RATES OF INCOME TAX

ASSESSMENT YEAR 2009- 2010

(1) In the case of an Individual or HUF or AOP or BOI :
(a) Woman [resident in India and below the age of 65 years during the previous year ]:
On Rs. 1,80,000

NIL

Next on Rs. 1,20,000

10%

Next on Rs. 2,00,000

20%

Next Balance

30%

(b) Senior citizen [resident in India, who is of the age of 65 years or more during the previous
year ]:
On Rs. 2,25,000

NIL

Next on Rs. 75,000

10%

Next Rs. 2,00,000

20%

Next Balance

30%

(c) Other Individual, HUF, AOP or BOI :

On Rs. 1,50,000

NIL

Next on Rs. 1,50,000

10%

Next on Rs. 2,00,000

20%

Next Balance

30%

(2) Surcharge : @ 10% if total income exceeds Rs. 10,00,000.

(3) Education Cess : In all cases @ 2% on the amount of Income Tax & Surcharge.
(4) Higher Education Cess : In all cases @ 1% on the amount of Income Tax & Surcharge.

IMPORTANT AMENDMENTS IN THE INCOME TAX ACT

(w.e.f. from A.Y. 2009-10)

1. Rates of tax
(a) In case of individual, HUF, AOP or BOI:
exemption limit has been increased. Now the tax slabs and rates will be as under:
Woman assessee:

On

Rs. 1,80,000

Nil

Next

Rs. 1,20,000

10%

Next

Rs. 2,00,000

20%

Balance
Senior Citizen:

30%

On

Rs. 2,25,000

Nil

Next

Rs. 75,000

10%

Next

Rs. 2,00,000

20%

Balance

30%

Other individuals, HUF, AOP or BOI:

`

On

Rs. 1,50,000

Nil

Next

Rs. 1,50,000

10%

Next

Rs. 2,00,000

20%

Balance
(b) In case of other assesses.

30%

No change.

Surcharge: (No change)

(a)

In case of individual, HUyF,AOP, BOI-If total income exceeds ten lakh

rupees 10%;

(b)

In case of firm and domestic company-If total income exceeds one crore
rupees @ 10%;
2

(c)

In case of Local authority and co-operative society-Nil.

Education cess:(No change) In case of all assesses @ 3%.

2. Agricultural Income [Amendment of sec. 2(1A)]
Any income derived from saplings or seedlings grown in a nursery shall be deemed
to be agricultural income.
3. Exempted Incomes
(a)

Insertion of Sec.10 (26 AAB): Any income of an agricultural produce market

committee or board constituted under any law for the purpose of regulating the
marketing of agricultural produce shall be exempt.

(b)

Amendment of Sec. 10A and Sec. 10B: The deduction shall be allow upto
assessment year 2010-11 instead of upto assessment year 2009-10.

4. Business or Profession
(a)

Amendment of sec. 35(1): 125% of any sum paid to a company (registered in

India and approved by the prescribed authority) to be used by it for scientific
research, shall also be allowed as a deduction.

(b)

Amendment of sec. 35D: The benefit of amortization of preliminary expenses for

the fextension of an undertaking or the setting up of a new unit shall be allowed
to all sectors (including service sector).

(c)

Insertion of sec. 36(1)(xv) : Any amount of Securities Transaction Tax paid in the
course of business shall be allowed as a deduction.
Consequently (i) sec. 40(a) (ib) shall be omitted which provides the
disallowance of such expenses;
(ii) sec. 88E shall be omitted which provides the rebate of tax in respect of
securities transaction tax paid.

(d) Insertion of sec. 36(1)(xvi): Any amount of commodities transaction tax paid in the
course of business shall be allowed as a deduction.
(e) Amendment of sec. 40A(3): It has been clarified that where a payment or aggregate
of payments made to a person in a day otherwise than by an account payee
cheque or account payee bank draft, exceeds Rs. 20,000, it shall be disallowed.
5. Capital Gains
Amendment of sec. 111A: Short-term capital gains arising from the transfer of a
short-term capital asset being an equity share in a company or a unit of an equity orientd
fund, where such transaction is chargeable to STT, shall be chareable to tax @ 15% instead
of 10%.
6. Deductions from Gross Total Income
(a) Amendment of sec. 80D: An additional deduction to an individual upto Rs.
15,000 shall be allowed in respect of insurance on the health of his parents, whether
dependent or not.
If assessees parents, who has been medically insured, is a senior citizen, the deduction
would be allowed upto Rs. 20,000.
(b) Amendment of sec. 80-IB:
I. No deduction under this section shall be allowed to an undertaking engaged in
refining of mineral oil, if it begins refining on or after 1.4.2009. How ever,
this rule shall not apply to a public sector company.
II. A five year tax holiday shall also be allowed to hospitals located anywhere in
India provided the hospital is constructed and has started tor starts functioning
between 1.4.2008 & 31.3.2013.
(c) Amendment of sec. 80-ID:

The deduction shall also be allowed to a new two-star, three-star or four-star hotel,
located in specific district having world heritage site, provided such hotel is
Constructed and has started or starts functioning between 1.4.2008 and 31.3.2013.
7. Fringe Benefit Tax
(a) Amendment of sec.115WB:
(i) Expenditure on or payment through electronic meal card will be exempt from FBT if
prescribed conditions are satisfied.
(ii) The expenses incurred for the following shall also not be treated as expenses on
employees welfare for FBT:
(A) Creche facility for the children of the employee.
(B) Sponsor a sportsman, being an employee.
(C) Organises sports events for employees.
(iii) Clause (K) shall be omitted, i.e. expenditure on maintenance of any accommodation
in the nature of guest house shall not be liable to FBT.
(b) Amendment of sec. 115WC:
20% of the expenditure on festival celebrations shall be deemed to be the value of
fringe benefit instead of 50% of the expenditure.

INTRODUCTION
Income Tax is a very important direct tax. It is the most significant source of
revenue of the Govt. It bridge the between the rich and the poor. The administration and
collection of Income Tax is vested in the Central Govt. But the net proceeds of the tax are
apportioned between the Centre and the States. Every person whose taxable income for the
previous financial year exceeds the minimum taxable limit is liable to pay tax to the Central
Govt. The Income Tax Act,1961 has been brought into force w.e.f.1st April 1962.

BASIS` OF CHARGE OF INCOME TAX

It is an annual tax on income.

Tax is charged on the total income computed according to the provision of the
Income Tax.

Income of the previous year is taxable in the next following assessment year at the
rate so applicable to the assessment year.

Tax rates are fixed by the annual Financial Act.

Income Tax is to be deducted at the sources or paid in advance as provided under
provisions of the Act.

WHO IS LIABLE TO PAY TAX:That person whose Income for the Previous Year Exceed taxable limit. The Total
Income is computed on the basis of the residential status of the assesses in the manner
provided hereunder and is classified into the following heads:
1)

Income from salary.

2)

Income from house property.

3)

Income from business or profession.

4)

Capital Gains.

5)

Income from other sources.

INTRODUCTION
As started earlier, taxation is the major source of Income of Govt. of a Country. The
Govt. collects a large portion of its revenues by way of taxes. As per the system of taxation,
the tax is divided in two parts, i.e. Direct Tax & Indirect Tax. The classification is most
important. Because it effects production, exemption and consumption.

DIRECT TAX:A direct tax is really paid by the person on whom it is legally imposed. These are
these taxes which cannot be shifted. It means if falls directly on the person from whom the
Govt. extracts the payment.

TYPES OF DIRECT TAX:Income Tax

Corporation Tax
Estate Tax
Gift Tax (Not Applicable)
Wealth Tax

INDIRECT TAX:Sales Tax

Custom Duty
Excise Duty
These taxes are held by 60th Central and State Govt.

TYPES OF DIRECT
AND INDIRECT TAXES
1)

Income tax:
It is a direct tax. In India Income Tax was levied for the first time in 1860 by.
Income Sir James Wilson Tax is a progressive Tax it means that as the Income goes
on increasing beyond the minimum exemption limit the rate of taxation also goes
on rising. In our country all the Income Tax proceedings are governed by Income
Tax Act 1961.

