Sharda Shukla

Brief History of Income Tax in India:

“In this world nothing can be said to be certain, except death and taxes.”

Benjamin Franklin

♦ Tax is a mandatory liability for every citizen of the country. There are two types of tax in India i.e. direct and indirect.

♦ Taxation in India is rooted from the period of Manu Smriti and Arthasastra. Present Indian tax system is based on this ancient tax system which was based on the theory of maximum social welfare.

♦ In India, this tax was introduced for the first time in 1860, by Sir James Wilson in order to meet the losses sustained by the Government on account of the Military Mutiny of 1857.

♦ In 1918, a new income tax was passed and again it was replaced by another new act which was passed in 1922.This Act remained in force up to the assessment year 1961-62 with numerous amendments.

♦ In consultation with the Ministry of Law finally the Income Tax Act, 1961 was passed. The Income Tax Act 1961 has been brought into force with 1 April 1962. It applies to the whole of India and Sikkim (including Jammu and Kashmir).

Since 1962 several amendments of far-reaching nature have been made in the Income Tax Act by the Union Budget every year.

Present Scenario in India in case of ITR

Present Scenario in India in case of ITR

People raise the question ‘Why should I pay tax?

They argue:

♦ I have to pay for my food, for my house, for my travel, for my medical treatment, for owning a vehicle not only cost of vehicle but also vehicle tax and what not.

♦ Even on many roads, one has to pay toll tax! They also say that if we compare with countries like USA and UK, the people get social security as also medical facilities virtually without any cost. But India does not offer such facilities.

Paying A Rent and EMI

What Government Do from our TAX?

♦ The Government provide Health care through Government hospitals (usually they offer service without any cost), Education (In Municipal and Government schools the fee is negligible).

♦ The Government also provides cooking gas at concessional rate or gives subsidy.

♦ Of course the major expenditure of Government has to be incurred on National Defense, Infrastructure Developments etc.

♦ Taxes are used by the government for carrying out various welfare schemes including employment programs.

♦ There are Lakhs of employees in various departments and the administrative cost has to be borne by the Government.

♦ Though the judicial process involves delay, yet the Salaries, perks of Judges, Magistrates and judicial staff has also to be paid by the Government.

♦ Thus on considering these various duties of the Government, we need to appreciate that we must pay tax as per law. We have to act like a responsible citizen.

Tax Slab

Income Tax Slab for A.Y. 2018-19 (AY 2019-20)

◊ Education Cess 3% +Health Cess of1 %

◊ Surcharge of 10% on Rs. 50 Lakhs to Rs. 1 crore + Income earners

◊ Surcharge of 15% on Rs. 1 Cr. Plus income earners

◊ Tax credit of Rs. 2,500/- for income upto Rs. 3.5 Lakhs u/s 87A

◊ Standard deduction of Rs. 40,000/-for Salaried and Pensioners

◊ There are no separate slab for male & Female

Heads of Income

Important Terms

♦ Assessee

♦ Assessment Year (A.Y. 2019‐20)

♦ Previous Year (F.Y. 2018‐19)

♦ Residential Status

♦ Gross Total Income

♦ Deductions

♦ Total Income

Definition of ‘Assessee’ – Section 2(7) of Income Tax. As per S. 2(7) of the Income Tax Act, 1961, unless the context otherwise requires, the term “assessee” means a person by whom any tax or any other sum of money is payable under this Act, and includes

  • Person in respect of whom any proceedings under this Act has been taken for assessment of his income
  • Deemed assessee under provisions of this Act
  • Any person deemed to be an assesse in default under any provisions of this Act

Assessment Year (A.Y. 2019‐20):

Assessment year means the period starting from April 1 and ending on March 31 of the next year.

Previous Year (F.Y. 2018‐19)

The financial year immediately preceding the assessment year

Residential Status

  • Resident–World income is taxable in India
  • Non Resident(NRI)–Only income arising or accruing in India is taxable in India
  • Resident but Not Ordinarily Resident–Income accruing or arising outside India may also be taxable in India

Resident: On basis of stay in India computed separately every year If satisfies any of the below condition:

1. He is in India for a period of 182 days or more in the FY

OR

2. He is in India for 60 days or more during that FY and has been in India for 365 days or more during 4 previous years immediately preceding the relevant Financial Year.

