Unit V – Elements of TaxationPrevious Year and Assessment Year

Previous Year 01-04-2015 to 31-03-2016 (PY – 15-16)

Previous year is a financial year for which a income is assessed for the purpose of income tax.

Assessment Year 01-04-2016 to 31-03-2017 (AY – 16-17)

Assessment Year is a financial year in which you file an income tax for the assessed previous financial year.

Gross Total Income

Gross Total Income: An individual's total personal income before taking taxes or deductions into account.

Heads of income

The total income of a person is segregated into five heads:-

Income from salaries

Income from house property

Profits and gains of business or profession

Capital gains and

Income from other sources

Income from salariesAll income received as salary under employer-employee relationship is taxed under this head, on due or receipt basis, whichever arises earlier. Employers must pay tax compulsorily (subject to Section 192), 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

Income from house property

Income under this head is taxable if the assessee is the owner of a property consisting of building or

land and is not used by him for his business or professional purpose. An individual or an Hindu

Undivided Family (HUF) is eligible to claim any one property as Self-occupied if it is used for own or

family's residential purpose. In that case, the Net Annual Value (as explained below) will be nil. Such

a benefit can only be claimed for one house property. In the case of a self occupied house deduction

on account of interest on borrowed capital is subject to a maximum limit of 150,000 (if loan is taken ₹

on or after 1 April 1999 and construction is completed within 3 years) and 30,000 (if the loan is taken₹

before 1 April 1999). For let-out property, all interest is deductible, with no upper limits. The balance is

added to taxable income.

The computation of income from let-out property is as under:-

Gross annual value (GAV)1 xxxx

Less:Municipal Taxes paid (xxx)

Net Annual value (NAV) xxxx

Less:Deductions under section 242 (xxx)

Income from House property xxxx

^1 The GAV is higher of Annual Letting Value (ALV) and Actual rent received/receivable during the year. The ALV is higher of fair rent and municipal value, but restricted to standard rent fixed by Rent Control Act.^2 Only two deductions are allowed under this head by virtue of section 24, viz.,

30% of Net annual value as Standard deduction Interest on capital borrowed for the purpose of acquisition, construction, repairs, renewals or

reconstruction of property (subject to certain provisions).

Profits and Gains of business or profession

Income from Business/Profession: means any income which is shown in profit and loss account after considering all allowed expenditures.

INCOME CHARGEABLE UNDER BUSINESS/PROFESSION

The following are few examples of incomes which are chargeable under this head:-

1.Normal Profit from general activities as per profit and loss account of business entity.

2.Profit from speculation business should be kept separate from business income and shown separately.

3.Any profit other than regular activities of a business should be shown as casual income and will be shown under “income from other sources” head.

4.Profit earned on sale of REP License/Exim scrip, cash assistance against export or duty drawback of custom or excise.

5.The value of any benefits whether convertible into money or no from business/profession activities.  

6.Any interest, salary, commission etc. received by the partner of a firm will be treated as business/professional income in hand of partner. However, the share of profit from partnership firm is exempt in hand of partner.

7. Amount recovered on account of bad debts which were already adjusted in profit in earlier years etc.  

EXPENSES DEDUCTIBLE FROM INCOME FROM BUSINESS/PROFESSION

  All the expenses relating to business and profession are allowed against income. Following are few examples of expenditures which are allowed against income:-

1.Rent rates and insurance of building.

2.Payment for know-how, patents, copy rights, trade mark, licenses.

3.Depreciation on fixed assets.

4.Payment for professional services.

5.Expenditures on scientific research for business purposes.

6.Preliminary Expenses in case of Limited companies.

7.Salary, bonus, commission to employees.

8.Salary, interest and remuneration to working partners subject to certain conditions. 9.Communication expenses.

10.Traveling and conveyance expenses, Membership fees etc.

11.Advertisement expenses in respect of promotion of business products.

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 etc.

Certain transactions are not regarded as 'Transfer' under section 47.

Computation of Capital Gains:-

Full value of consideration1 xxx

Less:Cost of acquisition2 (xx)

Less:Cost of improvement2 (xx)

Less:Expenditure pertaining to transfer incurred by the transferor (xx)

^1 In case of transfer of land or building, if sale consideration is less than the stamp duty valuation, then such stamp duty value shall be taken as full value of consideration by virtue of Section 50C. The transferor is entitled to challenge the stamp duty valuation before the Assessing Officer.^2 Cost of acquisition & cost of improvement shall be indexed in case the capital asset is long term.

For tax purposes, there are two types of capital assets: Long term and short term. Transfer of long

term assets gives rise to long term capital gains. The benefit of indexation is available only for long

term capital assets. If the period of holding is more than 36 months, the capital asset is long term,

otherwise it is short term. However, in the below mentioned cases, the capital asset held for more

than 12 months will be treated as long term:-

Any share in any company

Government securities

Listed debentures

Units of UTI or mutual fund, and

Zero-coupon bond

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 always taxed under this head.

1. Income by way of Dividends.

2. Income from horse races/lotteries.

3. Employees' contribution towards staff welfare scheme/ provident fund/ superannuation fund

or any fund set up under the provisions of ESIC Act, received from the employees by the

employer.

4. Interest on securities (debentures, Government securities and bonds).

5. Any amount received from keyman insurance policy including the sum allocated by way of

bonus on such policy.

6. Gifts (subject to certain conditions and exemptions).

7. Interest on compensation/enhanced compensation.

8. Income from renting of other than house property.

9. Family pension received by family members after the death of the pensioner.

10. Income by way of interest on other than securities.

Surcharge : Surcharge is levied @ 12% on the amount of income-tax where net income exceeds Rs. 1 crore. In a case where surcharge is levied, EC of 2% and SHEC of 1% will be levied on the amount of income-tax plus surcharge.

Income Tax Slabs

1. Less than 60 Years (0-60)0 – 250000 -> Nil250000 – 500000 -> 10%500000 – 100000 -> 20%More than 100000 -> 30%

2. More than 60 Years(61-80)0 – 300000 0%5-10 20>10 30%

58 YEARS

10001000

Advance Tax

Tax Deducted at Source(TDS)

What is tax deducted at source?For quick and efficient collection of taxes, the Income-tax Law has incorporated a system of deduction of tax at the point of generation of income. This system is called as “Tax Deducted at Source”, commonly known as TDS. Under this system tax is deducted at the origin of the income. Tax is deducted by the payer and is remitted to the Government by the payer on behalf of the payee. The provisions of deduction of tax at source are applicable to several payments such as salary, interest, commission, brokerage, professional fees, royalty, contract payments, etc. In respect of payments to which the TDS provisions apply, the payer has to deduct tax at source on the payments made by him and he has to deposit the tax deducted by him to the credit of the Government. The following illustration will explain the TDS mechanism. Illustration Mr. Raja has made a fixed deposit with XYZ Bank. Annual interest on the deposit is Rs. 8,40,000. Will the bank be liable to deduct any tax from the interest paid to Mr. Raja?**Interest on fixed deposit is covered under the TDS mechanism and, hence, the bank has to deduct tax from interest and has to pay the net interest to Mr. Raja.  The rate of TDS on interest is 10% and, hence, the bank will deduct tax of Rs. 84,000 from the interest and will pay the net interest of Rs. 7,56,000 (i.e., Rs. 8,40,000 – Rs. 84,000) to Mr. Raja. The TDS of Rs. 84,000 will be paid by the bank to the Government and Rs. 84,000 will be treated as prepaid tax of Mr. Raja and he can claim tax credit of Rs. 84,000 just like advance tax at the time of filing his return of income.  The above mechanism of deducting the tax at the point of generation of income is called TDS mechanism. 

