“A STUDY ON THE EXTENT OF INCOME TAX RETURN E-FILING

AMONGST THE RESPONDENTS IN TILAKNAGAR”

A PROJECT SUBMITTED TO

UNIVERSITY OF MUMBAI FOR COMPLETION OF MASTERS IN

COMMERCE ACCOUNTANCY – II

SEMESTER 4

UNDER THE FACULTY OF COMMERCE

BY

Mr. GAURAV NARESH SHARMA

ROLL NO 124

UNDER THE GUIDANCE OF

Mrs. KINNARRY THAKKAR

UNIVERSITY OF MUMBAI

DEPARTMENT OF COMMERCE

KALINA CAMPUS, SANTACRUZ

MUMBAI – 400098
MAY 2018

1
“A STUDY ON THE EXTENT OF INCOME TAX E-RETURN FILING
AMONGST THE RESPONDENTS IN TILAKNAGAR”

A PROJECT SUBMITTED TO

UNIVERSITY OF MUMBAI FOR COMPLETION OF MASTERS IN

COMMERCE ACCOUNTANCY – II

SEMESTER 4

UNDER THE FACULTY OF COMMERCE

BY

Mr. GAURAV NARESH SHARMA

ROLL NO 124

UNDER THE GUIDANCE OF

Mrs. KINNARRY THAKKAR

UNIVERSITY OF MUMBAI

DEPARTMENT OF COMMERCE

KALINA CAMPUS, SANTACRUZ

MUMBAI – 400098
MAY 2018

2
 UNIVERSITY OF MUMBAI
DEPARTMENT OF COMMERCE
KALINA CAMPUS, SANTACRUZ
MUMBAI – 400098.
CERTIFICATE

This is to certify that Mr. SHARMA GAURAV NARESH SONAL has worked and duly
completed his project work for the degree of Master in Commerce under the faculty of
commerce in the subject of ADVANCE ACCOUNTANCY and his project entitled, “A
STUDY ON THE EXTENT OF INCOME TAX RETURN E-FILING AMONGST
THE RESPONDENTS IN TILAKNAGAR” under my supervision.

I further certify that the entire work has been done by the learner under my guidance and that
no part of it has been submitted previously for any degree or diploma of any university.
It is his own work and facts reported by his personal finding and investigations.

Dr. VIVEK DEOLANKAR Mrs. KINNARRY THAKKAR

(INTERNAL EXAMINER)

DATE OF SUBMISSION Mrs. C.S.LALITA MUTREJA

(EXTERNAL EXAMINER)

3
 DECLARATION BY LEARNER

I the undersigned Mr. SHARMA GAURAV NARESH SONAL hereby declare that the
work embodied in this project work titled “A STUDY ON THE EXTENT OF INCOME
TAX RETURN E-FILING AMONGST THE RESPONDENTS IN TILAKNAGAR”
Forms my own contribution to the research work carried out under the guidance of Mrs
KINNARRY THAKKAR is a result of my own researched work and has not been previously
submitted to any other university for any other degree/ diploma to this or any other
university.

Whenever reference has been made to previous works of other, it has been clearly indicated
as such and included in the bibliography.

I, here by further declare that all the information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.

SHARMA GAURAV NARESH SONAL

CERTIFIED BY

Mrs. KINNARRY THAKKAR

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 ACKNOWLEDMENT

To list out all who have helped me is difficult because there are so numerous and the depth is
so enormous.

I would like to acknowledge the following as being idealistic channels and fresh dimensions
in the completion of the project.

I take this opportunity to thank the University of Mumbai for giving me the chances to do this
project.

I would like to thank my Head Of department, Dr.VIVEK DEOLANKAR for providing the
necessary facilities required for the completion of this project.

I would like to express my sincere gratitude towards my project guide Mrs. KINNARRY
THAKKAR whose guidance and care made the project successful.

I would like to thank my college library, for having provided various reference, books and
magazine related to my project.

Lastly, I would like to thank each and every person who have help me directly or indirectly in
the completion of the project especially my parents and peers who supported me throughout
my project.

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 INDEX

CHAPTER TITLE PAGE

NO NO
1 INTRODUCTION 7-36

2 RESEARCH METHODOLOGY 37-41

3 LITERATURE REVIEW 42-44

4 INCOME TAX 45-52

5 HEADS OF INCOME 53-77

6 INCOME TAX RETURN E-FILLING 78-83

7 DATA INTERPERTATION AND ANALYSIS 84-92

8 CONCULSION 93

9 BIBLOGRAPHY 94-96

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 CHAPTER 1

INTRODUCTION

Income Tax is usually the most visible and discussed component of India's tax system. It is
generally believed that taxes on income are phenomena of modern days. However, there is
enough evidence which shows that taxes on income were levied in ancient days in India. It
was introduced for the first time in India in 1860 to overcome the finical crisis (revenue
crisis) of 1857. Thus, it is the income tax Act 1961 which is currently operative in India.
Income tax is a tax on the income of an individuals or an entity. Income tax is a main revenue
source of central or union government of India. Government has to play in important role in
development of society in the modern era.

It has not only to its traditional functions defense, law and order but also to undertake welfare
and development activities such as health, education and rural development etc. It has also to
pay for its own administration. All these functions require huge public finance. Taxes
constitute the main source of public revenue (finance) whereby government raises revenue
for public spending. Taxes have been broadly categorized into direct and indirect taxes.
Direct taxes include those taxes which are paid by the person on whom these are levied like
personal income tax, corporation tax etc.

Income tax can be categorized in to two parts viz. personal income and corporate income tax.
Income tax is levied on the income of individuals and entity. And corporate tax is one of the
direct taxes that are levied on corporate income or profit. Both taxes are levied and collected
by the centre under Article 366 and entry 82 and 85 of the union list. Seventh Schedule of the
constitution of India. (India- The constitution of India.)

Income tax is most important of all direct taxes and with the application of progressive rate
schedule provisions of exemption limit. It can be used not only to satisfy all the canons of
sound tax system but may also go a long away in realizing variety of socio-economic
objectives. Set out by economic system (Gopal, 1935). It also helps in bringing distributional
justice through higher rate of tax on rich class of the society. It may also act as a fool for
controlling inflation. Due to all these factors, income tax has assumed great importance in the

7
Structure of direct taxation. Therefore, politically advanced democracies impose some form
of personal and corporate taxation, generally based in income. Thus, since income tax an
important role in the socio-economic development of the country after 1991. Income tax
(Both PIT and CIT) contributes a major share to government exchequer. The share of income
tax was Rs.11024 cores in 1990-91 and rose to Rs. 661389 cores in 2013-14 (Economic
survey, MOF govt. of India, 1990-91 to 2013-14).

HISTORICAL BACKGROUND

Taxation is the most important source of revenue for the government. it is therefore important
to note that those who fall within the ambit of the taxable slabs have to compulsorily file their
tax returns on their income to the government to meet various public expenditure. There are
two types of taxes (i) direct taxes and (ii) indirect taxes.

Income tax and wealth tax are the direct taxes, whereas sales tax, excise, custom duty, service
tax are the indirect taxes. Taxes are levied at progressive rates. Tax is one of the important
and major sources of revenue to the government. It is a contribution by individuals as well as
organizations to the government to undertake various public activities. Tax payers cannot
refuse to pay taxes as refusing to pay tax is a criminal offence. Tax helps in mobilization of
resources. its aim is to achieve economic growth and economic development of a nation.
Maximization of economic growth is the ultimate objective of economic, fiscal or monetary
policy of the government. While stimulating the growth in desired directions it is equally
necessary to see that the development is brood based, balanced and the benefits of
development percolate into all sections of the society. Hence, government requires the
resources.

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India had developed a systematic tax structure before the mauryan period. The Basic tax was
on land. It was usually called "bhaga" which was a fixed proportion of the crop raised on
land. The proportion was either one sixth or one quarter. It was one third in case of fertile
land. Several other taxes on cattle and livestock were imposed in India before Muslim rule.
Mauryan Income Tax "The Mauryan Income tax was levied on a particular class of people.
Even today all incomes are not taxed, and some kinds of income are exempted from the tax.
Where, for instance a land tax is levied, often income tax is not levied on agricultural
incomes. Apart from taxing a particular class, the mauryans appear to have adopted the
Proportional system of income taxation. The tax was levied on prostitutes, and possibly also
on actors, dancers, musicians, jugglers, singers, players on musical instruments, 14 buffoons,
minics, rope dancers, heralds, pimps; unchaste, women and wandering brides etc. (Gopal
1935).

9
Sultan Aladdin Khilji (1296-1316) introduced three taxes on peasantry, viz. (i) the "Kharaj"
(tax on cultivation) ii) Charai (tax on milch cattle) and iii) "Ghari" Tax on house). Then the
“Ghari and Charai" tax was stopped by Firoze Tughluq in (1351-88). But he introduced the
levy of "Jeziya". The "Jeziya" was Islamic poll Tax or Non Muslims. It was latter on
abolished by Akbar. However, the last prominent Mughal Emperor, Levied "Jeziya" on his
mostly Hindu subjects in 1679. During the Mughal period, the "Zabt" system was prevalent
in case of land revenue. Under this system, there was differential rate of an assessment and
lower rates were charged on following land. Direct taxes on certain professions and trade
were sometimes imposed by the East India Company in the presidency towns. But these taxes
were abolished due to their poor administration. But again tax on trade and professions was
imposed in 1859 by the government of India under the compulsion of financial crisis owing
to the sepoy mutiny. Under this tax a 3 per cent levy was imposed on all incomes below 2000
(Samal, 1992).

It is a matter of general belief that taxes on income and wealth are of recent origin but there is
enough evidence to show that taxes on income in some form or the other were levied even in
primitive and ancient communities. The origin of the word "Tax" is from "Taxation" which
means an estimate. These were levied either on the sale and purchase of merchandise or
livestock and were collected in a haphazard manner from time to time. Nearly 2000 years
ago, there went out a decree from Ceaser Augustus that the entire world should be taxed. In
Greece, Germany and Roman Empires, taxes were also levied sometime on the basis of
turnover and sometimes on occupations. For many centuries, revenue from taxes went to the
Monarch. In Northern England, taxes were levied on land and on moveable property such as
the Saladin title in 1188. Later on, these were supplemented by introduction of poll taxes, and
indirect taxes known as "Ancient Customs" which were duties on wool, leather and hides.
These levies and taxes in various forms and on various commodities and professions were
imposed to meet the needs of the Governments to meet their military and civil expenditure
and not only to ensure safety to the subjects but also to meet the common needs of the
citizens like maintenance of roads, administration of justice and such other functions of the
State.

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In India, the system of direct taxation as it is known today, has been in force in one form or
another even from ancient times. There are references both in Manu Smriti and Arthasastra to
a variety of tax measures. Manu, the ancient sage and law-giver stated that the king could
levy taxes, according to Sastras. The wise sage advised that taxes should be related to the
income and expenditure of the subject.

He, however, cautioned the king against excessive taxation and stated that both extremes
should be avoided namely either complete absence of taxes or exorbitant taxation. According
to him, the king should arrange the collection of taxes in such a manner that the subjects did
not feel the pinch of paying taxes. He laid down that traders and artisans should pay 1/5th of
their profits in silver and gold, while the agriculturists were to pay 1/6th, 1/8th and 1/10th of
their produce depending upon their circumstances. The detailed analysis given by Manu on
the subject clearly shows the existence of a well-planned taxation system, even in ancient
times. Not only this, taxes were also levied on various classes of people like actors, dancers,
singers and even dancing girls. Taxes were paid in the shape of gold-coins, cattle, grains,
raw-materials and also by rendering personal service.

The learned author K.B.Sarkar commends the system of taxation in ancient India in his book
"Public Finance in Ancient India", (1978 Edition) as follows:- "Most of the taxes of Ancient
India were highly productive. The admixture of direct taxes with indirect Taxes secured
elasticity in the tax system, although more emphasis was laid on direct tax. The tax-structure
was a broad based one and covered most people within its fold. The taxes were varied and the
large variety of taxes reflected the life of a large and composite population".However, it is
Kautilya's Arthasastra, which deals with the system of taxation in a real elaborate and
planned manner. This well known treatise on state crafts written sometime in 300 B.C., when
the Mauryan Empire was as its glorious upwards move, is truly amazing, for its deep study of
the civilisation of that time and the suggestions given which should guide a king in running
the State in a most efficient and fruitful manner.

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A major portion of Arthasastra is devoted by Kautilya to financial matters including financial
administration. According to famous statesman, the Mauryan system, so far as it applied to
agriculture, was a sort of state landlordism and the collection of land revenue formed an
important source of revenue to the State. The State not only collected a part of the
agricultural produce which was normally one sixth but also levied water rates, octroi duties,
tolls and customs duties. Taxes were also collected on forest produce as well as from mining
of metals etc. Salt tax was an important source of revenue and it was collected at the place of
its extraction.

Kautilya described in detail, the trade and commerce carried on with foreign countries and
the active interest of the Mauryan Empire to promote such trade. Goods were imported from
China, Ceylon and other countries and levy known as a vartanam was collected on all foreign
commodities imported in the country. There was another levy called Dvarodaya which was
paid by the concerned businessman for the import of foreign goods. In addition, ferry fees of
all kinds were levied to augment the tax collection.

Collection of Income-tax was well organised and it constituted a major part of the revenue of
the State. A big portion was collected in the form of income-tax from dancers, musicians,
actors and dancing girls, etc. This taxation was not progressive but proportional to the
fluctuating income. An excess Profits Tax was also collected. General Sales-tax was also
levied on sales and the sale and the purchase of buildings was also subject to tax. Even
gambling operations were centralized and tax was collected on these operations.

A tax called yatravetana was levied on pilgrims. Though revenues were collected from all
possible sources, the underlying philosophy was not to exploit or over-tax people but to
provide them as well as to the State and the King, immunity from external and internal
danger. The revenues collected in this manner were spent on social services such as laying of
roads, setting up of educational institutions, setting up of new villages and such other
activities beneficial to the community.

12
The reason why Kautilya gave so much importance to public finance and the taxation system
in the Arthasastra is not far to seek. According to him, the power of the government depended
upon the strength of its treasury. He states "From the treasury, comes the power of the
government, and the Earth whose ornament is the treasury, is acquired by means of the
Treasury and Army". However, he regarded revenue and taxes as the earning of the sovereign
for the services which were to be rendered by him to the people and to afford them protection
and to maintain law and order. Kautilya emphasised that the King was only a trustee of the
land and his duty was to protect it and to make it more and more productive so that land
revenue could be collected as a principal source of income for the State. According to him,
tax was not a compulsory contribution to be made by the subject to the State but the
relationship was based on Dharma and it was the King's sacred duty to protect its citizens in
view of the tax collected and if the King failed in his duty, the subject had a right to stop
paying taxes, and even to demand refund of the taxes paid.