2)

Sales Tax:
It is an indirect tax which is shifted from one person to another. This is
included in the price of goods sold by the seller or we can say purchased by the
consumer.
It means tax is divided into two parts as under:(i) Central Sales tax (ii) State Sales Tax
The Central Sales Tax is levied when the sales proceeds takes place between two
different state of the country. It is held by the Govt. Further, the state Sales
proceeds occur in its territorial jurisdiction. In both the cases, the sales tax is
collected by the sales. It is shifted to the others through it is paid initially by those
on whom it is imposed.

RESIDENCE OF ASSESSES
The scope of the residence status determines the total income of an assessee. In other
words, the total income of person is based upon is residential status. The different types of
resident are as follows:

Ordinary Resident: When assesses fulfilled one of basic and both additional
condition.

Not ordinary Resident: When assesses fulfilled one of basic and none of other.
Non-Resident: When assesses do not fulfilled any basic conditions.
BASIC CONDITIONS:a)

He is an Indian in the Previous year for a period or period amounting in all to one
hundred and eighty two days or more; or

b)

He has been in India for a period or periods amounting in all to three hundred sixty
five days or more during the four years preceding the previous year has been in
India for sixty days or more during the previous years.

ADDITIONAL CONDITIONS:a)

He has been resident in India (according to basic condit6ion mentioned above) In

at least two out of the ten previous years preceding the previous years.

b)

He has been in India for a period or periods amounting in all 730 days or more
During the given preceding years preceding the previous years.

Individual

HUF

An association of person

Company

Local Authority

Artificial Judicial Person

10

TAX LIABILITY TO RESIDENTIAL STATUS

Whether Tax incidence Arises or not
S.N.

INCOMES

RESIDENT

NOR

NON-

1.

Any Income received or

Yes

Yes

RESIDENC
Yes

2.

deemed to be received in India

Any income accrued or arised

Yes

Yes

Yes

Yes

Yes

No

Yes

No

No

No

No

No

in India or deemed to be
3.

accrued or arise in India.

Any Income occurred and
received outside India, from a
business or profession

4.

controlled from India

Any income occurred and
received outside India from a
business or profession

5.

controlled from India

Any past untaxed foreign
Income brought to India during
the previous year

11

HEADS OF INCOME
FIRST HEAD INCOME FROM SALARIES (SECTION 15-17)
Any remuneration paid by an employer to his employee in consideration of his
services is called salary. It includes monetary value of those benefits and facilities provided
by the employer which are taxable.
Under section 15, the following incomes are taxable under the head Salaries:
The salary due from an employer or former employer to an assesses in the previous year,
whether paid or not.
The salary paid or allowed to him in the previous year by or on behalf of an employer or
a former employer though not due or before it becomes due to him.
Any arrear of salary paid or allowed to him in the previous year by or on behalf of an
employer or a former employer, if not charged to income tax for any earlier
previous year.
Explanation 1. If any salary paid in advance is included in the total income of any person
for any previous year, it shall not be included again in the total income of the person when
the salary becomes due.
Explanation 2. Any salary, bonus, commission or remuneration due to or received by a
partner of a firm from the firm shall not be regarded as salary for the purpose of section 15.
[Sec. 9(1)(ii)]

12

SALARY [Sec. 17(1)]

Salary includes:
1.

Wages;

2.

Any annuity or pension;

3.

Any gratuity;

4.

Any fees, commission, perquisites or profit in lieu of or in addition to any salary or

wages;

5.

Any advance salary; but not loan for purchasing a car, cycle, scooter or house; etc.

Any payment received by an employee in respect of any period of leave not availed of
by him; [Note encashment of earned leave at the time of retirement whether on
superannuation or otherwise is exempt subject to the provisions of Sec. 10(10AA)]
6.

The annual accretion to the balance at the credit of any employee participation in a
recognized provident fund i.e., employers contribution in excess 12% of the
employees salary and interest on provident fund in excess of 9.5% (w.e.f. A.Y.
2002-03) rate.

7.

The aggregate of all sums comprised in the transferred balance to extent to which it
is chargeable to tax under Sub-Rule (4) of Rule 11.

8.

The contribution made by the Central Government in the previous year, to the
account of an employee (who joins on or after 1.1.2004), under a pension scheme.

13

Computation of Taxable Salary can be illustrated with the help of the following chart.

Salary

Basic salary + Allowances + Perquisites + Profit in lieu of salary

Less

Entertainment Allowance

Employment Tax

=Taxable Salary

14

SECOND HEAD

INCOME FROM HOUSE PROPERTY (Section

22 To 27)
Annual value of a property consisting of building or lands appurtenant thereto of
which assesses is the owner is chargeable to tax under Income from House Property,
Three condition for rental income to be taxable under had House property.
i)

Property should consist of any building or land appurtenant thereto.

ii)

Assesses should be the owner.

iii)

Property should not be used for business or profession.

(a)

Gross Annual Value

i)

Expected Rent Fair

ii)

Standard Rent or (a) whichever is less.

iii)

9B0 or Actual Rent, whichever is higher.

Basis of computing Income from a let out house property

Gross Annual Value

xxx

Less: Municipal Taxes

xxx

------

------------------Net Annual Value

xxx
-------------------

Less: Deduction u/s 254

--- Standard Deduction

xxx

--- Interest on borrowed Capital

xxx

---

-------------------

15

INCOME FROM HOUSE PROPERTY

XXX
-------------------

(b)

Deduction from Net Annual Value

1.

Standard Deduction: A sum equal to 30% of Annual Value as standard deduction

for expense (except interest).

Interest on loan: Interest on loan taken for the purpose of purchasing,

2.

constructing, reconstructing or repairing the house property is allowable deduction on the

accrual basis. There is a Special provision for the interest for the preconstruction period.
Computation of Income from Self occupied house
1.

Gross Annual Value- Nil

2.

Municipal taxes paid by owner during P.Y. not deductible

3.

Annual Value Nil

4.

Standard deduction for expenses Nil

5.

Interest on Loan - Deductible up to Rs. 30,000 or Rs. 1,50,000 as the case may be

6.

Loss from self occupied house Rs.____________

This loan can be set off against income from other house property or under any other
head of income.

16

THIRD HEAD

COMPUTATION OF PROFIT/GAINS FROM

BUSINESS/PROFESSION
1. If profit & Loss A/c is given

xxx

Profit as per P & L A/c

ADD:
- Expenses not allowed but debited to P & L A/cxxx
- Income taxable as business income not credited
to profit & Loss A/c

xxx

-Expenses debited to P & L A/c in excess of allowed

amount

xxx

xxx

LESS:
-Expenses allowed but not debited to P & L A/c

xxx

-Income not taxable as business income credited

to P & L A/c

xxx

-Income exempt from tax but credited to P & L A/c

xxx

INCOME FROM BUSINESS/PROFESSION

xxx
XXX

2. If receipt & Payment A/c is givenAll Incomes taxable under P/G/B/P

Less: All Expenses allowed

INCOME FROM BUSINESS / PROFESSION

xxx
xxx

---

XXX

17

FOURTH HEAD

CAPITAL GAINS (SECTIONS 45 TO 55)

BASIS OR CHARGE: [Sec. 45(1)]
Any profits or gains from the transfer of capital assets shall be charged to tax under
the head capital Gains in the previous Year in which the transfer took place.

CAPITAL ASSET
i.

Stock in trade, raw material,

ii.

Moveable property held for personal use by the assessee (excluding jewellery),

iii. Urban land situated in India,

iv.

National Defence Gold Bonds 1980,

v.

Special Bearer Bonds 1991,

vi.

Gold Deposit Bonds issued under the Gold Deposit Scheme 2000,

vii. notified by the Central Govt.

COMPUTATION OF SHORT TERM CAPITAL GAIN
(1)

IN CASE OF TRANSFER OF DEPRECIABLE ASSETS (Sec. 50)

(a)

When only a part of the Block of Assets is transferred.

Sales consideration

xxx

Less: Expenses on transfer

xxx

WDV In the beginning of the P.Y.

xxx

Cost of Asset during the P.Y.

xxx

Short Term Capital Gain (WDV)

xxx
XXX

In this case there can never be short term capital loss. The resultant (-ve) figure would be
WDV of the block of assets at the end of the year.

