A

Project Report
On

"Tax planning of an individual assessee"

Submitted to
SavitribaiPhule Pune University
In Partial Fulfillment of the Requirement for Award of the Degree of
MASTER OF BUSINESS ADMINISTRATION

By
(Divya Patel)

Under the Guidance of

(Prof. Satish Inamadar)

SINHGAD INSTITUTE OF MANAGEMENT

(Academic Year 2016-2017)
DECLARATION

I, the undersigned, hereby declare that the project report entitled Tax Planning of an
individual assessee. written and submitted by me to the Savitribai Phule Pune
University, Pune in partial fulfilment of the requirement for the award of degree of MBA
under the guidance of Prof. Satish Inamadar, is my original work except the topics on
organizational profile and the conclusion drawn therein are based on the material
collected by myself.

Place: (Divya Patel)

Date:
CONTENTS

CHAPTER NO. CONTENTS PAGE NO.

1. INTRODUCTION
1.1. Introduction to topic
1.2. Literature Review
1.3 Statement of problem
1.4 Objective of Study
2. PROFILE OF THE ORGANIZATION
2.1. Company Profile
2.2. Introduction to work organization
3. RESEARCH METHODOLOGY
4. DATA ANALYSIS AND INTERPRETATION
5. FINDINGS AND SUGGESSTIONS
6. CONCLUSION
7. BIBLIOGRAPHY

ACKNOWLEDGEMENT

I take this opportunity and privilege to express my deep sense of gratitude to Professor
M. N. Navale, Honorable Founder President, Dr.(Mrs.) Sunanda M. Navale, Founder
Secretary, The Sinhgad Technical Education Society, Pune and Dr. Parag Kalkar, Director
SIOM. They have been a source of inspiration to me and I am indebted to them for
initiating me in the field of research.

I am deeply indebted to Faculty Member, SIOM Prof. Satish Inamadar ,my research
guide at Sinhgad Institute of Management, Pune, without whose help completion of the
project was highly impossible.

I take this opportunity and privilege to articulate my deep sense of gratefulness to the
Staff of DesaiDighe & Co. for their timely help and positive encouragement.

I wish to express a special thanks to all teaching and non-teaching staff members of
Sinhgad Institute of Management, Pune for their continuous support. I would like to
acknowledge all my family members, relatives and friends for their help and
encouragement.

Place: Sinhgad Institute of Management

Date: (Divya Patel)

EXECUTIVE SUMMARY

The project titled,Tax planning of an individual assessee.

In this project a study is done with respect to the rules and regulations applicable to the
individual while filing their tax returns. The study also gives a brief about the various
deductions and exemptions available to an individual in respect to save their taxes.

The study is done in DesaiDighe & Co. DesaiDighe & Co. is the tax consulting firm
based in Mumbai. In this project case studies are taken of individuals falling into various
Tax Slab and interpretation and analysis of their cases is done to understand the unique
tax situations of an individual and also suggestions are given which can help the
individual to invest more and reduce the tax liability.

The data collected and used in this study is in the form of both primary and secondary
data. Primary Data is in the form of case study ( Form 16 ) of individuals as per their tax
slab, whereas secondary data is used to explain all the concepts of Income Tax.

1. Introduction

1.1 Introduction to topic

Income Tax Act, 1961 governs the taxation of incomes generated within India and of
incomes generated by Indians overseas. This study aims at presenting a lucid yet simple
 understanding of taxation structure of an individuals income in India for the assessment
year 2013-14. Figure 1 Income Tax Act, 1961 is the guiding baseline for all the content in
this report and the tax saving tips provided herein are a result of analysis of options
available in current market. Every individual should know that tax planning in order to
avail all the incentives provided by the Government of India under different statures is
legal. This project covers the basics of the Income Tax Act, 1961 as amended by the
Finance Act, 2007 and broadly presents the nuances of prudent tax planning and tax
saving options provided under these laws. Any other hideous means to avoid or evade tax
is a cognizable offence under the Indian constitution and all the citizens should refrain
from such acts.

Tax planning is the analysis of a financial situation or plan from a tax perspective. The
purpose of tax planning is to ensure tax efficiency with the elements of the financial plan
working together in the most tax-efficient manner possible. Tax planning is an important
part of a financial plan, as reducing tax liability and maximizing eligibility to contribute
to retirement plans are both crucial for success.

1.2 Literature review

RATES OF INCOME TAX

Tax slab rate (Below 60 years)

(1 Where the total Nil

) income does not
exceed Rs.
2,50,000
(2) Where the total income exceeds Rs. 10% of the amount by which the total income
2,50,000 but does not exceed exceeds Rs.2, 50,000.
Rs.5,00,000

(3) Where the total income exceeds Rs. Rs. 25,000 plus 20% of the amount by which the
5,00,000 but does not exceed total income exceeds Rs.5, 00,000.
Rs.10,00,000

(4) Where the total income exceeds Rs. 1,25,000 plus 30% of
Rs.10,00,000 the amount by which the total income exceeds
Rs.10,00,000

Surcharge is nil education cess @ 3% of Income Tax will apply.

(II) In the case of every individual, being resident in India, who is of the age of sixty
years or more but less than eighty years at any time during the previous year:

Tax slab rate (age between 60-80 years)

(1) Where the total income does not Nil

exceed Rs.3,00,000

(2) Where the total income exceeds 10% of the amount by which the total income
Rs.3,00,000 but does not exceed exceeds Rs.3, 00,000.
Rs.5,00,000

(3) Where the total income exceeds Rs. 20,000 plus 20% of the amount by which the
Rs.5,00,000 but does not exceed total income exceeds Rs.5, 00,000.
Rs.10,00,000

(4) Where the total income exceeds Rs. 1,20,000 plus 30% of the amount by which
Rs.10,00,000 the total income exceeds Rs.10,00,000.

Surcharge is nil education cess @ 3% of Income Tax will apply.

(III) In the case of every individual, being are silent in India, who is of the age of eighty
years or more at any time during the previous year:
Ta slab rate (age above 80 years)

(1) Where the total income does not Nil

exceed Rs.5,00,000

(2) Where the total income exceeds 20% of the amount by which the total income
Rs.5,00,000 but does not exceed exceeds Rs.5,00,000.
Rs.10,00,000

(3) Where the total income exceeds Rs. 1,00,000 plus 30% of the amount by which
Rs.10,00,000 the total income exceeds Rs.10,00,000

Surcharge is nil education cess @ 3% of Income Tax will apply.

Under the Income Tax Act, 1961, total income of any previous year of a person who is a
resident includes all income from whatever source derived which is received or is
deemed to be received in India in such year by or on behalf of such person; or accrues or
arises or is deemed to accrue or arise to him in India during such year; or accrues or
arises to him outside India during such year: Provided that, in the case of a person not
ordinarily resident in India, the income which accrues or arises to him outside India shall
not be included unless it is derived from a business controlled in or a profession set up in
India. Total Income For the purposes of chargeability of income-tax and computation of
total income, The Income Tax Act, 1961 classifies the earning under the following heads
of income:

1. Salaries

2. Income from house property

3. Capital gains

4. Profits and gains of business or profession

Income from Salary U/S 17(1):

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-qua-non 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.