♦ Gross Total Income

Deductions

♦ Total Income

HEADS OF INCOME

♦ Income From Salary

♦ Meaning of Salary:

  • Wages;
  • Pension;
  • Annuity;
  • Gratuity;
  • Advance Salary paid;
  • Fees, Commission, Perquisites, Profits in lieu of or in addition to Salary or Wages;
  • Annual accretion to the balance of Recognized Provident Fund; Leave Encashment;
  • Transferred balance in Recognized Provident Fund;
  • Contribution by Central Govt. or any other employer to Employees Pension A/c as referred in Sec. 80CCD.

Income from Salary

I. CTC

II. Gross Salary

-is employee provident fund (EPF) and gratuity subtracted from the Cost to Company (CTC). To put it in simpler terms, Gross Salary is the amount paid before deduction of taxes or other deductions and is inclusive of bonuses, over-time pay, holiday pay, and other differentials.

For the same example listed above, let’s deduce Mr. A yearly salary by subtracting gratuity and Employee Provident Fund contributions.

Rs. 4,00,000 – Rs. 21,600 – Rs. 18,326

= Rs. 3,60,074

Income from Salary

Deduction/Exemption

What is the difference between Exemption and deduction?

If an income is exempt from tax, then it is not included in the computation of income. However, the deduction is given from income chargeable to tax. Exempt income will never exceed the amount of income. However, the deduct may be less than or equal to or more than the amount of income.

Exemption: Section 10 deals with exemptions

Deduction: Section 80 C to 80 U deals with deduction

Exemption
Section 10(1) to Section 10(38) Deals with exempt Income

Section 10(5)-Leave Travel Allowance*

♦ The bills for your travel against LTA can be claimed for exemption. It is allowed to be claimed twice in a block of four years. The current block is 2018 to 2021.

♦ is exempt from tax in the hands of employee as per following.

If journey by Air –Economy class fare of the national carrier( Air India) by shortest route or the amount spent whichever is less.

√ If journey by Rail – AC First class fare by shortest route or the amount spent whichever is less

♦ Where places of origin of Journey and destination are connected by rail & journey is performed by any other mode of transport- AC First class fare by shortest route or the amount spent whichever is less.

Where places of origin of Journey and destination are not  connected by rail,

a)  Recognized public transport exists- First class or deluxe class fare by the shortest route or the amount spent, whichever is less.

b) No recognized public transport exists – AC First class rail fare by Shortest route or the amount spent whichever is less

Exemption

Section 10(1) to Section 10(38) Deals with exempt Income

Section 10(5)-Leave Travel Allowance Conditions:*

  •  LTA should be uniform to all the employees
  • employers need to collect and scrutinize the proof of travel (ticket etc.)
  • limited to the actual expenses incurred
  • Any Leave encashed for the purpose of Leave travel or home travel concession is taxable.
  • Foreign Travel – The exemption is not available in case of Foreign Travel
  • The Exemption is not available to more than 2 surviving children of an individual born after 1.10.1998. However, this restriction is not there in respect of children born before 1.10.1998.

Leave Travel Allowance

Section 10(13A): House Rent Allowance(HRA)

♦ This is the famous exemption which is used by many salaried individuals. However, the wrong belief is that whatever the rent they pay is actually exempted from their income. The reality is different. The amount of exemption is least of the following.

a) Actual HRA Received
b) 40% of Salary (50%, if house situated in Mumbai, Calcutta, Delhi or Madras)
c) Rent paid minus 10% of salary
(Salary= Basic + DA (if part of retirement benefit) + Turnover based Commission)

House Rent Allowance(HRA)

Allowances Exempt under Section 10(14)(I)-No limit

  • Travelling Allowance
  • Daily Allowance
  • Conveyance Allowance:-This is the different allowance than transport allowance. It is the expenditure granted to an employee to meet the expenses on conveyance in performing of his office duties.
  • Helper Allowance
  • Academic Allowance:- Allowance granted for encouraging academic, research & training pursuits in educational & research
    Institutional.
  • Uniform allowance

“standard deduction” of Rs. 40,000. 