18

WDV at the beginning of the previous year

xxx

Add: Cost of assets acquired during P. Y. xxx

(b)

when all the assets in the block are transferred during the P.Y. and the
block ceases to exist.
Sales consideration

xxx

Less: Expenses on transfer

xxx

WDV in the beginning of the P.Y.

xxx

SHORT TERM CAPITAL GAIN (STCL)

xxx
XXX

As the block ceases to exist, the W.D.V. of the block will be Nil.

19

COMPUTATION OF LONG TERM CAPITAL GAIN

(INDEXATION)
For the purpose of computing gains arising from the transfer of Long term capital asset,
then
(a) Indexed Cost of Acquisition shall be taken instead of Cost of Acquisition.
(b) Indexed Cost of Improvement shall be taken instead of Cost of Improvement.
NOTE 1: Indeed Cost of Acquisition: means:Cost of Acquisition X Cost Inflation index for the year in which asset is transferred /
Cost inflation index for the first year in which asset was held by the assesses or for the
year beginning on 1-04-1981, whichever is later.
NOTE 2: Indexed Cost of Improvement means:Cost of Improvement X Cost Inflation index for the year in which asset is transferred /
Cost Inflation index for the first year in which the improvement to the asset took place.
NOTE 3: Indexation is not allowed in case of BOND & DEBEBTURES except Capital
Indexed Bonds.

20

FIFTH HEAD

INCOME FROM OTHER SOURCES (SECTIONS 56

TO 59)

This is the last and the residuary head of the income any income, which is not
taxable under the 4 heads, as discussed earlier, is taxable under this head. The following
incomes will be taxable under this head.

Dividends

Income from winning from lotteries, crossword puzzles, races and other games of
any sort.

Any sum received by the assessee from his employee as contribution to any
provident fund.

Income from Machinery, Plant or Furniture belonging to the assessee and let out on
hire, if the income is not charged to income tax under the head Profit or Gains
from Business or Profession, etc.
Beside the above, there are some other incomes, which are also chargeable under this

very head, which are as follows:

Any fees or commission received by an employee from a person other than his
employer.

Any annuity received under a will.

Income of royalty.

Directors fees.

Remuneration received by a teacher or a lawyer.

21

Rent of land.

Agricultural income not situated in India.

Income from leasehold property.

Family Pension.

Casual Income.

Salary of Member of Parliament.

Directors commission for giving guarantees to bank.

Insurance commission.

Interest received on securities from co-operative society.

Income from markets and fisheries.

Remuneration received for writing articles in journals.

22

REBATESAND RELIEFS OF INCOME TAX

Section
1
88E

Particulars

Assessee to whom

Quantum of rebate

2
Rebate in respect

allowed
3
Assessee having

4
Amount equal to

securities transaction

income from the

the securities

tax

business of taxable

transaction tax paid

securities

not exceeding the

transactions

income-tax on such
income.

89 (1)
Relief of income tax
Salaried employees
Other Sections discussed under this chapter
86
Relief in espect of
All assessee
share of profit from
AOP/BOI

CLUBBING OF INCOME
(SECTIONS 60 TO 65)

23

Income of other person is included in assesses total income in the following cases:
1. Transfer of income without transfer of assets. [60]
2. Recoverable transfer of assets. [61]
3. Income of spouse. [964(1)(ii)]
4. Income of daughter in law. [64(1)(vi)]
5. Transfer of assets to other persons or AOP for the benefit of the spouse.[64(1)(vii)
6. Income from the assets transferred to a person or AOP for the benefit of his sons
wife. [64(1A)]
7. Income from business. [64(1)(ix)]
8. Income from minor child. [64(1A)]
9. Cross-transfer. [64]
10. Benami transactions.

DEEMED INCOMES
1. Cash credit. [68]
2. Unrecorded and unexplained money. [69]
3. Unrecorded and unexplained money. [69 A]
4. Amount of investment not fully disclosed in books of accounts. [69 B]
5. Unexplained expenditure. {69 C]
6. Hundi borrows and repayments. [69 D]

DEDUCTION TO BE MADE IN COMPUTING TOTAL

INCOME
24

The various important deductions are as follows:1.

Approved saving in P.P. Life Insurance Premium etc. [U/S 80c]

2.

Contribution to Pension fund [U/S 80CCC]

3.

Contribution to Pension Scheme of Central Govt. [U/S 8CCCD]

4.

Restriction on Total Income of deduction U/S 80C, 80CCC and 80CCD (Insertion
of new section 80CCE).

5.

Medical Insurance Premium [U/S 80 D]

6.

Maintenance including medical treatment of a department that is person with

disability [U/S 80DD]

7.

Expenses on treatment etc. [U/S 80D]

8.

Interest on loan taken for higher education. [U/S 80E]

9.

Donation to certain funds, charitable institution. [U/S 80G]

10.

Expenditure incurred on payment of house rent. [U/S 80GG]

11.

Payment made to certain scientific institution or an institution having Rural

development programme. [U/S 80GGA]

12.

Contribution given by companies to Political Parties. [U/S 80GGB]

13.

Contribution given by any person to Political Parties. [U/S 80GGC]

14.

Profit and Gains of infrastructure facility. [U/S 80-IA]

15.

Developers of Special Economic Zones. [U/S 80-IAB]

16.

Profit and gain from Industrial Undertaking. [U/S 80 (IB)]

17.

Certain undertaking on certain special category state. [U/S80-IC]

18.

Profit & Gain from the business of collecting and Processing of Bio-degradable
waste. [U/S 8JJA]

19.

Wages paid for additional jobs.[U/S 80JJAA]

20.

Certain income of offshore Banking Units. [U/S 80LA]

21.

Income of Cooperative Societies.[U/S 80P]

22.

Royalty income of authors of certain books. [U/S 80QQB]

23.

Royalty on patents. [U/S 80RRB]

24.

Pension with disability. [U/S 80U]

25

SURCHARGE
For individuals
(a)

It is to be levied only if total income Exceeds Rs. 1000000..

(b)

Rate of surcharge is 10% of tax after allowing rebate U/S 88E if any.

(c)

The total amount of income tax and surcharge on total income

Exceeding Rs.

1000000 cannot Exceed the amount payable as income tax on a total income of Rs.
1000000 by more than the income that exceeds Rs. 1000000.

EDUCATION CESS
It is to be levied @ 3% of tax and surcharge for all persons irrespective of income.

SPECIAL RATES

For short term Capital gain on shores which are subject to

security transaction tax.

10%

For long term capital gain.

20%

For Casual income [Lotteries, races, puzzles etc.]

30%

Rounding off tax payable and refund

Tax payable and refund if any, is to be rounded off.

26

PERQUISITES [Section 17 (2)]

U/s 17(1) Salary includes the value of any perquisite an allowed or amenity provide
by employer to employee. The world perquisite has not been defined under Income tax
Act 1961.Perquisite simply means any casual emolument attached to an office. Oxford
Dictionary also defines perquisite as any casual emolument, Fee or profit attached to an
office or position, in addition to salary or wages. Perquisites may be given in a variety of
forms. If the perquisite does not accrue to the employee it will not be taxable. They may be
received in cash or in kind. For income tax purposes it is immaterial whether the perquisites
are paid voluntarily or under a contractual obligation. Where goods are presented to an
employee, the value to be taxed is not their cost to the employee a discussed later.
Under section 17 (2) perquisites are of the following types:
i.

The value of rent free accommodation provided to the assessee by his employer;

ii.

The value of any concession in the matter of rent respecting any accommodation
provided to the assessee by his employer;

iii.

The value of any benefit or amenity granted or provided free of cost or at

concessional rate in any of the following cases:
(a)

by a company to an employee who is a director thereof;

(b)

By a company to an employee being a person who has a substantial interest

in the company;

(c)

by an employer (including a company to an employee to whom the

provisions of section 17(2)(iii)(a) and (b) do not apply and whose income
under the head Salaries, exclusive of the value of all benefits or amenities
not provided for by way of monetary payment, exceeds Rs. 50,000.

27

iv.

Any sum paid by the employer in respect of any obligation which, but for such
payment would have been payable by the employee [Employees electricity bill
paid by the employer] ;

v.

Any sum payable by the employer, whether directly through a fund, other than a
recognized provident fund or an approved superannuation fund to effect an
assurance on the life of the assessee or to effect a contract for an annuity;

vi.

