How to File Your Own Income Tax Return With Due Attention & Care by Shiv N

Gain Complete Control on Your Income Tax: File Your Own Income Tax Returns, Like A Pro…in 22 Minutes By: Shiv N. Majumdar, F.C.A. ([email protected] )

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Gain Complete Control

On Your Income Tax

File Your Own

Income Tax Returns

Like A Pro,

……in 22 Minutes

Shiv N. Majumdar, F.C.A.



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This eBook reflects the law and requirements existing on 1 May 2006

and is current for filing of returns in 2006-07. We shall appreciate suggestions or contributions from readers towards improvement of design, content or coverage of the book by emailing the author at:

[email protected]

Copyright Notice: All Rights are reserved with Celerity Consultants, Mumbai, India. Contents may not be used except in its original form. Buyer of this eBook may take a print for his personal use, but not distribute the contents whether by copying through print or any other medium.

Pubished By: Celerity Consultants,

A6, Nityanand CHS, Next to Amruta Restaurant,

Uthalsar, Thane (W), MUMBAI 400601



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Table Of Contents

Page No.

Introduction………………………………………….…….……5 Part One: All You Must Know About Your Tax Return 1. Different Modes of Preparing Your Return………...……7 2. Only You Remain Accountable…...……………………...8 3. Presumptions on Your Attached Certificates Can Cause

You A Loss. …………………………...…………………...8 4. Much More Than Just A Compliance: What Your Tax

Return Can Do For You………………………………….10 5. How to Prevent Any Glaring Omission…………………11 6. Traps on Your Path: Obvious Items Most Often

Missed……………………………………………………..12 7. Standing Up To A Prima Facie Scrutiny…...…………..13 8. How Your Salary Components are Variously Taken Into

Account……………...……………..………………….…..14

9. Do You Have To Set Off An Earlier Year’s Loss?…….15 10. Did You Sell An Asset This Year?……...………………15 11. Considerations on Advance Tax………………………..16 12. How to Simplify Your Future Returns…………………..17

13. Setting Up the Job: What All You Must Have Ready At

Hand…………..……………….…………………………..17 14. How You Can File Your Own Tax Returns Flawlessl...21



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Part Two: Step-by-step Guide to Filling Returns with Action Pointers, Key Information and Explanations General..………………..………………………………………22 Summary Sheet…………...…………………….…..…………26 Salaries………………………………..…….………….………27 Income from House Property……………………………...….35 Capital Gains…………………………………...….…………...41 Income from Other Sources……………………………......…50 Set-off of Losses………………………………...……………..53 Statement of Total Income…………………………………....54 Others’ Income Includible in Your Income………………......59 Statement of Taxes…………………………………………….60 Part Three: Your Likely Doubts and Queries Answered.

Doubt/Query No. 1 to 56: General…..……………………………………………………..64 Salaries.………..……………………………………………....70 Income from House Property………………..…………….....78 Capital Gain……………………..………………………….….79 Income from Other Sources………………..………………...85 Others’ Income Included in Your Income…..……………….86 Total Income……...…………………………………………….87 Tax ………………………………………………………………91

Appendix 1: Ready Reckoner For Quick Tax Calculation……………….…………………...92 Appendix 2: Accrued Interest on National Savings Certificate, VIII Issue………………………...……………….96 Appendix 3: Important Amendments Through Budget 2006…………………………………...…...97



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Simple Tax, Sure Steps: Ready Knowhow

Introduction

Filing your own income tax return is just like driving your own car. It requires some attention, but is certainly not unduly difficult. Who prepares and files your income tax return? If you have been doing it yourself, we appreciate your spirit. But we can certainly help you to be more comfortable with your effort. If you have always avoided filing on your own, have you ever stopped to think as to what exactly makes it intimidating to you? Let us consider the possibilities: Filling up a form is boring, Involves complicated legal terminology, In absence of an earlier background, it is inconvenient to

handle, Far from your area of expertise, Shiver at the thought of having to deal with a none-too-

pleasing government official. You may choose more than one out of these possibilities. Now let us consider these. We cannot avoid physical filing of papers till digital signatures of citizens are accepted for the purpose of returns. However, indications are that this is very much on the way.