standard deduction

Benefit of Extra 5,800 now available

Deduction U/s (16)

There are basically two deduction

1.) Entertainment Allowance [Section 16(ii)] –(Government Employees)

2.) Professional Tax [Section 16(iii)] -(KIPL- 2,350/-)

Income from House Property

Income from House Property

Deductions: 1. Standard Deduction u/s 24@30% of Annual Value

2. Interest paid on home loan( Max Rs. 200,000/-)

3. Loan Principle payment u/s 80C

4. Deduction for fist time home buyer u/s 80EE

Deduction for fist time home buyer u/s 80EE

First time Home Buyers can claim an additional Tax deduction of up to Rs.50,000 on home loan interest payments under this section. Below are the few conditions for this.

  • He must be an individual (Resident or Non-Resident).
  • Loan must be taken for the acquisition of the property.
  • Loan should be sanctioned after 2016-17.
  • Loan amount should not exceed Rs. 35 Lakh.
  • The value of the house should not be more than Rs 50 Lakh.
  • The home buyer should not have any other existing residential house during the sanction of loan.

Do remember that if you claimed the interest under this section, then the same can’t be claimed under other sections for deductions.

Income from Other Sources

1.) Income:

  • Dividend
  • Interest- From Savings, Term deposit, income tax refund, other
  • Income of winnings from lotteries, crossword puzzles etc., excluding income from owning race horses
  • Income from the activity of owning and maintaining race horses

-DEDUCTIONS

Deduction on Interest Income Under Section 80TTA

For a residential individual (age of 60 years or less) or HUF, interest earned upto Rs 10,000 in a financial year is exempt from tax. The deduction is allowed on interest income earned from:

  • savings account with a bank;
  • savings account with a co-operative society carrying on the business of banking; or
  • savings account with a post office

Senior citizens are not entitled to benefits under section 80TTA.

Interest income in case of Fixed Deposit (PAN)

Tax on Fixed Deposits

Senior citizens, with effect from 1 April 2018, will enjoy an income tax exemption up to Rs. 50,000/- on the interest income they receive from fixed deposits with banks, post offices etc. under Section 80TTB.

Exempt Income

The PPF and EPF amount you withdraw after maturity is exempt from tax and must be declared as exempt income from income from other sources.

Note that: The EPF is only tax exempt after five years of continuous service.

Family Pension

If you are collecting pension on behalf of someone who is deceased, then you must show this income under income from other sources. There is a deduction of Rs 15,000 or one-third of the family pension received whichever is lower from the Family Pension Income. This will be added to the taxpayer’s income and tax must be paid at the tax rate that is applicable.

Taxation of Winnings from Lottery, Game Shows, Puzzles

If you receive money from winning the lottery, Online/TV game shows etc., it will be taxable under the head Income from other Sources. The income will be taxable at the flat rate of 30% which after adding cess will amount to 30.9%

Deductions under Chapter VI-A

Section 80C

♦ Maximum Limit- Rs.1,50,000/-

♦ You can save tax on salary income from this section alone

♦ Different Investment in this section includes

Life Insurance premium (Paid by an individual, spouse, and child. In the case of HUF, on the life of any member of HUF).

EPF-Employee contribution can be claimed for deduction.

Public Provident Fund (Paid by an individual, spouse, and child. In the case of HUF, on the life of any member of HUF).

National Savings Certificate (NSC).

Sukanya Samriddhi Account

ELSS or Tax Saving Mutual Funds

Senior Citizen Savings Scheme

5-Years Post Office or Bank Deposits.

Tuition fee of kids.

Principal payment towards home loan.

Stamp duty and registration cost of the house.

Deductions under Chapter VI-A

Section 80CCC

Deduction under Sec.80CCC is available only for individuals. Contribution to an annuity plan of the LIC of India or any other insurer for receiving the pension. Do remember that the amount should be paid or deposited out of income chargeable to tax.

Note:- this is also the part of the combined limit of Rs.1.5 lakh available under Sec.80C Sec.80CCC, and Sec.80CCD(1)

Deductions under Chapter VI-A

NPS Tax Benefit-Section 80CCD1

An individual’s maximum 20% of annual income (Earlier it was 10% but after Budget 2017, it increased to 20%) or an employees (10% of Basic+DA) contribution will be eligible for deduction.