Value of any other fringe benefit or amenity as may be prescribed.

Provided that nothing in this clause shall apply to:

i)

The value of any medical treatment provided to an employee or any member of his
family in any hospital maintained by the employer;

ii)

Any sum paid by the employer in respect of any expenditure actually incurred by
the employee on his medical treatment or of any member of his family;
in any hospital maintained by the Government or any Local authority or any

a)

other hospital approved by the Government for the purposes of medical

treatment of its employees;
b)

In respect of the prescribed diseases or ailments , in any hospital approved by

the Chief Commissioner having regard to the prescribed guidelines.

iii)

Any portion of the premium paid by the employer in relation to an employee,

to effect or to keep in force an insurance on the health of such employee under my
scheme approved by the Central Government for the purposes of clause (ib) of subsection (1) of section 36;

iv)

Any sum paid by the employer in respect of any premium paid by the employee to
effect or to keep in force an insurance on his health or the health of any member of

28

his family under any scheme approved by the Central Government for the purposes
of section SOD;
v)

Any sum paid the employer in respect of any expenditure actually incurred by the
employee on his medical treatment or treatment of any member of his family [other
than the treatment referred to in clauses (i) and (ii)]: so, however, that such sum
does not exceed fifteen thousand rupees, in the previous year.

vi)

Any expenditure incline by the employer on:

a)

medical treatment of the employee, or any member of the family of such

employee, outside India;

b)

travel or stay abroad of the employee or any member of the family of such
employee for medical treatment;

c)

travel and stay abroad of one attendant who accompanies the patient in
connection with such treatment.

Subject to the condition that the expenditure on travel referred to in sub-clause (2)
and (3) of this clause shall be excluded from perquisite only in the case of an employee
whose gross total income, as computed before including therein the aid expenditure,
does not exceed Rs. Two Lakhs;
vii)

Any sum paid by the employer in respect of any expenditure actually

incurred by the employee for any of the purposes specified in clause (vi) subject to
the conditions specified in or under that clause :

Explanation: For the purposes of clause (2):

a)

Hospital includes a dispensary or a clinic ; or a nursing home:

b)

Family, in relation to an individual, shall have the same meaning as in clause (5)
of section 10; and

29

c)

Gross total Income shall have the same meaning as in clause (5) of section 80B.

The value of all perquisites is included in the total income of an employee under the head
Salary.

TYPES OF PERKS
Perks can be divided into four categories
(a)

Perks exempted for all employees:

(b)

Perks which are exempted for employees but are taxable for employer

under

Fringe Benefit Tax; (FBT)

(c)

Perks taxable for all employees:

(d)

Perks taxable only for specified employees.

30

TAXABILITY OF PERQUISITES
Exempted for All employees

Taxable for all employees

1. Free medical facilities as

1. Rent free house.

given u/s 17(2) (proviso).

2. Free refreshments during
working hours.

2. Concessional Rent House

3. Obligation of employee met
by employer.

3. Free recreational facilities.

Amounts paid by employer

4. Provision of telephone

regarding.

whether basic or cellular

Gas and electricity Bill.

exclusively for official use.

Education Bill of Children

5. Free meals provided in remote Income tax of employee.

area or at offshore installation
are fully exempted.
6. Free education, training or
refresher course for
employees.
7. Leave Travel Concession.
8. Free ration received by
members of armed forces.
9. Perquisites allowed by Govt.
to its employees posted
abroad.
10. Rent free house given to an

Professional tax of
employee.

Taxable for
Specified
Employees
only
1. Gas and
electricity
facility.
2. Education
facility for
Children.
3. Free transport
allowed by

Salary of servants employed employer

by employee.
Car or other conveyance

engaged in
transport

owned by employee, used

business.

for private purpose and

4. Services of

expenses are met by

domestic

employer.

servants

Any other bill for personal provided by

expenses issued in the name employer.
of employee but paid by

Employees only

officer of parliament, a Union

31

Minister, and leader of

opposition in Parliament.
11. Free residence and

employer.
4. Any other fringe benefits

Taxable for
Specified

given by employer to

conveyance facilities to judges employee.

of Supreme Court and High

(a) Free meals if provided

Court.

during working hours and

12. Free Conveyance provided by

value exceeds Rs. 50 per day.

employer to employee for

Excess is taxable.

going to or coming place to

(b) Interest Free loans or loan

employment.

at concessional rate or interest

13. Any amount contributed by

if more than Rs. 20,000 and if

employer towards pension or

not for medical treatment

deferred annuity scheme.

difference between prescribed

14. Employers contribution to

staff group insurance scheme.
15. Computer, laptops given to

rate and rate charged is

taxable.
(c) Use of moveable assets

[not transferred]an employee

except computers and laptops.

for official/personal use.

(d) Transfer of moveable

16. Transfer of a moveable assets

assets.

[computer, car or electronic

5. Any amount of lie insurance

items] more than 10 years old

premium paid by employer

without consideration.

during the previous year.

17. Accident insurance premium

paid by employer for his own

32

benefit.
18. Interest free loan or loan at
concessional rate of interest
taken by employee from
employer if amount of loan
dose not exceed Rs. 20000 or
loan is taken for medical
treatment.
19. Value of any shares or
debentures given free of cost
or at concessional rate to
employees under stock option
scheme approved by the
Central Govt.

33

A.

Exempted from Tax

Value of following benefits is not added in salary income:

1.

Free medical facilities or reimbursement of medical expenditure:

Exemption under this section shall be allowed for treatment of self, wife, dependent
children, dependent parents and dependent brothers and sisters.
a)

If treatment was taken from a hospital

Maintained by employer:

Fully Exempted

If treatment is taken from a hospital

maintained by Central, State Govt., Local
authority or a hospital is approved by Chief
Commissioner of Income Tax:

Fully Exempted

In case treatment is taken from a private

Or unrecognized hospital, the benefit is
Exempted up to Rs. 15000 p.a.:

Fully Exempted

In case employer under a scheme approved

By the Central Govt. pay medical insurance
Premium of employee:

Fully Exempted

In case of any health insurance premium is

Paid by employer to General Insurance
Corporation under notified scheme (Mediclaim
u/s 80D) to insure the health of its employees
and members of their families:

Fully Exempted

Medical Treatment taken from outside India

20.

If the employee or any other member of his

34

Family goes outside India for treatment, medical

Expenses paid or reimbursed by employer are fully
Exempted but to the extent it is permitted by the
Reserve Bank of India.
Expenses on the stay of the patient and one
attendant paid or reimbursed by the employer
are also exempted but again up to the amount
permitted by R B I.
Expenses incurred by employer on the traveling
To the foreign country of the patient and one
Attendant shall be exempted provided gross
Total income of the employee does not exceed
Rs. 2,00,000 p.a. This limit of Rs. 2,00,000
does not Include the amount incurred on
traveling.
2.

Free refreshment supplied by employer to

its Employees during office hours in office
premises Except free meals.

3.

Free meals given at remote area or offshore

Installation shall be.

4.

Free recreational facilities provided by

employer to its employees.

5.

Fully Exempted

Fully Exempted

Provisions of telephones including mobile

Phones given by the employer to employee

35

to facilitate the business of the employer.

6.

Fully Exempted

Free education which is provided by

Employer from its own resources who is
Engaged in such business provided value of
Such benefit does not exceed Rs. 1000 p.m.
Per child

7.

Fully Exempted

Cost of refresher course attended by

Employee met by employer In case employer
Meets expenditure of higher education on
Training whether in India or abroad.

8.

Any rent-free residential accommodation

to judges of High court or Supreme Court.

9.

Fully Exempted

Perquisites allowed by Govt. to its

Employees posted abroad.

12.

Fully Exempted

Free ration received by members of armed

Forces.

11.

Fully Exempted

Goods sold by an employer to his employees

At concessional rate.

10.

Fully Exempted

Fully Exempted

Rent free house given to an officer of

Parliament, a union minister, and leader
Of opposition in Parliament.

13.

Conveyance facilities to Judges of Supreme

Court and High Court

14.

Fully Exempted

Fully Exempted

Free conveyance provided by employer to

36

employees for going to our coming from

place of employment.
15.

Any amount contributed by employer towards

Pension or deferred annuity scheme.

16.