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We also cannot avoid entering personal data in a form whether on paper or on a computer. Even your consultant would certainly require your personal information. But we can win over the other challenging aspects- with a step-by-step list of instructions, by providing you relevant position as per applicable law and by explaining the concerned matters in a concise and lucid manner. To keep it simple, this book does not cover those having business income. This book has three parts. First Part discusses the general considerations applicable to preparing an income tax return. Second Part guides you step-by-step through your return preparation process in a manner which is useful and which you can easily follow. Third Part deals with your likely doubts and queries in a Question-Answer format, so that you can refer to it at any point. Three Appendices provide you with a Ready Reckoner for Quick Tax Calculation, Accrued Interest for your past investments in National Savings Certificates and a Summary of Important Amendments through Budget 2006 which concern you. If you have picked up this book, you will not be disappointed. We believe that anyone who has made up his mind to prepare his income tax return on his own and can follow simple English will be able to do so very efficiently and with complete confidence. The simplicity and ease of the effort will enable you to enjoy this activity for the first time ever.



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Part One

1. Different Modes of Preparing Your Return Today, you have six different ways in which you can prepare your tax return: • By opting to file your returns with your employer, if you fulfill

the required conditions. • By opting to file e-return through an authorized intermediary

like banks, financial institutions, chartered accountants, etc, • By availing private online return filing services like

indiatimes.com or filemyreturns.com, etc, • By preparing your return on your computer by using a

downloaded free software SAMPARK made available by the Income Tax Department,

• By the traditional method of filling your own return forms manually on paper,

• By giving details to a professional consultant to prepare return on your behalf.

A seventh and the most looked for: paperless return with digital signature is coming up soon. All this boils down to preparing your return on your own (with or without help of Information Technology) or through a consultant. At the moment, though, you need to deal with paper returns and documents, which have to be physically filed at the income tax office either by your consultant, intermediary or yourself. The productive advantage of today’s tools will be fully at work for you, if you can have a reliable and simple resource, which can guide you, step-by-step through every one of the many steps to filing your return.

Finally, only a human check is the most reliable. It is only YOU, who can best serve your own interests.



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And to equip you specifically for this task, we have designed this book. It will painlessly take you through various steps in plain English, cutting out all complicated legal language, lucidly, in a conversational, simple and easy-to-understand style.

2. Only You Remain Accountable All returns filed by you in any mode carry your verification and signature. This is what the verification reads like: “I…solemnly declare that to the best of my knowledge and belief, the information given in this return and the schedules and statements accompanying it, is correct and complete and the total income, and other particulars shown therein are truly stated and…” Most importantly, your employer, authorized intermediary or online facilitator is not responsible for your tax return. For any delay or an oversight or a mistake committed, the liability will still rest only with you and Only You.

3. Presumptions on Your Attached Certificates Can Cause You A Loss

Believe it or not, with dependence on computer systems, the number and types of mistakes in Tax Computation and in Deduction Certificates have actually gone up. With wide spread computerization of payroll and tax deduction systems at companies, laborious systems have given way to a new dependence on new age tools. Recent years have seen a number of unusual errors in Tax Deduction Certificates issued by companies. Many employees have unknowingly lost money through such mistakes. Alert employees have even obtained refunds from Income Tax Authorities when such errors were rectified. A powerful modern technology, thus, is a slave to the systems that run them and to the people who manage and validate those systems.



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There is one more very important reason why such errors are coming up. These areas are likely to get less audit attention because these mistakes hurt employees personally, but they are not going to make any difference to the correctness of the employer’s assets and liabilities or income and expenditures. Here are some examples. Suresh approaches us for filing his tax return. He worked for two companies A (first 3 months) and B (the next nine months) during the year. On scrutiny of the two ‘Forms 16’s, we observe that the tax deducted at A was much higher per month compared to the deduction at B. On enquiring with Suresh, we gather that he has joined B at a much higher salary. Subsequent follow up revealed that A’s deductions were higher than required and the company A which normally straightens such things towards the year end could not do so in the case of Suresh since he left after only three months in the year. But for our scrutiny, he would suffer higher tax of about Rs 15,000. Or let us take the case of Ramesh, where the employer charged him much higher value for his company provided accommodation. The company’s definition of salary for the purpose of perquisite valuation was wrong and this resulted in higher valuation and a higher tax deduction for Ramesh. Similarly, A Ltd did not accept the view that a particular item was not taxable, since the matter was under consideration of Courts. Subsequently, the view of High Courts came in favour of employees. Employees of A Ltd were not aware that favourable judgement should have resulted in lower tax deduction in their relevant cases.