Under the head salary Sec 17(1) the following sub heads are considered:

(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 Recognized 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 Government to the account of an employee
under a notified pension scheme.

Profit in Lieu of Salary u/s 17(3):

Any payment received or due in addition to your salary or wages from your employer is
called profit in lieu of salary . Section 17(3) of income tax act defines profit in lieu of
salary as follows:-

It includes the following,

 The amount of compensation due or received by an assessee from his employer
or former employer at or in connection with the termination of hid employment or
the modification of the terms and conditions thereto.
Any payment received from an unrecognized provident or superannuation fund .
Under this the employer and employee contribution , interest on there contribution
will be taxable.
Any other amount receivedfrom employer will be treated as profit in lieu of
salary unless and until that particular amount is specifically exempted under any
section of the income tax act.

The total of the above three heads U/S 17 (1,2,3) computes to the total of salary earned
by the employee. Later this amount is further carried and Allowances and Exemptions are
deducted from it.

ALLOWANCES U/S 10.

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 extent mentioned
against each:-

House Rent Allowance (HRA)

Provided that expenditure on rent is actually incurred, exemption available shall be the
least of the following:

a) HRA received.

b) Rent paid less 10% of salary.

c) 40% of Salary (50% in case of Mumbai, Chennai, Kolkata, and Delhi)

Salary here means Basic + Dearness Allowance, if dearness allowance is provided by

the terms of employment.
 Leave Travel Allowance LTA)

The amount actually incurred on performance of travel on leave to anyplace 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.

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 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.

Type of Allowance Amount exempt

Special Compensatory Rs.800 common for various areas of North East, Hilly
Allowance for hilly areas or areas of U.P., H.P. & J&K and Rs. 7000 per month for
(i)
high altitude allowance or Siachen area of J&K and Rs.300 common for all places at
climate allowance. a height of 1000 mts or more other than the above places.
 Border area allowance or
Various amounts ranging from Rs.200 per month to
remote area allowance or a
(ii) Rs.1,300 per month are exempt for various areas
difficult area allowance or
specified in Rule 2BB.
disturbed area allowance.
Tribal area/Schedule
area/Agency area allowance
available in
(iii) M.P., Assam, U.P., Rs.200 per month.
Karnataka, West
Bengal, Bihar, Orissa,
Tamilnadu, Tripura
Any allowance granted to an
employee working in any
transport system to meet his
70% of such allowance upto a maximum of Rs. 10,000
(iv) personal expenditure during
per month.
duty performed in the course of
running of such transport from
one place to another place.
Type of Allowance Amount exempt

Special Compensatory Rs.800 common for various areas of North East, Hilly
Allowance for hilly areas or areas of U.P., H.P. & J&K and Rs. 7000 per month for
(i)
high altitude allowance or Siachen area of J&K and Rs.300 common for all places at
climate allowance. a height of 1000 mts or more other than the above places.

Border area allowance or

Various amounts ranging from Rs.200 per month to
remote area allowance or a
(ii) Rs.1,300 per month are exempt for various areas
difficult area allowance or
specified in Rule 2BB.
disturbed area allowance.
 Tribal area/Schedule
area/Agency area allowance
available in
(iii) M.P., Assam, U.P., Rs.200 per month.
Karnataka, West
Bengal, Bihar, Orissa,
Tamilnadu, Tripura
Any allowance granted to an
employee working in any
transport system to meet his
70% of such allowance upto a maximum of Rs. 10,000
(iv) personal expenditure during
per month.
duty performed in the course of
running of such transport from
one place to another place.
(v) Academic, research or training allowance granted in educational or research institutions.

Taxability of Perquisites / Valuation of Perquisites

Perquisite is defined as any casual emolument or benefit attached to an office or

position in addition to salary or wages. The value of perquisites provided by the
employer directly or indirectly to the assessee (hereinafter referred to as employee) or
to any member of his household by reason of his employment shall be determined in
the following manner :-
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 are
briefly given below :

Residential accommodation provided by the employer

Union or State Government Employees [ Section 17(2)(i) read with Rule 3(1) ]
The value of perquisite is the license fee as determined by the Govt. as reduced by the
rent actually paid by the employee.
Non Government Employees [ Section 17(2)(i)(ii) read with Rule 3(1) ]
The value of perquisite is an amount equal to

15% of salary in cities having population exceeding 25 lakhs

10% of salary in cities having population exceeding 10 lakhs but not
exceeding 25 lakhs and
7.5% of salary in any other place.

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 the 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 / recovered from the employee.
If employee is transferred and retain property at both the places, the taxable value of
perquisites for initial period of 90 days shall be determined with reference to only one
accommodation (at the option of the assessee). The other one will be tax free.
However after 90 days, taxable value of perquisites shall be charged with reference to
both the accommodations.
Rent free accommodation provided to High Court or Supreme Court Judges, Union
Ministers, Leader of Opposition in Parliament, an official in Parliament and Serving
Chairman and members of UPSC is tax free perquisite.
Rent free furnished accommodation: [Section 17(2)(i) read with Rule 3(1) ]
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.
Provided that nothing contained in this sub-rule shall apply to any accommodation
provided to an employee working at a mining site or an on-shore oil exploration site
 or a project execution site, or a dam site or a power generation site or an off-shore
site-
which, being of a temporary nature and having plinth area not exceeding 800 square
feet, is located not less than eight kilometers away from the local limits of any
municipality or a cantonment board; or
which is located in a remote area:
Hotel Accommodation [ Section 17(2)(i) read with Rule 3(1) ]
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 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.
An employee, who is provided with accommodation at the new place of posting while
retaining the accommodation at the other place, on account of his transfer from one
place to another, the value of perquisite shall be determined with reference to only
one such accommodation which has the lower value with reference to the Table above
for a period not exceeding 90 days and thereafter the value of perquisite shall be
charged for both such accommodations.
Services of a sweeper, a gardener, a watchman or a personal attendant [ Section
17(2)(iii) read with Rule 3(3) ]
Taxable value of perquisite shall be salary paid or payable by the employer for such
services less any amount recovered from the employee.
Supply of Gas, Electric Energy or Water [ Section 17(2)(iii) read with Rule 3(4) ]
The value of the benefit to the employee resulting from the supply of gas, electric
energy or water for his household consumption shall be determined as the sum equal
to the amount paid on that account by the employer. Where such supply is made from
resources owned by the employer, without purchasing them from any other outside
agency, the value of perquisite would be the manufacturing cost per unit incurred by
the employer. Where the employee is paying any amount in respect of such services,
the amount so paid shall be deducted from the value so arrived at.
Free / Concessional Educational Facility [ Section 17(2)(iii) read with Rule 3(5) ]
Facility Value of perquisite if provided in the
extended school owned by the employer
to
Children Cost of such education in similar school
less Rs. 1,000 per month per child
(irrespective of numbers of children)
less amount recovered from employee
Other Cost of such education in similar school
family less amount recovered from employee
member
Value of perquisite if
provided in any other school
Amount incurred less amount
recovered from employee (an
exemption of Rs. 1,000 per
month per child is allowed)
Cost of such education incurred

