ZipItFast 3.0 compression
utility only to ensure quick and smooth acceptance of the file
Label should not be affixed on each CD/floppy mentioning

name of the deductor, his TAN, Form no. (24, 26 ) and period
to which the return pertains.
There should not be any overwriting / striking on Form 27A/
11.8 Who is the e-Filing Administrator?

The CBDT has appointed the Director General of Income-
52
53
27B. If there is any, then the same should be ratified by an

authorised signatory.
z
No bank challan, copy of TDS certificate should be furnished

alongwith e-TDS return file.
In case of Form 26 a deductor need not furnish physical copies

of certificates of no deduction or lower deduction of TDS
received from deductees.
In case of Form 24 deductor should furnish physical copies of

certificates of no deduction or deduction of TDS at lower rate,
if any, received from deductees.
e-TDS return file should contain TAN of the deductor without

which the return will not be accepted.
CD/floppy should be virus free.
In case any of these requirements are not met the e-TDS return
will not be accepted at TIN- FCs.
11.11 Can more than one e-TDS return of the same

Deductor be prepared in one CD/floppy?
No, separate CD/floppy should be used for each return.
Correct Tax deduction Account Number (TAN) of the Deductor

is clearly mentioned in Form No.27A/27B as also in the eTDS return, as required by sub-section (2) of section 203A of
the Income-tax Act.
The particulars relating to deposit of tax deducted at source in

the bank are correctly and properly filled in the table at item
No.6 of Form No.24 or item No.4 of Form No.26, as the case
may be.
The data structure of the e-TDS return is as per the structure

prescribed by the e-Filing Administrator.
The Control Chart in Form 27A/27B is duly filled in all columns

and verified and is enclosed in paper form with the e-TDS
return on computer media.
The Control totals of the amount paid and the tax deducted at
source as mentioned at item No.4 of Form No.27A tally with
the corresponding totals in the e-TDS return in Form No. 24 or
Form No. 26 or Form No.27, as the case may be.
11.14 What happens if any of the control totals

mentioned in Form 27A does not match with that in
the e-TDS return?
11.12 Where can the e-TDS return be filed?
In such a case the e-TDS return will not be accepted at the

TIN Facilitation Centre.
e-TDS returns can be filed at any of the TIN-FC opened by the

e-TDS Intermediary for this purpose. Addresses of these TIN-FCs
are available at the website on http://www.incometaxindia.gov.in or
at www.tin-nsdl.com
11.15 What happens in a situation where a deductor

does not have TAN or has a TAN in old format?
11.13 What are the basic details that should be

included in the e-TDS return?
The Deductor will have to file an application in Form 49B at

the TIN Facilitation Centre along with application fee (Rs. 50/-) for
TAN.
Following information must be included in the e-TDS return

for successful acceptance. If any of these essential details is missing,
the returns will not be accepted at the TIN - Facilitation Centres -
11.16 Whether any charges are to be paid to the eTDS Intermediary?
54
55
The assessee is to pay following charges as upload charges

at the time of filing of e-TDS return to M/s NSDL.
Category of e-TDS return
11.19 E-TDS returns have been made mandatory

for Government deductors. How do I know whether
I am a Government deductor or not?
All Drawing and Disbursing Officers of Central and State
Governments come under the category of Government deductors.
Upload charges
Returns having up to 100 deductees records
Returns having 101 to 1000 deductees records
11.20 Whether the particulars of the whole year or

of the relevant quarter are to be filled in Annexures
I and II of Form 24Q?
Rs. 150/-
In Annexure I, only the actual figures for the relevant quarter

are to be reported.
In Annexure II, estimated/actual particulars for the whole

financial year are to be given. However, Annexure II is optional
in the return for the 1st, 2nd and 3rd quarters but in the quarterly
statement for the last quarter, it is mandatory to furnish
Annexure II giving actual particulars for the whole financial
year.
Rs.25/-
Returns having more than 1000 deductees records

Rs.500/Tax as applicable will also be paid by the deductor.
11.17 How to find address of the office where eTDS return can be filed?
Addresses of the TIN FCs are available
www.incometaxindia.gov.in or at www.tin-nsdl.com..
on
11.18 What are the due dates for filing quarterly TDS
Returns?
The due dates for filing quarterly TDS returns, both electronic
and paper are as under:
Quarter
Due date
Due date for 27Q
April to June
July 15
14 July
July to September
October 15
14 October
October to December
January 15
14 January
January to March
June 15
14 June
56
11.21 In Form 24Q, should the particulars of even

those employees be given whose income is below
the threshold limit or in whose case, the income after
giving deductions for savings etc. is below the
threshold limit?
z
Particulars of only those employees are to be reported from

the 1st quarter onwards in Form 24Q in whose case the
estimated income for the whole year is above the threshold
limit.
In case the estimated income for the whole year of an employee

after allowing deduction for various savings like PPF, GPF,
NSC etc. comes below the taxable limit, his particulars need
not be included in Form 24Q.
In case due to some reason estimated annual income of an