What are the payments covered under the TDS mechanism and the rates for deduction of tax at source?

Tax is deductible at source at the rates given in table (infra). If PAN of the deductee is not intimated to the deductor, tax will be deducted at source by virtue of section 206AA either at the rate given in the table or at the rate of 20 per cent, whichever is higher. Further, under section 94A(5), if payment or credit is made or given to a deductee who is located in a notified jurisdictional area, tax is deductible at the rate given in the table or at the rate of 30 per cent, whichever is higher. TDS rates for the financial year 2014-15 are as follows—

CATEGORY A - WHEN RECIPIENT IS RESIDENT

Nature of payment TDS (SC : Nil, EC : Nil, SHEC : Nil)

• Sec. 192 - Payment of salary [normal tax rates are applicable – SC : 10% (if net income exceeds Rs. 1 crore), EC : 2% and SHEC : 1%]

—

• Sec. 193 - Interest on securities—

a. interest on (a) debentures/securities for money issued by or on behalf of any local authority/statutory corporation, (b) listed debentures of a company [not being listed securities in demat form], (c) any security of the Central or State Government [i.e., 8% Savings (taxable) Bonds, 2003, but not any other Government security]

10

b. any other interest on securities (including interest on non-listed debentures) 10

• Sec. 194 - Dividend—

a. deemed dividend under section 2( 22 )( e ) 10

b. any other dividend Nil

• Sec. 194A - Interest other than interest on securities 10

• Sec. 194B - Winnings from lottery or crossword puzzle or card game or other 30

game of any sort

• Sec. 194BB - Winnings from horse races 30

• Sec. 194C - Payment or credit to a resident contractor/sub-contractor—

a. payment/credit to an individual or a Hindu undivided family 1

b. payment/credit to any person other than an individual or a Hindu undivided family

2

• Sec. 194D - Insurance commission 10

• Sec. 194DA - Payment in respect of life insurance policy (applicable from October 1, 2014)

2%

• Sec. 194EE - Payment in respect of deposits under National Savings Scheme, 1987

20

• Sec. 194F - Payment on account of repurchase of units of MF or UTI 20

• Sec. 194G - Commission on sale of lottery tickets 10

• Sec. 194H - Commission or brokerage 10

• Sec. 194-I - Rent—

a. rent of plant and machinery 2

b. rent of land or building or furniture or fitting 10

• Sec. 194-IA - Payment/credit of consideration to a resident transferor for transfer of any immovable property (other than rural agricultural land)

1

• Sec. 194J - Professional fees, technical fees, royalty or remuneration to a director

10

• Sec. 194LA - Payment of compensation on acquisition of certain immovable property

10

• Sec. 194LBA(1) - Payment of the nature referred to insection 10( 23FC ) by business trust to resident unit holders (applicable from October 1, 2014)

10%

CATEGORY B - WHEN RECIPIENT IS NON-RESIDENT OR FOREIGN COMPANY

Aggregate payment or credit subject to TDS during thefinancial year 2014-15→

If recipient is non-resident non-corporate person

If recipient is non-domestic company

Rs. 1 crore or less

More than Rs. 1 crore

Rs. 1 crore or less

More than Rs. 1 crore but not more than Rs. 10 crore

More than Rs. 10 crore

Nature of payment TDS (inclusive of SC : Nil, EC : 2%, SHEC : 1%)

TDS (inclusive of SC : 10%, EC : 2%, SHEC : 1%)

TDS (inclusive of SC : Nil, EC : 2%, SHEC : 1%)

TDS (inclusive of SC : 2%, EC : 2%, SHEC : 1%)

TDS (inclusive of SC : 5%, EC : 2%, SHEC : 1%)

• Sec. 192 - Payment of salary [normal tax rates are applicable – SC : 10% (if net income exceeds Rs. 1 crore), EC : 2% and SHEC : 1%]

– – – – –

• Sec. 194B - Winnings from lottery or crossword puzzle or card game or other game of any sort

30.9 33.99 30.9 31.518 32.445

• Sec. 194BB - Winnings from horse races

30.9 33.99 30.9 31.518 32.445

• Sec. 194E - Payment to a non-resident foreign citizen sportsman/entertainer or non-resident sports association

20.6 22.66 20.6 21.012 21.63

• Sec. 194EE - Payment in respect of deposits under National Saving Scheme, 1987

20.6 22.66 NA NA NA

• Sec. 194F - Re-purchase of units of MF or UTI

20.6 22.66 NA NA NA

• Sec. 194G - Commission on sale of lottery tickets

10.3 11.33 10.3 10.506 10.815

• Sec. 194LB - Payment/credit by way of interest by infrastructure debt fund

5.15 5.665 5.15 5.253 5.4075

• Sec. 194LBA(2) - Payment of the nature referred to in section 10( 23FC ) by business trust to unit holders (applicable from October 1, 2014)

5.15 5.665 5.15 5.253 5.4075

• Sec. 194LC - Payment/credit of interest by an Indian specified company on foreign currency approved loan/long-term infrastructure bonds (with effect from October 1, 2014, any bond) from outside India

5.15 5.665 5.15 5.253 5.4075

• Sec. 194LD - Interest on a rupee denominated bond of an Indian company or Government security (from June 1, 2013)

5.15 5.665 5.15 5.253 5.4075

• Sec. 195 - Payment/credit of other sum to a non-resident —

a. income of foreign exchange assets payable to an Indian citizen

20.6 22.66 NA NA NA

b. income by way of long-term capital gains referred to insection 115E or section 112(1)( c )( iii )

10.3 11.33 10.3 10.506 10.815

c. short-term capital gains under section 111A

15.45 16.995 15.45 15.759 16.2225

d. any other long-term capital gains [not being covered by 196D section 10( 33 ) ,10( 36 ) and 10( 38 ) ]

20.6 22.66 20.6 21.012 21.63

e. income by way of interest payable by Government/Indian concern on money borrowed or debt incurred by Government or Indian concern in foreign currency (not being interest referred to insection 194LB or194LC or 194LD)