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An employee could get a refund caused by this wrong application of law only when he claimed this excess deduction through his return. As you see from these, it would be practical to accept that a computer-generated statement can contain mistakes, both due to faulty designing of systems as well as poor administration. Most of all, you must ensure that you have suffered the correct tax. We would recommend that even if you take professional help, it would be in your interest to check the correctness of your certificates on your own. 4. Beyond Compliance: What Your Tax Return Can Do For You Filing your tax return is a compliance job. Most people take it as an unavoidable and an unpleasant task. Tax returns are understood to be like a ticket valid for a single travel. There is always the next round to take up again. But tax returns reflect your transactions and over a period also tell the story of your financial growth. Even though salary earners do not need to file their balance sheets from year to year, your tax returns would imply how much you can save, what you have invested, what you have spent, etc. Thus carefully made tax returns over the years can help you explain your assets and investments, as well as your liabilities. A tax scrutiny in a future year will be greatly helped, if your tax returns have been clean over the years. There are various items, which can be linked to your earlier year’s tax returns.



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Tax returns are taken note of by lenders in sizing you up. Copies of your tax returns, your bank statement, assets and liabilities will influence the decision to extend a loan to you. There has been a case where an unreasonable employer has accused an employee of amassing wealth by unfair means. The employee’s tax record has defended him in establishing the source of his existing investments and the fact that the employee owned the resources prior to joining the employer. Moreover, shortly all your major transactions through bank, credit card, in mutual funds, in buying or selling shares, foreign travel, purchase of houses and cars, etc are getting correlated with reference to your PAN. The interactive systems, we are told, are in place. It will, therefore, be suicidal not to be careful in preparing and filing your tax return. 5. How to Prevent Any Glaring Omission We are now in an interconnected information age. Shortly, all Income Tax Offices across the country are getting connected on computers so that data across locations are quickly available. The Income Tax Department is also collecting data on chosen transactions from various points in the country. Initially, it is likely that only larger assessees will be in focus. But the massive database would not be created, if it were not to be used. Suppose you have bought a car and paid for it from a separate bank account, which you forgot to take into account for tax purpose. With information available on car purchases, it is likely that this omission will get noticed and you may face queries on this.



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Or, take the similar case of a bank account from which your Credit Card payments are being made. The assessing officer in these circumstances may add these expenses to your income even though funds in the other bank account might have flowed from your salary account. Omissions of bank accounts, bank deposits, post office deposits, shares or mutual funds transactions and the like can unnecessarily create hassles for you. The pay off would be insignificant comparatively. 6. Traps on Your Path: Obvious Items Most Often Missed How do you receive your salary? Most likely, it would be in your bank. Except for a very few, it is unlikely that you will not have a bank account. Are you aware that your balances in the bank invariably earn you some interest income? You have most likely ignored this in the past and may do so yet again. Bank interest, however small, needs disclosure as Income from Other Sources. This otherwise would be a glaring omission.

Have you been investing to save tax from year to year? If so, you may be earning some interest on these investments. Except interest on Public Provident Fund, others are income, which you need to include. Thus, interest on the bond that you have invested in last year or earlier is includible in your income. Your claim for Tax Rebates in earlier years and your income declaration now need to be in line. The omission will be an obvious mistake or mis-statement. This applies even to interest on your National Savings Certificates, which get automatically re-invested during the period of investment. Imagine the fact that you declare to your employer that accrued interest on NSC’s, which you have purchased in the past, also is to be counted for your tax rebate. Your employer includes them forgetting to add the same amount also as income. Now consider this. Can you invest an amount without receiving? If the scheme allows you accrued



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interest as notional investment, it is logical that you will also have to have a notional income. In general it would be practical to check all your assets and property to ensure that no earnings connected to an asset is omitted. 7. Standing Up To A Prima Facie Scrutiny Prima facie your income must cater to your known items of expenses. The following common expenses are likely to apply to all:

• House rent or housing society maintenance charges, • Household electricity charges, • Telephone charges, • Education expenses of children, • Expenses through credit cards, • Vehicle running and maintenance expenses, etc.

If your gross earnings as declared, reduced by applicable tax, is sufficiently above these normal commonly found expenses and your tax-related investments made during the year, it would satisfy a prima facie scrutiny. If you invest for tax out of past savings, this situation may differ. But you can satisfy a scrutiny only if you keep proper records. 8. How Your Salary Components are Variously Taken Into

Account We set out below for your easy understanding your various elements of salary compensation and how they get treated for the purpose of your tax:



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Component How Considered Basic Salary As salary Dearness Allowance As salary City Compensatory Allowance As salary, remote

locations enjoy exemption.