Fully Exempted

Computers, laptops given to [no transfer] an

Employee for official/personal use.

18.

Fully Exempted

Employers contribution to staff group

Insurance scheme.

17.

Fully Exempted

Fully Exempted

Transfer of a moveable [computer, car or

Electronic items] without consideration to an
Employee after such asset had been used by
The employer for more than 10 years.

19.

Accident insurance premium paid by

Fully Exempted
Fully Exempted

employer for his own benefit. In case such

premium is paid for insurance whose benefit
is to accrue to the employee, it will be taxable.
20.

Interest free loan

(a) In case total amount of all loans taken by an
Employee from his employer does not
exceed Rs. 20000.

Fully Exempted

(b) In case loan is taken for treatment of notifies

Illness (Aids, cancer, mental disorder, renal
Failure, hemophilia, thelessemia) and no
Claim is received from insurance company.

Fully Exempted

37

In case any insurance claim is received, such

Amount shall be treated as loan and difference
Between rate of interest charged by employer
And rate fixed by SBI on 1-04-2008 shall be
Taxable.
(c) In case loan is taken for any other purpose and
Rate of interest is equal to or higher than
The rate prescribed by SBI on 1-04-2008.
21.

Fully Exempted

Value of any shares or debentures given

free of cost or at concessional rate to
employees under stock option scheme
approved by the Central Govt.

22.

Income tax on perquisites if paid by

employer.

23.
B.

Fully Exempted

Any unauthorized use of a benefit.

Fully Exempted
Fully Exempted

Perks Exempted for employees but Taxable for Employer under Fringe
Benefit Tax
Value of following benefits is not taxable in the hands of an employee. The
employer has to pay tax on deemed income calculated as percentage of
expenditure incurred.

1.

Any free or concessional ticket provided by the employer for private journeys of
his employees or their family members.

2.

Any contribution by the employer to an approved superannuation fund for

employees.

38

3. a)
b)

Expenditure incurred on entertainment.

Expenditure incurred on provision of hospitality of every kind by the employer to
any person, whether by way of provision of food or beverage 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.

c)

Expenditure incurred on conference (other than fee for participation by the

employees in any conference). For the purposes of this clause, 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.

d)

Expenditure incurred on sales promotion including publicity.

e)

Expenditure incurred on employees welfare;

f)

Expenditure incurred on conveyance, tour and travel (including foreign travel);

g)

Expenditure incurred on use of hotel, boarding and lodging facilities;

h)

Expenditure incurred on repair, running (including fuel) and maintenance of

motorcars and the amount of depreciation thereon;

i)

Expenditure incurred on repair, running (running fuel) and maintenance of

aircrafts and the amount of depreciation thereon;

j)

Expenditure incurred on use of telephone (including mobile phone) other than

expenditure on leased telephone lines;

k)

Expenditure incurred on maintenance of any accommodation in the nature of

guest house other than accommodation used for training purposes;

l)

Expenditure incurred on festival celebrations;

m)

Expenditure incurred on use of health club and similar facilities;

39

n)

Expenditure incurred on use of any other club facilities;

o)

Expenditure incurred on gifts; and

p)

Expenditure incurred on scholarships.

C.

Perks Taxable For All Employees

1. Rent Free House

A.

Value of Unfurnished House. Before calculating the value of rent free house,
following information is collected:

B.

Place where rent

free house is provided:

(i) In cities having population exceeding lakhs as per census of 2001; or

(ii) Any other town.
C.

Meaning of accommodation: It shall include a house, farmhouse, flat, hotel

accommodation, guest house, a caravan, mobile home, ship etc.

Exempted Accommodation: For an employee who is working

a)

In remote area [an area located at least 40 kms. Away from city limits of a town
whose population is upto 20000 as per latest census] at mining site; or at project
execution site; or

b)

In offshore area [there is no limit as regard to distance] such accommodation shall

be exempted.

More than one accommodation: In case a person is allowed to retain more than one
accommodation, for first three months value of one such house having lower value shall be
taxable. If such accommodation is retained for more than three months, value of both such
houses shall be taxable.
Hotel Accommodation: An employee may be provided hotel accommodation on his
transfer. It is treated in following manner:
40

a)

If hotel accommodation is provided for a period not exceeding 15 days it shall be

exempted.

b)

If hotel accommodation is provided for a period exceeding 15 days full stay shall
be taxable in following manner:
i. Calculate salary for rent free house as given below.
ii. Compute salary for number of days he stayed in the hotel;
iii. Calculate 24% of this salary;
iv. Compare it with actual bill for such accommodation; whichever is less, is taxable.

D.

Nature of Accommodation: Owned by Employer/Hired or leased by employer.

E.

Meaning of Salary:
For the calculation of value of rent free accommodation the word Salary includes:
1.

Basic Salary, pay or wages.

2.

Dearness pay, dearness allowance if term of employment so provide or it enters

into salary for the calculation of value of service or retirement benefits.

3.

Commission

4.

Bonus

5.

Fees

6.

Value of all taxable allowances

7.

Any other monetary payment, by whatever name called

8.

Leave encashment of salary only if it relates to the leave earned during the
previous year in which rent free house is provided to the employee.
Salary does not include the following:

1. Dearness allowance if not paid as term of employment or if it does not enter into
salary for computation of retirement or service.

41

2. Any other allowance which is exempt one.

3. Employers contribution in employees provident fund.
4. Value of other perquisites following U/s 17(2).
5. Leave encashment of salary if it relates to the leave earned in earlier previous
years.
6. Income tax of employee if paid by employer.
For the calculation of value of rent free accommodation, all components of salary
which are included in the term Salary are to be taken on accrual basis. For example,
advance salary is not included as it does not relates to that previous year but any salary
which has accrued but is not received in that year will be included.
Salary from all employers should be in respect of the period for which
accommodation has been provided.
If employee is simultaneously working with more than one employer:
Salary received from all such employers shall be taken into account while calculating
salary for the calculation of value of rent free accommodation.
(c) Rules regarding calculation of value of rent free house
1. For unfurnished accommodation
A. Owned by employer
(a)

Govt. Employees: The value of house is rent fixed [license fee] by the Govt. for

such house. It can be rent charged by Govt. from another employee of same status for
similar type of house.

42

(b) Other Employees: Value of house is calculated in following manner:

1. In cities the population of which is more than 25

15% of salary

lakhs as per census of 2001

2. In cities the population of which is more than 10

10% of salary

lakhs as per census of 2001

3. In cities and towns the population of which is less

7.5% of salary

than 10 lakhs as per 2001 census.

4. Hotel accommodation (for more than 15 days on

24% of salary (for the

transfer from one place to another)

period or days for which

accommodation
provided

in

is
hotel)

or

actual bill whichever is

less is taxable.
This benefit shall be taxable for full period of stay if stay exceeds 15 days.

B. Hired by employer

15% of salary or Actual rent

paid or payable whichever is less
is taxable in all cities.

II. For Furnished accommodation

In case of all types of employees calculate value of unfurnished house.

In furniture is owned by employer add 10% of cost of furniture.

In furniture is hired actual hire charges are added.

43

2. Concessional Rent House

With a view to provide clarification as to what constitute concession in the matter of
rent, the finance bill 2007 has proposed to substitute clause (a) of explanation 1 with
retrospective effect from A/Y 2006-2007.
Concession in accommodation provided to non government employees and owned
by employer shall be deemed to have been provided is rent recoverable from or payable by
the employee is less than 20% of employees salary in cities having population above four
lakhs as census of 2001 and 15% of salary in other cities and town.
In case employer has got the accommodation on lease or rent and then given the
same to the employee, the concession in accommodation provided to non government
employees shall be deemed to have been provided if rent recoverable from or payable by
employee is less than the lease rent/rent paid or payable by employer or 20% of employees
salary whichever is less is taxable.