20.6 22.66 20.6 21.012 21.63

f. royalty [see Note 5] 25.75 28.325 25.75 26.265 27.0375

g. royalty [not being royalty of the nature referred to in (f)supra] [see Note 6] –

□ where the agreement is made after March 31, 1961 but before April 1, 1976

30.9 33.99 51.5 52.53 54.075

□where the agreement is made on or after April 1, 1976

25.75 28.325 25.75 26.265 27.0375

h. fees for technical services [see Note 7] –

□ where the agreement is made after February 29, 1964 but before

30.9 33.99 51.5 52.53 54.075

April 1, 1976

□ where the agreement is made on or after April 1, 1976

25.75 28.325 25.75 26.265 27.0375

i. any other income 30.9 33.99 41.20 42.024 43.26

• Sec. 196B - Payment/credit of income from units (including long-term capital gains on transfer of such units) to an offshore fund

10.3 11.33 10.3 10.506 10.815

• Sec. 196C - Payment/credit of interest of foreign currency bonds or GDR (including long-term capital gains on transfer of such bonds) (not being dividend referred to insection 115-O)

10.3 11.33 10.3 10.506 10.815

• Sec. 196D - Payment/credit of income from securities (not being dividend, short-term or long-term capital gain) to Foreign Institutional Investors

20.6 22.66 20.6 21.012 21.63

Notes :1. Under sections 192 tax is deductible from salary. The payer shall calculate salary taxable in the hands of recipient. The amount so determined is subject to tax deduction under sections 192. Under section 195, tax is deductible only if income is taxable in the hands of recipient in India. In any other case, gross payment is subject to tax deduction.2. In Category B, tax is deductible at the above rates or the rates specified in ADT agreements entered into by the Central Government under section 90 (whichever is lower) [  section 2( 37A )( iii ) ].3. Tax is not deductible under section 193, 194, 194A, or 194EE if the recipient makes a declaration in Form No. 15G/15H under the provisions of section 197A.4. Under section 197 the recipient can apply the Assessing Officer in Form No. 13 to get a certificate of lower/no tax deduction. This benefit is, however, not available if tax is

deductible under section 194B, 194BB, 194E, 194EE, 194F, 194-IA,194LB, 194LC, 196B, 196C or 196D.5. Royalty payable by Government or an Indian concern in pursuance of an agreement made by non-resident with the Government or the Indian concern after March 31, 1976, where such royalty is in consideration for the transfer of all or any rights (including the granting of a licence) in respect of copyright in any book on a subject referred to in the first proviso to section 115A(1A) to the Indian concern or in respect of computer software referred to in the second proviso to section 115A(1A), to a person resident in India.6. Not being royalty of the nature referred to above, payable by Government or an Indian concern in pursuance of an agreement made by non-resident with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to matter included in the industrial policy, the agreement is in accordance with that policy.7. Fees for technical services payable by Government or an Indian concern in pursuance of an agreement made by non-resident with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to matter included in the industrial policy, the agreement is in accordance with that policy.

Is there any minimum amount upto which tax is not deducted?In respect of various items liable to TDS, the Income-tax Law has prescribed a threshold limit. If the expenditure incurred/payment made during the year is below the threshold limit, then there is no requirement to deduct tax at source. Following list gives the threshold limit in respect of various items covered by TDS provisions:

 S.No. Particular Section Threshold limist

1. No deduction of tax at source from salaries

192 If net taxable income is less than maximum amount which is not chargeable to tax (Rs. 2,50,000 for an individual, Rs. 3,00,000 for Senior Citizens and Rs. 5,00,000 for Super

Senior Citizens)

2. No TDS from interest paid on debentures issued by a company in which public are substantially interested. Provided interest is paid by account payee cheque to resident individual or HUF

193 If amount paid or payable during the financial year does not exceed Rs. 5,000

3. No TDS from interest on 8% Saving (Taxable) Bonds 2003 paid to a resident persons

193 If amount paid or payable during the financial year does not exceed Rs. 10,000

3A. No TDS from interest on 6.5% Gold bonds, 1977 or 7% Gold bonds, 1980 paid to resident individual

193 If a declaration is made that the nominal value of such bonds did not exceed Rs. 10,000 at any time during the previous year

4. No TDS from dividend paid by account payee cheque to resident persons

194 If amount paid or payable during the financial year does not exceed Rs. 2,500

5. No TDS from interest other than on securities paid by a banking company or co-operative bank on time deposits

194A If amount paid or payable during the financial year does not exceed Rs. 10,000

6. No TDS from interest on deposit with a post office under Senior Citizens Saving Scheme Rules, 2004

194A If amount paid or payable during the financial year does not exceed Rs. 10,000

7. No TDS from interest other than on securities (in any other case)

194A If amount paid or payable during the financial year does not exceed Rs. 5,000

8. No TDS from interest on compensation awarded by Motor Accident Claims Tribunal

194A If amount paid or payable during the financial year does not exceed Rs. 50,000

9. No TDS from Lottery / Cross Word Puzzles

194B If amount paid or payable during the financial year does not exceed Rs. 10,000

10. No TDS from winnings from horse races 194BB If amount paid or payable during the

financial year does not exceed Rs. 5,000

11. No TDS from sum paid or payable to contractor

194C a) If sum paid or payable to a contractor in a single payment does not exceed Rs. 30,000b) If sum paid or payable to contractor in aggregate does not exceed Rs. 75,000 during the financial year

12. No TDS from insurance commission paid or payable during the financial year

194D If amount paid or payable during the financial year does not exceed Rs. 20,000

12A No TDS from sum payable under a life insurance a police (including bonus) to a resident (w.e.f. 01-10-2014) person

194DA If amount paid or payable during the financial year does not exceed Rs. 1 lakh

13. No TDS from payments made out of deposits under NSS

194EE If amount paid or payable during the financial year does not exceed Rs. 2,500

14. No TDS from commission paid on lottery tickets

194G If amount paid or payable during the financial year does not exceed Rs. 1,000

15. No TDS from payment of commission or brokerage

194H If amount paid or payable during the financial year does not exceed Rs. 5,000. Further no tax to be deducted from commission payable by BSNL/ MTNL to their PCO Franchisees.