House Rent Allowance As salary, but rent payments exempt as per a formula

Conveyance Allowance As salary, Rs 800 per month exempt for all.

Children’s Education Allowance Rs 100 per month for up to 2 children exempt.

Other Allowances As salary Medical Allowance Exempt up to Rs

15,000, if bills of actual expense incurred is submitted

Reimbursement of Books, Periodicals Not taxable, if required for work

Reimbursement of Cost of Uniform Exempt Reimbursement of Uniform Washing Charges

Exempt

Reimbursement of Business Entertainment

Not taxable, if required for work

Reimbursement of Car Expenses Not included Reimbursement of Cost of Driver’s Salary

Not included

Reimbursement of Gas, Electricity for Household

Taxable

Leave Travel Concession/ Allowance Partially exempt if conditions are met

Bonus/ Commission/ Incentives Taxed as salary Employees’ Stock Options If qualified, i.e. after

1999 and as per approved scheme, taxed only at time of sale of shares.



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Component How Considered Pre-joining Bonus As salary Other perquisites/ benefits Added to salary as

prescribed for each item Reimbursement of Cost of Driver’s Salary

Not included

9. Do You Have To Set Off An Earlier Year’s Loss? If you had a loss under any head other than ‘Salaries’ in an earlier year, like on house property, on a capital asset sold or transferred or any other item, which could not be fully set off against income till last year, then you must include that item in this year’s return. However, a business loss cannot be set off against salary. Why? There are two possibilities. Your taxable income for this year may come down after setting off that loss. Alternatively, by including that unabsorbed loss, and then if the loss could not be fully setoff against this year’s income, you can further carry it forward to next year (if permissible) for getting the benefit of set-off. However, there is an important requirement for that. You must have filed your returns within due dates on all these years, so as not to lose your claim for subsequent set-off. 10. Did You Sell An Asset This Year? If you have by any chance sold an asset, which is a capital asset, and have made a gain, do not forget to include it. Your omission may invite unnecessary trouble for you. Moreover, your tax liability may not amount to much.



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Even if you have made a loss, including this will also give you a benefit of set-off from an income or gain either this year or in a subsequent year. 11. Considerations on Advance Tax Income Tax Law requires us to pay tax as we earn. Thus tax is deducted from salaries, etc. as they are earned. However, the deducted tax does not entitle us to ignore the related income in any way. Tax Deduction at Source is only an interim or on-account collection of our tax. Our tax liability will be determined after considering all sources of our income. So, if we earn an income on which law has not called for tax deduction, or if the actual amount of further tax we have to pay over and above the tax deducted is substantial, then we are required to pay advance tax during the course of the year of earning itself. Now what is substantial for advance tax? If this tax due is Rs 5000 or more. The amount of advance tax that must be paid is 90% of the dues. Typically, rent from property, capital gains and income from other sources, like interest received, can make you liable to pay advance tax. If you fail to pay this required amount of advance tax, you will be required to pay interest as penalty. 12. How to Simplify Your Future Returns If you are a salary earner, you can include every other item of income as well as Tax Deducted at Source thereon, besides salary, also in your Form 16 by declaring the details of such other income to the employer. You will have to provide these particulars to the employer in plain paper, which should include verification as under:



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“Form of Verification I, ……….(name of employee), do declare that what is stated above is true to the best of my information and belief. Signature of Employee” This will enable you to avoid bothering about paying of advance tax or self-assessment tax at the time of filing your return. Interestingly, this declaration can actually reduce tax deducted by an employer, if items included is a loss under the head Income from House Property, which qualify for adjustment with salary income. If you have a housing loan interest payment because of which you have a loss computed as Income from House Property, declaration will enable reduced deduction of tax by employer. You would not have to wait for claiming a refund only at the time of making of your return. You will also have only one document to attach with your tax return, that is your Form 16, unless some particular document like housing loan certificate is specifically called for. Now if you have declared all items of income to your employer and no tax is due from you after the tax is deducted from your salary, then you need not even file a return if your income is up to Rs 1,50,000 in a year.

13. Setting Up the Job: What All You Must Have Ready At Hand

In a desk job, the maximum inefficiency comes from delays in finding the connected papers or related information and also from inadequate attention while doing the job. These would result in re-work and waste of your time.



