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Overview

[edit] Charge to Income-tax


Every Person whose total income exceeds the maximum amount which is not chargeable to the income tax is an assesse, and shall be chargeable to the income tax at the rate or rates prescribed under the finance act for the relevant assessment year, shall be determined on basis of his residential status. Income tax is a tax payable, at the rate enacted by the Union Budget (Finance Act) for every Assessment Year, on the Total Income earned in the Previous Year by every Person. The chargeability is based on nature of income, i.e., whether it is revenue or capital. The rates of taxation of income are-: Income Tax Rates/Slabs Rate (%) for men: Up to 1,80,000 = NIL , 1,80,001 5,00,000 = 10%, 5,00,001 8,00,000 = 20%, 8,00,001 upwards = 30%, Up to 1,90,000 (for resident women)=0% Up to 2,50,000 (for resident individual of 60 years or above)= 0, Up to 5,00,000 (for very senior citizen of 80 years or above)= 0.

Education cess is applicable @ 3 per cent on income tax, surcharge = NA

[edit] Residential Status


The three residential status, viz.,

Resident Ordinarily Residents

Under this category ,person must be living in India at least 182 days during previous year Or must have been in India 365 days during 4 years preceding previous year and

60 days in previous year. Ordinary residents are always taxable on their income earned both in India and Abroad.

Resident but not Ordinarily Residents

Must have been a non-resident in India 9 out of 10 years preceding previous year or have been in India in total 729 or less days out of last 7 years preceding the previous year. Not Ordinarily residents are taxable in relation to income received in India or income accrued or deemed to be accrue or arise in India and income from business or profession controlled from India. Non Residents Non Residents are exempt from tax if accrue or arise or deemed to be accrue or arise outside India. Taxable if income is earned from business or profession setting in India or having their head office in India. [1] [2]

[edit] Heads of Income


The total income of a person is divided into five heads, viz., taxable[3]:

[edit] Individual Heads of Income


[edit] Income from Salary All income received as salary under Employer-Employee relationship is taxed under this head. Employers must withhold tax compulsorily, if income exceeds minimum exemption limit, as Tax Deducted at Source (TDS), and provide their employees with a Form 16 which shows the tax deductions and net paid income. In addition, the Form 16 will contain any other deductions provided from salary such as: 1. Medical reimbursement: Up to Rs. 15,000 per year is tax free if supported by bills. 2. Conveyance allowance: Up to Rs. 800 per month (Rs. 9,600 per year) is tax free if provided as conveyance allowance. No bills are required for this amount. 3. Professional taxes: Most states tax employment on a per-professional basis, usually a slabbed amount based on gross income. Such taxes paid are deductible from income tax. 4. House rent allowance: the least of the following is available as deduction 1. Actual HRA received 2. 50%/40%(metro/non-metro) of basic 'salary' 3. Rent paid minus 10% of 'salary'. basic Salary for this purpose is basic+DA forming part+commission on sale on fixed rate. Income from salary is the least of all the above deductions.

[edit] Income from House property Income from House property is computed by taking into account what is called Annual Value of the property. The annual value (in the case of a let out property) is the maximum of the following:

Rent received Municipal Valuation Fair Rent (as determined by the I-T department)

If a house is not let out and not self-occupied, annual value is assumed to have accrued to the owner. Annual value in case of a self occupied house is to be taken as NIL. (However if there is more than one self occupied house then the annual value of the other house/s is taxable.) From this, deduct Municipal Tax paid and you get the Net Annual Value. From this Net Annual Value, deduct :

30% of Net value as repair cost (This is a mandatory deduction) Interest paid or payable on a housing loan against this house

In the case of a self occupied house interest paid or payable is subject to a maximum limit of Rs,1,50,000 (if loan is taken on or after 1 April 1999 and construction is completed within 3 years) and Rs.30,000 (if the loan is taken before 1 April 1999). For all non self-occupied homes, all interest is deductible, with no upper limits. The balance is added to taxable income. [edit] Income from Business or Profession
o

carry forward of losses

An example .. An architect works out of home and co-ordinates work for his clients. All the following expenses would be deductible from his professional fees.

he uses a computer, he travels to sites in his car, he has a peon to help him collect payments He has a maid who comes in daily part of the society maintenance bills entertainment expenses incurred.. books and magazines for his professional practice.