3.Obligation of employee met by employee

In case any or the following payments are made by employer these are fully taxable:
(a) Gas and Electricity Bills: issued on the name of employee but paid by employer
actual expenses met by employer are taxable.
(b) Education of Children bills: issued on the name of the employee but paid by
employer actual expenses met by employer are taxable. Reimbursement of tuition
fee of children is also fully taxable.
(c) Income tax, Professional tax: of employee paid by employer actual expenses met
by employer is taxable.
(d) Salary of domestic servants: employed by employee but paid by employer actual
amount paid by employer is taxable.
44

4. Fringe benefits given by employer to employee

Under this provision only those benefits are covered which are not included under
the provisions of Fringe Benefit Tax [FBT].
(a) Medical Bills for treatment in private or unnotified hospitals issued on the mane
of employee bust paid by employer shall be taxable for an amount exceeding Rs.
15,000.
(b) Interest free or concesssional loan from employer
Interest free of interest charged at a concessional rate on loans given by employer to
employee or any other member of his/her office family is a perquisite given to an employee
which is chargeable to tax. Valuation of this perk shall be made keeping in mind the
following points:
1. Interest is to be calculated at the rate charged by the State Bank of India on similar
types of loan as on the first day of the relevant previous year. State Bank of India
notifies the lending rated from time to time.
2. Interest if to be calculated for each month of the relevant previous year on the
maximum outstanding monthly balance.
3. Interest paid by employee (or charged by employer),, if any, is to be deducted out of
the total interest for the full previous year calculated as above.
4. Maximum outstanding monthly balance means the amount of each loan due to the
employer on the first day of each month.
5. For assessment year 2008-2009 interest rate charged by State Bank of India as on 1 st
April 2007 shall be taxable.
(A)

where the total income of loans given by employer to employee does not exceed Rs.
20,000.
45

(B)

Where the loan is given for medical treatment of diseases specified in Rule 3A.

(C)

Use of moveable assets owned by employer except computers and laptops actual
benefit derived by employee is taxable i.e. 10% of cost is taxable. In case the period
for which asset is given for use to employee is less than full year, the value of benefit
shall be calculated by taking actual number of days for which asset is used by the
total number of days of that financial year.

5. Life Insurance Premium

On the life of the employee or any other member of his family if paid by employer is
fully taxable but accident insurance premium paid by employer but for his own benefit is
not taxable. ULIP paid by employer is also fully taxable.

6. Any other benefit given by the employer

Any other benefit given by employer to employee to meet his personal needs is fully
taxable on actual cost basis less any amount paid by employee e.g. free holiday home
facility.
D. Perks taxable in Specified cases only
Following perks are taxable only if employee is either a director of company or has
substantial interest (20% or more of equity share) or his salary is more Rs. 50,000 p.a. This
salary means all monetary emoluments which are taxable under the head salary after
allowing deduction U/s 16.
Who is a Specified employee:
1. Who is director of the company
2. Who has substantial interest in affairs of the company
3. His monetary salary is more than 50,000 p.a.

46

Salary for this purpose includes (Basic salary, D.A., D.P., Bonus, Commission, fees
and all other taxable allowances. Any perquisite, gratuity, pension, leave salary but arrear of
salary and salary received in advance is to be excluded.
Value of following perks is taxable only if employee becomes an employee of specified
category. These perks are:

Free Education: If employer provided free education to the members of the family

1.

of the employee in an institution owned or maintained by it, a reasonable amount which

employee would have spent on similar type of education shall be taxable but after allowing
exemption or Rs. 1,000 p.m. per child.

Free gas, light and water: In case connection is on the name of employer and

2.

employer also pays bill, actual cost of such benefit is taxable.

Free Servants:

3.
a.

In case employee employs servants but their salary is paid by employer-Full salary
is taxable for all employees U/s 17(2)(iv).

b.

In case employed provides services of sweeper and watchman full salary of these
employees is taxable and it shall be reduced by any amount paid by employee.

c.

In case gardener is provided for rent free house owned by employer its salary is
added in FRV and is not taxable separately. But if house is owned by employee or
is hired by employer, full salary of gardener is taxable.

4.

d.

In case employer provides any other servant his full salary is taxable.

e.

Taxable for full month even if given for part of month.

Any other bill: on the name of employer for personal expenses of employee paid by

employer shall be taxable. In case medical bills are in the name of employer and are paid by
employer these shall be taxable only after allowing exemption as per rule given earlier for
specified employees only.

47

INTRODUCTION
WEALTH TAX ACT 1975
The wealth tax Act extents to whole of India ,and it came to force on 1st april,1957.
A constitution bench of the Supreme Court has held that the wealth tax act, 1957 fell
under entry 86 of the Union List of the constitution of India and therefore Parliament was
competent to enact the statute with reference to the state of jammu and Kashmir. The Act
provides for the levy of wealth tax and was introduce to supplement the tax revenue of the
government .
WEALTH TAX
It is direct tax charged for every assessment year in respect of net wealth of the
corresponding valuation date of every Individual, H.U.F.{Governed by Mitakshara Law}
and company at 1% of the amount by which net wealth exceeds fifteen lakh rupees.
EXCEPTIONS OF WEALTH TAX
By virtue of Section 45, no Wealth Tax is chargeable in respect of net wealth of:
I. Any company registered u/s 45 of the companies Act 1956.
II. Any Co-Operative socity.
III. Any Social Club.
IV. Any Political Party
V. A mutual fund specified u/s 10{23D} of Income Tax
SCHEME OF WEALTH TAX AT GLANCE
Wealth tax is levied on net wealth u/s 2 {m} as it exists on valuation date. The
computation of net wealth may be summarised at a glance in the following manner :-

48

ADD:I. The valueof asset wherever located, which are chargeable belonging the assesses.
II. The value of assets required to be included in the net wealth of assessee under
deeming under provisions.
LESS:Debts owned by the assessee on valuation date which have been incurred in relation
to said assets.

49

IMPORTANT DEFINITIONS
ASSESSEE [Sec.2{e}:
Assessee means a person by whom wealth tax or any other sum {interest, penalty} of
money is payable under this act. This term further includes:
a) Every person in respect of whom any proceeding under this Act has been taken
the determination of wealth tax payable by him or by any other person or by any
other person or the amount of refund due to him or such other person.
b) Every person who is deemed to be an assessee under this act.
c) Every person who is deemed to be an assessee in default under this act.
Deemed Assessee; The deemed assesses are:a) In case of a deceased person who dies after writing his will, the executor of the
property of deceased are deemed as assessee.
b) In case of a person who dies without writing his will, his eldest son or other
legal representatives are deemed as assessee.
c) In case minor having assets taxable under Wealth Tax Act, his guardian will be
deemed as assessee.
d) In case of a non-resident having assets in India or any person acting on his
behalf is deemed as assessee.
Kinds of Assessee:
A. Individuals
B. Hindu Undivided Family
C. Company
2. Assessment Year [sec.2(d)]:Assessment year means a period of twelve months commencing on the first day of
50

every year following immediately after the valuation date. thus the assessment year begins
on 1st April to 31st March every year.
3. Valuation Date[sec.2{Q}]:The wealth tax is levied on the net wealth of a person on the particular date. This
date is known as valuation date. According to this section, valuation date is the last day of
previous year relevant to the assessment year. Hence, valuation date is March 31
immediately preceding the assessment year.
4. Net Wealth [sec2{m}]:Net wealth is the excess of the aggregate value of the chargeable assets wherever
located. Belonging to the assessee on the valuation date over the debts owned by the
assessee on valuation date and which have been incurred in relation to the said assets.
Debts:
A debt is a sum of money which is payable or will become payable in future by
reason of a present obligation.
The following condition should be satisfied to get deduction of debts owned:
a) Only debts owned by the assessee on the valuation date are deductible.
b) Debts should have incurred in relation to those assets which are included in net
wealth of the assessee.
However any debt in relation to a property which is partly exempt from wealth tax,
the proportionate debt attributable to the value of the exempted property cannot be deducted
in computing the net wealth.
5. Assets [sec.{ea}]:As per this section of the Wealth tax Act the term Assets includes the following:

51

Any building or land appurtenant thereto:

a) Commercial building;
b) Residential Building
c) Any guest house;
d) A farm house situated within 254km from the local limits of a local authority.
EXCEPTIONS:
Five exclusions have been provided under this clause, according to which following
building will not be included in assets:
A Residential House
a) A house if the following conditions are satisfied is not treated as assets:
b) It is meant exclusively for residential purpose.
c) It is allotted by a company to an employee or an officer or director who is in
whole time employment.
d) The gross annual salary of such employee, officer or director is less than Rs.5
lacs.
A House held a Stock-in-Trade:
Any house which forms part of stock-in-trade of the assessee is mot treated as assets.
A House used for own Business or Profession:
Any house which the assessee may occupy for the purpose of any business or
profession carried on by him is not treated as assets.
A let out Property:
A residential property which is let out for a minimum period of 300 days in the
previous year shall not be treated as assets.