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We provide you the checklist of items of information that needs to be kept handy and the documents, which you would require for preparing your income tax return. INFORMATION REQUIRED

1. Name: Surname First Name Middle Name

2. Is there any change in your name? If yes, give old name and documentary proof of change in name

3. Father’s Full Name:

4. Address: Residence/ Office Please specify.

5. In case of any change in address furnish new address: Res./ Office

6. Telephone No.

7. Sex: M/F

8. Date of Birth (DD-MM-YY)

9. Any change in address from last year? If so, in office or in residential address?

10. Ward/Circle/ Special range: 11. Ward/ Circle/Special range last year: 12. Is this your first return?



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13. Particulars of all bank accounts starting with the account

where refund, if any, is to be credited: Name of the bank Address of the

Bank Branch Branch Code (Nine digits after your cheque number on your MICR cheque)

A/c No.

14. Particulars of credit cards, if any:

Name of Credit Card Held Issued By

15. Do you have a house property? If so,

Is it self-occupied? If you have more than one self-occupied house property, you will have to opt for one of them for which you can get a nil valuation for annual value.

Is it let out? Is it lying vacant? What is the area in square meters of your house

property and adjoining land? Address of each of the property

16. Is there a housing loan? How much interest and

principal did you pay for the loan? Is it obtained before or after 1st April 1999?

17. Is there any pre-construction interest paid by you on

your housing loan? If so how much? 18. Did you transfer any capital asset during the year? If so,

how long has it been held by you?



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Note down the following for each asset:

1) Particulars or details of assets transferred, 2) Date of Acquisition: Date-Month-Year, 3) Date of Transfer: Date-Month-Year, 4) Mode of transfer: By agreement, delivery, etc., 5) Full value of ‘consideration’: your sales proceeds, 6) Cost of acquisition, including stamp duty costs,

registration charges, etc., 7) Cost of any improvement to the asset during the

period of holding, 8) Indexed cost of acquisition, including stamp duty

costs, registration charges, etc., (Refer to Part Two for more)

9) Indexed cost of any improvement to the asset during the period of holding, (Refer to Part Two for more)

DOCUMENTS NEEDED:

1) You need your PAN number. If you have not received the PAN number in spite of applying for it, a photocopy of your PAN application.

2) The certificate in Form16 issued to you by your employer in original. In addition, in the case of employees whose salary is more than Rs 1,50,000, Form 12BA if any issued to you by the employer.

3) Original receipt in respect of any medical insurance premium you have paid during the year. (If not considered in your Form 16)

4) If you are in a rented accommodation, you can claim a part of House Rent Allowance as a deduction from your HRA on production of rent receipt. (If not considered in Form 16)

5) If you live in a self-occupied owned house, you can

avail benefits on the amount of interest and principal on any housing loan that have been repaid during the year. We need the address of the Property and Certificate from the lenders certifying the loan



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repayments made along with the split between the principal and interest.

6) Copy of proof of payment of investments/contributions made (PPF, NSC, LIC, donations etc) to claim rebate/deduction, e.g. copies of PPF challan/ pass book, copy of NSC Certificate, copy of LIC premium receipt, (If not considered in your Form 16).

7) Any TDS Certificates on items other than Salary, Advance tax challan, Self-Assessment Tax challan.

8) Copy of acknowledgement for income tax return for the year ending 31st March 2005. (the previous financial year)

14. How You Can File Your Own Tax Returns Flawlessly

A flawless return must take into account all your transactions and avail for you, every possible tax advantage as per law. Most of the times, the correct approach is less costly in terms of hassles and waste of time. What would it involve? Thorough knowledge about how this needs to be done and clearly understanding what the implications of various steps and various relevant aspects would mean for you. Many changes are taking place every year. The thrust is towards simplification of requirements and in course of time, much tighter tax administration. We lay out in front of you the current choices available and the present status of the legal position. This book would help you in making independent and confident decisions, thereby giving you complete control over your income tax matters.

Part Two: Step-by-step Guide to Filling Returns with Action Pointers, Key Information and Explanations.



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General: 1. Do you need to file a return at all?

If you have gross total income in a year exceeding Rs 1,00,000, then you are required to file an Income Tax Return. In the case of women below 65 years of age, this amount is Rs 1,35,000 and for people who are 65 years or more this amount is Rs 1,85,000. An important change for this year is that it is the gross total income after adding incomes from various heads of income before available deductions that is to be considered, not the total income after these available deductions, as in earlier years.