The income referred to in section 28, i.e, the incomes chargeable as "Income from Business or Profession" shall be computed in accordance with the provisions

contained in sections 30 to 43D. However, there are few more sections under this Chapter, viz., Sections 44 to 44DA (except sections 44AA, 44AB & 44C), which contain the computation completely within itself. Section 44C is a disallowance provision in the case non-residents. Section 44AA deals with maintenance of books and section 44AB deals with audit of accounts. In summary, the sections relating to computation of business income can be grouped as under: 1. 2. 3. 4. 5. Deductible Expenses - Sections 30 to 38 [except 37(2)]. Inadmissible Expenses - Sections 37(2), 40, 40A, 43B & 44-C. Deemed Incomes - Sections 33AB, 33ABA, 33AC, 35A, 35ABB & 41. Special Provisions - Sections 42 & 43D Self-Coded Computations - Sections 44, 44A, 44AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB, 44-D & 44-DA.

The computation of income under the head "Profits and Gains of Business or Profession" depends on the particulars and information available.[4] If regular books of accounts are not maintained, then the computation would be as under: Income (including Deemed Incomes) chargeable as income under this head xxx Less: Expenses deductible (net of disallowances) under this head xxx Profits and Gains of Business or Profession xxx However, if regular books of accounts have been maintained and Profit and Loss Account has been prepared, then the computation would be as under: Net Profit as per Profit and Loss Account xxx Add : Inadmissible Expenses debited to Profit and Loss Account xxx Deemed Incomes not credited to Profit and Loss Account xxx xxx Less: Deductible Expenses not debited to Profit and Loss Account xxx Incomes chargeable under other heads credited to Profit & Loss A/c xxx xxx Profits and Gains of Business or Profession xxx

[edit] Income from Capital Gains

Transfer of capital assets results in capital gains. A Capital asset is defined under section 2(14) of the I.T. Act, 1961 as property of any kind held by an assessee such as real estate, equity shares, bonds, jewellery, paintings, art etc. but does not include some items like any stock-in-trade for businesses and personal effects. Transfer has been defined under section 2(47) to include sale, exchange, relinquishment of asset, extinguishment of rights in an asset, etc. Certain transactions are not regarded as 'Transfer' under section 47. For tax purposes, there are two types of capital assets: Long term and short term. Long term asset is that which is held by a person for three years except in case of shares or mutual funds which becomes long term just after one year of holding. Sale of such long term assets gives rise to long term capital gains. There are different scheme of taxation of long term capital gains. These are: 1. As per Section 10(38) of Income Tax Act, 1961 long term capital gains on shares or securities or mutual funds on which Securities Transaction Tax (STT) has been deducted and paid, no tax is payable. STT has been applied on all stock market transactions since October 2004 but does not apply to offmarket transactions and company buybacks; therefore, the higher capital gains taxes will apply to such transactions where STT is not paid. 2. In case of other shares and securities, person has an option to either index costs to inflation and pay 20% of indexed gains, or pay 10% of non indexed gains. The indexation rates are released by the I-T department each year. 3. In case of all other long term capital gains, indexation benefit is available and tax rate is 20%. All capital gains that are not long term are short term capital gains, which are taxed as such:

Under section 111A, for shares or mutual funds where STT is paid, tax rate is 10% From Asst Yr 2005-06 as per Finance Act 2004. For Asst Yr 2009-10 the tax rate is 15%. In all other cases, it is part of gross total income and normal tax rate is applicable.

For companies abroad, the tax liability is 20% of such gains suitably indexed (since STT is not paid). [edit] Income from Other Sources This is a residual head, under this head income which does not meet criteria to go to other heads is taxed. There are also some specific incomes which are to be taxed under this head. 1. Income by way of Dividends 2. Income from horse races

3. Income from winning bull races 4. Any amount received from key man insurance policy as donation. 5. Income from shares (dividend otherthan indian company)

[edit] Deduction
While exemptions is on income some deduction in calculation of taxable income is allowed for certain payments.