Kautilya has also described in great detail the system of tax administration in the Mauryan
Empire. It is remarkable that the present day tax system is in many ways similar to the system
of taxation in vogue about 2300 years ago. According to the Arthasastra, each tax was
specific and there was no scope for arbitratiness. Precision determined the schedule of each
payment, and its time, manner and quantity being all pre-determined. The land revenue was
fixed at 1/6 share of the produce and import and export duties were determined on advalorem
basis. The import duties on foreign goods were roughly 20 per cent of their value. Similarly,
tolls, road cess, ferry charges and other levies were all fixed. Kautilya's concept of taxation is
more or less akin to the modern system of taxation. His over all emphasis was on equity and
justice in taxation. The affluent had to pay higher taxes as compared to the not so fortunate.
People who were suffering from diseases or were minor and students were exempted from tax
or given suitable remissions. The revenue collectors maintained up-to-date records of
collection and exemptions. The total revenue of the State was collected from a large number
of sources as enumerated above. There were also other sources like profits from Stand land
(Sita) religious taxes (Bali) and taxes paid in cash (Kara). Vanikpath was the income from
roads and traffic paid as tolls.

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He placed land revenues and taxes on commerce under the head of tax revenues. These were
fixed taxes and included half yearly taxes like Bhadra, Padika, and Vasantika. Custom duties
and duties on sales, taxes on trade and professions and direct taxes comprised the taxes on
commerce. The non-tax revenues consisted of produce of sown lands, profits accuring from
the manufacture of oil, sugarcane and beverage by the State, and other transactions carried on
by the State. Commodities utilised on marriage occasions, the articles needed for sacrificial
ceremonies and special kinds of gifts were exempted from taxation. All kinds of liquor were
subject to a toll of 5 percent. Tax evaders and other offenders were fined to the tune of 600
panas.

Kautilya also laid down that during war or emergencies like famine or floods, etc. the
taxation system should be made more stringent and the king could also raise war loans. The
land revenue could be raised from 1/6th to 1/4th during the emergencies. The people engaged
in commerce were to pay big donations to war efforts.

Taking an overall view, it can be said without fear of contradiction that Kautilya's Arthasastra
was the first authoritative text on public finance, administration and the fiscal laws in this
country. His concept of tax revenue and the on-tax revenue was a unique contribution in the
field of tax administration. It was he, who gave the tax revenues its due importance in the
running of the State and its far-reaching contribution to the prosperity and stability of the
Empire. It is truly an unique treatise. It lays down in precise terms the art of state craft
including economic and financial administration.

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 PRE INDEPENDENT

Income Tax has been in force in India from 1860. During British times the deficit and sterling
debt necessitated new sources of revenue. The British Government specially sent “Mr. James
Wilson” an experienced British Treasury official to restore order in Indian finances. Mr.
Wilson introduced a tax on income of all kinds, a system of licenses of arts trades and
professions and a tobacco tax. Income Tax Act was closely modeled after British Income Tax
Law. The tax was levied on all income and profits arising from property and professions. In
short, it underwent major changes in 1886, 1922 and 1936. The attainment of Independence,
adoption of the democratic constitution and commencement of an era of planning
necessitated a change in India’s tax policy. The Taxation Inquiry Commission was appointed
to make a detailed study on implementation and repercussion on Taxation policy. The main
objective of the commission was the development of various economic sections of the society
both as revenue and an instrument of social economic welfare. After several experiments the
first Income Tax Act passed in 1886. The Act had features like the levy of taxes at a flat rate
and the introduction of the concept of agricultural income as well as its exclusion from
taxation. Though the tax levy was done with the main objective of “addition to revenue” after
some time the objective of ‘Reduction of Economic Disparity’ also assumed importance and
hence in 1916, tax rates were made progressive. Such changes and repealing existing laws
became inevitable with changing times.

In 1918, a new Act was passed which advocated aggregating income from all sources to
determine tax rates and it also prescribed tax rates in Income Tax Schedules. Various
committees were set up to review the tax system. In the light of recommendations of Mahabir
Tyagi committee in 1961, Income Tax Act 1961 was presented and passed in September
1961. It came into force from 1R' April 1962. Since then various committees have been
appointed by the government to review the taxation structure. Thus the present scheme of
Income Tax is as amended by many such schemes.

15
The Income Tax Act is a direct tax enactment, which forms the fiscal scheme of our country
along with direct taxes like wealth tax. It is a Centre enactment, the Central Government
administers the enactment and collects its proceeds, which are then shared by Central and
State governments on the basis fixed by the Finance Commission. The Income Tax Act, 1961
extends to the whole of India and consists of more than 450 sections, numerous sub-sections
and twelve schedules. The administration of all direct taxes is done through an apex body
called as ‘Central Board of Direct Taxes’ (CBDT) for administration of the Act. The Board
has passed various rules, which form the scheme of Income Tax Rules, 1962. In addition to
these, from time to time various circulars are issued by the Board to guide the Income Tax
Department official, assesses and the public in general.

POST INDEPENDENT
The rapid changes in administration of direct taxes, during the last decades, reflect the history
of socio-economic thinking in India. From 1922 to the present day changes in direct tax laws
have been so rapid that except in the bare outlines, the traces of the I.T. Act, 1922 can hardly
be seen in the 1961 Act as it stands amended to date. It was but natural, in these
circumstances that the set up of the department should not only expand but undergo structural
changes as well.

The organizational history of the Income-tax Department starts in the year 1922. The Income-
tax Act, 1922, gave, for the first time, a specific nomenclature to various Income-tax
authorities. The foundation of a proper system of administration was thus laid. In 1924,
Central Board of Revenue Act constituted the Board as a statutory body with functional
responsibilities for the administration of the Income-tax Act. Commissioners of Income- tax
were appointed separately for each province and Assistant Commissioners and Income-tax
Officers were provided under their control. The amendments to the Income tax Act, in 1939,
made two vital structural changes: (i) appellate functions were separated from administrative
functions; a class of officers, known as Appellate Assistant Commissioners, thus came into
existence, and (ii) a central charge was created in Bombay. In 1940, with a view to exercising
effective control over the progress and inspection of the work of Income-tax Department

16
throughout India, the very first attached office of the Board, called Directorate of Inspection
(Income Tax) - was created. As a result of separation of executive and judicial functions, in
1941, the Appellate Tribunal came into existence. In the same year, a central charge was
created in Calcutta also.

2.1 World War II brought unusual profits to businessmen. During 1940 to 1947, Excess
Profits Tax and Business Profits Tax were introduced and their administration handed over to
the Department (These were later repealed in 1946 and 1949 respectively). In 1951, the 1st
Voluntary Disclosure Scheme was brought in. It was during this period, in 1946, that a few
Groups 'A' officers were directly recruited. Later on in 1953, the Group 'A' Service was
formally constituted as the 'Indian Revenue Service'.

2.2 This era was characterized by considerable emphasis on development of investigation

techniques. In 1947, Taxation on Income (Investigation) Commission was set up which was
declared ultra vies by the Supreme Court in 1956 but the necessity of deep investigation had
by then been realized. In 1952, the Directorate of Inspection (Investigation) was set up. It was
in this year that a new cadre known as Inspectors of Income Tax was created. The increase in
'large income' cases necessitated checking of the work done by departmental officers. Thus in
1954, the Internal Audit Scheme was introduced in the Income-tax Department.

2.3 As indicated earlier, in 1946, for the first time a few Group A officers were recruited
in the department. Training them was important. The new recruits were sent to Bombay and
Calcutta where they were trained, though not in an organized manner. In 1957, I.R.S. (Direct
Taxes) Staff College started functioning in Nagpur. Today this attached office of the Board
functions under a Director-General. It is called the National Academy of Direct Taxes. By
1963, the I.T. department, burdened with the administration of several other Acts like W.T.,
G.T., E.D., etc., had expanded to such an extent that it was considered necessary to put it
under a separate Board. Consequently, the Central Board of Revenue Act, 1963 was passed.
The Central Board of Direct Taxes was constituted, under this Act.

17
2.4 The developing nature of the economy of the country brought with it both steep rates
of taxes and black incomes. In 1965, the Voluntary Disclosure Scheme was brought in
followed by the 1975 Disclosure Scheme. Finally, the need for a permanent settlement
mechanism resulted in the creation of the Settlement Commission.

2.5 A very important administrative change occurred during this period. The recovery of
arrears of tax which till 1970 was the function of State authorities was passed on to the
departmental officers. A whole new wing of Officers - Tax Recovery Officers was created
and a new cadre of post of Tax Recovery Commissioners was introduced w.e.f. 1-1-1972.

2.6 In order to improve the quality of work, in 1977, new cadres known as IAC
(Assessment) and in 1978 another cadre known as CIT (Appeals) were created. The
Commissioners' cadre was further reorganized and five posts of Chief Commissioners
(Administration) were created in 1981.

2.7 Tax Reforms: Certain important policy and administrative reforms carried out over
the past few years are as follows:-

(a). The policy reforms include:-

 Lowering of rates;
 Withdrawals/reduction of major incentives;
 Introduction of measures for presumptive taxation;
 Simplification of tax laws, particularly relating to capital gains; and
 Widening the tax base.

(b). The administrative reforms include :--

 Computerization involving allotment of a unique identification number to tax payers

which is emerging as a unique business identification number; and
 Realignment of the available human resources with the changed business needs of the
organization.

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2.8 Computerization: Computerization in the Income-tax Department started with the
setting up of the Directorate of Income tax (Systems) in 1981. Initially computerization of
processing of challans was taken up. For this 3 computer centers were first set up in 1984-85
in metropolitan cities using SN-73 systems. This was later extended to 33 major cities by
1989. The computerized activities were subsequently extended to allotment of PAN under the
old series, allotment of TAN, and pay roll accounting. These computer centers used batch
process with dumb terminals for data entry. In 1993 a Working Group was set up by the
Government to recommend computerization of the department. Based on the report of the
Working Group a comprehensive computerization plan was approved by the Government in
October, 1993. In pursuance of this, Regional Computer Centers were set up in Delhi,
Mumbai, and Chennai in 1994-95 with RS6000/59H Servers. PCs were first provided to
officers in these cities in phases. The Plan involved networking of all users on LAN/WAN.
Network with leased data circuits were accordingly set up in Delhi, Mumbai and Chennai in
Phase-I during 1995-96. A National Computer Centre was set up at Delhi in 1996-97.
Integrated application software were developed and deployed during 1997-99. Thereafter,
RS6000 type mid range servers were provided in the other 33 Computer Centers in various
major cities in 1996-97. These were connected to the National Computer Centre through
leased lines. PCs were provided to officers of different level up to ITOs in stages between
1997 and 1999. In phase II offices in 57 cities were brought on the network and linked to
RCCs and NCC.

2.9 Restructuring of the Income-tax department: The restructuring of the Income-tax

Department was approved by the Cabinet in its meeting held on 31-8-2000 to achieve the
following objectives:-

 Increase in effectiveness and productivityy;

 Increase in revenue collection;
 Improvement in services to tax payers;
 Reduction in expenditure by downsizing the workforce;
 Improved career prospects at all levels;
 Induction of information technology; and
 Standardization of work norms

19
 IMPORTANT EVENT IN INCOME TAX

 1939
 Appellate functions separated from inspecting functions.
 A class of officers known as AACs came into existence.
 Jurisdiction of Commissioners of Income tax extended to certain classes of cases and
a central charge was created at Bombay.

 1940
 Directorate of Inspection (Income-tax) came into being.
 Excess Profits Tax introduced w.e.f. 1-9-1939.

 1941
 Income-tax Appellate Tribunal came into existence.
 Central charge created at Calcutta.

 1943
 Special Investigation Branches set up

 1946
 A few officers of Class-I directly recruited.
 Demonetization of high denomination notes made.
 Excess Profits Tax Act repealed.

 1947
 Business Profits Tax enacted (for the period 1-4-1946 to 31-3-1949).

 1951
 Report of Income-tax Investigation Commission known as Vardhachari Commission
received.
 Voluntary Disclosure Scheme introduced.

20
 1951
 Directorate of Inspection (Investigation) set up.
 Inspector of Income-tax declared as an I.T. authority.

 1953
 Estate Duty Act, 1953 came into existence w.e.f. 15-10-1953.
 Act XXV of 1953 gave effect to the recommendations of Commission appointed
under Taxation of Income (Investigation Commission) Act, 1947.

 1954
 Internal Audit Scheme in the Income-tax Department introduced.
 Taxation Enquiry Commission known as John Mathai Commission set up.

 1957
 The Wealth tax Act, 1957 introduced w.e.f. 1-4-1957.
 I.R.S.(DT) Staff College started functioning at Nagpur and much later four R.T.Is.
Stationed at Bombay, Calcutta, Bangalore and Lucknow opened.

 1958
 LI>The Gift-tax Act, 1958 introduced w.e.f. 1-4-1958.
 Report of Law Commission received.

 1959
 Direct Taxes Administration Enquiry Committee submitted its report.

 1960
 Directorate of Inspection (Research, Statistics & Publications)was set up.
 Two grades of Inspectors - selection and ordinary grades - merged into one single
grade.

21
 1961
 Direct Taxes Advisory Committee set up - Direct Taxes Administrative Enquiry
Committee constituted.
 Income-tax Act, 1961 came into existence w.e.f. 1-4-1962.
 Revenue Audit introduced for the first time in the Department.
 New system for evaluation of work done by Income-tax Officers introduced.

 1963, 1964
 Central Board of Revenue bifurcated and a separate Board for Direct Taxes known as
Central Board of Direct Taxes (CBDT)constituted under the Central Board of
Revenue Act, 1963.
 For the first time an officer from the department became Chairman of the CBDT
w.e.f. 1-1-1964.
 The Companies (Profits) Sur -tax Act, 1964 was introduced.
 Annuity Deposit Scheme, 1964 introduced.
 1965
 Voluntary Disclosure Scheme came into operation.
 1966
 Functional Scheme introduced.
 Special Recovery Unit created.
 Intelligence Wing created and placed under the charge of Directorate of Inspection
(Investigation).

 1968
 Valuation Cell came into existence in the Income tax Department.
 Report of rationalization and simplification of tax structure (Bhoothalingam
Committee) received.
 Administrative Reforms Commission set up.

 1969
 Direct Recruitment to Class II Income-tax Officers made.
 The post of IAC (Audit) created in the Income-tax Department.

22
 1970
 The posts of Addl. Commissioner of Income-tax created and abolished after one year.
 Recovery functions which were hitherto performed by Income- tax Officers, given to
Tax Recovery Officers. Prior to that State Government officials exercised the
functions of a Tax Recovery Officer.

 1971
 A new cadre of posts known as Tax Recovery Commissioners introduced w.e.f.
1.1.1972.
 Report of Direct Taxes Enquiry Committee received.
 Summary Assessment Scheme introduced w.e.f. 1-4-1971.

 1972
 A Special Cell within the Directorate of Inspection (Investigation) created to oversee
the cases of big industrial houses.
 A new cadre of posts known as IAC(Acq.) created and IAC appointed as Competent
Authority with the insertion of new Chapter XXA in the Income Tax Act, 1961 on the
acquisition of immovable properties in certain cases of transfer to counter evasion of
tax.
 Directorate of Organisation & Management Services (Income- tax) created.
 The post of I.T.O. (Internal Audit) created.
 Bradma Scheme in the Income-tax Department introduced.
 System of Permanent Account Number introduced.
 Valuation Officers given statutory powers under the Income-tax Act, 1961 and
Wealth-tax Act, 1957.