52

Motor Cars:
Motor Cars means any motor vehicle other than a transport vehicle, omnibus, road
roller, tractor, motor cycle or invalid carriage. The following Motor Cars are not treated as
assets
a) Motor Cars held as stock-in-trade.
b) Motor Cars used in business of running them on hire.
Jewellery, bullions, furniture, utensils or any other articles made of gold/silver etc.:
Jewellery, bullions, furniture, utensils or any other article made wholly or partly of
gold/silver, platinum or other precious metal or any alloy containing one or more of such
precious mentals are treated as assets.
Jewellery, bullions, furniture, utensils or any other article made of gold, held as
stock-in-trade is not an asset and further jewellery shall not include the Gold Deposit Bonds
issued under the Gold Deposit Scheme 1999 notified by the Central Government.
Yachts, Boats and Aircrafts:
These are treated as assets but those used by the assessee for commercial purpose are
not treated as assets.
Urban Land:
Urban area is an asset which means:
a) Land situated within the jurisdiction of municipality or Cantonment board aving
a population not less than 10000.
b) Land situated within notified distance for not more than 8kms from the local
limits of the aforesaid municipality or cantonment board.

53

Cash in Hand:
Where the assessee is an individual or HUF cash in hand in excess of Rs. 50000 is
asset. In case of every other assessee any amount which is not recorded in the books of
account is asset.
Deemed ASSETS:
Deemed asset means assets belonging to other but includible in the net wealth of the
assessee and this is done if the following conditions are fulfilled:
I.
II.

The individual must be the owner of the assets.

These assets must be transferred without adequate consideration.

Assets exempt from wealth tax

I. Property held under Trust[Sec.5A{i}]
II. Interest in the coparcenaries property[Sec.5{ii}]
III. One building in the occupation of a Ruler [Sec.5{iii}]
IV. Jewellery in the possession of the Ruler[5{iv}]
V. Assets of Indian repatriate[sec.5{v}]
VI. One house or a part of house[sec.5{vi}]

54

DEEMED ASSETS
Deemed assets means assets belonging to others but included in the net wealth of
assessee and this is done if following conditions are satisfied:
i.
ii.

The individual must be owner of the asset.

The asset must be transferred without adequate consideration in money or moneys
worth if the property has been transferred for in adequate consideration. The
difference between adequate and inadequate consideration shall be included in the

iii.

net wealth of the transferor.

The asset must be held by the transferor on the valuation date if the asset has been

iv.

lost, destroyed or transferred to a third party before valuation date.

If the form of asset transferred is changed before the valuation date, it is not held by

v.

the transferee on the valuation date.

If the transferred asset is converted in to another asset. Then value of such asset it

vi.

shall not be included in the net wealth of the transferor on the valuation date.
Where the property transferred to spouse without adequate consideration was not an
asset u/s 2(ea) on the date of transferor but on the valuation date if such asset is an
asset u/s 2(ea). The value of such property shall be included in the net wealth of the
transferor.

1. According to sec 4 (i)(a) the following asset shall be Included in the net
wealth of the transferor:
i.

Asset transferred to spouse u/s 4(i) if the asset is held by the spouse of the transferor

ii.
iii.

by the individual directly or indirectly otherwise then for adequate consideration or

In the connection with an agreement to live apart.
Where the asset has been transferred to spouse such relationship must exist on the
transfer of the asset & on the relevant valuation date.

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iv.

Where a sale is made for in adequate consideration it is part sale and part gift. For
example assessee sold his house to his wife for Rs. 100000 but its value was Rs.
150000 then Rs. 50000 will be includable under deemed asset.

2. Asset Held By Minor Child (Sec.4(I)(A)(Ii) :In computing the net wealth of an individual there shall be included in the value of
the asset which on the valuation date are held by a minor child of such individual. But
following assets of minor child are not included in the net wealth of the assessee.
a. Assets acquired by the minor child out of his income as (assets to) arises to him/her
an account of manual work done by him/her.
b. Assets acquired by income out of that activity which involves application of his/her
specialized knowledge and experience.
c. The net wealth of minor child shall be included in the wealth of that parent whose
net wealth is greater.
Where the marriage does not exist in the net wealth of the parent who maintain the
minor in that previous year. Where any such asset A.Y. any such assets in the succeeding
year shall be included in the net wealth of other parent unless the assessing officer is
satisfied that it is necessary to do so.
The aforesaid rule of the clubbing is not applicable in the case of a married daughter
or a minor child suffering from disability and also if on the valuation date the child has
become major or adult
NOTE: Child means a legitimate child or step child or adopted child but does not include
on illegitimate, grand or child of other relative.
Asset Held By Handicapped Minor Child:Where the assets are held by physically or mentally handicapped minor child
(specified in sec.80(u) of income tax act) such assets will not be clubbed in the net wealth
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of the parents. In such a case net wealth of the handicapped child shall be determine
separately and assessed in his hands.
3. Assets Transferred To A Person Or Association Of Persons Sec.4(I) Or (Iii)
If an asset is transferred to a person or AOP it would be included in the net wealth of
the transferor if the following condition are fulfilled:
a)
b)
c)
d)

The asset is transferred by assessee after 31,march1956.

The transfer may be direct or indirect.
The asset is transferred otherwise for adequate consideration.
The asset is transferred for the immediate or deferred benefit of the individual or

spouse.
e) The asset is held by the transferee on the relevant valuation date in the same form in
which it is transferred between the transferor and the beneficiary must exist on the
valuation date.
4. Revocable Transfer Of Asset Sec.4(I)A(Iv) Or Sec.4(5)
The provision of sec.4(I)A(V) are as under:
i.
ii.
iii.
iv.
v.

The asset is transferred by an individual.

It is transferred to a person or AOP.
It is transferred after 31,March 1956.
It is transferred under revocable transfer.
The asset may be held by the transferee on the relevant valuation date in the same
form in which it is transferred or otherwise.
If all the conditions are satisfied then the asset is included in the net wealth of the

transferor.
Revocable Transfer: For this purpose the following transactions are treated as revocable
transfer:
i.

If the transfer is revocable within a period of 6 years or revocable in the lifetime of

ii.

the transferee. Or:

If the transferor derives any benefit directly or indirectly from the asset transfer. or:

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iii.

If the transferor has a right of retransfer directly or indirectly in respect of the whole

iv.

or any part of the assets or income from the assets so transferred. or:
It is the transfer has the right to reassume power directly or indirectly for the whole

or any part of the asset so transferred.

EXCEPTIONS: Asset transferred u/s 4(1)a(1), sec.4(1)a(iii) and sec.4(1)a(iv) shall not be
included in the net wealth of an individual if the asset was transferred in any A.Y.
commencing after 31, March 1964 but before 1,April 1972. Weather
The transfer of such assets or any part thereof was chargeable to gift tax under
gift tax act 1958. Or

The transfer of such assets was exempt u/s 5 of gift tax act 1958.
The value of any asset transferred under an irrevocable transfer shall be liable to be
included in computing the net wealth of the transferor as and whom the power to
revoke arises to line.
5. ASSETS TRANSFERRED TO SONS WIFE SEC.4(1)A(V)
The asset transferred to sons wife will be included in the wealth of an assessee if the
following conditions are fulfilled:
I.
II.
III.
IV.
V.
VI.

The asset is transferred by an individual.

The transfer should take place after 31, May 1973.
The asset is transferred to son,s wife.
The transfer may be direct or indirect.
The asset is transferred otherwise then for adequate consideration.
The asset may be held by the transferee on the valuation date in the form in which it
is transferred.
If these conditions are fulfilled then the asset is included in the net wealth of the

assessee.
The relationship between the father-in-law and daughter-in-law should exist between
the transferor and transferee on the date of transfer and on the valuation date.
6.ASSET TRANSFERRED TO TO PERSON OR AOP FOR THE BENEFIT OF
SONS WIFE U/S 4(1)(A)(VI):
The asset transferred to person or AOP for the benefit of sons wife will be included
in the net wealth nof an assessee if the following conditions are satisfied:
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I. The asset is transferred by an individual.