Note:- this is also the part of the combined limit of Rs.1.5 lakh available under Sec.80C Sec.80CCC, and Sec.80CCD(1)

NPS Tax Benefit-Section 80CCD2

♦ There is a misconception among many that there is no upper limit for this section. However, the limit is least of 3 conditions.

. 1) Amount contributed by an employer,

. 2) 10% of Basic+DA and

. 3) Gross Total Income.

This is additional deduction which will not form the part of Sec.80C limit.

♦ The deduction under this section will not be eligible for self-employed.

Deductions under Chapter VI-A

NPS Tax Benefit-Section 80CCD(1B)

♦ This is the additional tax benefit of up to Rs.50,000 eligible for income tax deduction and was introduced in the Budget 2015, One can avail the benefit of  this Sect.80CCD (1B) from FY 2015-16.

♦ Both self-employed and employees are eligible for availing this deduction.

♦ This is over and above Sec.80CCD (1).

Deductions under Chapter VI-A

NPS Tax Benefit Summary

NPS Tax Benefit Summary

Deductions under Chapter VI-A

Section 80D

Deduction under this section is available if you satisfy the following conditions.

  • The taxpayer should be an individual (resident, NRI or Foreign Citizen) or HUF.
  • Payment should be made out of income chargeable to tax.
  • Payment should be in NON-CASH mode (for preventive health check up, you can pay either through cash or non-cash mode).

Changes from Budget 2018-

1. In Budget 2018, the maximum tax deduction limit for senior citizens under Sec.80D is raised to Rs.50,000. The earlier limit was Rs.30,000.

2. In case of single premium health insurance policies having a cover of more than one year, it is proposed that the deduction shall be allowed on a proportionate basis for the number of years for which health insurance cover is provided, subject to the specified monetary limit.

Deductions under Chapter VI-A

Section 80DD

♦ A resident individual or HUF is allowed to claim the deduction

♦ If incurred an expenditure for medical treatment, training, and rehabilitation of dependent relative (being a person with a disability).

♦ Can be claimed only when deposited or paid for any approved scheme of LIC (or any other insurance) or UTI for the maintenance of such dependent relative.

  • Fixed deduction of Rs.75,000
  • Higher deduction of Rs.1,25,000 is available if such dependent relative is suffering from severe disability

NOTE:-dependent means spouse, children, parents, brothers, and sisters, who is wholly and mainly dependent upon the individual.

Deductions under Chapter VI-A

Section 80DDB

An Individual’s of HUFs expenses actually paid for medical treatment of specified diseases and ailments subject to certain conditions can be claimed under this section.

The maximum deduction is Rs. 40,000. This can also be claimed on behalf of the dependents. The tax deduction limit under this section for Senior Citizens and very Senior Citizens (above 80 years) is now revised to to Rs 1,00,000.

With effect from the assessment year 2016-17, the taxpayer shall be required to obtain a prescription from a specialist doctor (not necessarily from a doctor working in a Government hospital) for availing this deduction.

Can claim the deduction for the medical treatment of self, spouse, children, parents brothers, and sisters of the individual.

Deductions under Chapter VI-A

Section 80DDB

The ailments covered under this section are as below:

# Neurological Diseases where the disability level has been certified to be of 40% and above;

(a) Dementia

(b) Dystonia Musculorum Deformans

(c) Motor Neuron Disease

(d) Ataxia

(e) Chorea

(f) Hemiballismus

(g) Aphasia

(h) Parkinson’s Disease

# Malignant Cancers

# Full Blown Acquired Immuno-Deficiency Syndrome (AIDS) ;

# Chronic Renal Failure

# Hematological disorders

a) Hemophilia

b) Thalassaemia

Deductions under Chapter VI-A

Section 80E

♦ If the loan is taken by an individual for any study in India or outside India, then they can claim the deduction.

♦ The interest part of the loan on such education loan can be claimed for deduction for pursuing individual’s own education or for the education of his relatives (Spouse, children or any student for whom the individual is legal guardian).

♦ The entire interest is deductible in the year in which the individual starts to pay interest on the loan and subsequent 7 years or until interest is paid in full (i.e for total 8 years).