Other Educational Facilities

Reimbursement of school fees of children or family member of employees - Fully
Taxable
Free educational facilities/ training of employees - Fully exempt
Transport facilities provided by the employer engaged in carriage of passenger
or goods (except Airlines or Railways) [ Section 17(2)(iv) read with Rule 3(8) ]
Value at which services are offered by the employer to the public less amount
recovered from the employee shall be a taxable perquisite.
Amount payable by the employer to effect an insurance on life of employee
or to effect a contract for an annuity [ Section 17(2)(iv) ]
Fully Taxable.
ESOP/ Sweat Equity Shares[ Section 17(2)(vi) read with Rule 3(8) ]
Fair Market value of shares or securities on the date of exercise of option by the
assessee less amount recovered from the employee in respect of such shares shall be
the taxable value of perquisites.
Fair Market Value shall be determined as follows:
In case of listed Shares: Average of opening and closing price as on date of exercise
of option (Subject to certain conditions and circumstances)
In case of unlisted shares/ security other than equity shares: Value determined by a
Merchant Banker as on date of exercise of option or an earlier date, not being a date
which is more than 180 days earlier than the date of exercise of the option.
Employer's contribution towards superannuation fund [ Section 17(2)(vii) ]
Taxable in the hands of employee to the extent such contribution exceeds
Rs.1,00,000/-
Interest free or Concessional Loan Facility [ Section 17(2)(viii) read with Rule
3(7)(i) ]
Interest free loan or loan at concessional rate of interest given by an employer to the
employee (or any member of his household) is a perquisite chargeable to tax in the
hands of all employees on following basis:
Find out the 'maximum outstanding monthly balance' (i.e. the aggregate outstanding
balance for each loan as on the last day of each month);
Find out rate of interest charged by the SBI as on the first day of relevant previous
year in respect of loan for the same purpose advanced by it;
Calculate interest for each month of the previous year on the outstanding amount
(mentioned in Step 1 at the rate of interest given in Step 2
From the total interest calculated for the entire previous year (step 3), deduct interest
actually recovered, if any, from employee
The balance amount (Step 3-Step 4) is taxable value of perquisite
Nothing is taxable if:
Loan in aggregate does not exceed Rs. 20,000; or
Loan is provided for treatment of specified diseases (Rule 3A) like neurological
diseases, Cancer, AIDS, Chronic renal failure, Hemophilia (specified diseases).
However, exemption is not applicable to so much of the loan amount as has been
reimbursed to the employee under any medical insurance scheme.
Travelling, Touring Accommodation etc.[ Section 17(2)(viii) read with Rule 3(7)
(ii) ]
Taxable value of perquisite shall be expenditure incurred by the employer less amount
recovered from employee.
Where such facility is maintained by the employer, and is not available uniformly to
all employees, the value of benefit shall be taken to be the value at which such
facilities are offered by other agencies to the public.
Free Food and Non-alcoholic beverages[ Section 17(2)(viii) read with Rule 3(7)
(iii) ]
Fully Taxable: Free meals in excess of Rs. 50 per meal less amount paid by the
employee shall be a taxable perquisite
Exempt from tax: Following free meals shall be exempt from tax:
Food and non-alcoholic beverages provided during working hours in remote area or
in an offshore installation;
Tea, Coffee or Non-Alcoholic beverages and Snacks during working hours are tax
free perquisites;
Food in office premises or through non-transferable paid vouchers usable only at
eating joints provided by an employer is not taxable, if cost to the employer is Rs.
50(or less) per meal.
Use of Movable Assets[ Section 17(2)(viii) read with Rule 3(7)(vii) ]
Taxable value of perquisites shall be
For use of Laptops and Computers: Nil
For movable asset other than Laptops, computers and Motor Car*: 10% of original
cost of the asset (if asset is owned by the employer) or actual higher charges incurred
by the employer (if asset is taken on rent) less amount recovered from employee.
Transfer of Movable Assets[ Section 17(2)(viii) read with Rule 3(7)(viii) ]
Taxable value of perquisites
Computers, Laptop and Electronics items: Actual cost of asset less depreciation at
50% (using reducing balance method) for each completed year of usage by employer
less amount recovered from the employee
 Motor Car: Actual cost of asset less depreciation at 20% (using reducing balance
method) for each completed year of usage by employer less amount recovered from
the employee
Other movable assets: Actual cost of asset less depreciation at 10% (on SLM basis)
for each completed year of usage by employer less amount recovered from the
employee.
Leave Travel Concession (LTC/LTA)[ Proviso to section 17(2) ]
The exemption shall be limited to fare for going anywhere in India along with family
twice in a block of four years:
Where journey is performed by Air - Exemption up to Air fare of economy class in
the National Carrier by the shortest route
Where journey is performed by Rail - Exemption up to air-conditioned first class rail
fare by the shortest route
If places of origin of journey and destination are connected by rail but the journey is
performed by any other mode of transport - Exemption up to air-conditioned first
class rail fare by the shortest route.
Where the places of origin of journey and destination are not connected by rail:
Where a recognized public transport system exists - Exemption up to first
Class or deluxe class fare by the shortest route
Where no recognized public transport system exists - Exemption up to air
conditioned first class rail fare by shortest route.
Notes:
Two journeys in a block of 4 calendar years are exempt.
Taxable only in case of Specified Employees.

Deductions:

Entertainment Allowance

Entertainment allowance as per Section 16(ii) is first included in salary income under the
head Salaries and thereafter a deduction is given on the basis enumerated in the
following points: In the case of a Government employee (i.e., Central Government or a
State Government employee), the least of the following is deductible:

Rs. 5,000
20 percent of basic salary

or Amount of entertainment allowance granted during the previous year. In order to

determine amount of entertainment allowance deductible from salary, the following
points need consideration:

1. For this purpose salary excludes any allowance, benefit or other perquisites.

2. Amount actually expended towards entertainment (out of entertainment allowance

received) is not taken into consideration. In the case of a non-Governmental employee
(including employees of statutory corporation and local authority), entertainment
allowances is not deductible, and are completely chargeable to tax.

Tax on Employment

Constitution . Professional tax is allowed as a deduction from the gross salary, from the
assessment year 1990-91. The following points should be kept in view:

Deduction is available only in the year in which professional tax is paid.

If it is paid by the employer on behalf of the employee, it is first included in the

salary of the employee as a perquisite which would be taxable, and then the
same amount is allowed as deduction on account of professional tax from gross
salary.

There is no monetary ceiling under the Income Tax Act. Whatever professional
tax is paid during the previous year is deductible. Under article 276 of the
Constitution a State Govt. cannot impose more than Rs.2,500 per annum as
professional tax.

From the total of salary earned by the employee as per Section 17 and the further
deduction of the allowances the net taxable salary is found.
 Income from House Property:

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.

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.

(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
unrealizable, (condition of unreliability 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.