 1974
 Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 introduced.
 Action Plan for the Income-tax Officers introduced for the first time.
 Concept of M.B.O introduced.

23
 1975
 Voluntary Disclosure Scheme for Income and Wealth implemented.
 Special Cell for dealing with Smugglers' cases created.

 1976
 Settlement Commission created and Taxation Laws (Amendment) Act,1975 inserted
a new Chapter XIXA in the Income Tax Act w.e.f.1-4-1976.
 Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976
introduced w.e.f. 25-1-1976.
 A new scheme for departmentalization of accounts introduced.
 Chokshi Committee submitted its interim report.

 1977
 A new cadre of posts known as IAC (Assessment) created.

 1978
 Appellate functions given to a new cadre of Commissioners known as Commissioner
(Appeals).
 Directorate of Inspection (Recovery) set up.
 A new directorate known as Directorate of Inspection (Vigilance) came into existence
by bifurcating the functions of Directorate of Inspection (Investigation).
 Chokshi Committee submitted its final report.

 1979
 A new directorate designated as Directorate of Inspection (Publication & Public
Relations) created out of the Directorate of Inspection (RS&P).

 1980
 Hotel Receipt Tax Act, 1980 came into force w.e.f. 1.4.1981.

24
 1981
 Economic Administrative Reforms Commission set up.
 Three new Directorates viz. Directorate of Inspection (Intelligence), Directorate of
Inspection (Survey) and Directorate of Inspection (Systems) created.
 Within the Directorate of Inspection (Income Tax and Audit), a separate Director of
Inspection (Audit) appointed.
 Directorate of Inspection (RS&P) re-organised and Directorate of Inspection (P&PR)
re-designated as Directorate of Inspection (Printing & Publications).
 I.R.S.(DT) Staff College, Nagpur, re-designated as National Academy of Direct
Taxes.
 Special Bearer Bonds (Immunities & Exemptions) Act promulgated.
 Director General (Special Investigation) and Director General (Investigation)
appointed to control the functioning of various Directorates under the control of
Central Board of Direct Taxes.
 Five posts of Chief Commissioner (Administration) created.
 A few posts of Commissioner of Income-tax were earmarked as Commissioner of
Income-tax (Inv.) and Commissioner of Income- tax (Recovery).

 1982
 Special Cell within the Directorate of Inspection (Investigation) converted into a
separate Directorate and re-designated as Directorate of Inspection (Special
Investigation).
 DIT (Systems) appointed in the Directorate of Income-tax (Organisation and
Management Services) to coordinate efforts in introducing electronic data processing
in the IT Deptt. A microprocessor based EDP system along with data entry system
was installed heralding the era of computerisation.
 Levy of Hotel Receipts Tax discontinued.
 Regional Training Institute at Nagpur started functioning under the control of the
National Academy of Direct Taxes.

25
 1983
 The vigilance set up reorganised and the strength of Dy. Director (Vigilance) and
Asstt. Director(Vigilance) augmented.
 Computerised systems for processing challans and PAN designed and developed.

 1984
 Taxation Laws(Amendment) Act 1984 passed to streamline procedures in the interest
of better work management; avoid inconvenience to tax payers; reduce litigation;
remove anomalies and rationalise some provisions.

 1985
 Post of Director General (Investigation) created for more effective checking of tax
evasion.
 E.D.(Amendment) Act 1985 discontinues levy of estate duty on deaths occurring on
or after 16.03.1985.
 Compulsory Deposit Scheme (Income Tax Payers) Act 1974 discontinued w.e.f.
1.4.1985.
 Interest Tax Act, 1974 discontinued w.e.f. 31.3.1985
 A new "Reward Scheme" for motivating officers introduced w.e.f. 1.4.1985.

 1986
 The I.T. Act and W.T. Act amended by Taxation Laws (Amendment and
Miscellaneous Provisions) Act :-
 Established Settlement Commission.
 Introduced Block assets concept for depreciation.
 Four offices of Appropriate Authority for acquiring property in which unaccounted
money is invested set up in metropolitan cities.

26
 1987
 Government's approval obtained to set up three new benches of Settlement
Commission.
 L.K. Jha Committee set up for simplification and rationalization of tax laws.
 Office of Directorate General (Tax Exemption) set up at Calcutta.
 The Direct Tax Law(Amendment) Act 1987 introduced uniform previous year and
redesignated the following authorities :-

 Director of Inspection
 Insp. Asstt. Commissioner of I. Tax
 Appellate. Asstt. Commissioner
 Income tax Officer Gr. A
 Income tax Officer Gr. B
 Director of Income Tax
 Dy. Commissioner of Income Tax.
 -Do- (Appeals)
 Asstt. Commissioner of I.Tax
 Income tax Officer

 Expenditure Tax Act 1987 brought into force.

 1988
 Benami Transactions Prohibition Act 1988 introduced.
 The Government announced a "Time Window Scheme" which allowed tax payers
50% rebate of interest u/s 220(2) if they pay the tax and balance interest. The scheme
was in operation between 1.7.88 to 30.9.88.
 CIT (Central) placed under the control and supervision of Director General
(Investigation).
 Government decided that cadre control for Group 'C' and 'D' posts would be with
Chief Commissioner and with CBDT for Group 'A' and 'B'posts.
 Extension of Direct Tax Law to the State of Sikkim by a notification of the President
of India dated 7.11.1988.

27
 1989
 Creation of an attached office of DGIT(Management Systems) to supervise
Directorate of I.Tax (Research, Statistics, Publication & Public Relations) and
Directorate of I.Tax (Organization and Management Services) from Sept. 1989.

 1990
 Gift tax Bill introduced on 31.5.1990.
 Creation of 65 posts of Dy. Commissioner of I. Tax by up gradation of equal number
of posts of Asset. Commissioner of I Tax.

 1991
 Interest Tax Act, 1974 revived.
 Directorate of IT (Systems) started reporting directly to Board.

 1992
 Rs. 1400 Presumptive Taxation scheme introduced as a measure to widen tax base.
 The post of Director General of Income-tax (Management Systems) was abolished.

 1993
 40 additional posts of Commissioner of Income-tax (Appeals) created.
 Authority for Advance Rulings set up.
 A comprehensive phased cadre review for Group B, C and D initiated.

 1994
 2068 additional posts in Group B, C and D sanctioned.
 New PAN introduced.
 Regional Computer Centres (RCCs) were set up in Chennai, Delhi and Mumbai.

 1995
 New procedure for search assessment introduced.
 50 years of training commemorated and "Seminar Twenty Five" introduced by
National Academy of Direct Taxes.
28
 1996
 77 posts of Commissioners of Income-tax created.
 Infrastructure for operational needs strengthened.
 Study report on 4th cadre review of Group 'A' officers (IRS) of the Department
prepared by Directorate of Income Tax (Organization and Management Services).

 1997
 Rates of Income-tax reduced significantly.
 Legal measures to widen tax base on certain economic indicators introduced in
selected cities.
 Presumptive tax scheme discontinued.
 Voluntary Disclosure Scheme 1997 introduced.
 Minimum Alternate Tax introduced.
 National Computer Centre (NCC) was set up in Delhi.

 1998
 Sec. 260A introduced enabling direct appeals to High Court.
 1/6 Scheme & penalty for non-filing of return introduced to widen tax base.
 Gift-tax abolished for gifts made after 1.10.1998.
 Kar Vivad Samadhan Scheme 1998 introduced.
 Silver Jubilee of Regional Training Institutes celebrated.
 Designation of Asstt. Commissioner (Senior Time Scale) changed to Dy.
Commissioner and that of Dy. Commissioner (Junior Administrative Grade) to Joint
Commissioner.

 1999
 Furnishing details of bank account and credit cards in the prescribed form made
mandatory for refund purpose.
 Prima-facie adjustments to return done away with; acknowledgments to serve as
intimations.
 Samman Scheme introduced in 1999 to honor deserving tax payers.

29
 2000
 The process of implementation of restructuring of the Department commenced to
increase efficiency and to deal with increased workload.
 Total sanctioned work force reduced from 61,031 to 58,315.
 Certain rationalization measures at structural levels introduced.
 Interest-tax Act terminated with effect from 1-4-2000.

 2001
 The restructuring of the Department resulted in reducing the stagnation at all levels
and large number of personnel was promoted in various grades.
 Jurisdiction pattern was revamped.
 New posts were created at the level of DGIT/DIT in the areas of Research,
International Taxation and Infrastructure.

 2002
 Computerised processing of returns all over the country introduced.
 The National Website of the Income Tax Department (www.incometaxindia.gov.in)
was launched to provide a vital interface between the Department and taxpayers.

 2003
 The National Website of the Department (www.incometaxindia.gov.in) won the
Silver Medal in the category of the 'Government Websites'under the National e-
Governance Awards.

 2004
 As a measure of widening of tax base, the concept of AIR (Annual Information
Return) was introduced.
 Fringe Benefit Tax (FBT) was introduced as a major step towards widening of tax
base and bolstering of the Direct Tax Collection.
 Securities Transaction Tax (STT) was introduced.

30
 2005
 Tonnage Tax was introduced for the Shipping Companies.
 Banking Cash Transaction Tax (BCTT) was introduced w.e.f. 01-06-2005.

 2006
 A project for enabling electronic filing (e-filing) of Income Tax Returns was
launched.
 Tax Return Preparer Scheme (TRPS) was launched to assist individuals and HUF
taxpayers to file their Return of Income.
 The institution of Income Tax Ombudsman set up in 12 cities throughout the country
to look into tax related grievances of the common public.

 2007
 The Refund Banker Scheme was launched in Delhi and Patna charges.
 Sevottam Scheme was launchedto standardize service delivery to the taxpayers.
 The first citizen-friendly single window Aayakar Seva Kendra (ASK)was setup,for
centralized receipt and registration of specified categories of documents, including
income tax returns.
 The Income Tax Department became the biggest revenue mobiliser for the
Government in 2007-08, with its share increasing from 34.76%in 1997-98 to
52.75%in 2007-08.
 All India Tax Network (TAXNET) was setup connecting more than 700 offices in
more than 500 cities. Consolidation of 36 (RCC) independent regional databases into
a single centralized database (PDC or Primary Data Centre) was carried out.
 Integrated Taxpayer Data Management System (ITDMS) for drawing of 360°
taxpayer profile was launched.

 2008
 Cyber Forensic Labs were setup to identify relevant digital data during search and
survey operations, recover hidden or password protected or deleted data and store
retrieved data in a manner so that it could be used as evidence in judicial proceedings.
 Electronic filing of Income Tax Returns Project was awarded Silver Award in the
category "Outstanding Performance in Citizen Centric Service Delivery" under the
National e-Governance Awardsfor the year 2007-08.
31
 2009
 Centralized Processing Centre was setup in Bengaluru for bulk processing of e-filed
and paper returns. The Centre operates without any interface with taxpayers in a
jurisdiction – free manner.

 2010
 Integrated Tax Payer Data Management System (ITDMS) was conferred the Prime
Minister's Award for 'Excellence in Governance and Administration'.
 CPC Bangalore awarded the Gold Award for 'Excellence in Government Process Re-
engineering' under the National e-Governance Awards for the year 2010-2011.
 To simplify the 50 years old Income-tax Act, 1961,'The Direct Taxes Code Bill, 2010'
was introduced in the Parliament.

 2011
 Foreign Tax Division of CBDT was strengthened to effectively handle the increase in
tax information exchangeand transfer pricing issues.
 Various IT initiatives were taken for efficient tax administration. These include e-
filing and e-payment of taxes, adoption of 'Sevottam' concept by CBEC and CBDT,
web based facility for tax payers to track the resolution of refunds and credit for pre-
paid taxes and augmentation of processing capacity.
 A new simplified form 'Sugam' was introduced to reduce the compliance burden of
small tax payers falling within presumptive taxation.

 2012

 Senior Citizens (not having any income from business/profession), were exempted
from payment of advance tax.
 TRACES (TDS Reconciliation, Accounting and Correction Enabling System)
launched to serve an integrated one-stop platform for the stakeholders to facilitate the
services related to TDS operations.

32
 2013

 The Government approved the Cadre restructuring of the Department for the creation
of 20,751 additional posts and for carrying out various measures to increase the
effectiveness of the Department.
 Briefly, the salient features of the approved restructuring are as under:
 Number of assessment units (AUs) increased by 1080 from 3420 to 4500, for
strengthening the tax-administration;
 Each Range to have one more Assessing Officer;
 Increase in the number` of Administrative CsIT deployed on assessment related
functions to increase from 228 to 250;
 114 Special Ranges to be created, with adequate supporting manpower;
 Creation of reserves numbering 620 created in the IRS cadre;
 Bifurcation of the posts of the CITs in the HAG and SAG scales, on functional
basis;
 Up gradation of all existing 116 posts of CCsIT in HAG+ and Apex scales along
with an increase of their number by 1 post;
 Strengthening of the training set-up with creation of three more RTIs;
 Strengthening the Appellate/Advocacy Structure by increasing the number of CIT
Appeals and providing them supporting manpower. Advocacy structure in the
ITAT to be strengthened.

 2014

 New National Website of the Income Tax Department www.incometaxindia.gov.in

launched with enhanced new features and content.
 SIT to investigate Black Money in Swiss Bank Accounts formed
 Tax Administrative Reforms Commission (TARC) headed by Dr. Parthasarathi
Shome submitted its report of reviewing the applicability of tax policies and tax laws
in the context of global best practices and recommending measures for reforms
required in tax administration to enhance its effectiveness and efficiency.

33
 PURPOSE AND THE EFFECT OF TAX

The levying of taxes aims to raise revenue to fund governing and/or to alter prices in order to
affect demand. States and their functional equivalents throughout history have used money
provided by taxation to carry out many functions. Some of these include expenditures on
economic infrastructure (roads, public transportation, sanitation, legal systems, public safety,
education, health-care systems), military, scientific research, culture and the arts, public
works, distribution, data collection and dissemination, public insurance, and the operation of
government itself. A government's ability to raise taxes is called its fiscal capacity.

When expenditures exceed tax revenue, a government accumulates debt. A portion of taxes
may be used to service past debts. Governments also use taxes to fund welfare and public
services. These services can include education systems, pensions for the elderly,
unemployment, and public transportation. Energy, water and waste management systems are
also common public utilities.

According to the proponents of the chartalist theory of money creation, taxes are not needed
for government revenue, as long as the government in question is able to issue fiat money.
According to this view, the purpose of taxation is to maintain the stability of the currency,
express public policy regarding the distribution of wealth, subsidizing certain industries or
population groups or isolating the costs of certain benefits, such as highways or social
security.