II. The transfer should take place after 31,May 1973.
III. The asset is transferred to person or AOP for the immediate or deferred benefit of
sons wife.
IV. The transfer may be direct or indirect.
V. The asset is transferred otherwise then for adequate consideration.
7. INTEREST IN A FIRM OR AOP U/S 4(1)(B):
Where the assessee is a partner in a firm or a member of AOP (not being cooperative housing society) the value of his interest in the assets of the firm or the
association (determined in the manner laid down in schedule III) shall be included in the net
wealth of assessee.
Where a karta of HUF is a partner in a firm his interest in the assets of the firm is
includible in the net wealth of HUF.
Where a minor is admitted to the benefits of partnership the value of his interest in the
firm shall be included in the net wealth of the minor in accordance with the provision u/s
4(1)(A)(II).
8. CONVERTED PROPERTY SEC.4(1A):
Is applicable if the following conditions are satisfied :
I. The individual is a member of HUF.
II. The property is converted after 31, Dec. 1969.
III. He converts his separate property in to property belonging to HUF through act of
impressing such property with the character of the property belonging to the family
or throwing it into common stock of the family alternatively he transfers his separate
property to HUF, directly or indirectly without adequate consideration.
CONSEQUENCES BEFORE PARTITION:

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If the aforesaid conditions are satisfied then the converted or transferred property
shall be deemed to be property individual and the property of such property is included in
his net wealth.
CONSEQUENCES AFTER PARTITION:
If all aforesaid conditions are satisfied and the converted property becomes the
subject of a total or partial partition among the members of the family the converted
property or any part there of, which is received by the spouse of the transferor and is
includible in his net wealth.
9. IMPARTIBLE ESTATE U/S4(6):
Impartibly estate of a HUF is that estate which by law or custom descend to one
member of the family though it is joint property belonging equally to other members. For
wealth tax purpose the holder of much property is deemed to be individual owner of this
estate and accordingly liable to include the value of properties in this estate of his individual
in net wealth.
10. GIFTS BY BOOK ENTRY U/S4(5A):
Where a gift of money from one person to another is made by means of entries in the
books of account maintained by the person making the gift or by individual or body of
individuals or a HUF or AOP or a firm with whom he has business or other relationship the
value of such gift will be includible in the net wealth of the person making gift unless he
proves to the satisfaction of the wealthy tax officer that the money has been actually
transferred to the other person at the time, the entries were made gift by book entries is
valid if there is evidence to show that.
I.
II.

There is sufficient cash balance including bank balance and bank overdraft limit on
the date of gift.
And gift is made by door and accepted by receiver.
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11. PROPERTY HELD BY A MEMBER OF HOUSING SOCIETY ETC. SEC.4(7):

Where the assessee is a member of a cooperative society part there of is or company
or AOP to whom a building. allotted or leased to him under a house building scheme of the
society company or association as the case may be shall be deemed to be owner of the
building or part there of and the value of such building shall be included in the net wealth of
the assessee.
In the determination of the value of such building any outstanding installment payable by
the assessee to the society to words the cost of such house are deductible as debt owed by
the assessee.
12. BUILDING IN PART PERFORFANCE OF A CONTRACT U/S 4(8)(A):
A person who is allowed to take or retain possession of any building I part
performance of a contract of the nature referred to in sec. 53A of transfer of property act
1882 shall be deemed to be the owner of that building or a part there of. The value of such
building shall be included in the net wealth of the assessee.

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DOUBLE TAXATION RELIEF

To attract capital technology and personnel from other countries for accelerating
economic and industrial development some relief is granted to the tax pay. The relief may
be in any of the following forms a) Double taxation relief
b) Double taxation avoidance.
c) Unilateral relief
1. Double Taxation Relief (section 90)The central government may enter in to an agreement with a foreign Government for
granting of double taxation relief
a)

For granting relief in respect of income tax chargeable under this act and under
the corresponding law in force in a foreign country to promote mutual economic
relations.

b) For avoidance of double taxation.

c) For exchange of information for prevention of evasion or avoidance of income
tax or investigation of evasion or avoidance.
d) For recovery of income tax.
Further the central government may be classified into two partsa)

Agreement for relief from double taxation.

b) Agreement for avoidance of double taxation.

Agreement provide for the payment of tax in both the countries under the respective
laws of those countries but later on rebate of tax is given in both the countries on doubly
assessed income. In such case assessee must shows that the identical income has been
doubly taxed and that he has paid tax both in India and in the foreign country on the same in
came.
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AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION:

Under these agreements the assessee has first to pay the tax and then apply for relief
in the form of a refund. Each country recovers tax only on that portion of income which
accrued with in that country and take in to account the income accruing in other country
only for the rate purposes.
UNILATERAL RELIEF IN RESPECT OF FOREIGN INCOME TAX ABROAD
[Sec.91i]
Subject to the following conditions unilateral relief is granted in cases where section 90 is
not applicable.
a) Assessee should be resident of India in the previous year.
b) The income tax, in fact should have accrued outside India and should not be
deemed to accrue in India under any provisions of the act.
c) The income should be taxed both in India and a foreign country with which
India has no agreement for relief against or avoidance of double taxation and
d) The assessee should have, in fact paid tax in such foreign country by deduction
or otherwise.
RELIEF IN CASE OF AGRICULTURE INCOME FROM PAKISTAN [SEC.91{2}]
In case a resident of India has paid any tax on agriculture income which accrued or
arose to him during that previous year in Pakistan, he shall be entitled to a deduction from
the Indian income tax payable by him of the amount of tax paid in Pakistan or sum
calculated at the Indian rate of tax, whichever is less.

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RELIEF IN CASE OF SHARE IN FOREIGN INCOME OF A REGISTERED FIRM

[SEC.91{3}]
An assessee receiving share in foreign income of a registered firm shall be entitled to
the relief of tax on such share provided the firm receives income from a foreign country.
Relief will be allowed on doubly assessed income at the rate of said country or
Indian rate of tax , whichever is lower.
Conclusion: In conclusion, we can say that double taxation relief or double taxation
avoidance endeavor to provide a tax payer full protection against double taxations. These
agreements besides providing a reasonable climate of legal and fiscal certainty for carrying
on international operations also stimulates the flow of trade, capital, technology and
personnel.

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CONCLUSIONS
From the analysis of the above matter it is concluded that the making of
project of the subjects like Income Tax & Wealth Tax is not an easy task because it
needs deep & dedicates study with a keen interest. There is always a need of persons
caliber as these subjects are a bit tricky and puzzling where one factor is whirled with
the other. Yet it is interested for those who have sagacious and sharp mind.
Indian Taxation System as a multiple taxation system as Indian economy is a mix of
direct and indirect taxes. These taxes are a compulsory contribution from as person to
the Government to defray the expenses. Incurred in the common interest of all,
without special benefit conferred. Hence the knowledge of it is essential for every
person because of his economics status in that country.

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SUGGESTIONS
After pondering over and long contemplations. I decided that I should do
something in favour of finance department of our country and as my contribution I
am presenting some of my suggestions to the taxation officer, which are as follow:-

The various amendments that are being made should be published or

advertised through various media for best knowledge.

The higher authorities should ensure that lower authorities are dealing with
general public in good manner or not.

Tax should be broader-based so that more population of country is brought

under the tax-net.

Direct taxes should be given more importance in country taxation system as

these are more progressive.

The procedure of filling the return should be made easier as compared to

now. It should not be so lengthy and time consuming.

As we know that there are various forms fro various purpose that should be
converted into a single form,, which should be corporate with each one.

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BIBLIOGRAPHY

Dr. H.C. Mehrotra

Direct Taxes
Sahitya Bhawan Publications, Agra.

GIRISH AHUJA &RAVI GUPTA

Systematic Approach to Income Tax & Central Sales Tax
Bharat House Pvt. Ltd., New Delhi.

DR. V.K. SINGHANIA

Income Tax Law
The Taxmans Publication, New Delhi.

V.P. GAUR, D.B. NARANG, S.K. NAYYAR

Central Sales Tax 1956
Kalyani Publishers, Ludhiana.

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