(iii) Provided that the taxes were paid during the year. ANNUAL VALUE is the
N.A.V. less the deductions available u/s 24.

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 beingcompleted before 1.4.2003 and hassimply 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.

Income from other sources:

Under the Income Tax act, income of every kind which is not to be excluded from the
total income shall be chargeable to income tax under the head 'Income from other
sources', if it is not chargeable to income tax under any of the other heads of income.
Thus, income from other sources is a residuary head of income i.e. income not chargeable
under any other head is chargeable to tax under this head. All income other than income
from salary, house property, business and profession or capital gains is covered under
'Income from other sources'.

The following incomes are chargeable to tax :-

Dividend received from any entity other than domestic company. This is because
dividend received from a domestic company has been made exempt in the hands
of the receiver. Accordingly dividend received from a cooperative bank or
dividend received from a foreign company will be taxable as income from other
sources.

Any pension received by the legal heirs of an employee.

Any winnings from lotteries, crosswords, puzzles, races including horse races,
card games or other games of any sort or gambling or betting of any form or
nature.
 Income from any plant, machinery or furniture let out on hire where it is not the
business of the assessee to do so.

Income from securities by way of interest.

Any sum received by the assessee from his employees as contribution to any staff
welfare scheme. However when the assessee makes the payment of such
contribution within the time limit under the scheme of welfare, then the payment
will be allowed as a deduction and only the balance amount will be taxable.

Income from subletting.

Interest on bank deposits.

Allowable Deductions

The following deductions are available to the assessee in obtaining the taxable amount:-

In case of taxable dividend income and interest from securities, any reasonable
sum paid by way of remuneration or commission for the purpose of realizing such
income including interest on borrowed capital if such borrowed capital is used for
making investment in shares or securities.

In case of income from plant, machinery or furniture given out on hire, the
following expenses will be allowed as deduction:

Current repairs to building

Current repairs to machinery, plant or furniture

Insurance premium paid for insuring the plant, machinery, building or

furniture.

Depreciation on building, machinery, plant or furniture.

 In case of any expenditure other than capital expenditure or personal expenditure
which has been incurred wholly, necessarily and exclusively for earning income
like revenue expenditure, such expenditure will also be allowed as a deduction.

In case of family pension received by legal heirs of an employee, a standard

deduction of 1/3rd of such amount or Rs 15,000 whichever is less will be allowed
by way of deduction.

The following amounts are not deductible under Section 58 while computing the taxable
amount

Personal expenses of the assessee.

Any interest which is payable outside India on which income tax has not been
paid or deducted at source.

Any sum paid on account of wealth tax in India or abroad.

Any amount not allowable by virtue of it being unreasonable.

After all this calculation the Gross Total Income of the Individual is calculated
later on the Chapter VI A Deductions are calculated .
DEDUCTIONS UNDER CHAPTER- VIA

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.

Section 80C, 80CCC &80CCD (1)

The total limit under this section is Rs

1.50 lakh from financial year 2014-15
Assessment Year 2015-16. Before FY
2014-15 the limit was Rs. 1 Lakh. Under
this heading many small savings schemes
like NSC, PPF and other pension plans.
Payment of life insurance premiums and
investment in specified government
infrastructure bonds are also eligible for
deduction under Section 80C.

Besides these investments, the payments towards the principal amount of your
home loan are also eligible for an income deduction. Education expense of
children is increasing by the day. Under this section, there is provision that
makes payments towards the education fees for children eligible for an income
deduction.

1. Public Provident Fund (PPF):

 Among all the assured returns small saving schemes, Public Provident Fund (PPF)
is one of the best. Current rate of interest is 8.70% tax-free (Compounded Yearly)
and the normal maturity period is 15 years. Minimum amount of contribution is
Rs 500 and maximum is Rs 1, 50,000. A point worth noting is that interest rate is
assured but not fixed.

2. Life Insurance Premiums:

Any amount that you pay towards life insurance premium for yourself, your
spouse or your children can also be included in Section 80C deduction. Please
note that life insurance premium paid by you for your parents (father / mother /
both) or your in-laws is not eligible for deduction under section 80C. If you are
paying premium for more than one insurance policy, all the premiums can be
included. It is not necessary to have the insurance policy from Life Insurance
Corporation (LIC) even insurance bought from private players can be
considered here.

3. Equity Linked Savings Scheme (ELSS):

There are some mutual fund (MF) schemes specially created for offering you tax
savings, and these are called Equity Linked Savings Scheme, or ELSS.
The investments that you make in ELSS are eligible for deduction under Sec 80C.

4. Home Loan Principal Repayment:

The Equated Monthly Instalments (EMI) that you pay every month to repay your
home loan consists of two components Principal and Interest. The principal
component of the EMI qualifies for deduction under Sec 80C. Even the interest
component can save you significant income tax but that would be under Section
24 of the Income Tax Act.
 Income Tax (IT) Benefits of a Home Loan / Housing Loan / Mortgage, which
presents a full analysis of how you can save income tax through a home loan.

5. Stamp Duty and Registration Charges for a home:

The amount you pay as stamp duty when you buy a house and the amount you
pay for the registration of the documents of the house can be claimed as deduction
under section 80C in the year of purchase of the house.

6. SukanyaSamriddhi Account :

Sukanya Samriddhi Account meaning Girl Child Prosperity Scheme is a special

deposit scheme launched by PM Narendra Modi on 22 January 2015 for girl child.
The scheme of Sukanya Samriddhi Account came into effect via notification of
Ministry of Finance. The notification details are Notification No. G.S.R.863 (E)
Dated 02.12.2014. Scheme will be governed by SukanyaSamriddhi Account
Rules, 2014.

7. National Savings Certificate (NSC) (VIII Issue):

NSC is a time-tested tax saving instrument with a maturity period of five and Ten
Years. Presently, the interest is paid @ 8.50% p.a. on 5 year NSC and 8.80 % Per
Annum on 10 year NSC. Interest is Compounded Half Yearly. While the
minimum investment amount is Rs 100, there is no maximum amount. Premature
withdrawals are permitted only in specific circumstances such as death of the
holder. Investments in NSC are eligible for a deduction of up to Rs 150,000 p.a.
under Section 80C. Furthermore, the accrued interest which is deemed to be
reinvested qualifies for deduction under Section 80C. However, the interest
income is chargeable to tax in the year in which it accrues.

8. Pension Funds Section 80CCC:

 This section Sec 80CCC stipulates that an investment in pension funds is
eligible for deduction from your income. Section 80CCC investment limit is
clubbed with the limit of Section 80C it means that the total deduction available
for 80CCC and 80C is Rs. 1.50 Lakh. This also means that your investment in
pension funds up to Rs. 1.50 Lakh can be claimed as deduction u/s 80CCC.
However, as mentioned earlier, the total deduction u/s 80C and 80CCC cannot
exceed Rs. 1.50 Lakh.