A tax effectively changes relative prices of products. Therefore, most[quantify] economists,

especially neoclassical economists, argue that taxation creates market distortion and results in
economic inefficiency unless there are (positive or negative) externalities associated with the
activities that are taxed that need to be internalized to reach an efficient market
outcome. They have therefore sought to identify the kind of tax system that would minimize
this distortion. Recent[when?] scholarship suggests that in the United States of America, the
federal government effectively taxes investments in higher education more heavily than it
subsidizes higher education, thereby contributing to a shortage of skilled workers and
unusually high differences in pre-tax earnings between highly educated and less-educated
workers.[citation needed]

34
Governments use different kinds of taxes and vary the tax rates. They do this in order to
distribute the tax burden among individuals or classes of the population involved in taxable
activities, such as the business sector, or to redistribute resources between individuals or
classes in the population. Historically,[when?] taxes on the poor supported the nobility;
modern social-security systems aim to support the poor, the disabled, or the retired by taxes
on those who are still working. In addition, taxes are applied to fund foreign aid and military
ventures, to influence the macroeconomic performance of the economy (a government's
strategy for doing this is called its fiscal policy; see also tax exemption), or to modify patterns
of consumption or employment within an economy, by making some classes of transaction
more or less attractive.

A state's tax system often [quantify] reflects its communal values and the values of those in
current political power. To create a system of taxation, a state must make choices regarding
the distribution of the tax burden—who will pay taxes and how much they will pay—and
how the taxes collected will be spent. In democratic nations where the public elects those in
charge of establishing or administering the tax system, these choices reflect the type of
community that the public wishes to create. In countries where the public does not have a
significant amount of influence over the system of taxation, that system may reflect more
closely the values of those in power.

All large businesses incur administrative costs in the process of delivering revenue collected
from customers to the suppliers of the goods or services being purchased. Taxation is no
different; the resource collected from the public through taxation is always greater than the
amount which can be used by the government.[citation needed] The difference is called
the compliance cost and includes (for example) the labour cost and other expenses incurred in
complying with tax laws and rules. The collection of a tax in order to spend it on a specified
purpose, for example collecting a tax on alcohol to pay directly for alcoholism-rehabilitation
centres, is called hypothecation. Finance ministers often dislike this practice, since it reduces
their freedom of action. Some economic theorists regard hypothecation as intellectually
dishonest since, in reality, money is fungible. Furthermore, it often happens that taxes or
excises initially levied to fund some specific government programs are then later diverted to
the government general fund. In some cases, such taxes are collected in fundamentally
inefficient ways, for example, though highway tolls.[citation needed]

35
Since governments also resolve commercial disputes, especially in countries with common
law, similar arguments are sometimes used to justify a sales tax or value added tax. Some
(libertarians, for example) portray most or all forms of taxes as immoral due to their
involuntary (and therefore eventually coercive/violent) nature. The most extreme anti-tax
view, anarcho-capitalism, holds that all social services should be voluntarily bought by the
person(s) using them.

36
 CHAPTER 2

REVIEW OF LITERATURE

Chitale (1978) reviewed the tax incentives for savings available under the Income Tax Act
and evaluated different alternatives to make tax structure more savings oriented. The author
recommended the extension in scope of Sec. 80C to cover 10-15 years fixed deposits in banks
and removal of Rs 20000 ceiling of qualified amount. It was highlighted that tax benefit from
qualified savings did not depend on amount saved, but it depended upon one’s taxable
income. It implied that cost benefit principle was ignored under section 80 C. It was
suggested that the rate of tax benefit should be made progressive as in the case of tax rates.
The study also suggested that instead of an individual, the family consisting of father, mother
and minor children should be recognized as basic unit of assessment as that could curb the
problem of inequality of consumption by checking the splitting of income.

Rao (1979) attempted to examine the responsiveness of the union and state tax structures and
changes in selected individual taxes with respect to changes in national income and their
respective bases from 1960-61 to 1973-74. He highlighted that the overall trends of revenue
from taxation in India showed a steady increase over the period. He further concluded that the
elasticity of most of the individual taxes was low. So, the changes in taxation system did not
facilitate much to improve the automatic growth of the tax receipts.

Murti (1982) studied different aspect of income tax administration in India viz. origin and
development of income tax in India, the structure and organization of income tax
administration, public relations, recruitment and training of personnel as well as morale of
income tax personnel. The study reflected both strengths and weaknesses of Indian Income
Tax administration based on its historical evolution since the colonial period. It highlighted
that income tax officials were overburdened with work. The service conditions in the
department were not healthy for accomplishment of goals. The reforms in administrative
machinery were very slow. In the end, the researcher stressed upon reviewing the income tax
administration as a part of the larger Indian bureaucracy.

37
Bagchi (1982) examined how personal income tax system was adjusted according to inflation
during the period 1971-72 to 1981-82. The indexed time series constructed by taking 1971-72
as base year showed that exemption limit was over indexed in seven years out of ten years. It
implied that income tax 63 system was adjusted according to inflation. The effective burden
of tax at selected levels of income during 1971-72 and 1981-82 revealed that the lowest and
the highest levels of income were not affected by inflation but middle ranges suffered a
higher incidence of tax due to inflation. The ratio of direct to indirect taxes in India was just
0.21 as compared to its range from 0.4 to 2 in developed countries. Author opined that
coverage and yield of income tax should be improved by deliberate change in rates rather
than allowing it to come about as a result of inflation.

Lall (1982) in his study analyzed the impact of direct taxes on individual and business
income. The study of average income tax rates for assesses in different income brackets from
1974-75 to 1978-79 revealed that average tax rates increased progressively with the increase
in income bracket. But average tax rate was substantially lower than marginal tax rate
applicable to that income bracket and trend showed a downward movement. The researcher
suggested that statutory tax rates should not be reduced further for giving relief to assesses in
the lower income brackets rather it should be done by raising the level of deductions,
exemptions and rebates. The study also showed that annual average tax rate for five year
period (1974-75 to 1978-79) for central government employees, state government employees
and for non government employees was 7.8 per cent, 9 per cent and 11.8 per cent
respectively. The reasons identified for such differences were the composition of salary
income and discriminatory treatment of house rent allowance. The author also opined that
saving schemes and concessions available under income tax law might not 64 increase total
level of savings in the economy but rather reallocated of the existing level of savings. As a
result of it the funds would flow from private sector to public sector. He opined that a
thorough reform of corporate and personal income tax system should be undertaken.

38
Nahar (1994) tried to examine the impact of personal income tax on household savings with
special reference to salaried class in India. He studied income tax burden, progressiveness of
income tax and special incentive provisions for motivating savings during the period 1970-71
to 1990-91. He collected primary data with random sampling technique from 300 salaried
persons in Delhi with respect to their income, savings and tax liability. The study revealed
that household savings had sustained exponential growth rate of 13.7 per cent from 1950-51
to 1990-91. The study also highlighted that people shifted their investment from currency and
saving deposits to shares, debentures and provident funds for availing benefit of incentive
provisions. The author opined that the assesses covered by different income groups had
availed the benefit in same manner and all types of assesses were psychologically attuned to
tax 77 incentives. Lastly, he suggested for simplification of tax incentive provisions and
rationalization of tax rate structure.

Shome, Aggarwal and Singh (1996) studied the system of Tax Deduction at Source (TDS)
on income from salary, securities, lottery and payment to contractors in India. The authors
opined that TDS was an effective instrument for quick and smooth collection of taxes. The
study showed that 79 TDS as a percentage of net collection of income tax increased from
26.45 per cent in 1980-81 to 44.74 per cent in 1989-90 and then declined to 37.15 per cent in
1994-95. The ratio of refund varied between 11 to 22 per cent of the gross income tax
collection. In the end, the researchers suggested that the scheme of TDS should be extended
to cover activities where black money had been invested like the transfer of immoveable
property and transaction of shares.

39
Sreekantaradhya (2000) tried to study structure and reform of taxation in India. He analyzed
the tax structure prior to 1991 and various tax reforms that were implemented during the
period 1990-91 to 1999-2000. The study revealed that share of personal income tax in total
tax revenue of the Central Government increased to 15.21 per cent in 1999-2000 as compared
to 9.33 per cent in 1990- 91. The coverage of personal income tax was extremely limited
because of exemption of agricultural sector and predominance of unorganized sector in the
economy. The study also pointed out that high marginal rates and complicated rules were
responsible for poor compliance. It had been further observed that wide ranging incentives, a
large number of zero tax companies and complex system of corporate taxation had affected
the corporation tax revenue negatively. The author suggested some measures for
improvement in tax system such as application of presumptive taxation on unorganized sector
of the economy, bringing the agricultural income under tax net, adoption of tax deduction at
source, compulsory filing of return on the basis of certain economic criteria and
rationalization of fringe benefit taxation.

Maji and Rakshit (2001) examined the provisions of Income Tax Act relating to integration
of agricultural income with non-agricultural income over the period 1987-88 to 2000-01. The
authors calculated tax liability by taking different amounts of agricultural income for the
purpose of integration and found that higher the amount of agricultural income, lower was the
effective rate of additional tax. The study highlighted that integration provision was
disproportionate in nature. The researchers opined that exempting agricultural 84 incomes
from tax was unfair as it resulted in horizontal inequity, narrowing the tax base and tax
evasion. They suggested that agricultural income should be brought under the purview of
Income Tax Act by amending constitution and a separate head of income should be inserted
for agricultural income. They further suggested that average of the first two bracket rates
should be applicable on the agricultural income.

40
Task Force on Direct Taxes (2002) constituted under the chairmanship of Mr. Vijay Kelkar
by Ministry of Finance, Government of India submitted its report in 2002. It was asked to
suggest measures to rationalize and simplify direct taxes, improvement in taxpayers` service
and redesign procedures for strengthening enforcement so as to improve compliance of direct
tax laws. It recommended the following measures:
a. The income tax department must increase expenditure on tax payer’s services.
b. The department should set up a structure for Electronic Data Interchange (EDI) with
some of the major departments.
c. The Government should establish national tax information network (TIN) on a build,
operate and transfer basis [BOT].
d. The basic exemption limit must be raised to Rs. 1.00 Lac for individuals and HUFs.
e. Standard deduction under the head salary should be eliminated.
f. The number of tax slabs should be reduced.
g. Maximum marginal rate of tax should be moderate.
h. Personal income tax base should be broadened by eliminating some tax incentives.
i. Corporate tax rate should be reduced.
j. Dividend should be exempted from tax in the hands of shareholders.
k. Minimum alternate tax under section 115 JB and tax exemptions under section 10A
and 10B of income tax Act should be omitted.

Sidhu (2003) carried out the study to ascertain the effectiveness of direct tax reforms
introduced during the post liberalization period by covering the span of ten years from 1991-
92 to 2000-01. He observed that direct tax reforms could not contribute positively to solve the
fiscal problems of the country. The reduction in tax rates could not lead to better tax
compliance. Reforms had succeeded to increase the number of assesses but failed to increase
the Central Government revenue. The major share of direct taxes had come from lower
income group during the period of study. Therefore, the researcher strongly recommended
reviewing tax reform policies followed by the Government during the post-liberalization
period.

41
 CHAPTER 3
RESEARCH METHODOLOGY

This Chapter discusses in details about the objective, nature of data and sources of data, tools
and method of data analysis and also includes limitation of study.

OBJECTIVE OF STUDY

A. To find out general awareness on the ITR return.

B. The main objective of the research study is to find out how many are filling their e-
return.

C. The objective of this project is to find out from which source they have found the
information on ITR

D. The objective of the study is to find whether the respondent have only one sources of
income or not.
.

HYPOTHESIS

H1 A person who has linked his PAN card and Aadhar card can file Income Tax Return.

H2 Education plays an important role in Filing Income Tax Return.

H3 Filing of ITR depends on the level of Income a person is earning.

H4 A person does not only rely on one source of revenue.

H5 Many of the working class are aware about Income Tax Return Filing.

42
RESEARCH METHODOLOGY

For the purpose of research study data has carried out from different source. Collection of
data is essential part of research. Data has been collected from two sources which is primary
and secondary data. Primary data has been collected from questioner and secondary data from
online data, website, annual report, and online journal.
A. PRIMARY DATA: - Primary data have been collected from various sources such as
salaried person. And self employed. For the purpose of primary data a pilot study has
been undertaken. Questioner was prepared for the required information. As questioner was
passed on to the respondent and accordingly primary data has been collected. In order to
identify the target group as the universe so large hence a reasonable respondent is selected
from Mumbai city and the area is Tilak Nagar. The present study is restricted to this area.
Statistical technique is used to interpret the data as per requirement. Statistical technique is
used for analysis of data. Questioner was forward to salaried employee. For the purpose
of analysis and interpretation of data questionnaires were forwarded.
a) Questionnaire includes quantitative data and hence comparison is made
between two set of observations.

b) The comparative analysis of two set data is made by percentage with original
figures. Frequencies table is used for the purpose analysis of set data.

c) Analysis data is presented by bar diagram, multiple bar diagram are used to
show the collected information.

B. SECONDARY DATA:- secondary data is collected from various sources such as:-
a) International Journal of Multidisciplinary Research and development.

b) Income tax return website

c) Various Direct tax Books that are used by Mcom or Bcom student.

d) Also used various search engines for various data.

43
 C. SAMPLE SIZE: - (collection of data and analysis of data) Random sampling was
used to have collect and reasonable data. Representative sampling of some group of
people under taken for study.
a) Type of respondent:- Individual assesses

b) Sampling unit:- individual assess in Mumbai city in Tilak nagar.

c) Sample size: - Around 50 questionnaires was made and distributed.

LIMITATION OF STUDY

The study is likely to suffer from certain limitation. Some of these are mentioned here under
so that the finding of the study may be understood properly. The limitation area as follow:-

a) As this topic is related to individual finance, many of respondent were reluctant to

give away the information regarding their tax detail. Study is related to individual tax
detail hence most respondent have not responded fully and correctly.

b) As the response from the respondent would not hopes for conscientious responses, but
there’s no way to know if the respondent has really thought the question through before
answering. At times, answers will be chosen before fully reading the question or the
potential answers. Sometimes respondents will skip through questions, or split-second
choices may be made, affecting the validity of your data.

c) Data that has been used by secondary data may not have the credit worthiness as the
data gets changed over internet from time to time. As the world progress in a rapid rate so
the data may also get update to suit the need as per the current requirement.

d) Respondent limit is up to 50 people.

44
 CHAPTER 4
INCOME TAX

INCOME TAX

The income tax act of 1961 was introduced which is the operative act for and from the
assessment year 1962-63. The income tax act is machinery for computing the total income of
the previous year from various sources as classified in section 14. Such computation or
assessment is made after allowing various exclusions, exemption and deduction as provided
in the act. The definitions of the act is given in tow types Exclusive and inclusive. A
definition is said to be exclusive when it is defines a term as means an exclusive definition
indicates that the meaning of the term is exactly as defined by the law, is no more and no less.
These definitions are exhaustive, definite and specific (e.g. definition of assessment year,
previous year, company resident, nonresident annual value etc. A definition is said to be
inclusive when it define a term as include an inclusive definition indicate that the term
includes certain extra items in addition to the natural and general meaning of the term.
Inclusive definition widens the normal scope of a term (e.g. definition of a person, income,
assessment, business etc.)