For this purpose, items of income, which are totally exempt from tax, are not counted. For example, agricultural income, voluntary retirement compensation up to Rs 5 lacs, etc will not be considered for this purpose, since they fall in the list of exempt items of income. Similarly deductions available under different heads of income like Tax on Employment or Interest on housing loans are to be reduced for considering income level of Rs 1,00,000 or Rs 1,35,000 or Rs 1,85,000 as applicable.

2. Do you have to file a return, if your salary

income is up to Rs 1,50,000?

Effective the year 2004, some salary earners with salary income up to Rs 1,50,000 can file



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their return with their employer by confirming Tax Deduction Certificate given by employer in Form 16AA. There are ten conditions, which need to be met. More important of these are:

• You must be an employee as on 31st March of the year,

• You must have worked for only one employer during the year,

• Your Total Income should not include Profits and Gains from Business or Profession, Capital gains and agricultural income (although exempt from tax).

• Your employer should have deducted all tax due and your tax deduction certificate should contain all your sources of income,

• Your tax deducted by the employer must be the only tax deducted on your income. Tax deducted on your bank interest, etc will make you ineligible.

3. Do you have to file a return if you are a

pensioner? Pensioners not having an income above Rs 100,000 but fulfilling economic criteria like owning telephone, etc need not file their income tax returns from financial year 2004-05.

4. If you have to file a return, do you have a PAN?

If you are required to file a return, you are also required to have your PAN (Permanent Account Number). PAN is the common



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identification of a person for all tax purposes. If for any reason, you do not have a PAN, please apply for one through an authorized agency for PAN like UTI Investor Services Ltd.

5. Do you own a house property, and or, have you

transferred any asset? If you are a salaried employee, your employer has already deducted the tax deductible on your salary income. However, unless you have submitted the details of income other than salary to your employer, your Form 16 cannot be the only basis of preparation of your return.

Check the following:

• Do you own a residential house, whether self-occupied or not?

• Have you transferred any agricultural land, vacant plot, residential house, jewellery, bonds, shares, stocks, debentures, or any other property or asset during the year?

• Do you have any other income? For example,

1. have you received any interest

(including re-invested accrued interest on National Savings Certificate which are notionally received by you), dividends, income from units,

2. family pension amount, 3. income by way of winnings from

lotteries, crossword puzzle, etc., 4. receipts from Keyman insurance

policy including bonus,



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5. rent for plant, machinery, or furniture with or without building,

6. royalty from foreign enterprises, 7. remuneration from foreign sources as

a teacher, professor, etc., 8. remuneration from foreign sources

for rendering other services, 9. professional income from foreign

sources as an author, playwright, artist, etc?

If you have any of these items of income, your Form 16 cannot be the only basis of your income tax return and you will need to consider any of these items, which relate to you.

6. Which Form should you use to file your return? If you do not have income under the head ‘Capital Gains’ (resulting from transfer of assets), then you can very conveniently file your return in Form 2E (one-page Saral). You can also use Form 2D or Form 3. If you have capital gains (resulting from transfer of assets), then you will need to file your return in either Form 2D (two-page Saral) attaching an additional page for Computation of Capital Gains or in Form 3 (which contain Annexures) filling up only relevant pages and marking the rest as ‘Not Applicable’. However, if your income is over Rs 5 lakhs, it would be advisable to use Form 3 to avoid common queries.

7. Where would you get the forms?



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These forms are freely available at all income tax offices. You can also buy them at specialist stationers. Moreover, you can download all these forms at: http://incometaxindia.gov.in/it%20forms.asp

8. Now please read and follow the respective

sections below, which are relevant to you.

Step-by-step Instructions with reference to Return Form

No.3 with Key Information and Explanations Form No. 3 is the most detailed. Form 2D and 2E (if applicable) are brief, but will need attaching Annexures for details of workings. We explain here with reference to Form No. 3, since even if you file in Form No. 2D or 2E, reference to applicable parts in Form No. 3 will help you. Summary Sheet: (First two identical pages) This should be filled up after the rest of the Sections are complete, since only final amounts from those Sections find place here. Hints on some specific items: Your jurisdictional Ward/ Circle/ Special Range would be available from the respective Income Tax Office. Your returns will be in the jurisdiction involving your employer (i.e. where your salary is disbursed and tax is deducted) or the place of your residence. Residential Status: Resident 01 Non-resident 02

http://incometaxindia.gov.in/it forms.asp



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If you are filing your return in 2006 relating to your income for the period ended 31st March 2006, the Assessment Year for you is 2006-07. Normal returns are filed u/s 139. Original Returns are the first return filed for a year. Subsequent returns are revised returns. Housing loan interest deduction will be valid only if you attach a Certificate from the lender.