16. No TDS from payment of rent in respect of land &building, furniture or fittings or plant and machinery

194-I If amount paid or payable during the financial year does not exceed Rs. 1,80,000

17. No TDS from payment of consideration for purchase of an immovable property (other than agriculture land)

194-IA If amount paid or payable during the financial year does not exceed Rs. 50 Lakhs

18. No TDS from payment of professional fees, technical fees, royalty and directors' remuneration

194J If amount paid or payable during the financial year does not exceed Rs. 30,000

19. No TDS from payment of compensation on compulsory acquisition of immovable property (other than Agricultural Land)

194LA If amount paid or payable during the financial year does not exceed Rs. 2 Lakhs

20. Furnishing of quarterly return in respect of payment of interest (other than interest on securities) to residents without deduction of tax

206A If amount paid or payable during the financial year does not exceed:a) Rs.10,000 where payer is banking company or co-operative society;b) Rs.5,000 in other case

Can the payee request the payer not to deduct tax at source and to pay the amount without deduction of tax at source?A payee can approach to the payer for non-deduction of tax at source but for that they have to furnish a declaration in Form No. 15G/15H, as the case may be, to the payer to the effect that the tax on his estimated total income of the previous year after including the income on which tax is to be deducted will be nil.

Form No. 15G is for the individual or a person (other than company or firm) and Form No. 15H is for the senior citizens.

The following assessee who is in receipt of the specific incomes can approach to the payee for non-deduction of tax at source:-

a) A resident individual who is in receipt of income as referred to in 192A, 194 or 194EE if the amount of  such income does not exceed the maximum amount which is not chargeable to income-tax.b) Any person (other than a company or a firm) who is in receipt of income as referred to in section 193, 194A or 194DA if the amount of such income does not exceed the maximum amount which is not chargeable to income-tax.c) A resident senior citizen ( i.e., an individual resident in India who is of the age of sixty years or more at any time during the previous year) who is in receipt of income as referred to in section 192A, 193, 194, 194A, 194EE or 194DA.

Alternatively, a payee who is in receipt of income referred to in section 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I,194J, 194K, 194LA or 195 can apply in Form No. 13 to the assessing officer to get a certificate authorizing the payer to deduct tax at lower rate or deduct no tax as may be appropriate. 

On receiving such an application, the AO may issue appropriate certificate in this regard if he is satisfied that the total income of the payee justifies the deduction of income-tax at any lower rate or nil deduction of income tax. 

As per Income-tax (Ninth Amendment) Rules, 2014, Certificate for non-deduction of income-tax shall be issued directly to the person responsible for deducting the tax under an advice to the payee (i.e. who made an application for issue of such certificate).Whereas, certificate of lower deduction of income-tax shall be issued to payee itself. 

 If AO has issued certificate for no deduction of tax or lower deduction of tax, as the case may be, then payer should deduct tax accordingly.

What are the consequences a deductor would face if he fails to deduct TDS or after deducting the same fails to deposit it to the Government’s account?A deductor would face the following consequences if he fails to deduct TDS or after deducting the same fails to deposit 

it to the credit of Central Government’s account:-a) Disallowance of expenditureAs per section 40(a)(i) of the Income-tax Act, any sum (other than salary) payable outside India or to a non-resident, 

which is chargeable to tax in India in the hands of the recipient, shall not be allowed to be deducted if it is paid 

without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due 

date of filing of return.However, if tax is deducted or deposited in subsequent year, as the case may be, the expenditure shall be allowed as 

deduction in that year.Similarly, as per section 40(a)(ia), any sum payable to a resident, which is subject to deduction of tax at source, 

would attract 30% disallowance if it is paid without deduction of tax at source or if tax is deducted but is not 

deposited with the Central Government till the due date of filing of return.However, where in respect of any such sum, tax is deducted or deposited in subsequent year, as the case may be, the 

expenditure so disallowed shall be allowed as deduction in that year.b) Levy of interestAs per section 201 of the Income-tax Act, if a deductor fails to deduct tax at source or after the deducting the same 

fails to deposit it to the Government’s account then he shall be deemed to be an assessee-in-default and liable to pay 

simple interest as follows:-(i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax 

was deductible to the date on which such tax is deducted; and(ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on 

which such tax was deducted to the date on which such tax is actually paid.c) Levy of PenaltyPenalty of an amount equal to tax not deducted or paid could be imposed under section 271C.Under what circumstances a deductor would not be deemed as an assessee-in-default even after he fails to deduct TDS or after deducting the same fails to deposit it to the Government’s account?A deductor who fails to deduct the whole or any part of the tax on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee-in-default in respect of such tax if such resident—(i) has furnished his return of income under section 139;(ii) has taken into account such sum for computing income in such return of income; and(iii) has paid the tax due on the income declared by him in such return of income,and the deductor furnishes a certificate to this effect in Form No.26A from a chartered accountant.What to do if tax is deducted but the ultimate tax liability of the payee is nil or lower than the amount of TDS?In such a case, the payee can claim the refund of entire/excess amount of TDS (as the case may be) by filing the return of income.

If the payer does not deduct tax at source, will the payee face any adverse consequences by means of action taken by the Income-tax Department?It is the duty and responsibility of the payer to deduct tax at source. If the payer fails to deduct tax at source, then the payee will not have to face any adverse consequences. However, in such a case, the payee will have to discharge his tax liability. Thus, failure of the payer to deduct tax at source will not relieve the payee from payment of tax on his income. What are the duties of the person deducting tax at source?Following are the basic duties of the person who is liable to deduct tax at source. • He shall obtain Tax Deduction Account Number and quote the same in all the documents pertaining to TDS.• He shall deduct the tax at source at the applicable rate.• He shall pay the tax deducted by him at source to the credit of the Government (by the due date specified in this regard*).• He shall file the periodic TDS statements, i.e., TDS return (by the due date specified in this regard*).• He shall issue the TDS certificate to the payee in respect of tax deducted by him (by the due date specified in this regard*).*Refer tax calendar for the due dates.How can I know the quantum of tax deducted from my income by the payer?To know the quantum of the tax deducted by the payer, you can ask the payer to furnish you a TDS certificate in respect of tax deducted by him. You can also check Form 26AS from your e-filing account at https://incometaxindiaefiling.gov.inYou can also use the “View Your Tax Credit” facility available at www.incometaxindia.gov.inWhat to do if the TDS credit is not reflected in Form 26AS?Non-reflection of TDS credit in Form 26AS can be due to several reasons like non-filing of TDS statement by the payer, quoting incorrect PAN of the deductee in the TDS statement filed by the payer. Thus, in case of non-reflection of TDS credit in Form 26AS, the payee has to contact the payer for ascertaining the correct reasons for non-reflection of the TDS credit in Form 26AS.

At what rate the payer will deduct tax if I do not furnish my Permanent Account Number to him?As per section 206AA, if you do not furnish your Permanent Account Number to the payer (i.e., deductor), then the deductor shall deduct tax at the higher of the following rates :• At the rate specified in the relevant provision of the Act.• At the rate or rates in force, i.e., the rate prescribed in the Finance Act. • At the rate of 20%.I do not have PAN. Can I furnish Form 15G/15H for non-deduction of TDS from interest?As per section 206AA, a declaration in Form No. 15G or Form No. 15H is not a valid declaration, if it does not contain PAN of the person making the declaration. If the declaration is without the PAN, then tax is to be deducted at higher of following rates : • At the rate specified in the relevant provision of the Act.• At the rate or rates in force, i.e., the rate prescribed in the Finance Act. 