ASSESSMENT YEAR [Sec. 2(9)]

Assessment Year means the period of 12 months commencing on the 1st of April immediately
after the previous year [P.Y] Assessment is the year in which the income of the previous year
is assessed to tax. The Income earned during a particular year is assessed to tax in the
following year.

PREVIOUS YEAR [Sec. 3]

Previous Year for the purpose of Income Tax Act,1961 is financial year In which the income
is earned. This year is known year as ‘Taxed year or Financial Year”. The Previous Year starts
from 1R^ April and concludes on 31R* March, It is compulsory to follow the Financial Year
as the uniform Previous Year for all the Assesses and for all sources of income. The Previous
Year period of 12 months. According the section 3 of the Income Tax Act, 1961Previous Year
means the Financial Year immediately preceding the Assessment Year. But in some cases
Previous Year may not be of 12 months period as in the case of business or profession, newly

45
Setup or source of income newly coming into existence. The Previous Year shall be the year
beginning the date of setting up of the business of quotation or the date on which the new
source of income comes into existence.

Generally income of the Previous Year is assessable as the income of immediately following
Assessment Year. This rule has certain exceptions which are enumerated as follows:

(i) Income of the non-resident from shipping business;

(ii) Income of persons leaving India either permanently or for a long

Period of time;

(iii) Income of the bodies formed for short duration;

(iv) Income of a person trying to alienate his assets with a view to

avoiding payment of tax; and Income of a discontinued business.

Thus under these provisions Income Tax Act, 1961 tries to ensure smooth collection is
income tax from the aforesaid taxpayer who may not be traceable if tax Assessment
procedure is postponed till the commencement of the normal Assessment.

PERSON [Sec. 2(31)]

The term Person under Income Tax Act has wide meaning and interpretation than the normal
meaning of person. The definition of person has a vide implication that “assesses “under the
act is defined as a “person” by whom income tax or super tax or any other sum of money is
payable under the act. So in order to be declared an assesses under the Income Tax Act, the
assesses must be a “Person” as defined under the Income Tax Act of 1961.The term “Person”
has been defined under Sec2(31) of the Income Tax Act of 1961

46
The definition of “Person” is as follows.
"Person" includes
 An individual,
 A Hindu Undivided Family,
 A Company,
 A Firm,
 An Association of Persons or a Body of Individuals, whether incorporated or not,
 A Local Authority
 Every artificial juridical person, not falling within any of the preceding sub-clauses;

The definition is inclusive and not exhaustive i.e. any other Person can also be included under
the definition of Person under Income Tax Act.

Individual refers to a natural human being whether male or female or transgender, minor or
major.

A Hindu undivided family (HUF) is a relationship created due to operation of Hindu Law.
The head of the HUF is Karta and the members are called Coparceners. Many state
governments have abolished the status of HUF and they are prevalent in some states of the
country only. The Karta is having two assessments i.e. One his individual assessment and the
second in the capacity of Karta of HUF.

A Company is a company incorporated under Companies Act 2013 or any earlier acts.

A firm is an entity which comes into existence by virtue of a partnership agreement between
persons to share profits or business carried on by all or any of them. LLP is also include in
the definition of Firm

Association of Persons (AOP) are persons who combine together to form a joint enterprise
but does not constitute a partnership. There must a common purpose and a common action to
achieve the common purpose for which the AOP is constituted. AOP can have individuals,
firms, companies or Associations as its members. Body of Individuals as against AOP can
have only individuals as members and non-individuals cannot be members.

A local authority Comprises of Corporation, Municipality, Panchayat, Cantonment board etc.

47
An Artificial Juridical person is a body having juridical personality of its own and a public
corporation established under Special Act of Legislature. Artificial juridical person is an
entity other than a natural person created/recognized/accredited by law and also recognized as
a legal entity having distinct identity, legal personality and duties and rights. Eg: Universities,
Lord Tirupathi Balaji, and Sabarimala Ayyappa etc. Any other body which does not fall under
other 6 categories of person satisfying the above requirements can also be classified as an
artificial juridical person

ASSESEE [sec.2(7)]

“Assessee” means a person by whom income tax or any other sum of money is payable under
the Act. It includes every person in respect of whom any proceeding under the Act has been
taken for the assessment of his income or loss or the amount of refund due to him or a person
who Is assessable in respect of income or loss of another person or who it deemed to an
assessee, or an assesee in default under any provision of the Act. This term includes the
following persons:

Every person in respect of whom any proceeding under this act has been taken for the
assessment of his income or of the income of any other person in respect of which he is
assessable, or of the loss sustained by him or by such other person, or of the amount of refund
due to is or to such other person.

Every person who is deemed to be an assesee under any provision this Act. Every person who
is deemed to be an assesses in default under any provision of this Act. According to the above
definition, it is not necessary that the assesses must pay tax on his own income. He may also
be liable to pay tax on the income of others, e.g. the legal representative will be treated as an
assesses for assessing the income of the deceased person.

A person, who is under a legal obligation to deduct tax at source on payment of salary,
dividend, interest etc. does not deduct tax or after deducting tax, fails to deposit the same in
the Government’s treasury, is treated as an assesses in default.

A person representing a non resident minor or lunatic Is treated as an assesses for computing
the income of that person.

48
CLASSIFICATION OF ASSESSES:

The Indian Income Tax is a tax on a person in relation to his income. Assesses i.e., persons by
whom the tax is payable, are classified as : individual, Hindu Undivided family; companies;
Local Authorities; Firms and Other Association of Person. They are further divided in to three
categories with reference to their residence viz. (i) Residents and Ordinarily Residents; (ii)
Residents but not Ordinarily Residents; and (iii) Non-residents in India.

The incidence of taxation varies with the residential status of an Assesses, while the
classification according to the legal status of assesses is necessary for the following reasons:
There are different rates of income tax for assesses of different legal status. There are
different maximum exemption limits in the case of different classes of assesses, e.g.
individuals. Hindu undivided families, finances, companies, co-operative societies etc. There
are different provisions for allowances and investment. There are different tests for residence.

BASIC CONDITIONS
Residential Status (Section 6(1))
An individual is said to be resident in India in any Previous Year, if he satisfies at least one of
the following basic conditions:
i) he is in India in the Previous Year for a period if 182 days or more
Or
ii) he is in India for a period of 60 days or more during the Previous
Year and

iii) 365 days or more during 4 years immediately preceding the

Previous Year.
Basic conditions to test as to when a Resident is ROR

ADDITIONAL CONDITION.

Individual is ordinarily resident in India [Additional Conditions) [R-O-R] u/s 6(6), a resident
individual is treated as “Resident and ordinarily resident” in India if he satisfies the following
2 additional conditions:

49
  He has been resident in India in at least 2 out of 10 Previous Year [according
to basic conditions noted above] immediately preceding the relevant Previous
Year;
And
 He has been in India for a period of 730 days or more during 7 years
immediately preceding the relevant Previous Year.

Resident but not ordinarily resident [Section 6(1); (6)(a)] [R-NOR]:

An individual becomes resident but not ordinarily resident in India in any of the following
circumstances:
 If he satisfies at least one of the basic conditions but none of the additional conditions;

 If he satisfies at least one of the basic conditions and one of the two additional
conditions.

Non-Resident [NR]:

An individual is a Non Resident in India if he satisfies none of the basic conditions.

Additional conditions are not applicable in this case. Exception to basic conditions: By virtue
of explanation (a) to Section 6(1), the period of “60 days” referred to in basic condition No.
ii, has been extended to “182 days”. In following two conditions the above exception is
applicable. An Indian citizen who leaves Indian during the previous year for the purpose of
employment outside Indian or an Indian citizen who leaves India during the previous year as
a member of the crew of an Indian ship. Indian citizen or a person of Indian origin who
comes on a visit to India during the previous year.

INDIAN ORIGIN:

A person is of Indian Origin, if he or either of his parents or any of his grandparents was born
in undivided India. [Grandparent includes both maternal as well as paternal grand-parents].

50
SCOPE OF INCOME LIABLE TO TAX: (Section 5)

Persons who are resident and ordinarily resident are chargeable to tax on all income:

A. Income which is received or is deemed to be received in India,

B. Income which accrues or arises or is deemed to arise in India
C. Income which accrues or arises outside India.

The liability of the persons who are resident but not ordinarily resident is the same as in the
case of persons who are resident and ordinarily resident except that the income which accrues
or arises outside India is not includible in their total income unless it is derived from a
business controlled in or a profession set up in India.
Non-residents are liable in respect of income received or deemed to be received in India or
which accrues or arises or is deemed to accrue or arise in India. They are not at all liable in
respect of income accruing or arising outside India even if it is remitted to India.

Incidence of tax for different individuals will be followed by following table.

51
INDIAN INCOME: Any of the following three is an Indian income. If income is received
(or deemed to be received) in India during the previous year and at the same time it accrues
(or arises or is deemed to accrue or arise) in India during the previous year. If income is
received in India (or deemed to be received)in India during the previous year but it accrues
(or arise) outside India during the previous year. If income is received outside India during
the previous year but it accrues (or arises or is deemed to accrue or arise) in India during the
Previous year.

FOREIGN INCOME: If the following two conditions are satisfied then such income is
“foreign income”. Income is not received (or nor deemed to be received) in India and Income
does not accrue or arise (or does not deemed to accrue or arise) in India. Remittances out of
foreign income received in India are entirely exempt from income-tax in the case of ‘resident’
as well as ‘non-resident’ assesses. However, the foreign income, even though not remitted to
India is liable to be charged to tax on accrual basis in the case of every ordinarily resident
assesses, but in the case of not ordinarily resident assesses such foreign income is chargeable
on accrual basis it is arises from a business controlled in or a profession set up in India.

52
 CHAPTER 5
HEADS OF INCOMES

Income tax is payable by an assesses on his total income from all the source of income. Each
source has its own unique features and requires specific treatment for correct computation of
income from that particular source. Naturally, rules and method for computation of income
from each such source are different according to the nature of the source.

CLASSIFICATION OF INCOMES
Section 14 of the Income Tax Act, 1961 deals with the classification of income under heads
of income. There are various heads of income listed in S 14 are:
1) Income under the head salaries (Section 15 – 17)

2) Income from house property (Section 22 – 27)

3) Income from other sources (Section 56 – 59)

INCOME FROM SALARIES

INTRODUCTION AND OBJECTIVES

Among the five heads of income listed by S.14, “Salaries” is the first and most important
head of income. The concept of “Salaries” is very wide and includes not only the salary in
common parlance but also various other receipts, gifts, perquisites and benefits. The lesson is
divided into various sections dealing with the concept of salary income and its characteristics,
which define as to what constitutes “salaries” followed by the incomes falling under this head
the computation of basic salary, types of allowances and perquisites, valuation of the
perquisites, various income tax provisions for computing taxable value of allowances etc and
their detailed descriptions along with the applicable legal provisions of income tax

53
MEANING AND ESSENTIAL CHARACTERISTICS OF SALARIES

Salary, in simple words, means remuneration of a person in any form, which he has received
from his employer for rendering personal services to him under an expressed or implied
contract of employment or service. But receipts for all kinds of services rendered cannot be
taxed as salary. The remuneration received by professionals like doctors, architects, lawyers
etc. cannot be covered under salary since it is not received from their employers but from
their clients. So, it is taxed under business or profession head. This implies the presence of
the following norms or essential characteristics to determine whether any Particular income is
to be taxed under the head ‘Salaries’ or not.

A. Employer-Employee Relationship:-

There must be relation of employer and employee between the payer of income and receiver
of income. Remuneration received in any other capacity will not be treated as salary. Thus for
instance, salary of a Member of Parliament cannot be specified as salary, since it is received
from Government of India which is not his employer.

B. Compensation for services rendered:-

The payment must be made to an employee by the employer as compensation for the services
rendered by the employee. However, payment made in other forms like gift, perquisites are
also included in the definition of the term “salary”

C. Name not important:-

Salary may be called as such by whatever name. There is no difference between salary and
wages so long as the relationship between the payer and payee is that of employer and
employee and the payment is made as a compensation for the services rendered by the
employee.

D. More than One Sources:-

Salary may be from more than one employer.

E. Type of Employment:-
Salary may be in any capacity like part-time employment or full time employment.

54
F. Past, Present and prospective employer:-
Salary may be received from not just the present employer but also a prospective employer
and in some cases even from a former employer for example pension received from a former
employer.

G. Real intention to pay:-

Salary income must be real and not fictitious. There must exist an intention/ obligation to pay
and `receive salary.

H. Subsequent Surrender of Salary not tax-free:-

Salary is taxed on due basis. A subsequent surrender of the salary will not be tax-free except
where an employee surrenders his salary to the central government, and then the salary so
surrendered will not be treated as taxable income of the employee.

I. Tax- Free salary:-

Salary paid tax free is also taxable in the hands of the employee, though contractually income
tax on such is borne not by the employee but by the employer.

J. Time of taxability:-
Salary is taxable in the year of receipt or in the year of earning or accrual of the salary
income, whichever is earlier. In other words advance salary will be taxed when received and
unpaid salary will be taxed on accrual i.e. if the salary has been received first, then it will be
taxable in the year of receipt. If it has been earned first but not yet received then it will be
taxable in the year of earning. However, salary once taxed shall not be subjected to tax again
.Accordingly accounting method employed by the employee is not relevant to determine the
taxability of salary.

K. Salary received by individuals only:-

Salary is a compensation for personalized services, which can obviously be rendered by a
normal human being and not a body corporate. Salary income is taxable in the hands of
individuals only. No other type of person such as a firm or HUF, companies can earn salary
income.

L. Voluntary payments taxable as salary:-

Voluntary payments like gift etc also form the part of taxable salary.

55
M. Salary in respect of services rendered in India:-
Salary, leave salary and pension even if paid outside India are deemed u/s 9 to accrue and
arise in India and are taxable in India. Further, Salary paid to Indian diplomats by the
Government of India is deemed to accrue and arise in India although the same is exempted
eu/s 10.

N. Gross salary Taxable:-

Compulsory deductions from salary such as employees’ contribution to provident fund,
deduction on account of medical scheme or staff welfare scheme etc. are examples of
instances of application of income. In these cases, for computing total income, these
deductions have to be added back.

SCOPE OF SALARY INCOME

Section 15 defines the Scope of salary income and section 17 defines it. Section 17 gives an
inclusive definition of salary.
Broadly, it includes:
A. Wages;

B. Any Pension or Annuity;

C. Any Gratuity;

D. Any fees, commission, perquisites or profits in lieu of or in addition to salary or

wages;

E. Any advance of salary;

F. Any encashment of leave salary;

G. Annual accreditation to provident fund above the prescribed limits; and

H. Any amount of credit to provident fund of employee to the extent it is taxable.

56
The term “salary" includes not only the basic salary but also Fees, Commission, Bonus,
taxable value of cash allowances and perquisites, Retirement Benefits, encashment of leave
salary, advance of salary, arrears of salary, various allowances such as dearness allowance,
entertainment allowance, house rent allowance, conveyance allowance and also includes
perquisites by way of free housing, free car, free schooling for children of employees, etc.
Tax treatment of all such receipts is given below.