57
employee exceeds the exemption limit during the course of

the year, tax should be deducted in that quarter and his
particulars reported in Form 24Q from that quarter onwards.
11.22 How are the particulars of those employees

who are with the employer for a part of the year to
be shown in Form 24Q?
z
Where an employee has worked with a deductor for part of

the financial year only, the deductor should deduct tax at source
from his salary and report the same in the quarterly Form
24Q of the respective quarter(s) up to the date of employment
with him. Further, while submitting Form 24Q for the last
quarter, the deductor should include particulars of that
employee in Annexures II & III irrespective of the fact that the
employee was not under his employment on the last day of
the year.
Similarly, where an employee joins employment with as
deductor during the course of the financial year, his TDS
particulars should be reported by the current deductor in Form
24Q of the relevant quarter. Further, while submitting Form
24Q for the last quarter, the deductor should include particulars
of TDS of such employee for the actual period of employment
under him in Annexures II .
11.23 Form 24Q shows a column which requires

explanation for lower deduction of tax. How can a
DDO assess it? Please clarify.
Certificate for lower deduction or no deduction of tax from
salary is given by the Assessing Officer on the basis of an application
made by the deductee. In cases where the Assessing Officer has
issued such a certificate to an employee, deductor has to only
mention whether no tax has been deducted or tax has been deducted
at lower rate on the basis of such a certificate.
58
11.24 Can I file Form 26Q separately for contractors,

professionals, interest etc.?
No, A single Form 26Q with separate annexures for each type of
payment has to be filed for all payments made to residents.
11.25 From which financial year will the Annual

Statement under Sec. 203AA (Form No.26AS) be
issued?
The annual statement (Form No 26AS) will be issued for all
tax deducted and tax collected at source from F.Y 2008-09 onwards
after the expiry of the financial year.
11.26 How will the PAN wise ledger account be

created by the intermediary i.e. NSDL in respect of
payment of TDS made by deductors in Banks.
The PAN wise ledger account will be created after matching
the information in the TDS/TCS returns filed by the deductor/ collector
and the details of tax deposited in banks coming through OLTAS.
11.27 What essential information will be required to

be given in the quarterly statement to enable
accurate generation of PAN wise ledger account?
The accuracy of PAN wise ledger account will depend on:z
Correct quoting of TAN by the deductor.
Correct quoting of PAN of deductor
Correct and complete quoting of PAN of deductee.
Correct quoting of CIN ( challan identification number) wherever

payment is made by challan.
59
11.28 Will a deductee be able to view his ledger

account on TIN website?
transfer tax by book entry, in which case the BSR code can be left
blank.
11.33 What should I mention in the field paid by

book entry or otherwise in deduction details?
Yes.
11.29 If a deductee finds discrepancy in his PAN

ledger account, what is the mechanism available for
correction?
The details regarding the help required for filing of e-TDS are
available on the following two websites:
z
http://www.incometaxindia.gov.in/
http://www.tin-nsdl.com/
The TIN Facilitation Centers of the NSDL at over 270 cities

are also available for all related help in the e-filing of the TDS returns.
11.30 Whether the e-TDS can be filed online?

Yes, e-TDS return can be filed online under digital signature.
11.31 Will the Paper TDS data be available online

on TIN database?
Yes, the Paper TDS data will also be available in TIN database
after the digitalization of the Paper TDS return by the e-intermediary.
11.32 I do not know the Bank branch code of the

branch in which I deposited tax. Can I leave this field
blank?
Bank Branch code or BSR code is a 7 digit code allotted to
banks by RBI. This is different from the branch code which is used
for bank drafts etc. This no. is given in the OLTAS challan or can be
obtained from the bank branch or from http://www.tin-nsdl.com/. It
is mandatory to quote BST code both in challan details and deductee
details. Hence, this field cannot be left blank. Government deductors
60
If payment to the parties (on which TDS has been deducted)

has been made actually i.e. by cash, cheque, demand draft or any
other acceptable mode, then otherwise has to be mentioned in the
specified field. But if payment has not been actually made and merely
a provision has been made on the last date of the accounting year,
then the option Paid by Book Entry has to be selected.
11.34 What is the Upload File in the new File

Validation Utility?
Earlier the Input file of the File Validation Utility (FVU) had to
be filed with TIN FC. Now Upload File which has some additional
information such as the version no. of FVU has to be filed with TIN
FC. This is a file which is generated by the FVU after the return /file
prepared by the Return Preparation Utility (RPU) is validated using
the FYU.
11.35 By whom should the control chart Form 27A

be signed?
Form 27A is the summary of the TDS return. It has to be signed by
the same person who is authorized to sign the TDS return in paper
format.
11.36 What are the Control Totals appearing in the