• At the rate of 20%.

Would I face any adverse consequences if instead of depositing TDS in the government's account I use it for my personal needs?Yes, failure to remit tax deducted by me in the government’s account within stipulated time-limit would attract interest, penalty and rigorous imprisonment of upto seven years.I have not received TDS certificate from the deductor. Can I claim TDS in my return of income?Yes, the tax credit in your case will be reflected in your Form 26AS and, hence, you can check Form 26AS and claim the credit of the tax accordingly. However, the claim of TDS to be made in your return of income should be strictly as per the TDS credit being reflected in Form 26AS. If there is any discrepancy in the tax actually deducted and the tax credit being reflected in Form 26AS then you should intimate the same to the deductor and should reconcile the difference. The credit granted by the Income-tax Department will be as per Form 26AS.

If I buy any land/building then is there any requirement to deduct tax from the sale proceeds to be paid by me to the seller?Yes, Finance Act, 2013 has introduced section 194-IA which provides for deduction of tax at source in case of payment of sale consideration of immovable property (other than rural agricultural land) to a resident. S ection 194-IA  is not applicable if the seller is a non-resident. Tax is to be deducted @ 1%. No tax is to be deducted if the consideration is below Rs. 50,00,000. If the sale consideration exceeds Rs. 50,00,000, then tax is to be deducted on the entire amount and not only on the amount exceeding Rs. 50,00,000.If the seller is a non-resident then tax is be deducted under section 195 and not under section 194-IA. Thus, in case of purchase of property from non-resident TDS provisions of section 195 will apply and not of section 194-IAWhat is the difference between PAN and TAN?PAN stands for Permanent Account Number and TAN stands for Tax Deduction Account Number. TAN is to be obtained by the person responsible to deduct tax, i.e., the deductor. In all the documents relating to TDS and all the correspondence with the Income-tax Department relating to TDS one has to quote his TAN. PAN cannot be used for TAN, hence, the deductor has to obtain TAN, even if he holds PAN.However, in case of TDS on purchase of land and building (as per section 194- IA ) as discussed in previous FAQ, the deductor is not required to obtain TAN and can use PAN for remitting the TDS.

Exempted Income Deductions from Income

Section 80C

Section 80C

The deduction under section 80C is allowed from your Gross Total Income. These are available to an

Individual or a HUF. The deduction is allowed for various investments, expenses and payments.

Total Deduction under section 80C, 80CCC and 80CCD(1) together cannot exceed Rs 1,50,000 for

the financial year 2015-16.

1. Investments in PPF – Under the PPF scheme, Rs 1,50,000 is allowed to be invested in one

financial year. The minimum investment required is Rs 500. Interest earned on PPF account

is tax free. The PPF account matures after 15 years. Receipts on Maturity or withdrawals are

tax free. Money is allowed to be withdrawn after 5 years. Contribution to PPF for individual

can be in the name of the assessee, the spouse or any child.

2. Employee's share of PF Contribution – Amount deducted from your salary as your

contribution in Employee's Provident Fund Scheme or Recognized Provident Fund.

3. Purchase of NSCs – National Savings Certificate e.g. NSC VIII issue and IX issue are

eligible for deduction in the year of purchase. These can be bought from designated Post

Office. Accrued Interest (which is considered reinvested) qualifies for deduction during the

term of the NSCs (except the last year).

4. Life Insurance Premium Payment - The policy must be in the assessee's or spouse's or any

child's name (child may be dependent/independent, minor/major, or married/unmarried). For a

HUF, it may be on life of any member of HUF. The 80C deduction is valid on insurance

policies purchased after 1st April, 2012 only if the premium is less than 10% of sum assured.

Benefits for existing purchased policies continue. The deduction is also allowed on payments

made by Government employees to Central Govt Employees Insurance Scheme.

5. Children's Tuition Fee Payment - Tuition fees paid to any school, college, university or other

educational institution situated within India for the purpose of full time education of any two

children (including payments for play school, pre nursery and nursery).

6. Principal Repayments on Loan for purchase of House Property - Payments of

installments or part payments or repayment of loan taken for buying or constructing

residential house property. Also allowed for stamp duty, registration fees and other expenses

for purpose of transfer of such property to the assessee. However, if the property is

transferred before the expiry of 5 years from the end of the financial year in which possession

of such property is obtained by him, the aggregate amount of deduction of income so allowed

for various years shall be liable to tax in that year.

7. Investment in Sukanya Samridhi account - A maximum of Rs 1,50,000 can be deposited in

the Sukanya Samridhi Account for a girl child. The amount deposited shall earn an interest of

9.1% . This interest is fully exempt from tax. A minimum of Rs 1,000 must be deposited in a

year. Receipts on maturity from the account are tax free.

8. ULIPS or Unit Linked Insurance Plan – ULIPS sold with life insurance cover for deduction

under section 80C. Includes Contribution to Unit Linked Insurance Plan of LIC Mutual Fund

e.g. Dhanraksha 1989 and contribution to Other Unit Linked Insurance Plan of UTI.

9. Investment in ELSS - ELSS or Equity Linked Savings Scheme is an Equity Fund. ELSS

funds are eligible to be claimed as a deduction under section 80C. These funds have a 3 year

lock in period.

10. Sum paid for securing Deferred Annuity - Sum paid under non commutable deferred

annuity for an individual on the life of the assessee, spouse or any child. Also allowed on sum

deducted from salary payable to Govt. Servant for securing deferred annuity for self-spouse

or child. Payment limited to 20% of salary.

11. Sum deposited in Five Year Deposit Scheme in Post Office.

12. Amount deposited under Senior Citizens Saving Scheme.

13. Subscription to any notified securities/notified deposits scheme. e.g. NSS

14. Contribution to notified Pension Fund set up by Mutual Fund or UTI.

15. Sum paid as subscription to Home Loan Account Scheme of the National Housing Bank or

contribution to any notified deposit scheme/pension fund set up by National Housing Bank.

16. Subscription to deposit scheme of a public sector, company engaged in providing housing

finance (public deposit scheme of HUDCO).

17. Contribution to notified annuity Plan of LIC (e.g. Jeevan Dhara and Jeevan Akshay) or Units

of UTI / notified Mutual Funds.

18. Subscription to equity shares/ debentures forming part of any approved eligible issue of

capital made by a public company or public financial institutions.

19. Subscription to any notified bonds of NABARD (National Bank for Agriculture and Rural

Development).

Section 80CCC

Section 80CCC: Deduction in respect of Premium Paid for Annuity Plan of LIC or Other Insurer

This section provides deduction to an Individual for any amount paid or deposited in any annuity plan

of LIC or any other insurer for receiving pension from a fund referred to in Section 10(23AAB).