[edit] Section 80C Deductions


Section 80C of the Income Tax Act [1] allows certain investments and expenditure to be deducted from total income upto the maximum of 1 lac. The total limit under this section is Rs. 100,000 ) which can be any combination of the below:

Contribution to Provident Fund or Public Provident Fund. PPF provides 8.5% return compounded annually. Maximum limit to contribute in it is 100,000 for each year. It is a long term investment with complete withdrawal not possible till 15 years though partial withdrawal is possible after 5 years. Besides, there is employee providend fund which is deducted from the salary of the person. This is about 10% to 12% of the BASIC salary component. Recent changes are being discussed regarding reducing the instances of withdrawal from EPF especially when one changes the job. EPF has the option of full settlement on leaving the job, taking VRS, retirement after 58. It also has options of withdrawal for certain expenses related to home, marriage or medical. EPF contribution includes 12% of basic salary from employee and employer. It is distributed in ratio of 8.33:3.67 in Pension fund and Providend fund Payment of life insurance premium Investment in pension Plans. National Pension Scheme is meant to save money for the post retirement which invests money in different combination of equity and debt. depending upon age up to 50% can go in equity. Annuity payable after retirement is dependent upon age. NPS has six fund managers. Individual can make minimum contribution of Rs6000/- . It has 22 point of purchase (banks). Investment in Equity Linked Savings schemes (ELSS) of mutual funds. Among other investment opportunities, ELSS has the least lock-in period of 3 years. However, one should note that after the Direct Tax Code is in place, ELSS will no longer be an investment for 80C deduction. Investment in National Savings Certificates (interest of past NSCs is reinvested every year and can be added to the Section 80 limit) Tax saving Fixed Deposits provided by banks for a tenure of 5 years. Interest is also taxable. Payments towards principal repayment of housing loans. Also any registration fee or stamp duty paid. Payments towards tuition fees for children to any school or college or university or similar institution. (Only for 2 children)or towards coaching fee of various competitive exams.

Post office investments

The investment can be from any source and not necessarily from income chargeable to tax.

[edit] Section 80CCF: Investment in Infrastructure Bonds


From April, 1 2010, a maximum of Rs. 20,000 is deductible under section 80CCF provided that amount is invested in infrastructure bonds. This is in addition to the 100,000 deduction allowed under Section 80(C).

[edit] Section 80D: Medical Insurance Premiums


Health insurance, popularly known as Mediclaim Policies, provides a deduction of up to Rs. 35,000.00 (Rs. 15,000.00 for premium payments towards policies on self, spouse and children and (read as in addition to) Rs. 15,000.00 for premium payment towards non-senior citizen dependent parents or Rs. 20,000.00 for premium payment towards senior citizen dependent). This deduction is in addition to Rs. 1,00,000 savings under IT deductions clause 80C. For consideration under a senior citizen category, the incumbent's age should be 65 years during any part of the current fiscal, eg. for the fiscal year 2010-11, the incumbent should already be 65 as on March 31, 2011), This deduction is also applicable to the cheques paid by proprietor firm..

[edit] Interest on Housing Loans Section


For self occupied properties, interest paid on a housing loan up to Rs 150,000 per year is exempt from tax.(Excluding Rs.1,00,000/p.a. u/s 80c Saving) However, this is only applicable for a residence constructed within three financial years after the loan is taken and also the loan if taken after April 1, 1999. If the house is not occupied due to employment, the house will be considered self occupied. For let out properties, the entire interest paid is deductible under section 24 of the Income Tax act. However, the rent is to be shown as income from such properties. 30% of rent received and municipal taxes paid are available for deduction of tax. The losses from all properties shall be allowed to be adjusted against salary income at the source itself. Therefore, refund claims of T.D.S. deducted in excess, on this count, will no more be necessary.[5]