Error / response File generated by validating the text
file through File Validation Utility (FVU) of NSDL?
The Control Totals in Error response File are generated only
when a valid file is generated. Otherwise, the file shows the kind of
errors. The control totals are as under:
61
No. of deductee/party records: In case of Form 24, it is equal

to the number of employees for which TDS return is being
prepared. In case of Form 26/ 27, it is equal to the total number
of records of tax deduction. 10 payments to 1 party would
mean 10 deductee records.
Amount Paid: This is the Total Amount of all payments made
on which tax was deducted. In case of Form 24, it is equal to
the Total Taxable Income of all the employees. In case of Form
26/27, Amount Paid is equal to the total of all the amounts on
which tax has been deducted at source.
Tax Deducted: This is the Total Amount of Tax actually Deducted

at source for all payments.
Tax deposited: This is the total of all the deposit challans. This
is normally the same as Tax Deducted but at times may be
different due to interest or other amount.
11.39 Is the bank challan number compulsory?

Yes. Challan identification number is necessary for all non
government deductors.
11.40 Will the quarterly paper returns be accepted

by the Income tax department?
No, All quarterly paper TDS/TCS returns will be received at
TIN-FCs
11.41 Is PAN mandatory for deductor and

employees/ deductees ?
PAN of the deductors has to be given by non government
deductors. It is essential to quote PAN of all deductees failing which
credit of tax deducted will not be given.
11.37 Are the control totals appearing in Form 27A

same as that of Error/ response File?
Yes, the control totals in Form 27A and in Error/ response File
are same.
11.38 What if e-TDS return does not contain PANs

of all deductees?
In case PANs of some of the deductees are not mentioned in
the e-TDS return, the Provisional Receipt will mention the count of
missing PANs in the e-TDS return. The details of missing PANs
(extent it can be collected from the deductees) may be furnished
within seven days of the date of Provisional Receipt to TIN- FC. eTDS return will be accepted even with missing PANs. However, if
PAN of deductees is not given in the TDS return, tax deducted from
payment made to him cannot be posted to the statement of TDS to
be issued to him u/s. 203AA.
62
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Tax Payers Information Series-7

INCOME TAX DEPARTMENT

Tax Payers Information Series-7

Filing Your Tax

INCOME TAX DEPARTMENT

This publication should not be construed as an exhaustive

The Scheme for Filing of Tax Returns

What are Tax Returns

Due Dates for Filing Tax Returns

Some Helpful Tips for filing Income-Tax Returns

Manner of filing of Returns

How to Fill PAN Form

How to Fill up A Tax Challan

Exemptions from Income

Income from Salary at a glance

10. Income from House Property at a Glance

11. Income from Capital Gains at a Glance

12. Income from Business or Profession at a Glance

13. Income from Other sources at a Glance

14. Deductions from Total Income

15. Income-Tax on Fringe Benefits

16. Some Helpful Tips for filing Wealth Tax Returns

17. Important prescribed Forms under I.T. Rules, 1962

THE SCHEME FOR FILING OF

Upto Rs. 1,10,000

Rs. 1,50,001 to Rs. 2,50,000

For Women, resident in India and below the age of 65 years :

Rate of Income Tax

Upto Rs. 1,50,000

For women, resident in India and below the age of 65 years :

Rate of Income Tax

Upto Rs. 1,80,000

For senior citizen and women, aged 65 years or more:

Rate of Income Tax

Upto Rs. 2,25,000

The Surcharge, Education Cess and Secondary and Higher

income but are liable to file return of

WHAT ARE TAX RETURNS

Where the data of the return of income

The above forms are not required to be filed in duplicate. But

Individuals having salary, pension,

Individuals and Hindu undivided family

Where a return of income or return of fringe benefits, relates to

Individuals and HUFs who is a partner

Individuals and HUFs carrying on a

All these Forms (except Form ITR-7) have been designed as

Partnership firms, Association of

Form prescribed for filing return of wealth tax :

Companies other than companies

Persons including companies which are

DUE DATES FOR FILING

Where the assessee is a Company

31st October of the

31st October of the

2. a working partner of a firm

INTEREST U/S. 234-A FOR LATE

b) Where the return has to be filed

c) Any other assessee

31st July of the

CONSEQUENCES OF SUBMISSION OF RETURN AFTER DUE

Simple interest @ 1% for every

IF AN ASSESSEE DOES NOT FILE HIS RETURN OF INCOME, IS

IS TAX TO BE PAID DURING THE FINANCIAL YEAR ON THE

1st on or before 15th September.