In case the annuity is surrendered before the date of its maturity, the surrender value is taxable in the

year of receipt.

Section 80CCD

Section 80CCD: Deduction in respect of Contribution to Pension Account

Employee's contribution – Section 80CCD(1)

Allowed to an Individual who makes deposits to his/her NPS account. Maximum deduction allowed is

10% of salary (in case of taxpayer being an employee) or 10% of gross total income (in case of tax

payer being self employed) or Rs 1,50,000 whichever is less.

The limit of Rs 1,00,000 has been increased to Rs 1,50,000 for financial year 2015-16 (assessments

year 2016-17).

Employer's contribution – Section 80CCD(2)

Maximum deduction available in respect of employer's contribution is allowed up to 10% of the salary

of the employee.

For FY 2014-15 (assessment year 2015-16)

Total Deduction under Section 80C, 80CCC and 80CCD(1) cannot exceed Rs 1,50,000.

For FY 2015-16 (assessment year 2016-17)

A new section 80CCD(1B) has been introduced to provide for additional deduction for amount

contributed to NPS of up to Rs 50,000.

Therefore for financial year 2015-16, Total Deduction under Section 80C, 80CCC, 80CCD(1) and 80

CCD(1B) cannot exceed Rs 2,00,000.

Section 80D

Section 80D – Tax Deduction For Health Insurance Premium And Mediclaim PoliciesBoth private and public sector insurance companies offer policies known as Health Insurance forthe treatment of most of the ailments and hospitalization. It provides security to meetunanticipated medical expenditure in future.Under section 80DD of Income tax act 1961, tax deduction is available on the amountcontributed towards medical insurance premium or mediclaim policies if all the conditions of thesection are satisfied.As per section 80D of Income tax act 1961, tax deduction can be claimed by an individual or HUFfor any sum paid to effect or keep in force an insurance policy on the health of the assessee,spouse, parents and dependent children.Please remember parents need not be dependent on the assessee or individual.

Section 80DD tax deduction is available only to individuals and Hindu Undivided Familymembers. In case of HUF, health insurance policy can be in the name of any member of the family.

Quantum of Tax deduction on Health insurance under sectionTax deduction limit of section 80D has been enhanced with effect from financial year 2015-2016.The deduction on medical health insurance premium paid during the financial year has beenincreased to a maximum limit of Rs. 25000. In case of a senior citizen the maximum amount is Rs30000.In case, medical insurance premium is paid for parent then additional tax deduction of Rs 25000is available under section 80D. If parents are senior citizen then tax deduction allowed undersection 80D will be Rs 30000 instead of Rs 25000.Previously i.e. prior to financial year 2015-2016, this tax deduction limit was Rs 15000 instead ofRs 25000 and for a senior citizen it was Rs 20000 instead of Rs 30000.Below is a table showing maximum tax deduction limit on health insurance premium availableunder section 80DD in difference cases;Case 1: When assessee, spouse, children and parents have not attended the age of 60 Years during the financial year;

Case 2: When assessee, spouse and children have not attended the age of 60 Years but parents are 60 years of age or more;

Case 2: When assessee, spouse and parents have attended the age of 60 Years;

Tax deduction under section 80D is allowed only for the amount that is paid towards medicalinsurance premium. If service tax has been charged on your medical insurance premium then

exclude that part while claiming tax deduction.In order to claim tax deduction under section 80D, the health insurance premium amount shouldbe paid any mode other than cash in the relevant previous year out of the income chargeable to tax.

Tax deduction under section 80D for preventive health checkupFinance act 2012 with effect from 1 April 2013, has introduced tax deduction on preventivehealth check-up in section 80D of Income tax act 1961.As per section 80D, a tax deduction of Rs 5000 is allowed for payment of preventive healthcheck-up of self, spouse, parents and dependent children.Rs 5000 tax deduction is not in addition to the above tax deduction limit that we discussed. It’sincluded in the above deduction and not allowed per person basis.This means when a person pays for preventive health check-up for self, spouse, dependentchildren and parents then tax deduction under section 80D shall be

allowed to the extent it does

not exceed in the aggregate Rs 5000.Amount for preventive health check-up can be paid in cash to get the tax deduction. This meansboth cash and any mode other than cash is allowed to get deduction under section 80D forpreventive health check-up.Section 80DD tax deduction is available over and above the maximum limit as specified undersection 80C i.e. 150000.

Tax deduction under section 80D for medical expenditureFinance act 2015 has not only increased the tax deduction limit on medical insurance premiumbut it has also allowed tax deduction on medical expenditure.As per the recent amendment to section 80D, the whole of the amount paid on account ofmedical expenditure incurred on the health of the assessee, spouse, and dependent children whois a very senior citizen is allowed as tax deduction but it should not exceed the aggregate of Rs

30000.

Similar provision has also been introduced for parents who are very senior citizen. This means ifparent are very senior citizen then assessee can claim tax deduction of Rs 30000.Tax deduction of Rs 30000 for medical expenditure is available to a very senior citizen providedno amount has been paid to effect or to keep in force an insurance on the health of such person.Aggregate tax deduction available under section 80D for payment of medical insurance premiumand towards medical expenses for self, spouse and dependent children should not exceed Rs30000. This means it will be restricted to Rs 30000.Similarly aggregate tax deduction available under section 80D for payment of medical insurancepremium and towards medical expenses for parents should not exceed Rs 30000. This means itwill be restricted to Rs 30000.Senior citizen means an individual resident in India who is of the age of 60 years or more at any

time during the relevant previous year.

Very senior citizen means an individual resident in India who is of the age of 80 years or more at

any time during the relevant previous year.

Section 80E

Section 80 E: Deduction in respect of payment of Interest on Loan taken for Higher Education

For an Individual tax payer, Income Tax Act provides for deduction of interest paid on two types of

loans – Home Loan and Education Loan. Section 80E of the Income Tax Act provides for deduction of

interest paid on Education or Study loan taken for higher education (See the appendix for full text of

Section 80E). 

Note that the Income Tax benefit available for Education Loan under Section 80E is separate and

distinct from the tax benefits available under section 80C.

Following are the salient features of deduction on interest on Education Loan under Section 80E: 

Deduction can be claimed only by Individuals 

HUF and other assessee cannot claim Section 80E deduction. Moreover deduction can be claimed by

an individual only if the loan has been taken in his name. Thus no deduction is available to an

Individual if the loan is taken by any relative, say father, brother or spouse. In this case deduction will

be available to the person who has taken the loan, provided that the Individual who is going for higher

education is either a spouse or children of the Individual taking the Education Loan (more on this point

below). 