9. 5-Yr bank fixed deposits (FDs):

Tax-saving fixed deposits (FDs) of scheduled banks with tenure of 5 years are
also entitled for section 80C deduction.\

10. Senior Citizen Savings Scheme 2004 (SCSS):

A recent addition to section 80C list, Senior Citizen Savings Scheme (SCSS) is
the most lucrative scheme among all the small savings schemes but is meant only
for senior citizens. Current rate of interest is 9.20% per annum payable quarterly.
Please note that the interest is payable quarterly instead of compounded quarterly.
Thus, unclaimed interest on these deposits wont earn any further interest. Interest
income is chargeable to tax.

11. 5-Yr post office time deposit (POTD) scheme:

POTDs are similar to bank fixed deposits. Although available for varying time
duration like one year, two year, three year and five year, only 5-Yr post-office
time deposit (POTD) which currently offers 8.50 per cent rate of interest
qualifies for tax saving under section 80C. Interest is compounded quarterly but
paid annually. The Interest is entirely taxable.
 12. NABARD rural bonds:
There are two types of Bonds issued by NABARD (National Bank for Agriculture
and Rural Development): NABARD Rural Bonds and BhavishyaNirman Bonds
(BNB). Out of these two, only NABARD Rural Bonds qualify under section 80C.

13. Unit linked Insurance Plan :

ULIP stands for Unit linked Saving Schemes. ULIPs cover Life insurance with
benefits of equity investments. They have attracted the attention of investors and
tax-savers not only because they help us save tax but they also perform well to
give decent returns in the long-term.

Other Deductions:

Deduction in respect of Contribution to Pension Account (by Employer)

Deduction available for the amount paid or deposited by the employer of the
assess in a pension scheme notified or as may be notified by the Central
Government subject to a maximum of 10% of salary in the financial year.

Section 80CCD:

Additional Contribution to New Pension Scheme (NPS)

A deduction of up to Rs. 50,000 is available over and above the limit of Rs. 1.50
lakh in respect of contributions made to NPS under Section 80CCD (1).

Section 80CCG:

Rajiv Gandhi Equity Saving Scheme:

Amount invested by resident individuals, whose gross total income does not
exceed Rs. 12 lakh, in listed shares or listed units in accordance with notified
scheme for a lock-in period of 3 years (Subject to certain conditions).
 Deduction of 50 % of total investment subject to maximum of Rs. 25,000 in 3
consecutive assessment years, beginning with the assessment year relevant to the
previous year in which the listed shares or list units of equity oriented funds are
first acquired.

Section 80D:

Deduction in respect of Medical Insurance:

Deduction is available up to Rs. 30,000/- for senior citizens and up to Rs. 25,000/-
in other cases for insurance of self, spouse and dependent children. Additionally, a
deduction for insurance of parents (father or mother or both) is available to the
extent of Rs. 30,000/- if parents are senior Citizen and Rs. 25,000/- in other cases.
Therefore, the maximum deduction available under this section is to the extent of
Rs. 60,000/-. Within the existing limit a deduction of up to Rs. 5,000 for
preventive health check-up is available.

Section 80E:

Deduction in respect of Interest on Loan for Higher Studies:

Deduction is applicable for the interest which assess is paying for education loan.
The deduction is also available for the purpose of higher education of a relative.

Section 80G:

Deduction in respect of Various Donations:

The various donations specified in Sec. 80G are eligible for deduction up to either
100% or 50% with or without restriction as provided in Sec. 80G

Section 80GG:

Deduction in respect of House Rent Paid:

 Deduction available is the least of:

a) Rent paid less 10% of total income

b) Rs. 2000/- per month i.e. Maximum Deduction available is 24,000/-

c) 25% of total income, provided

Assess or his spouse or minor child should not own residential

accommodation at the place of employment.

He should not be in receipt of house rent allowance.

He should not have self-occupied residential premises in any other place.

Section 80GGA:

Deduction in respect of certain donations for scientific research or rural

development

Section 80GGC:

Deduction in respect of contributions given by any person to political parties

Section 80 TTA:

Deduction on Saving Bank Account Interest:

Deduction from gross total income of an individual or HUF, up to a maximum of

Rs. 10,000/-, in respect of interest on deposits in savings account ( not time
deposits ) with a bank, co-operative society or post office.

After all this calculations the taxable income is found out on which the relevant tax is
calculated as per the tax slab applicable. The education Cess is also calculated @3% on
the tax and that is an addition to the tax payable amount. The amount of rebate is given to
the individual if his net taxable income is below RS 5,00,000/-.
1.3 Statement of problems

An individual is not aware about the rules and regulations of income-tax. Hence they
need the services of CA for computing their personal income-tax.
The firm has to use new way of working by reminding the clients about the last date of
filing the income tax returns. This way they can increase their client base.

1.4 Objective of study

To study taxation provisions of The Income Tax Act, 1961 as amended by Finance
Act, 2015.
To explore and simplify the tax planning procedure from a laymans perspective.
To present the tax saving avenues under prevailing statures.
 2. Company Profile

2.1 Profile

DESAI DIGHE & CO., CHARTERD ACCOUNTANTS

Desai Sunil Anantrao
Membership No: 37017
Firm Reg No: 112168W
Date: 20TH September 1991
CHARTERD ACCOUNTANTS
Email ID: sunildesaica@gmail.com
Address: 7, R.M. Building, Dr. E. Moses Rd., Mahalaxmi (West), Mumbai - 400034

2.2 Introduction work of organization

Desai & Dighe & Co. is an auditing and consulting firm. The firm has business of
consultation, tax planning, accounting and auditing. The company is based in Mumbai,
Maharashtra. They provide the best possible solution and consultancy for their respective
matter with the active support from their competent team of professionals. They have
managed to provide the effective services to their various esteemed clients. Following are
the services provided by the firm:
Audit and Assignment Services
Accounting Advisory Services
Advisory On IT Services
Advising on Drafting of Deeds/Statements
Company Law Matters
 Consultation And Arbitration Service
Corporate Governance Accounting Services
Income Tax Matters
Investigation Service
Management Consultancy Services
Wealth Management Services

3. Research Methodology

PRIMARY DATA:-

Primary data are those data, which are collected a fresh and for the first time, and thus
happen to be original in character. The primary data is collected during the course
experiment in an experimental research. We can obtain the primary data either through
observation or through direct communication with respondent in one form or through
personal interview.

Method of collecting primary data used by us:

Discussion with Staff members

Human Observation
Case Studies

SECONDARY DATA:-

The secondary data on the other hand, are those which have already been collected by
someone else and which have already been passed through the statistical process. The
researcher must be very careful while using the secondary data; he must make a little
study to isolate the suitable and unsuitable data. The secondary data may be sufficient to
solve the problem. Secondary data helps to plan the collection of primary data in case it
becomes necessary. We shall therefore discuss secondary data first and then take up
primary data. Business firms always have as greater deal of secondary data within them
sales statistic constitute the most important component of secondary data in marketing
and the researcher used it extensively.