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INDIA INCOME TAX ACT- TAX DEDUCTIONS, TAX EXEMPTIONS 80C 80D 80DD 80E 80GG 24 80G
There are various Income tax deductions or tax exemptions as allowed by the Indian Income tax Act. These tax deductions allow you to subtract an amount from your taxable income and thus help you to save tax ! Understanding these income tax exemptions can help you save tens of thousands of rupees in income tax every year. Below I have listed all important income tax deductions in a table, and then after the table there is an explaination of each section of Indian Income tax act in detail. I hope these deduction and tax exemption limits will help you for your tax planning this year. I have also included links to the official page of Indian Income Tax so you can actually go there and verify the information yourself. Indian Income Tax deductions, Tax exemption limits Financial year 2008/2009 (will be updated later for 2009/2010)

Income Tax Deductions Explaination

Maximum deduction allowed Remarks

Income Tax deduction - Section 80C Provident Funds, Life Insurance premia, ELSS, Bank deposits (>5 yr.), tution fees, principal part of EMI on housing loan, etc.

Maximum tax deduction or tax exemption limit:

Rs. 1,00,000

Maximum tax deduction or tax exemption limit:

Income Tax deduction - Section 80D Premium in health insurance of you, your spouse, children or dependent parents

Rs. 15000 (tax exemption limit


for senior citizen is

Rs. 20000)
Maximum tax deduction

Income Tax deduction - Section 80DD Medical treatment (including insurance) of disabled dependent

or tax exemption limit:

Rs. 50000. (Rs. 75000 if disability is severe, e.g. >80%)

Income Tax deduction - Section 80E Interest paid on educational loan taken for higher education of you, your spouse or children.

Maximum tax deduction or tax exemption limit:

no limit !

Income Tax deduction - Section 80GG or tax exemption limit: House rent in excess of 10% of income, if Rs. 2000 per month or 25% of your gross no HRA is received. salary, whichever less.

Maximum tax deduction

Income Tax deduction - Section 24 Interest paid on housing loan.

Maximum tax deduction or tax exemption limit:

Rs. 1,50,000
Maximum tax deduction or tax exemption limit:

Income Tax deduction - Section 80G Donations

100% of donation amount for special funds(see below), 50% of donation amount for all other donations.

Indian Income Tax deduction - Section 80C (official page India Income Tax Act) Section 80C of Indian Income Tax Act is the most popular because it is directly related to tax deductions for your monthly savings or life insurance. In financial years 2008/2009 and also in 2009/2010 the maximum income tax deduction allowed under section 80C is 1,00,000. The following is a list of important ways in which a taxpayer can get benefit of section 80C of Indian Income Tax Act. 1. Provident Fund (PF): Any contributions to Provident Fund, Voluntary provident Fund (VPF) or savings made in Public Provident Fund (PPF Account) are eligible for income tax deduction under section 80C of Indian Income Tax Act. 2. Life Insurance Premiums: Any Life Insurance premiums (for one or more insurance policies) paid by you for yourself, your spouse or your children is eligible under income tax deduction under section 80C of Indian Income Tax Act.

3. ELSS Equity Linked Saving Schemes: Any investment made in certain Mutual Funds called equity linked saving schemes qualifies for section 80C deduction. Please note that not all mutual fund investments are eligible for this deduction. Some examples of ELSS funds are : SBI Magnum Tax Gain, HDFC Tax Saver, HDFC Long term advantage, etc. 4. ULIP (Unit Linked Insurance Plan): Investments made in certain ULIPs of Unit Trust of India and LIC of India are eligible for 80C deduction. 5. Bank Fixed deposits or Term deposits of >5 years: According to a relatively new provision amount saved in fixed deposits of term at least five years is eligible for income tax deduction under section 80C of Indian Income Tax Act. 6. Principal part of EMI on Housing Loan: If you are paying EMI on a housing loan, note that the EMI (equated monthly installments) consists of two parts - principal part and interest part. The principal part of the EMI on your housing loan is eligible for income tax deduction under section 80C. Note that the interest part is also eligible for tax deduction, however not under section 80C but section 24. (read below). If you do not own a house but pay rent for it, see section 80GG of Indian Income Tax Act below. 7. Tution Fees: Amount paid as tution fee for the education of two children of the assessee is eligible for deduction under section 80C of Indian Income Tax Act. 8. Other 80C deductions: Amount saved in National Saving Certificate (NSC), Infrastructure Bonds or Infra Bonds, amount paid as stamp duty and registration charges while buying a new home are eligible for income tax deductions under section 80C of Indian Income Tax Act. Indian Income Tax deduction - Section 80D: (official page Indian Income Tax Act) Section 80D of Indian Income Tax Act is especially useful if your employer does not cover your health or medical expenses. It is a good idea to get medical insurance or health insurance for you, your spouse, dependent children or dependent parents, as you can claim a deduction of upto Rs. 15000/- per anum for the premia paid on this insurance. For senior citizen this limit is Rs. 20000. With effect from 1-4-2009, you can claim the total of the following items for deduction under section 80D. 1. Total amount of premium paid for health insurance of family (meaning spouse + children), or Rs. 15,000 , whichever less. 2. Total amount of premium paid for health insurance of your parents or Rs. 15,000, whichever less. Thus if you are paying premiums of mediclaim policies for your spouse children and parents you can get a total tax deduction of upto Rs. 30,000.