Loan from Banks 

Education Loan should have been taken from a Bank in India (including Indian branches of foreign

banks). Loans from notified financial institutions (currently only HDFC is notified) and approved

charitable institution are also eligible for Section 80E deduction. No deduction would be available if

the loan is taken from a Bank outside India. For example if you take Education Loan from Bank of

America, New York branch for MBA study in Harvard (or in any institution in India for that matter) – no

deduction would be available under Section 80E. However if you take a loan from Citibank, New Delhi

branch for MBA education in IIM Ahmedabad, deduction would be available under Section 80E. No

deduction under Section 80E would be available if the Education Loan taken from employer, family or

friends. 

Loan should be taken for Higher Education 

Higher education means full-time studies for:

1. Graduate or Post-graduate course in Engineering, Medicine, or Management, or

2. Post-graduate course in Applied sciences or Pure sciences including Mathematics and

Statistics.

Note tax benefit is not available for part-time courses. There is no condition that higher education

should be done in India. Thus deduction is available even when the loan is taken for full-time higher

education in the above areas outside India. The loan should be for pursuing higher studies means its

includes loan taken not only for tuition or college fees only but other incidental expenses for pursuing

such studies like hostel charges, transport charges, etc. 

Higher education of Self or Relative 

Loan should have been taken for full-time higher education of self or relative. Relative is defined to

mean the spouse and children of the individual. Thus Education Loan taken for the higher education

of brother or sister or father would not be eligible for deduction under Section 80E. Note prior to 1st

April 2008, deduction was permissible only for the purpose of education of Self. Education Loan taken

for the higher education of Spouse or Children has been added to the purview of Section 80E with

effect from Assessment Year 2009-10 pertaining to Previous Year 2008-09. If an individual takes

Education Loan for higher education of spouse or children, the tax benefit in form of Section 80E

deduction is available to the individual only – not spouse or the children. 

Repayment from Taxable Income 

The repayment should be out of income chargeable to income tax, meaning if repayment is made

from income exempted from income tax than deduction will not available. If repayment is done from

another Loan or Gift, then also deduction is not available. 

Deduction only for Interest 

There is no deduction allowed under Section 80E for principal repayment of Education Loan. Note

prior to 1st April 2006, both interest and principal repayment were eligible for deduction (but with an

overall limit of Rs. 40,000 per annum). Currently Section 80E deduction is available only for the

interest payment.

No ceiling on the amount of deduction 

There is no ceiling for deduction under Section 80E. Note prior to 1st April 2006, there was a ceiling of

Rs. 40,000 for deduction under Section 80E. Currently the entire amount of interest paid in the year is

eligible for deduction. 

Deduction for Eight years 

Deduction under Section 80E is available for 8 years or until the loan is repaid fully, whichever is

earlier. First year starts from the year in which interest payment starts. Thus if the loan repayment

stretches beyond 8 years, no benefit is available from 9th year onwards. Note it is not compulsory to

complete the higher education before deductions can be claimed under Section 80E

Section 80GG

Section 80GG

Deductions is respect of rents paid : Under Section 80GG, an Individual can claim deduction

for the rent paid even if he don’t get HRA. Not many people are aware of this deduction.

Section 80GG allows the  Individuals to a deduction in respect of house rent paid by him for his own

residence. Such deduction is permissible subject to the following conditions :-

(a)  the Individual has not been in receipt of any House Rent Allowance from his employer specifically

granted to him which qualifies for exemption under section 10(13A) of the Act;

(b)  the Individual files the declaration in Form No. 10BA.  

(c)  The employee does not own:

 (i)  any residential accommodation himself or by his spouse or minor child or where such Individual 

is a member of a Hindu Undivided Family, by such family, at the place where he ordinarily resides or

performs duties of his office or carries on his business or profession; or

(ii)  at any other place, any residential accommodation being accommodation in the occupation of the

Individual, the value of which is to be determined under Section 23(2)(a) or Section 23(4)(a) as the

case may be.

(d)  He will be entitled to a deduction in respect of house rent paid by him in excess of 10% of his total

income, subject to a ceiling of 25% thereof or Rs. 2,000/- per month, whichever is less. The total

income for working out these percentages will be computed before making any deduction under

section 80GG. In other word eligibility will be least amount of the following :-

1) Rent paid minus 10 percent the adjusted total income.

2) Rs 2,000 per month.

3) 25 percent of the adjusted total income.

The deduction will also not be available to an assessee if any residential accommodation is owned by

the assessee at any other place, which he is occupying, and the concessions in respect of self-

occupied house are claimed by him for that property. In such a case, no deduction will be allowed in

respect of the rent paid, even if the  person does not own any residential accommodation at the place

where he ordinarily resides.

What is the adjusted total income under section 80GG?

The adjusted total income means :-

Gross Total Income

Less

Long Term Capital Gain,

Short Term Capital Gain 

Long Term and Short Term Capital Gain

Long Term and Short Term Capital Loss

Speculation Profit/Loss

Capital Gains Tax Exemption Under Section 54EC

Capital Gains Tax Exemption under Section 54F

Setting Off & Carry Forward

Taxation of Investment Profducts:

Dividend Tax

Tax on Income Distributed by Mutual Funds

Securitites Transaction Tax STT

The securities transaction tax (STT) was introduced in India a few years ago, to stop tax avoidance of capital gains tax. Earlier, many people usually didn’t declare their profits on the sale of stocks and avoided paying capital gains tax. The government could tax only those profits, which have been declared by people. 

To stop this situation, the then Finance Minister P Chidambaram in the Union Budget 2004-05—introduced STT. Transactions in stock, index options and futures would also be subject to transaction tax. This tax is payable whether you buy or sell a share and gets added to the price of the stock at the time the transaction is made. Since brokers have to automatically add this tax to the transaction price, there is no way to avoid it. 

The Finance Ministry has supported the introduction of the STT to simplify the tax regime on financial market transactions. According to the ministry, STT is a clean and efficient way of collecting taxes from financial markets. In the words, STT is a neat, efficient and easy-to-administer tax and it has the great advantage of virtually eliminating tax avoidance.

STT is levied on every purchase or sale of securities that are listed on the Indian stock exchanges. This would include shares, derivatives or equity-oriented mutual funds units. The rate of tax that is deducted is determined by the central government, and it varies with different types of transactions and securities. STT is deducted at source by the broker or AMC, at the time of the transaction itself, the net result is that it pushes up the cost of the transaction done.

Securities Transaction Tax (STT) Rates for Financial Year 2015-16

STT is levied on the value of taxable securities transaction as under:

Sl.No. Transactions Rate Payable by

1 Purchase/Sale of equity shares (delivery based) 0.1%Purchaser/

Seller

2Purchase of units of equity-oriented mutual fund (delivery

based)Nil Purchaser

3 Sale of units of equity-oriented mutual fund (delivery based) 0.001% Seller

4Sale of equity shares, units of equity-oriented mutual fund

(non-delivery based)0.025% Seller

5 Sale of an option in securities 0.017% Seller

6 Sale of an option in securities, where option is exercised 0.125% Purchaser

7 Sale of a futures in securities 0.01% Seller

8 Sale of unit of equity oriented fund to the Mutual Fund 0.001% Seller

Commodities Transaction Tax (CTT)

CTT is levied on the value of taxable commodities transaction:

Transactions Rate Payable by

Sale of commodity derivative (other than agricultural commodities)

entered in a recognised association0.1% Seller

Dividend Distribution Tax (DDT) for Financial Year 2015-16

Dividend distribution tax is the tax levied by the Indian Government on companies according to

the dividend paid to a company's investors.