Secondary data was collected from company profile from companys

website, companys brochure and other websites available on the web.
 4. DATA ANALYSIS AND INTERPRETATION

Case 1 :

Name of the employer Name and Designation of the Employee

ABC PVT.LTD Ram Kapoor ( Admin Department)
TAN-
MUMM34567
G PAN-AKHPK1238N
PART B ( Annexure)
Details of Salary Paid and any other Income and Tax Deducted
1. Gross Salary
a) Salary as per provisions contained in
sec.17(1) 400775
b) Value of perquisites u/s.17(2) 0
c) Profits in lieu of salary u/s 17(3) 0
Total 400775
2.Less Allowances to the extent exempt u/s.10
a) Conveyance Allowance 9600
b) House Rent Allowance 84000
c) Medical Allowance 15000
d) Children Education Allowance 0
e) Leave travel Allowance 0
29217
3.Balance (1-2) 5
4. Deductions:
a) Tax on Employment 2500
b) Entertainment Allowance 0
5. Aggregate of 4(a) and 4 (b) 2500
6.Income chargeable under the head salaries(3- 28967
5) 5
7.Add: Any other income reported by
employee
Income from House Property 0
8. Gross Total Income( 6+7) 289675
9. Deductions under Chapter VI A
A) Sections 80C,80CCC,80CCD
Deductions under section 80C
Repayment of home loan interest 0
life insurance premium 25000
Mutual Funds 0
Employee Provident Fund 0
Public Provident Fund 14685
Sukhanya Samrudhi 0
B) Other Deductions Under section (80E,80G
etc) 0
10.Aggregate of deductible amount under
chapter VI A 39685
24999
11.Total Income (8-10) 0
12. Tax on total income 0
13. `Less Rebate u/s. 87A 0
14. Tax after Rebate u/s.87 A 0 \
15. Add: Education Cess 0
15.Relief Under Section 89 0
16.Tax Payable(14+15) 0

Interpretation (case 1):

In this case the Taxable income of the individual is below taxable liability and so
he is not liable to pay any Tax on the income earned in the Previous Financial
Year.

The individual even after earning a gross salary of Rs.400775/- annualy is the nil
tax slab only because of proper exemptions given under section 10 and
investments done under chapter VI A.

Case 2:
FORM 16
Name and Designation of the
Name of the employer Employee
Ram Kapoor ( Admin
ABC PVT.LTD Department)
TAN-
MUMM34567
G PAN-AKHPK1238N
PART B ( Annexure)
Deatils of Slary Paid and any other Income and Tax Deducted
1. Gross Salary
a) Salary as per provisions contained in
sec.17(1) 437405
b) Value of perquisites u/s.17(2) 0
c) Profits in lieu of salary u/s 17(3) 0
Toatal 437405
2.Less Allowances to the extent exempt u/s.10
a) Conveyance Allowance 0
b) House Rent Allowance 0
c) Mediacl Allowance 0
d) Children Education Allownace 0
e) Leave travel Allowance 0
43740
3.Balance (1-2) 5
4. Deductions:
a) Tax on Employment 2500
b) Entertainment Allowance 0
5. Aggregate of 4(a) and 4 (b) 2500
6.Income chargable under the head salaries(3- 43490
5) 5
7.Add: Any other income reported by
employee
Income from House Property 0
8. Gross Total Income( 6+7) 434905
9. Deductions under Chapter VI A
A) Sections 80C,80CCC,80CCD
Deductions under section 80C 0
Repayment of home loan interest 0
life insurance premium 0
Mutual Funds 0
Employee Provident Fund 0
Public Provident Fund 0
SukhanyaSamrudhi 0
B) Other Deductions Under section (80E,80G
etc) 0
10.Aggregate of deductible amount under
chapter VI A 0
43490
11.Total Income (8-10) 5
12. Tax on total income 18491
13. `Less Rebate u/s. 87A 2000
14. Tax after Rebate u/s.87 A 16491 \
15. Add: Education Cess 495
15.Relief Under Section 89 0
16.Tax Payable(14+15) 16986

Interpretation (Case 2):

In this case the individual is earning a gross salary of Rs.437405/- annually , but
still is liable to pay tax on the Taxable income chargable at 10% as the taxable
income is below 5,00,000.

In this case, there is no allowances provided to the individual and also the
individual did not invest amount under Chapter VIA Deductions. By investing an
amount under Chapter VI A the individual would have saved some Tax.

A rebate of Rs.2000/- is also received by the individual as the taxable income is

below Rs.500000/-.

Case 3:

FORM 16
Name and Designation of the
Name of the employer Employee
ABC PVT.LTD Ram Kapoor (Software Engineer)
TAN-
MUMM34567GPAN-AKHPK1238N
PART B ( Annexure)
Deatils of Slary Paid and any other Income and Tax Deducted
1. Gross Salary
a) Salary as per provisions contained in
sec.17(1) 1212000
b) Value of perquisites u/s.17(2) 0
c) Profits in lieu of salary u/s 17(3) 0
Toatal 1212000
2.Less Allowances to the extent exempt u/s.10
a) Conveyance Allowance 17600
b) House Rent Allowance 0
c) Mediacl Allowance 0
d) Children Education Allownace 0
e) Leave travel Allowance 0
3.Balance (1-2) 1194400
4. Deductions:
a) Tax on Employment 2300
b) Entertainment Allowance 0
5. Aggregate of 4(a) and 4 (b) 2300
6.Income chargable under the head salaries(3-
5) 1192100
7.Add: Any other income reported by
employee
Income from House Property 200000
8. Gross Total Income( 6+7) 992100
9. Deductions under Chapter VI A
A) Sections 80C,80CCC,80CCD
Deductions under section 80C
Repayment of home loan interest 119003
life insurance premium 14412
Mutual Funds 0
Employee Provident Fund 0
Public Provident Fund 0
SukhanyaSamrudhi 0
B) Other Deductions Under section (80E,80G
etc) 0
10.Aggregate of deductible amount under
chapter VI A 133415
11.Total Income (8-10) 858690
12. Tax on total income 96738
13. `Less Rebate u/s. 87A 0
14. Tax after Rebate u/s.87 A 96738 \
15. Add: Education Cess 2902
15.Relief Under Section 89 0
16.Tax Payable(14+15) 99640
Interpretation (Case 3 ):
In this case the individual falls under the 3 rd slab where tax is charged at the rate
of 20%.

Individual also has claim the benefit of home loan to reduce the tax which has
really helped.