Indian Income Tax deduction - Section 80DD: (official page India Income Tax Act) Section 80DD of Indian Income Tax Act provides provision for tax deduction if you incurred medical expenditure for a dependents who are disabled. Here dependent means spouse, children, brothers, sisters or any one of them. The maximum tax deduction provided by section 80DD is Rs. 50000 in case of ordinary disability and Rs. 75000 if the disability is severe. The definition of severe disability is as defined in the official page of Indian Income tax Act.

Indian Income Tax deduction - Section 24: (official page India Income Tax Act) Whenever you take a housing loan build or buy a new home, the interest payable on this home loan is eligible for income tax deduction under section 24. Maximum deductible amount, i.e. maximum interest you can claim for income tax deduction under section 24 is Rs. 1,50,000. In case you are paying interest on money borrowed for renovation of your home, even this may qualify for tax deduction under section 24 of Indian Income Tax Act. (see official page or ask in a comment).

Indian Income Tax deduction - Section 80GG: (official page - India Income Tax Act) If you pay rent for the house that you are staying in and do not get HRA, any rent you pay in excess of 10 percent of your salary is eligible for income tax deduction under section 80GG of Indian Income Tax Act. The income tax deduction you can claim is the minimum of the following amounts. 1. Rent you pay minus 10% of your salary. 2. 25% of your gross total income. 3. Rs. 2000/- per month. Indian Income Tax deduction - Section 80E: (official page India Income Tax Act) Under section 80E of Indian Income Tax Act, any amount of interest paid on educational loan taken for your higher education or higher education of your husband / wife or children is deductible from your taxable income. Here higher eduction means - studies for any graduate or post-graduate course in engineering, medicine, management or for post-graduate course in applied sciences or pure sciences including mathematics and statistics.

Indian Income Tax deduction - Section 80G: (official page India Income Tax Act) Donations made to funds like Prime Minister's Relief Fund, National Children Foundation, any University or educational institution of 'national eminence', etc. (see official page for complete

list) are deductible from your taxable income according to section 80G of Indian Income Tax Act. For any other donations you are eligible to take income tax deduction for 50% of the donation amount. See the offical page of Indian Income Tax Act.

Income Tax Slabs India - Financial Year 2008/2009 and 2009/2010. The IT slabs for 2009/2010 are the same as the slabs in 2008/2009. Income Tax Calculator - 2008/2009 (also good for A.Y. 2009/2010 since the tax slabs are unchanged for 2009/2010). This Income Tax Calculator is in Excel Spreadsheet format. India Income Tax deductions - Various Income Tax deductions under section 80C, section 80D, section 80DD, section 80G, section 80GG, section 80E, section 24, etc. and their max. tax exemption limits allowed under the Indian Income Tax Act discussed in this post. All Indian IT deductions in one single post. Tax deduction under Section 80C: The most common income tax deduction for Indians discussed in detail. Use this for your personal tax planning and save upto Rs. 33,000 Income Tax. How to pay your Indian Income Tax online? How to check your Income Tax Refund Status online?

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