As per existing tax provisions, income from dividends is tax free in the hands of the investor.

Further the dividends from domestic companies are tax-exempt, dividend from foreign

companies are taxable in hands of investor. However, this is not to say that there is no tax levied

at all. On the contrary, there is a levy of 20.358% of the dividend declared as distribution

tax(Under Income tax Act,1961). This tax is paid out of the profits/reserves of the company

declaring the dividend.

The rates of DDT are as below:

DDT Rates for Companies for Financial Year 2015-16

Basic Rate Effective Rate*

17.647 20.358

*including Surcharge of 12% & Education Cess

DDT Rates for Mutual Fund” (MF) for payments to –

Particulars Basic Rate Effective Rate*

(1)   Distribution by MF under an Infrastructure Debt fund

scheme to a non-resident5.263 6.071

(2)   To an individual or HUF excluding (1) above 33.33 38.449

(3) To any other Person excluding (1) a (2) above 42.85 49.432

*including Surcharge of 12% & Education Cess

DIVIDEND AND GROWTH OPTIONS IN MUTUAL FUND SCHEMES

Growth Option

Under growth option, you will not receive any payments in the form of interest, dividends, gains, bonus etc. You will get your returns only on selling the units. The returns will be the difference in selling price and purchase price, similar to gold investment. The NAV on the date of investment will be the cost price and the NAV of the sale date becomes the selling price. The difference is you return. For example you bought 100 units of a mutual fund scheme at an NAV of Rs 50 and you sold those units after 6 years when the NAV had reached Rs 120. So your returns will be Rs 7000. You will not get any payout in between.

Dividend option

In Dividend option, you will receive returns at periodic intervals. However, the intervals are not certain and dividend amount is also not fixed. Under dividend option, the NAV is not let to grow higher and whenever it reaches a certain level, the fund house pays out dividends. Assume you have invested in a fund at the NAV of Rs 14 and opted for dividend option. The scheme performs and NAV reaches a

level of Rs 16. The fund house may decide to pay out Rs 1.50 as dividend. This is quite straightforward.

You may have to take 2 things into consideration while you decide; objective of your investment and tax considerations. For equity mutual funds, the best bet would be growth option. This is because you can make compounding work for you. If you receive regular dividends, you may end up using that money for non-priority things. Wealth per se is created only if you let it compound. One instrument is giving you 15% returns per annum, the other is giving you 13% per annum, and if the latter one is left to compound then it will create far more wealth than the one that is giving 15% returns. That is why Gold or real estate is perceived to be big wealth creators. When you choose growth option the returns in tax parlance is called as capital gains. The good news is that capital gains in growth option of equity mutual funds are non-taxable. But in case you sell the units within one year you are liable to pay short-term capital gains tax. Anyways we need to invest in equity mutual funds only for long-term. Now if you are planning for investing on short-term basis, debt mutual funds will suit the best. For short-term (less than a year) investments in debt funds, we recommend you to go to dividend option or dividend re-investment option, primarily on tax considerations. Though dividends are tax free at the hands of investors, the fund has to pay tax (dividend distribution tax) before it pays you. In case you go for growth option the returns will be considered as short term capital gains, for which you may have to pay at the marginal tax rate (as per your tax slab). So if your come under 30% tax bracket then you will end up paying lesser rate if you choose dividend option in debt mutual funds. For mid-term (more than 1 year) investments in debt mutual funds, you may opt for growth option, as the capital gains tax in that case will be 10% without indexation or 20% with indexation, which is more likely to be less than your marginal tax rate.

Summary: For long-term needs (5 yrs of more): equity mutual funds with growth option For short-term needs (less than one year): Debt mutual funds with dividend option or dividend re-investment option

For mid-term needs (more than one year): Dent mutual funds with growth option

Capital Gains Taxation

Taxation of Fixed Deposits and Fixed Matureiy Plans

Dividend and Growth Options in Mutual Fund Schemes

Welath Tax

Income Tax

THIS IS THE GROSS TOTAL INCOME (gti)

Five Income Heads

1. Income from House Property2. Income from Business & Profession

3. Income from Capital Gains4. Income from Other Sources5. Income from Salaries

Advance Tax

Every person is liable to pay advance tax if the tax payable is rs 10000 or more. The due dates of advance tax

1. On or before 15 June of the previous year , you have to pay upto 15% as advance tax2. On or before 15 sep of the previous year, you have to pay upto 45% as a3. On or before 15 dec of the previous year you have to pay upto 75% as4. On or before 15 march of the previous year you have to pay upto 100% of tax

payment

TDS – Tax Deducted @ Source

20-10-2015

Loss cannot be set of against winning from lotteries cross words or any sort of gambling and betting

Loss from house property can be set against income from house property

Non Speculation loss can be set of against income from both speculation and non-speculation business.

Inter head adjustment

Exceptions –

Loss in speculation business can not be set up against any other income.

Similarly LTCL can not be set of against any head except LTCG.

Loss from owning and maintaining the can not be set up against any income

Business loss including depreciation can not be set up against income from salary.

House property set up against all other sources.

Business loss set up against all other four except salary

Carrying forward the losses –

If loss cannot be set off either or under the same head or under different heads due to inadequate income in the same previous year. It may be carrying forward and set off against income of the subsequent previous year.

1. Carrying forward of speculation loss – it can be carrying forward -----------immediately succeeding the previous year for the loss was first computed. The continuity of business in not necessary. It is not necessary the speculation business in which loss was incurred should be continued in the subsequent year in which the SSE was to set off the loss. But SSE should be same.

2. Carrying forward of capital loss – it can be carrying forward 8 immediate years3. Carrying forward and set off loss owning and maintaining the ---- 4 years.4. Carrying forward and set off loss house property – 8 Years

Head of Income Amount of profit Amount of lossSalary 142000Income from House Propertya. House proper Ab. House Property Bc. House C

115000

117000121000

Business A 108000Business B 118000Buisness C Speculation 111000Business D Speculative Business

123000

Capital Gains STCG 106000STCL 128000LTCG on sale of builing 12500Income from Other SourcesIncome from Card Games 108000Loss from Card Games 107010Loss of Maining Hour Race 106000Calculate the net income from the other sources.

Income from House Property –

Income

(Profit) House property A 115000

Loss B (117000)

Loss C (121000)

---- ----- ---(123000)