To save more taxes the individual should have claimed for exemptions under
section 10, and also could have invested upto a limit of 1,50,000 under Chapter
VI A.
 CASE 4:

FORM 16
Name and Designation of the
Name of the employer Employee
ZINC Pvt Ltd.s Kapil Sharma ( Manger Sales )
TAN-
MUMM34567GPAN-AKHPK1238N
PART B ( Annexure)
Deatils of Slary Paid and any other Income and Tax Deducted
1. Gross Salary
a) Salary as per provisions contained in
sec.17(1) 20,00,000
b) Value of perquisites u/s.17(2) 10,000
c) Profits in lieu of salary u/s 17(3) 0
20,10,00
Toatal 0
2.Less Allowances to the extent exempt
u/s.10
a) Conveyance Allowance 19,200
b) House Rent Allowance 0
c) Mediacl Allowance 15,000
d) Children Education Allownace 0
e) Leave travel Allowance 20,000
3.Balance (1-2) 1955800
4. Deductions:
a) Tax on Employment 2500
b) Entertainment Allowance 0
5. Aggregate of 4(a) and 4 (b) 2500
6.Income chargable under the head
salaries(3-5) 1958300
7.Add: Any other income reported by
employee
Income from House Property 0
8. Gross Total Income( 6+7) 1958300
9. Deductions under Chapter VI A
A) Sections 80C,80CCC,80CCD
Deductions under section 80C
Repayment of home loan interest 0
life insurance premium 60000
Mutual Funds 0
Employee Provident Fund 50000
Public Provident Fund 40000
SukhanyaSamrudhi 0
B) Other Deductions Under section
(80E,80G etc) 0
10.Aggregate of deductible amount under
chapter VI A 1,50,000
11.Total Income (8-10) 1808300
12. Tax on total income 367490
13. `Less Rebate u/s. 87A 0
14. Tax after Rebate u/s.87 A 367490 \
15. Add: Education Cess 11024
15.Relief Under Section 89 0
16.Tax Payable(14+15) 378514

Interpretation (case 4):

In this case the Individual falls under the 4 th Tax Slab as the Taxable income is
above Rs.10,00,000/-. The income will be taxed at 30%..

The individual can claim an additional deduction under Chapter VI A under the
National Pension Scheme and also can claim benefits under section 80D,
80E,80CCD etc.

5 . HRA RECEIVED

Following are the details of Mr.Xs salary and rent paid by him:

Basic Salary + Dearness Allowance (Rs 1,00,000 * 12) 12,00,000

HRA (Rs 45,000 *12) 5,40,000

Rent of house in Delhi (Rs 30,000 * 12) 3,60,000

Solution:
a) HRA received 5,40,000

b) 50% of the salary as the rented property is in metro city 6,00,000

c) Actual rent paid less 10% of salary (3,60,000 1,20,000) 2,40,000

HRA Exempt u/s 10(13A) (least of the above) 2,40,000

Here Mr X receives a house rent allowance of Rs. 5, 40,000 and he pays the rent of Rs.
600000 in metro city. So on the basis of calculation Mr. X can get exemption of Rs.
240000 u/s 10.

6. HRA NOT RECEIVED (80GG)

Mr. Sivaji earns an annual income of INR 3, 00,000 (after deductions). He pays an annual
amount of INR 1, 50,000 towards house rent.

Solution:

According to the conditions of Section 80GG:

At INR 2,000 per month = INR 24,000

Rent paid minus 10% of total income = INR 1, 50,000 INR 30,000 = INR 1, 20,000

25% of total income = INR 75,000

Therefore, the least of the three findings is INR 24,000 and becomes eligible for the
amount deductible under Section 80GG towards house rent allowance for a complete
financial year.

7. When salary,HRA and rent of the house are not same throughout the year:

Basic Salary + Dearness Allowance (Rs 50,000 * 9) for 9 months 6,30,000

Basic Salary + Dearness Allowance (Rs 60,000 * 3) for 3 months

HRA (Rs 40,000 *12) 4,80,000

Rent of house in Delhi (Rs 35,000 * 12) 4,20,000

Solution

Month HRA received 50% Salary Rent-10% Sal HRA Exempt

April 40,000 25,000 30,000 25,000

May 40,000 25,000 30,000 25,000

June 40,000 25,000 30,000 25,000

July 40,000 25,000 30,000 25,000

August 40,000 25,000 30,000 25,000

September 40,000 25,000 30,000 25,000

October 40,000 25,000 30,000 25,000

November 40,000 25,000 30,000 25,000

December 40,000 25,000 29,000 25,000

January 40,000 30,000 29,000 29,000

February 40,000 30,000 29,000 29,000

March 40,000 30,000 29,000 29,000

HRA Exempt 3,12,000

8. HOUSE BOUGHT ON LOAN AND SELF OCCUPIED (claimed under 80C and
Sec 24)

Mr. X owns an individual house in Chitoor which cost him Rs 50 lakhs. He bought this
house with a HDFC home loan for Rs. 40 lakhs. This year his interest is Rs 4.2 lakhs
approximate and principal repaid is Rs 78,000. He lives in the same house.

Solution:

In this case, Mr. X can make use both section 80C and section 24. He cannot claim HRA
exemption as he lives in his own house.

So Mr. X can claim Rs 2 lakh deduction for interest paid under section 24 and under
section 80C he can claim Rs 78,000 which is principal repaid.

Perquisties

9. (ACCOMODATION) UNFURNISHED

Mr.Sunil is working in Essem Ltd. The company has provided him with a rent free

Unfurnished accommodation in Mumbai. The accommodation is owned by the company.

The salary of Mr. Sunil is as follows :

Basic salary : Rs. 84,000 per month.

Dearness allowance : Rs. 1,16,000 per month (forming part of salary while
computing retirement benefits).
Dearness allowance : Rs. 20,000 per month (not forming part of salary while
computing retirement benefits).
Monthly fixed commission : Rs. 10,000 per month
Employers contribution to provident fund : 10% of salary
What will be the taxable value of perquisite in respect of accommodation provided by the
employer?

In case of non-Government employee, the value of perquisite will be computed as

follows (accommodation owned by the employer):

Value of perquisite

Not exceeding 10 lakhs 7.5% of the salary

Exceeding 10 lakhs but not exceeding 25 lakhs 10% of the salary

Exceeding 25 lakhs 15% of the salary

Salary for this purpose shall include all payments, except the following:

(a) Dearness allowance, if it is not taken into account, while computing retirement
benefits (i.e., DA not in terms).

(b) Employers contribution to provident fund account of the employee.

(c) All allowances which are exempt from tax.

(d) Value of perquisites (whether monetary or non-monetary).

(e) Lump sum payments received at the time of termination of service or Superannuation
or voluntary retirement, like gratuity, severance pay, leave Encashment, voluntary
retirement benefits, commutation of pension and similar payments.

Solution:

Considering above, monthly salary in this case will be computed as follows :

Particulars Amount (Rs)

Basic Salary 84,000
Dearness allowance(forming part of salary 1,16,000
while computing retirement benefits)
Monthly fixed commission 10000
Employerss contribution to PPF Not to be considered
Total salary to be used to compute value of 210000
perquisite

In this case the accommodation is located in Mumbai. Hence, value of perquisite in the
hands of Mr.Sunil will come to Rs. 31,500 (Rs. 2,10,000 15%) per month.