SECTION A: Salaries

Check Before You Fill in the Return Form- This is with reference to standard Form 16 format prescribed. Your Form 16 format may

be slightly different. 1. If you have worked for one employer throughout the year,

pick up the Form 16 and refer to the amount shown against item 1(a) as Salary as per provisions contained in section 17(1).

Check its correctness. This should tally with the total of all gross receipts shown in your monthly salary slips, like:

• Basic wages, pay or salary, • Dearness allowance, • Any other allowance, • Any annuity or pension, • Bonus, commission, incentives, etc by whatever name

called, • Advance salary, • Encashment of any leave not availed of, • Leave travel assistance or concession,



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• Any gratuity payment.

However, it will not include: • Any benefit or amenity not provided in

cash, i.e. perquisites, • Pre-joining bonus, • Post-separation payment, • Any compensation in connection with

termination of employment or modification of terms of employment, e.g. Voluntary Retirement (VRS) Compensation.

2. If your salary is more than Rs 150,000 then

your employer will also issue you a Form 12BA detailing the perquisites enjoyed by you and their values. If your employer has not issued you a Form 12BA, then the details of your perquisites and values would be available in your Form 16.

3. In Form 16 now check item no. 1(c), mentioned as profits in

lieu of salary under section 17(3).

It will include: • Any benefit or amenity not provided in

cash, i.e. perquisites, • Pre-joining bonus, • Central government’s contribution to its

employee’s account in a specified Pension Fund,

• Any compensation in connection with termination of employment or modification of terms of employment, e.g. Voluntary Retirement (VRS) Compensation,

• Sum received under a Keyman insurance policy (including on account of bonus), compensation in connection with



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termination or modification of terms and conditions of employment.

4. Now check the Total in item no. 1(d) in Form 16. 5. If you have worked for more than one employer, you will

have to check the item no. 1(a), 1(b), 1(c), 1(d) for each of the Forms 16 as above.

6. Now check for allowances to the extent exempt under

section 10.

The following allowances are exempt to the indicated extent:

House rent allowance (i.e. an allowance specifically granted to meet expenditure on rent for your residential accommodation) if,

i. you are not the owner of the accommodation, and

ii. you have actually incurred expenditure on rent.

The prescribed amount exempt is the minimum of the three following amounts-

a. The actual amount of the allowance,

b. Excess of rent paid over 10% of salary, and

c. 50% of salary for accommodation in Mumbai, Kolkata, Delhi or Chennai; 40% of salary for accommodation at any other place.

For this purpose, ‘salary’ includes dearness allowance, but excludes all other allowances and perquisites.



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Allowances to meet expenses in performance of duties to the extent incurred, as prescribed and listed below are exempt:

o For meeting the cost of travel or

transfer, o For meeting ordinary daily charges on

account of absence from normal place of duty, while on tour or period of journey on transfer,

o For meeting conveyance expenses, if conveyance is not provided by employer,

o For meeting expenses on a helper engaged for performance of duty,

o For expenses on academic, research and training pursuits in an educational or research institution,

o For purchasing and maintaining uniform for wear during duties.

Allowances related to place of posting or residence are exempt to the extent incurred, as prescribed, are as follows:

• For meeting transport expenses between place of residence and place of duty: up to Rs 800 per month

• For blind and orthopaedically handicapped with disability of lower extremities, transport expenses to and from work up to Rs 1600 per month,

• For employees working in a transport system, for meeting personal expenses while running such a system: 70% of allowance up to Rs 6,000 per month,

• Children’s education allowance: Rs 100 per month per child for up to 2 children,



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• For meeting hostel expenditure of children: Rs 300 per month per child for up to 2 children

• Other specific exempt allowances for remote areas and defence personnel.

Medical expenses incurred for self and family when reimbursed by employer up to Rs 15,000 per year is exempt.

Travel allowance or concession or assistance on leave or retirement or termination to any place in India for you and your family (defined as spouse, children, and wholly or mainly dependent parents, brothers and sisters; only two children allowed if born on or after 1st October 1998) are exempt if following condition are met:

Exemption is allowed for 2 journeys in blocks of four calendar years, current block is calendar years 2003-2006, Unavailed travel in a block can be availed in the first year of following four year block, Only journey expenses are allowed,

Expense limits are:

• If travelled by air: air economy fare of National Carrier by shortest route,

• If not travelled by air and the origin and destination are connected by rail, then air-conditioned first class rail fare by shortest route,



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• If not travelled by air and the origin and destination are not connected by rail, then cost of first class or deluxe class journey fare by any other mode if recognised public transport system exists or the equivalent air-conditioned first class rail fare for same distance.