TAX TREATMENT OF CERTAIN RECEIPTS

Basic Salary
Basic salary is fixed as per their respective terms of employment. It may be either a fixed
amount or at a graded system of salary. Under the graded system, apart from starting basic,
salary annual increments are pre-fixed. The form of salary is for example 12000-300-15000-
500-20,000. In this case the starting basis salary of the employee will be Rs 12,000 and he
will be given an annual increment of Rs. 300 till he reaches at the salary level of Rs 15,000.
After reaching Rs 12,000, the increment will be Rs. 500 per annum till he reaches the level of
Rs 20,000.further increment is given thereafter till next date of increment or the date when he
is promoted and placed in other grade.

Fees, Commission and Bonus

Any fees, commission or bonus or incentive paid or payable to an employee by an employer
is fully taxable and is included in salary. Such Commission etc may be payable as a fixed
amount or as a percentage of turnover or partly fixed and partly as a percentage of turnover.
When commission is based on fixed percentage of turnover achieved by employee, it is
included in basic salary for the purpose of grant of retirement benefits and for computing
certain exemptions discussed later.

Arrears of salary:-
Arrears of salary are taxed on receipt basis, if the same has not been taxed earlier. However,
relief u/s 89 will be allowed in respect of such arrears.

Advance Salary:-
Advance Salary is taxable on receipt basis in the year of receipt; however there will be no tax
in the year of actual accrual of such salary again. Further assesses shall be entitled to relief

57
u/s 89 in respect of advance salary. Loan to employee is not treated as advance of salary and
the same is not taxable.

GRATUITY (Section 10(10)

Gratuity is a lump-sum payment to reward an employee for his past services, on his
retirement or termination. Sec .10 gives tax of treatment of gratuity as under-

1. Amount received as gratuity on termination as per service rules is Fully EXEMPT in case
of employees of Central or State governments or local authorities.

2. Other employees in a concern covered under the Payment of Gratuity Act, 1972
EXEMPTED amount would be lowest of the following:

a. Amount of gratuity received,

b. Rs 10,00,000

c. 15 days’ salary for every completed or part thereof in excess of six month year
of service computed on the basis of last salary drawn and denominator 26. i.e.

d. *Completed year of service X 15 days X Last Drawn Salary

12

3. Other employees in a concern NOT covered under the Payment of Gratuity Act, 1972
EXEMPTED amount would be lowest of the following-
a) Amount of gratuity received,

b) Rs 10,00,000

Half month’s salary for every completed year of service in excess of six months (ignoring the
fraction) computed on the basis of average salary of last 10 months preceding the retirement.
i.e. *Completed year of service X 1/2 X Average Salary for last 10 months
[*Completed year of service includes a year or part thereof in excess of six months].

58
COMMUTED PENSION (Section 10(10A)

On retirement of an employer, the employer makes a regular payment to the employee as a

reward for his past services. The regular payment so made at monthly or annual intervals is
called pension. Some employers allow an employee to forgo a portion of pension in lieu of
lump sum amount. This is known as commutation of pension.
Tax treatment of these two kinds of pension is as under:

I. Regular payment of pension (monthly or quarterly or at some other interval Periodical

or uncommuted pension is fully taxable in the hands of all employees, whether
government or non-government.

II. Tax treatment of commuted pension will be as follows:

a. Lump sum payment receive on commutation of pension as per service rules is

fully exempt for employees of the Central or State Government or a Local.

b. For other employees receiving such lump sum pension, the exemption is
under:
i. One half of the total value of pension If the employee has not received
any gratuity on termination of employment, and
ii. One-third of the total value of pension if the employee has received
any gratuity on termination of employment.

ENCASHMENT OF LEAVE SALARY {Section 10(10AA)

When an employee, instead of enjoying leave at his credit, gets the same encashed
following tax treatment will be given:-
A. Amount received on encashment of leave during the continuity of employment by all
the employees, will be taxable in the year of receipt. However, the employee will be
entitled to relief u/s 89.

B. Amount received on encashment of leave at the time of retirement by way of

superannuation or otherwise, by

59
 1. An employee of the Central or State Government will be fully exempt and
2. Any other employees including employees of a local authority or a statutory
corporation , would be exempt at the lowest of the following and only the balance will
be taxable:-
a) Actual amount received
b) Notified Amount currently Rs 3,00,000;
c) 10 months’ average salary or
d) Cash equivalent of leave to be encashed i.e. (Leave
Entitlement - Leave Availed) X Average Salary

House Rent Allowance (Section 10-13A)

House Rent Allowance or HRA paid by the employer to the employee to meet the housing
expenses of the employee is exempt from tax U/s 10(13A) being the least of the following:

A. Actual HRA Received.

B. Rent paid by employee in excess of 10 % salary during the previous year.

C. 50 % of salary, if employee is residing in 4 major cities of Mumbai, Delhi, Chennai or

Kolkata and 40 per cent of salary, if the employee is residing at any other place.

Salary for the purpose of calculating the amount of deduction from HRA means the aggregate
of Basic Salary, Dearness Allowance and Commission received by salesman on sales
achieved by him but it does not include other receipts such as overtime pay, conveyance
allowance, etc. In simple words, so long the rent paid is up to 10% of the salary, no HRA will
be exempt. It is only if the rent paid is more than 10%, then the actual HRA may be exempt
to the extent of 40% or 50% of the salary.

60
 TAXABLE VALUE OF CASH ALLOWANCES

Allowance is a fixed monetary amount paid by the employer to the employee over and above
basic salary for meeting certain expenses, whether personal or for the performance of his
duties. As a rule, all allowances are taxable and included in gross salary unless specific
exemption is provided in respect of such allowance.

Accordingly, the allowances are of three types: categories –

1. Fully taxable,

2. Partially exempt and

3. Fully exempt cash allowances.

Moreover, some allowances are unconditionally exempted but in other cases such as HRA,
exemption is subject to fulfillment of some conditions. Then In some cases like Transport
Allowance, exemption is allowed in respect of a prescribed sum only on ad hoc basis.

I. Fully Taxable

A. Dearness Allowance , a compensatory allowance paid to meet high prices

andincreased cost of living, - S 15 & 17

B. City Compensatory Allowance also a compensatory allowance paid to

employees posted in big cities like Delhi, Mumbai to compensate the high cost
of living in such cities.

C. Non- practicing Allowance normally paid to compensate professionals in

government service like doctors, chartered accountants, engineers, scientists
etc, who are prohibited from doing private practice,

D. Deputation Allowance paid to an employee sent from his permanent place of

service to some place or institute on deputation for a temporary period,

E. Overtime Allowance paid as extra wages paid to an employee putting in extra

working hours over and above his normal hours of duty,

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 F. Servant Allowance, if paid in cash even if servants may have been employed
by the employee.

G. Other Allowances by whatever name called such as family allowance, project

allowance, Marriage allowance, education allowance, and holiday allowance
as these allowances are not specifically exempt.

II. Wholly and unconditionally exempt Allowances

1) Allowances to Judges of the High Courts and the Supreme Court,

2) Allowances by the Unites Nations organization to its employees.

3) Foreign allowance paid by the government to its employees being Indian citizen
posted out of India for rendering services abroad.

4) Pension to Gallantry award winners like Paramvir Chakra, Mahavir Chakra , Vir
Chakra etc - S. 10(18) Pension to Gallantry award winners like Paramvir Chakra,
Mahavir Chakra , Vir Chakra etc - S. 10(18).

III. Wholly or partly tax-free Allowances

Following allowance are wholly or partly tax -free. Some of the exemptions are conditional.
Most of the conditions and monetary limits, though prescribed in rules are incorporated in
brief to make the subject comprehensive. Brief description of these allowances is as follows:

A. Entertainment Allowance- S.16 (ii):- Entertainment Allowance to the employee for

entertaining the business relations and clientele of the employer is fully taxable by the
private sector employees even if the entire amount may have been spent by them.
Government employees are entitled to a deduction/s16 (ii) up to 20 per cent of Basic
Salary subject to a maximum of Rs 5,000 per annum, whichever is lower. Full amount is
first included in the salary and then the exempted amount is reduced

B. Fixed Medical Allowances:- Fixed Medical Expenses are taxable but reimbursement of
medical expenses is however exempt upto Rs 15,000

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C. Transport Allowance- S 10(14)Any allowance or benefit given to meet the expense
wholly and necessarily in the course of employment is fully exempt u/10(14) subject to
the assesses presenting the proof in this regard. Under Rule 2BB ,Transport or
conveyance allowance paid to meet conveyance expenses of the employee from place of
residence to place of work and back is exempt up to Rs 1600 per month ( Rs 3,200 in case
of a handicapped employee). For example, If A is in receipt transport allowance @ Rs
1,000 per month, Rs 200 per month (Rs 1000-Rs 800) will be included in total income of
A.

D. Education Allowance:- Education Allowance given to meet the education expenses of the
employee’s is taxable in hands of employee. However, under rule 2BB a sum of Rs100
per month per child subject to maximum of 2 children is allowed as exemption from total
education allowance received by the employee in a given year. If the children of the
employee are residing in a hostel, an additional exemption of Rs 300 per month per child
subject to maximum of 2children is made available to the employee. Therefore if the
employee has 2 children and who are residing in a hostel and the employee is giving total
education allowance of Rs 1000 per month, the taxable amount will be (1000-800) i.e. Rs
200 per month only.

E. Other allowances for official purposes-S 10(14)

F. Tiffin / Lunch Allowance

G. Out of station allowance

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DEDUCTIONS FROM SALARIES: - S. 16

Aggregate of taxable amount in respect of salary, various allowances and perquisites is called
the Gross Salary. From the Gross Salary so arrived, Deductions are allowed u/s 16. Other
than that, no further deductions are allowed under this head. The following are the deduction
available to the employee U/s 16:-

1. Entertainment Allowance: -S.16 (2)

Deduction in respect of entertainment allowance is allowed only to the Government Servants.
Employees working in private institutions are not entitled to this deduction.

2. Profession Tax:
The Profession Tax, paid by an employee in a given previous year, will be deducted from the
gross salary in order to get the taxable amount of salary. Profession Tax is levied by state
government on employment.

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 INCOME FROM HOUSE PROPERTY

INTRODUCTION AND OBJECTIVES

Income from house Property” is significantly different than the other heads of income unlike
the other heads as it covers not only the actual income but also the national income. This
lesson explains the taxing provisions in regard to “Income from house property”. Sections 22
to 27 deal with the computation of income from house property. S 22 defines the scope of
Income from House Property and Section 23 and 24 give the mode of computation of income
and the amounts deductible there from. S. 25 deals with the amounts not deductible. Section
26 deals with the income of co-owners of a property and S. 27 gives the cases where a person
not being an owner of the property will be taxed as the deemed owner of such property.

BASIS OF CHARGE: S. 22

Annual Value of property consisting of any building or lands appurtenant thereto of which
the assesses is the owner, shall be chargeable under the head Income from House Property.
This is however not applicable to property occupied for the purpose of assesses own business
or profession – Sec 22.In order to charge any income from any property under this head,
following conditions are satisfied namely –

a) The property must consist of buildings or land appurtenant or adjacent there to

other properties is not covered under this head.

b) Building any habitual four wall structure covered by a roof. It is immaterial

whether the building is residential or commercial such as warehouse, office,
wedding hall, auditorium, business centre, etc.

c) Land appurtenant means the land connected or adjacent to the building e.g.
open space, approach roads, courtyard, compounds, courtyards, backyards,
playgrounds, parking spaces, etc.

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Income from any other property e.g. rental Income from a vacant plot of land is not
chargeable to tax under this head unless it is appurtenant to a building. The property must be
owned by the assesses. It is only the owner or deemed owner of house property who is liable
to tax on income under this head. Following points are important in this regard:

(a) Owner may be any person i.e. an individual, HUF, firm, company, cooperative society
or association of persons etc.

(b) The person must be the owner in the previous year. Subsequent change in the
ownership of the property is immaterial

(c) Similarly, sub-letting income of a tenant, who sub-lets the property to another tenant,
is also not covered under this head since the tenant is not the owner of the property.
Such income will be either treated as business income or as income from Other
Sources.

COMPUTATION OF INCOME FROM HOUSE PROPERTY

Income from house property is computed on the basis of its annual value determined u/s 23
and after allowing deductions u/s 24 there from. These provisions are explained below:

Annual Value -Sec 23

Since, there is no definitive meaning of the term annual value defined in Sec 2(22) “as the
annual value determined under Sec. 23, meaning of annual value has to be seen in common
parlance. ‘Annual value’ may be defined as the inherent capacity of a property to earn income
or the amount for which the property may reasonably be expected to be let out from year to
year. It is not the actual rent but the capacity to fetch rent that is important. It implies that a
property need not necessarily be let out. The annual value of a property will, therefore,
depend upon the use of the property- self occupied, let out or partly vacant etc. The
provisions of section 23 for determination of annual value are given below:

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DETERMINATION OF GROSS ANNUAL VALUE [GAV]

Annual value of a house property is higher of the Actual Rent or its Reasonable Let able
Value [RLV] - S23 (1) (a)

Actual Rent means the rent received or receivable in respect of the property actually let out
by the owner.

Reasonable Let able Value [RLV] is the expected rent which the property might reasonably
be expected to yield from year to year. This value may be computed whether the property is
let out or not. RLV is estimated on the basis of the following factors:

(a) Fair rent or the rent of similar properties in the same locality. The fair rent may be
different in different circumstances or different contractual obligations.

(b) Municipal Ratable Value or the value of the property fixed by the local authorities for the
purposes of assessment of local taxes payable. Often Municipal Ratable Value is taken on the
basis of the market rent receivable on the property and is therefore considered as a very
reliable yardstick to determine the reasonable letting value of the property.

(c) Standard Rent or the rent fixed under the Rent Control Act to control or limit the
prevailing rents in a locality. It only means that the landlord cannot charge more rent than the
limit fixed under the law. However, the landlord is free to charge lower rent than the rent
fixed under the law. Thus actual rent can be more or less than the fair rent but can never
exceed the standard rent.

COMPARISON OF REASONABLE LETTING VALUE AND RENT RECEIVED/

RECEIVABLE- SEC .23(1(B):

Rent received or receivable and the reasonable letting value are determined and compared
and higher of the two sum will be taken as gross annual value. Such comparison may throw
two possibilities viz:-
A. Actual rent received/ receivable is more than the reasonable letting value. In such a
case actual rent will be the Gross Annual Value u/s 23(1) (b). OR.

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 B. Conversely, the reasonable letting value is more than the actual rent received/
receivable. In this case if the reason for deficiency or shortfall between the actual rent
the reasonable letting value is:

I. Vacancy only and no other reason, such lower rent will be taken as the
gross annual value u/s 23(1)(c) or and

II. Any other reason, reasonable letting value will be the gross annual value.

OTHER IMPORTANT POINTS:-

A. Actual rent is relevant only if the property is let out. A property which remains vacant
or is nor let out at all or a self- occupied property cannot have any actual rent. In such
a case reasonable letting value alone will be the guiding factor.