10. FURNISHED ACCOMODATION

Mr. Madhu is working in Essem Ltd. The company has provided him with a furnished
accommodation. The accommodation is leased by the company at a monthly rent of
Rs.8,400. Salary of Mr. Madhu is Rs. 50,000 per month. The furniture provided along
with the accommodation is rented by the employer at a monthly rent of Rs. 2,000. What
will be the value of perquisite in this case value of furnished accommodation will be
computed as follows;

Particulars Amount (Rs)

Value of accommodation considering 7500
accommodation as unfurnished
accommodation
Add : Value of furniture i.e. actual hire 2000
charges (paid or payable) by
the employer
Value of furnished accommodation 9500
In this case the accommodation is leased by the employer and, hence, the value of
unfurnished accommodation will be lower of the following:

(a) Rs. 8,400 (rent of the accommodation)

(b) Rs. 7,500 (being 15% of the salary)

11. (Valuation of perquisite in respect of provision of educational facility to the

children/members of household of the employee)

Mr. Lal is working in Essem Ltd. The children (one son and one daughter) of Mr. Lal are
studying in the school which is run by Essem Ltd. Apart from his children his younger
brother is also studying in the same school. Nothing is charged from Mr. Lal towards
school fees of his children or his brother. The cost of such facility to the company comes
to Rs. 500 per month per child. However, cost of such facility in similar schools comes to
Rs. 840 per month per child. What will be the taxable value of perquisite in respect of
education facility provided by the employer?

Solution:

Where the education facility is provided to the children of the employee in an educational
institution which is maintained and owned by the employer or where such free
educational facilities are provided in any institution by reason of his being in employment
of that employer, then the value of perquisite shall be the cost of such education in a
similar institution in or nearby the locality. However, nothing shall be chargeable to tax if
the cost of such education (or the value of such benefit) per child does not exceed
Rs.1,000 per month. If the cost of such education facility exceeds Rs. 1,000 per month
per child, then amount in excess of Rs. 1,000 per month per child shall be charged to tax.
In this case, the cost in similar school comes to Rs. 840 which is less than Rs. 1,000 and,
hence, nothing will be charged to tax in the hands of Mr. Lal in respect of education
facility provided to his children.

The benefit of exemption up to Rs. 1,000 per child per month is available only in respect
of the children of the employee and not in respect of any other member of the household.
Thus, in respect of facility provided to his brother, taxable value of perquisite will come
to Rs. 840 per month.

12. Valuation of perquisite in respect of motor car owned by the employee and
running and maintenance expenses met by the employer

Mr. Sunil is working in Essem Ltd. at a monthly salary of Rs. 84,000. He owns a car
(Maruti 800). The car is used by him for his private purpose as well as the official
purpose. The employer reimburses him every month Rs. 2,000 on account of expenditure
of the car. No driver is deputed. What will be the taxable value of perquisite in respect of
reimbursement of expenditure by the employer?

Solution:

In this case, the value of perquisite in the hands of Mr. Sunil will be computed as follows:
Particulars Amount (Rs)
Actual expenditure incurred or reimbursed 2000
by the employer
Less: Prescribed amount, i.e., Rs. 1,800 per 1800
month since the cubic capacity of the engine
does not exceed 1.6 litres (i.e., 1,600 cc

Value of perquisite 200

In this case perquisite of motor car which is owned by the employee and maintenance and
expenses are owned by the employer. So the value of perquisite is Rs 200.

6. FINDINGS, CONCLUSION & SUGGESTION

FINDINGS:

Most of the individuals only look into investments because they want to save
TAX.

Mostly all the freshers in a company, do not have any awareness regarding their
investments, tax savings etc.

Todays youth is earning more but their financial literacy is very negligible, While
many are unaware of how to manage their income for best returns , quite a
number dont even realize the importance of savings and investment.

People in different localities show different perception towards investments.

 Tax planning with using different tax exempted investment tools helps an
individual to save tax up to great extent.

Suggestions

Proper tax planning is a basic duty of every person which should be carried out
religiously. Basically, there are three steps in tax planning exercise.

These three steps in tax planning are:

Calculate your taxable income under all heads i.e., Income from Salary, House
Property, Business & Profession, Capital Gains and Income from Other Sources.
Calculate tax payable on gross taxable income for whole financial year (i.e., from 1st
April to 31st March) using a simple tax rate table, given on next page.
After you have calculated the amount of your tax liability. You have two options to
choose from:
1. Pay your tax (No tax planning required)
2. Minimise your tax through prudent tax planning.

Most people rightly choose Option 'B'. Here you have to compare the advantages of
several tax-saving schemes and depending upon your age, social liabilities, tax slabs and
personal preferences, decide upon a right mix of investments, which shall reduce your tax
liability to zero or the minimum possible.

Every citizen has a fundamental right to avail all the tax incentives provided by the
Government. Therefore, through prudent tax planning not only income-tax liability is
reduced but also a better future is ensured due to compulsory savings in highly safe
Government schemes. We should plan our investments in such a way, that the post-tax
yield is the highest possible keeping in view the basic parameters of safety and liquidity.

For most individuals, financial planning and tax planning are two mutually exclusive
exercises. While planning our investments we spend considerable amount of time
evaluating various options and determining which suits us best. But when it comes to
planning our investments from a tax-saving perspective, more often than not, we simply
go the traditional way and do the exact same thing that we did in the earlier years. Well,
in case you were not aware the guidelines governing such investments are a lot different
this year. And lethargy on your part to rework your investment plan could cost you dear.
For persons below 30 years of age:
In this age bracket, you probably have a high appetite for risk. Your disposable surplus
maybe small (as you could be paying your home loan installments), but the savings that
you have can be set aside for a long period of time. Your children, if any, still have many
years before they go to college; or retirement is still further away. You therefore should
invest a large chunk of your surplus in tax-saving funds (equity funds). The employee
provident fund deduction happens from your salary and therefore you have little control
over it. Regarding life insurance, go in for pure term insurance to start with. Such policies
are very affordable and can extend for up to 30 years.
For persons between 30 - 45 years of age:
Your appetite for risk will gradually decline over this age bracket as a result of which
your exposure to the stock markets will need to be adjusted accordingly. As your
compensation increases, so will your contribution to the EPF. The life insurance
component can be maintained at the same level; assuming that you
would have already taken adequate life insurance and there is no need to add to it. In
keeping with your reducing risk appetite, your contribution to PPF/NSC increases. One
benefit of the higher contribution to PPF will be that your account will be maturing (you
probably opened an account when you started to earn) and will yield you tax free income
(this can help you fund your children's college education).
For persons over 55 years of age:
You are to retire in a few years; then you will have to depend on your investments for
meeting your expenses. Therefore the money that you have to invest under Section 80C
must be allocated in a manner that serves both near term income requirements as well as
long-term growth needs. Most of the funds are therefore allocated to NSC. Your PPF
account probably will mature early into your retirement (if you started another account at
about age 40 years). You continue to allocate some money to equity to provide for the
latter part of your retired life. Once you are retired however, since you will not have
income there is no need to worry about Section 80C. You should consider investing in the
Senior Citizens Savings Scheme, which offers an assured return of 9% pa; interest is
payable quarterly. Another investment you should consider is Post Office Monthly
Income Scheme.

Investing the Rs 100,000 in a manner that saves both taxes as well as helps you achieve
your long-term financial objectives is not a difficult exercise. All it requires is for you to
give it some thought, draw up a plan that suits you best and then be disciplined in
executing the same.