NOTE:-Interest should be paid out of the income of chargeable to tax.

Deductions under Chapter VI-A

Section 80G

♦ Donations to certain approved funds, trusts, charitable institutions/donations for renovation or repairs of notified temples, etc can be claimed as a deduction under this section.

♦ This deduction can only be claimed when the contribution made by cheque or draft or in cash. In-kind contributions like food material, clothes, medicines etc. do not qualify for deduction under this section.

♦ The donations made to any Political party can be claimed under section 80GGC.

From FY 2017-18, the limit of deduction under section 80G / 80GGC for donations made in cash is reduced from current Rs 10,000 to Rs 2,000 only.

Deductions under Chapter VI-A

Section 80GG

♦ This section only applies to those who have not availed HRA in their salary or not claiming the deduction on their rent in any of the other sections of income

Conditions:

◊ Applicable to Individual or HUF.

◊ Tax Payer may be either salaried or a self-employed. However, must not be getting HRA.

◊ Tax Payer himself or spouse/Minor Child/HUF of which he is a member should not own any accommodation at a place where he is doing a job or business

◊ If Tax Payer owns a house at a place other than the place noted above, then the concession in respect of self-occupied property is not claimed by him [Under Section 23 (2) (a) or 23 (4) (a)].

◊ Tax Payer has to file a declaration in Form No. 10BA regarding the expenditure incurred by him towards the payment of rent.

How much amount of deduction one can avail under Sec. 80GG?

If the all five conditions are satisfied, the amount deductible under Section 80GG is LEAST OF THE FOLLOWING.

  • Rs.5, 000 per month;
  • 25% of total income of taxpayer for the year; or
  • Rent Paid less 10% of total income (Rent Paid-10% of Total Income).

Example:

What is total income for the purpose of Sec. 80GG?

We can calculate it as below.

Total Income=Gross Total Income-LTCG-STCG-Income referred under the Sec.115A-Amount
deductible under Sec.80C to 80U (except Section 80GG)

♦ Mr. X’s total income (calculated as per above formula) is Rs.4, 00,000. He pays an annual rent of Rs.1, 50,000. Then least of the below will be applicable for deduction under Sec. 80GG.

  • Rs.60, 000 per year.
  • Rent Paid-10% of Total Income=Rs.1,50,000-Rs.40,000=Rs.1,10,000’-.
  • 25% of Total Income i.e. Rs.1, 00,000/-.
  • So least of the above will be Rs.60, 000/-, which one can claim under Section 80GG for that particular FY.

Deductions under Chapter VI-A

Section 80U

◊ To claim tax benefits under Sec.80U, the taxpayer should be an individual and resident of India.

◊ If he is suffering from 40% or more than 40% of any disability, then he can claim a tax deduction.

◊ You can claim the fixed deduction of Rs.75,000. a higher deduction of Rs.1,25,000 is allowed in respect of a person with a severe disability (i.e. having a disability of 80% or above).

Rebate under Section 87A

♦ The tax rebate of Rs.2,500 for individuals with income of up to Rs 3.5 Lakh has been proposed in Budget 2017-18.

To avail this benefit, there are certain conditions and they are as below.

  • The taxpayer must be a resident individual.
  • Your Total Income (Less Deductions from 80C to 80U) is equal to or less than Rs.3,50,000.
  • The rebate is the 100% of income tax on such income or Rs.2,500 (whichever is less).

Income Tax E-Filing ( ITR-1)

Total ITRs are – ITR 1 to ITR 7

ITR-1

i. Earlier ITR-1 was applicable for both Residents, Residents Not ordinarily resident (RNOR) and also Non-residents. Now, this form has been made applicable only for resident individuals

ii. The condition of the individual having income from salaries, one house property, other income and having total income up to Rs 50 lakhs continues

iii. There is a requirement to furnish a break-up of salary. Until now, these details would appear only in Form 16 and the requirement to disclose them in the return had never arisen

iv. There is also a requirement to furnish a break up of Income under House Property which was earlier mandatory only for ITR -2 and other forms

Income Tax E-Filing ( ITR-1)

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Limit- Rs. 1,50,000/-

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Rebate u/s 87A
Limit- Taxable
Income-Rs.3,50,000/-

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