B. The amount of Rent actually received/ receivable during the previous year will be
arrived after deducting rent for the period for which the property was vacant and
unrealized rent or bad debts.

C. In case of composite rent, expenses on providing amenities to the tenant such as water
will be deducted to find out the actual rent.

D. For the purpose of determining the Annual value, the actual rent shall not include the
rent which cannot be realized by the owner. However, the following conditions need
to be satisfied for this:

i. The tenancy is bona fide;

ii. The defaulting tenant has vacated, or steps have been taken to compel
him to vacate the property.

iii. The defaulting tenant is not in occupation of any other property of the
assesses;

E. The assesses has taken all reasonable steps to institute legal proceedings for the
recovery of the unpaid rent or satisfied the Assessing Officer that legal proceedings
would be useless.

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COMPUTATION OF NET ANNUAL VALUE AND INCOME FROM HOUSE
PROPERTY

Sec 23 classifies the house properties into different categories as discussed below:

A. Self-occupied Business Properties: Incomes from house property used for own
business or profession is exempt from tax. If any rent or other income is generated
from such property, the same should be treated as business income. Similarly,
municipal taxes, repairs, insurance premium, and other expenses incurred on such
property etc. will be admissible as business expenses.

B. Self-occupied Residential Properties (SOP):

a) SOP – Annual Value to be Taken as NIL.U/s 23(2)(a) value of one residential

house part thereof which is occupied by the owner himself for his own
residence is taken as nil subject to two conditions namely :-:

1.The property or part thereof is not let-out actually for any part of the
previous year and

2.No other benefit has been derived from such property.

SOME POINTS ARE IMPORTANT IN RESPECT OF SOPS.

i. This exemption is available only to individuals and HUFs. Other non- living persons
can not avail this exemption.

ii. Exemption is restricted to only one self- occupied property,

iii. If the assessee owns more than one self-occupied properties, the assessee, at his
option, may choose any one property as self-occupied by him and the remaining
properties will be deemed or assumed to have been let-out.

iv. Gross Annual Value of such properties deemed to have been let-out, will be
determined on the basis of their notional rental value as if the properties were let-out

69
 even if no rent has actually been received by the assessee. However, deductions u/s
23 & 24 will be allowed in the normal manner on such property.

v. If an assessee owns only one property, and cannot occupy the same because he is
engaged in employment or is carrying on a business or profession elsewhere, these
provisions will apply mutatis mutandis- Sec. 24(2).

b) No Deductions allowed from SOP except Interest:- Once the annual value
of a SOP has been taken as nil, no further deduction will be allowed U/s 23 in
respect of municipal taxes or U/s 24 except in respect of interest paid or
payable on borrowed funds for purchase, construction, repair, renewal or
reconstruction of house property as per the following rules

1. Interest paid or payable on loan taken prior to 01/04/1999 will

be allowed to the extent of Rs. 30,000.

2. Interest paid or payable on loan taken after 01/04/1999 for

acquisition/ construction of house property, will be allowed to
the extent of Rs. 1,50,000.

3. But if loan is taken after 01/04/1999 or repairs or renovation of

the house property, deduction in respect of interest paid or
payable will be restricted to Rs.30,000.

4. Interest is allowed on accrual basis. Actual payment during the

previous is not necessary.

5. Interest paid or payable on money borrowed to acquire or

construct the house property, for the period prior to the
previous year in which the property had been acquired or
constructed, shall be deductible in five equal annual instalments
starting from the previous year in which the house has been
acquired or constructed.

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C. Let-Out Properties: Following principles will be applicable for determination of
annual value of properties let out including SOP deemed to be let out.

a. Net Annual Value: - Let-out properties are charged to tax at the net annual
value (NAV), arrived at by deducting Municipal taxes paid by the owner from
GAV- (Proviso to S. 23(1).Municipal taxes paid or borne by the tenant are not
deductible. Municipal taxes are taken on cash basis and not accrual basis

b. Deductions under section 24: -

1. Standard deduction:- From the net annual value a standard deductions in

respect of Repairs and Collection Charges is allowed to the extent of 30% of
the net annual value irrespective of whether the assessee has actually incurred
the expenses or not. However, if the repairs are borne by the tenant, this
deduction will not be allowed in the hands of the owner of the property

2. Arrears of Rent:- A deduction of 30% is allowed for repairs and collection

charges from the arrears of rent received in respect of a property let out ,
which were earlier not charged to tax and the same will be taxable in the year
of receipt - Sec 25 B

3. Interest on funds borrowed:- Interest on loan taken for acquisition,

construction, renewal, repairs or reconstruction is allowed on let-out properties
without any limit of Rs 30,000/ 1,50,000 as in case of SOP. The interest on
loans, is allowable on accrual basis. Similarly, Pre-construction interest from
the date of the loan to the end of the previous year before the previous year in
which the house was acquired is amortized 1/5th per year for 5 years as in case
of SOP from the financial year in which the construction was completed.

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 D. Property Let-Out And Self-Occupied For Part Of The Year

If a property is let-out for whole or any part of the year and self-occupied for the remaining
part of the year, it shall be treated as let-out property and computation will be made
accordingly by comparing actual rent with the fair rent for the whole property u/s 23(1). It
will not be treated as SOP as Sec 23(3) makes it clear the SOP shall not be let-out for any part
of the year nor should any benefit be derived from it.

E. Property Partly Let-Out And Partly Self-Occupied

If a part of the property – say one or two floors or few rooms have been let out and another
part of the property is self- occupied, then for each portion the calculation will be made
separately. Relevant expenses like property taxes and interest will be allocated suitably for
each portion and deductions will be allowed separately for each portion.

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 INCOME FROM OTHER SOURCES

INTRODUCTION AND OBJECTIVES

Income from other sources is last and residuary head of income- S 56[1]. It covers all such
incomes, which are not chargeable under any other head of income viz salary, Income from
house property, capital gains and profits and gains of business and profession. This head also
comprises of some well-defined incomes such as interest, dividend, winnings from lotteries
and gifts, etc. –S 56(2). The lesson deals with this last but one of the most important head of
income with computational aspects and also specific items that can be deducted from the
income from other sources.

BASIS OF CHARGE- S 56(1)

Income of every kind which is not to be excluded from the total income and which is not
chargeable under any of the specified heads shall be chargeable to income tax under the head
“Income from Other Sources- S 56(1)”. In other words, if any incomes are taxable, but they
cannot be classified under other heads of income viz salary, Income from house property,
capital gains and profits and gains of business and profession shall be charged under the head
Income from Other Sources.

INCOMES SPECIFICALLY CHARGEABLE S. 56(2)

Section 56(2) lists incomes specifically chargeable to tax under the head “Income from Other
Sources”. These incomes are:

i. Dividends u/s 2(22) (a) to (e).

ii. Any winnings from lotteries, crossword puzzles, races including horse races,
card games and other games of any sort or from gambling or betting of any
form or nature whatsoever.

iii. Any sum received by the assessee from his employee as contribution to any
provident fund or superannuation fund or any fund set up under the provisions
of the Employee State Insurance Act, 1948 or any other fund for the welfare of

73
 such employee is treated as income as referred under Section 2(24) (x), if not
chargeable under the head business or profession.

iv. Income by way of interest on securities, if not chargeable under the head
business or profession. v. Rental income from machinery, plant or furniture
belonging to the assessee and let on hire if not chargeable under the head
business or profession.

v. Where an assessee lets on hire machinery, plant or furniture belonging to him

and also buildings and letting of the buildings is inseparable from the letting of
the said machinery, plant or furniture, if not chargeable under the head
business or profession.

vi. Any sum including bonus received under Keyman Insurance Policy shall be
treated as income chargeable to tax under this head if not taxable as salary or
business income.

vii. Aggregate of any sum of money exceeding Rs. 50,000 received without
consideration by an individual or HUF on or after 1.10.2009.

viii. Aggregate fair market value of movable property if it exceeds Rs 50,000

received without consideration by an individual or HUF after 1.10.2009.

ix. Shares of closely held companies having aggregate fair market value
exceeding Rs. 50,000 received by a firm or a closely held company without
consideration on or after the 1st day of June, 2010 from any person or persons,
the public are substantially interested, or for a consideration which is less than
the aggregate fair market value of the property by an amount exceeding fifty
thousand rupees, the aggregate fair market value of such property as exceeds
such consideration.

x. Income by way of interest received on compensation or on enhanced

compensation referred to in clause (b) of section 145A.

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SOME SPECIFIC INCOMES

1. Dividend - Sec 56(2):- Dividend means distribution of profits by the management to the
real owners- the shareholders. Dividend is chargeable to tax whether paid in cash or kind or
paid out of taxable profits or tax - free income, out of revenue profits or capital gains.
Dividend is taxable when declared at the Annual General Meeting of a company and not
when received, but interim dividend is taxable on the basis of payment. Income from
dividend (not being deemed dividend) from an Indian company is tax free in the hands of the
shareholders as the distribution of dividends is taxable in the hands of the company.

2. Deemed dividend:- Loan to shareholders- S. 2(22) (e), According to section 2(22)(e), if a

closely held company gives a loan or advance to a person for his individual benefit and the
person is having substantial interest (10per cent)in the company or to a concern(HUF/Firm
etc) where the person having substantial interest has at least 20 per cent interest, then the
receiver of that loan will be treated as if he has received the dividend amount to the extent of
loan and it will be taxable in his hands as dividend income. This provision has been inserted
so as to prevent persons having substantial control and influence over the affairs of a
company to take away all funds of the company as low-interest loans for their personal
benefit to the prejudice of the other shareholders.

3. Interest on securities:- Interest received from debentures of company, mutual funds, and
government securities is taxable as income from other sources except when such income is
exempt U/s 10 or is taxed as business income. If any tax is deducted at source from interest
on such securities, it should be added back and only the gross income should be considered.
But in case of tax-free govt. securities, grossing up is not required as there is no deduction or
TDS. However, grossing up is required in case of taxable securities and non government
securities. From the Interest income from this head, reasonable bank charges and other
collection charges, office and other expenses if the same were incurred for earning the
income and interest payable on loans taken for acquiring securities can be deduct.

4. Winning from Lotteries, Crossword puzzles:- Winnings from, Lottery, crossword puzzles,
card games or other games including any game show like KBC and horse races, betting,
gambling etc are all treated as income from other sources and taxed at the maximum marginal
rate u/s 115BB on the gross income without giving the benefit of:

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 a) Claiming basic exemption limit

b) Deductions under chapter VI-A.

c) Expenditure including collection charges, etc or allowances;

d) Benefit of set off and carry forward of losses

5. Family Pension:- Family pension means a regular monthly payment made to the legal heirs
of the employee after his death. This is treated as income from other source and not salary
because there is no employer-employee relationship between the legal heirs and the
employer. Standard deduction equal to 1/3rd of the pension or Rs. 15,000 is available as
deduction from this income. Significantly pension amount received during the life time of
employee is taxable as salaries u/s 17(3) and not entitled to standard deduction.

6. Gifts:
1 Taxable Gifts in case of Individuals and HUFS:

A. Taxable Gifts
Following receipts by an individual or a Hindu undivided family, in any previous year from
any person or persons will be taxable as “Income from Other Sources:

(a) Any sum of money, without consideration, the aggregate value of which exceeds fifty
thousand rupees, the whole of the aggregate value of such sum

(b) Any immovable property, without consideration, the stamp duty value of which exceeds
fifty thousand rupees, the stamp duty value of such property;

(c) Any property, other than immovable property without consideration, the aggregate fair
market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market
value of such property or

(d) Any property, other than immovable property for a consideration which is less than the
aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the
aggregate fair market value of such property as exceeds such consideration.

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(e) Exceptions: The above clause does not apply to any sum of money or property received:

(a) From any relative; or

(b) On the occasion of the marriage of the individual; or

(c) Under a will or by way of inheritance; or

(d) In contemplation of death of the payer or donor, as the case may be;
or

(e) From any local authority defined in S 10[20]-Explanation

(f) From any fund or foundation or university or other educational

institution orhospital or other medical institution or any trust or
institution referred to in S. 10(23C); or

(g) From any trust or institution registered under section 12AA

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 CHAPTER 6
INCOME TAX E-FILING

E-FILING OF TAX RETURNS

The process of electronically filing Income tax returns through the internet is known as e-
Filing. It is mandatory for Companies and Firms requiring statutory audit u/s 44AB to submit
the Income tax returns electronically for AY 2009-10. – Any Company/Firm requiring
statutory audit u/s 44AB return submitted without a e-Filing receipt will not be accepted. E-
filing is possible with or without digital signature.

The Income Tax Department is keen to encourage e-filing of IT returns by all taxpayers in
view of the following benefits to taxpayers.

a) Anywhere-Anytime Filing
b) No long queues
c) No Personnel Interface
d) Quick Processing
e) Accurate data in return

Paid taxes, made your tax saving investments... now get geared up for filing income tax
returns as the month of July is on the horizon and the time has come when one is supposed to
file IT returns. In the year 2007 the Income Tax Department of India took many initiatives
such as training TRPS, launching saral forms in a new avatar and so on for making tax filing
convenient and handy for the citizens. In this e-age when ICT is successfully intervening in
so many fields and providing services from online banking to online news, online mutual
fund investments to online buying and selling, the Income Tax Department of India launched
the Electronic Filing of income tax returns. Yes, using the e-filing process one can file in tax
returns just within a few clicks at any time of the day and that too without any hassles. Using
this technology all you have to do is fill the form and submit it, online or offline.

78
MORE ABOUT THE E-FILING PROCESS WORK

The e-filing process is really easy and takes a very little time and all you have to do is fill up
your tax return form online provided and the other required information about income,
expenditure and savings. Filing tax returns online is the easiest and the simplest method and
all one needs is to log on and follow the simple instructions.

For e- filing process one needs to have a software application that generates the income tax
form, which is available at the Income Tax Department website.

BENEFITS OF E-FILING:

One of the foremost benefits of electronic filing is the facility of anywhere/ anytime filing,
and one can just file returns anytime of the day or night. Other than this, online tax returns are
processed much faster than paper returns and the tax is worked out automatically as the payee
completes the form. With this the payee also gets the acknowledgement slip immediately.
Also online filing is a safe and secure mode.

TYPES OF E-FILING:-

There are three ways to file returns electronically.

Option1: Use digital signature, in which case no further action is required.

Option 2: File without digital signature, in which case ITR-V form is to be filed with the
department. This is a single page receipt cum verification form.

Option 3: File through an e-return intermediary who would do e-Filing and also assist the
Assesses file the ITR -V Form.

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DOCUMENTS REQUIRED FOR E-FILING

• Form No. 16 (for Tax deducted by employers)

• Form No. 16A

• Account statements of bank accounts

• Property details

• Sale and purchase of investments / assets

• Details of tax payments made

• PAN card photo copy

• Birth date

• TAN number

• Bank A/c no

• Bank details – MICR code, Type of A/c.

12 STEP PROCESS FOR FILING TAX RETURNS

Whether you wish to go in for the quick e-filing process or manually file your income tax
returns, here is a helpful guide to assist you in completing and submitting this vital document
by yourself.

1) Go to the website http://www.incometaxindia.gov.in/.

2) Click the link eFile Income Tax Return at the top left corner of the home page

3) Select the Correct Form - There are two income tax forms for salaried individuals. ITR-1
is for those who derive their income from salary, pension or interest while ITR-2 is for
income from capital gains, house property and other sources. Those who wish to submit their
tax returns manually may download the pdf forms - External website that opens in a new

80
window from here. These forms need to be printed, filled by hand and signed before
submitting to your local income tax office.

4) Use of Return Preparation Software - Those citizens who wish to avail the e-filing system
need to download the Return Preparation Software - External website that opens in a new
window for each ITR form. This software is an excel file that requires one to type in personal
details as well as financial information from TDS certificates, bank statements, deductions
made and interest statements.

5) Generating an XML file - After keying in the details, check once for accuracy. After you
are satisfied, click the ' Generate' button to create your tax return in XML format.
This format helps in sharing of structured data across different information systems. Save this
XML file on your computer.

6) Register - The next step requires you to Register at the Income Tax website - External
website that opens in a new window. Your registered Permanent Account Number (PAN
card) has to be entered as your username.

7) Login - After registering, enter your user id and password to login. Click on the relevant
form on the left panel and select 'Submit Return'.

8) Upload XML - Browse to select the XML file, which you had generated and saved in Step
3. Click on the 'Upload' button to upload the file.

9) Acknowledgement - After the file is successfully uploaded, acknowledgement details or

the ITR-V Form will be displayed. Take a printout of this acknowledgement for your records.

10) Digital Signature - If your income tax return was digitally signed, then no further
paperwork or visit to the income tax office is needed. Here is some information about how to
get a digital signature - External website that opens in a new window.

11) Verification - If your return is not digitally signed, then you needs to print and fill up the
verification part of the acknowledgement cum verification form (ITR-V). This has to be
signed and submitted to the local Income Tax Office within 15 days to complete the e-filing
process.

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12) Additional Assistance - In case you require any more help in filing the paper copy of the
return, please contact the Public Relations Officer at your local Income Tax Office. One may
also phone the Aayakar Sampark Kendra (ASK) call centre at 124-2438000 or email at
ask@incometaxindia.gov.in.

WHO CAN USE WHICH FORM

ITR-1

This Form can be used by an individual whose total income during the previous year i.e.,
financial year 2008-09 includes income chargeable to income-tax under the head “salaries” or
income in the nature of family pension as defined in the Explanation to clause (iia) of section
57 but does not include any other income except income by way of interest chargeable to
income-tax under the head “income from other sources”. There should not be any exempt
income other than agriculture income and interest income. It may please be noted that a
person who is entitled to use this form shall not use Form ITR-2. Further, a person in whose
income the income of other person like his/ her spouse, minor child, etc. is to be clubbed is
also not entitled to use this form.

ITR-2

This Form can be used by an individual or a Hindu Undivided family whose total income
does not include any income chargeable to income-tax under he head “Profits or gains of
business or profession”. It may please be noted that a person who is entitled to use Form ITR-
1 shall not use this form. Further, a person who is partner in a firm is required to use Form
ITR-3. In case a partner in the firm does not have any income from the firm by way of
interest, salary, etc. and has only exempt income by way of share in the profit of the firm
shall not use Form ITR-2.

ITR-3

This Form can be used a person being an individual or a Hindu Undivided family who is a
partner in a firm and where income chargeable to income- tax under the head “Profits or
gains of business or profession” does not include any income except the income by way of
any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or

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received by him from such firm. In case a partner in the firm does not have any income from
the firm by way of interest, salary, etc. and has only exempt income by way of share in the
profit of the firm shall use this form only and not Form ITR-2.

ITR-4

This Form can be used by a person being an individual or a Hindu Undivided family who is
carrying out a proprietary business or profession.

ITR-5

This Form can be used a person being a firm, AOP, BOI, artificial juridical person referred to
in section 2(31)(vii), cooperative society and local authority. However, a person who is
required to file the return of income under section 139(4)(a) or 139(4)(a) or 139(4)(b) or
139(4)(c) or 139(4)(d) shall not use this form.

ITR-6

This Form can be used by a company, other than a company claiming exemption under
section 11

ITR-7

This Form can be used by persons including companies who are required to furnish return
under section 139(4A) or under section 139(4B) or under section 139(4C) or under section
139(4D).

ITR-8

This Form is applicable in case of a person who is not required to furnish the return of
income but is required to furnish the return of fringe benefits

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 CHAPTER 7
DATA INTERPERTATION AND ANALYSIS

1. GENDER: - Table -7.1

The Gender wise classification of respondents

Gender No of Respondent In Percentage

Male 34 68%
Female 16 32%
Total 50 100%

Figures in the above table and below to the figures indicate percentage to the respective row
and column total. Above table clears from out of 100% respondent’s row and column, 68% of
respondents are male and remaining respondents are female. It clears that out of 50
respondents 34 are male and 16 are female.

2. AGE GROUP: - Table - 7.2

The Age wise classification of respondents

Age Group No of Respondent In Percentage

18-25 26 52%
25-30 13 26%
30-40 8 16%
40-50 2 4%
50-Above 1 2%
Total 50 100

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Figures in above table indicate percentage to the respective Row and Colum. In the above
table it is clear that it is having 100% respondents, and 56% of respondents are in 18 to 25
age category, 26% respondents from 25 to 30 years, 16% of respondents are in 30 to 40 years,
4% of respondent40 to 50 years and 2% of respondent in 50 years above.

3. QUALIFICATION: - Table -7.3

The Qualification wise classification of respondent
Qualification No of Respondent In Percentage
Under Graduate - -
Graduate 29 58%
Post Graduate 21 42%
Other - -
Total 50 100%

Figures in above table indicate percentage to the respective Row and Colum. In the above
table it is clear that it is having 100% respondents, 56% are graduated as per the survey and
reaming 44% are Post graduate. (Graphs show Qualification wise classification)

85
4. MARITAL STATUS:- Table -7.4
The Marital Status classification of respondent

Marital Status No of Respondent In Percentage

Married 8 16%
Unmarried 42 84%
Total 50 100%

A figure in the table indicates the percentage to the respective row and column total. It
indicates that out of 100% respondents 16% are married, 84% are unmarried. Out of total 50
respondents 8 are married, 42 unmarried. (Graph showing Marital Status wise classification)

5. INCOME LEVEL:- Table -7.5

The classification of Level of Income of respondent

Level of Income(Figure No of Respondent In Percentage

in Lack)
2 -3 26 52.%
3-5 17 34%
5-10 5 10%
10-above 2 4%
Total 50 100

A figure in the table indicates the percentage to the respective row and column total. It
indicates that out of 100% respondents 52.1 are level of income is between 2 – 3 lakh, 35.4%
are in 3 lakhs to 5 lakh, and 10.4% are in 5 lakh to 10 lack and rest 2.1% are in 10 lakh. Out
of 50 respondent 25 comes under 2 lakh – 3 lakh, 17 comes under 3laks to 5 lakhs, 5 come

86
under 5 lakhs to 10 lakhs and 1 comes under 5 lakhs and above. Graphs showing level of
Income

6. HAVE YOU LINKED YOUR PERMANENT ACCOUNT NUMBER AND AADHAR

CARD FOR ITR: - Table -7.6
The classification of respondent on the basis of Pan and Aadhar Link

Pan and Aadhar No of Respondent In

link for ITR Percentage
Yes 39 78%

No 11 22%

A figure in the table indicates the percentage to the respective row and column total. It
indicates that out of 100% respondents 78% have linked their Pan and Aadhar card for ITR
where as 22 % have not linked their Pan and Aadhar card for ITR.

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7. SOURCE OF AWARENESS REGARDING THE E-FILING RETURN:-
Table -7.7
The ITR Awareness classification of respondent

Source of Awareness No of Respondent In Percentage

for ITR
Internet 20 40%
Friends 15 30%
Newspaper 3 6%
Other 12 24%
Total 50 100%

A figure in the table indicates the percentage to the respective row and column total. It
indicates that out of 100% respondents 40% have got the information from Internet, 30%
have got information from Friends, 6% have got their information from Newspaper and
remaining 24% got information from others. (graphs showing Awareness regarding E-filling)

8. DO YOU FILE YOUR INCOME TAX RETURN:-

Table -7.8
The Filing ITR Return classification of respondent

Filing ITR No of Respondent In Percentage

Yes 30 60%

No 20 40%

Total 50 100

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Figure in the table indicates the percentage to the respective row and column total. It
indicates that out of 100% respondents 60% have filed their ITR; where the remaining 40%
have not filed their ITR.)

9. HAVE YOU DONATED SOME AMOUNT TO GET TAX BENEFIT UNDER

80GGA:- Table -7.9
The Filing ITR Return classification of respondent

Donation under 80 GGA No of Respondent In Percentage

Yes 6 12%
No 44 88%
Total 50 100%
A figure in the table indicates the percentage to the respective row and column total. It
indicates that out of 100% respondents 12% have made a donation under 80GGA, where as
remaining 88% have not made the donation

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10. IS INCOME FROM SALARY IS THE ONLY SOURCE OF REVENUE:-
Table -7.10
The classification of respondent on basis of income from salary only.

Only Income from No of Respondent In Percentage

salary
Yes 31 62%
No 19 38%
Total 50 100%

A figure in the table indicates the percentage to the respective row and column total. It
indicates that out of 100% respondents 62% is earning income from salary as well as from
other sources also, where as remaining 38% earn income from salary alone.

11. IS FILING ITR ONLINE SAFE:- Table -7.11

The classification of respondent as per safety in Filing ITR.

Is ITR Filling Safe No of Respondent In Percentage

Yes 42 84%
No 8 16%
Total 50 100%

A figure in the table indicates the percentage to the respective row and column total. It
indicates that out of 100% respondents 84% feels that filling ITR online is safe, where as
remaining 16% still feels filling ITR is not safe.

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12. ARE YOU AWARE OF INCOME TAX SLAB RATE:-
Table -7.12
The classification of respondent as per the awareness on IT tax slab rate

Awareness on IT Rate No of Respondent In Percentage

slab
Yes 39 78%
No 11 22%
Total 50 100%

A figure in the table indicates the percentage to the respective row and column total. It
indicates that out of 100% respondent 78% people are aware of Tax Slab, where as remaining
11% still are unaware of Tax Slab Rate.

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13. ARE YOU AWARE OF DUE DATE OF FILING ITR RETURNS:-
Table -7.13
The classification of respondent as per the awareness on due date of filing ITR Return.

Awareness on ITR No of Respondent In Percentage

due date
Yes 40 80%
No 10 20%
Total 50 100%

A figure in the table indicates the percentage to the respective row and column total. It
indicates that out of 100% respondents 80%know when the due date of ITR filling is, where
as remaining 10% still are unaware of ITR filing due date .

92
 Chapter 8
CONCLUSION
E-Return filing is getting popularity in the country especially amongst the service class.
There was a time where people use to fear all this because they were not having the
knowledge of this process. As the time pass the government have made it a user friendly
process. Most of the service class is aware of this process. They now trust it blindly. In my
survey 80% of the people are feel safe to file E-filling. From my point of view government
are have made a tremendous effort to make aware of ITR filling. Form my survey I feel that
most of the respondents were open and fair in their response. ITR has made a lot of progress
from post independences to current day. From the survey the younger generation was more
respective toward the ITR process. This survey had positive responses towards ITR. Benefit of
e-filing of IRT as Enables citizens to file anytime & from anywhere, saves time of the tax
payer, interface between ITD and the assesses reduced, save issue up of record keeping &
requirement of physical space, easy availability of returns ensured, accuracy of data ensured,
Enable faster processing of returns. The process of submitting tax returns over the Internet,
using tax preparation software that has been pre-approved by the relevant tax authority,
Return can be prepared and filed by the tax payer through electronic mode. The Government
can take more steps for the development for ITR. Because every citizen of this country has
Pan and Aadhar card which make government very easy to keep an eye on it.

The Government has tried to achieve the objective of social welfare by providing various
incentives for education, health, housing, savings, pension schemes, donations, senior citizens
and women assesses, and 260 generating employment etc. These incentives are appreciable as
these are related with the basic necessities of a common man. However, in case of some
incentives the monetary ceiling seems to be illogical or very low as it has not been revised
since a long time e.g. medical expenses, interest on self occupied housing loan, saving
schemes. Certain Rationalization and Simplification Measures have been taken during the
study period such as lowering income tax rates in case of all the assessees, introducing
standard deduction at the rate of 30 per cent of net annual value in case of let out house
property, providing depreciation on intangible assets etc. Widening of tax base has remained
one of the main objectives of tax policy during the study period.

93
The Government has adopted certain measures towards this direction. The main measures are
introduction of mandatory Permanent Account Number, Annual Information Return, E-filing
of income tax return, Online tax accounting system, Dividend distribution tax and widening
the scope of TDS. Further, certain measures were introduced and withdrawn during the study
period such as compulsory filing of return based on certain economic criteria, Banking Cash
Transaction Tax (BCTT) and Fringe Benefit Tax (FBT). Moreover, standard deduction for
salaried 261 class and deduction in relation to interest income on specified deposits were
withdrawn during the study period

94
 Chapter 9
BIBLOGRAPHY
BOOKS
Book: DIRECT TAX
Name of Publication: MANAN PRAKASHAN.
Author: CA (DR) VARSHA AINAPURE.
Year of publishing: JULY 2017.

Book: Direct Tax

Name of Publication: SATHIYA BHAWAN PUBLICATION
Author: Dr. H.C. Mehrotra & S.C. Goyal
Year of Publishing: 2017

WESITE
https://www.incometaxindiaefiling.gov.in/home.

http://shodhganga.inflibnet.ac.in/simple-search.

https://www.slideshare.net/

REFERENCE
“Parmanand Barodiya and Ankesh Bhargava” International Journal of Multidisciplinary
Research and Development. e-ISSN: 2349-4182 p-ISSN: 2349-5979.

Annexure
Questionnaires
“To find out awareness about ITR among people and also what would be their response
toward it”
Q1. Gender
 Male
 Female

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Q2 Age Group
 18-25
 23-30
 30-40
 50-above

Q3 Qualification
 Under graduates
 Graduates
 Post graduate
 Other

Q4 Marital Status
 Married
 Unmarried

Q5 Income Slab
 2lac – 3 lac
 3 lac – 5 lac
 5 lac – 10 lac
 10 lac – above

Q6 Have you linked your Pan And Adder Card for ITR?
 Yes
 No

Q7 Sources of awareness regarding the e-filling return?

 Internet
Newspaper
 Friend
 Others

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Q8 Do you file your income tax return?
 Yes
 No

Q9 Have you made some donation to get tax benefit under 80gga?
 Yes
 No

Q10 Is income from salary is the only source of revenue?

 Yes
 No

Q11 Is filing ITR online safe?

 Yes
 No

Q12 Are you aware of tax slab?

 Yes
 No

Q13 Are you aware of the due date of filling ITR return?
 Yes
 No

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