Any allowances and perquisites paid or allowed by Government to an Indian citizen for rendering services abroad. If you are a member of a Scheduled Tribe and reside in specified areas in the covered by North-Eastern Region or in Ladakh, then income from any source in the region and from dividend and interest on securities (from any where in India) are exempt.

If you are a government servant or an employee of a local authority, then death-cum-retirement gratuity received is fully exempt.

If you are a private sector employee, gratuity received on retirement or on termination of service is exempt, if: a. it is calculated at not more than one-

half month’s salary for each year of completed service,

b. it is calculated on the basis of the average salary for 10 previous months,

c. it does not exceed Rs 3,50,000.

Amount received in commutation of pension, if it does not exceed commuted value of



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one-third of the pension if gratuity is also received, otherwise commuted value of one-half of pension. Leave encashment received by a government servant at the time of retirement or resignation.

Leave encashment received by a private sector employee at the time of retirement or resignation, if:

1. Leave entitlement does not exceed 30 days for a year’s service,

2. The period of leave does not exceed 10 months,

3. It is calculated based on average salary for the last 10 months,

4. The amount does not exceed Rs 3,00,000.

5. If any leave encashment has been

received by you from previous employers in the same or earlier years and were exempt under this provision, then the limit will reduce to that extent.

Workmen’s compensation received under Industrial Disputes Act, 1947 subject to limits.

Compensation received on voluntary separation, voluntary retirement or termination of service up to Rs 5 lakhs.

Tax on perquisites paid by employer on behalf of the employee.



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Payments received from a Provident Fund including a recognised provident fund.

Payments received from an approved superannuation fund: a. On death of beneficiary, b. On commutation of annuity, c. As refund of contributions on death of beneficiary, d. As refund of contributions on leaving the service.

7. Now check item 4(a) in your Form 16 mentioned as standard

deduction.

This item is no longer available.

8. Now check item no.4(c) for tax on employment. The actual amount of professional tax paid by you/ deducted from you is eligible here.

Now, You Can Fill the Return Form-

Item 1: Fill the amount shown against item 1(a) in Form 16. Item 2: Here fill the amounts by referring to amounts shown against item 2 in Form 16. Item 3: Fill the total of amounts in 2 above. Item 4: Balance (1-3) – Fill by deducting Item 5: Here fill by referring to item no. 1(b) and 1(c) of Form 16. Item 6: Fill total of 5 by adding. Item 7: Total (4+6) – Fill by adding Item 8: Fill by referring to item no. 4 of Form 16



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Item 9: Fill total of 8 above by adding Item 10: INCOME CHARGEABLE UNDER THE HEAD “SALARIES” (7-9) Fill by deducting.

SECTION B: ‘Income from House Property’:

9. Consider whether you have:

• a self-occupied property (if you have more than one, only one of them will qualify as self-occupied at your option), or

• a let-out property, or • an unoccupied property.

You will compute income of each of your property separately following the steps below (as applicable). 10. If you have only a share in property, then

income from the full property will be computed and thereafter only your share will be included in income.

11. What is the address and built up area (in sq meters) and

what is the area of land appurtenant to the building (in sq meters)?

Write the complete address of the property and the area. 12. How is Income from A Self-Occupied House Property

Computed? Step 1: ‘Gross’ Annual Value- Nil Note: A self-occupied house property is defined as one which is either occupied by you for



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purposes of your own residence or it cannot be occupied by you for reason of employment, business or profession carried on at any other place, and you have to reside at that other place in a building not belonging to you. Step 2: Deduct Property Tax for the Property- Nil, in case of a self-occupied property, even if you have paid any property tax. Step 3: ‘Net’ Annual Value: Nil, in case of a self-occupied property. Step 4: Deduct Statutory deduction: Nil, for a self-occupied property Step 5: Deduct Interest paid on any loan borrowed for acquisition, construction, reconstruction etc.- Actual amount paid (limited to Rs 30,000 for loan obtained before 1st April, 1999, limited to Rs 1,50,000 for loan obtained on or after 1st April, 1999) for the period from the financial year of acquisition or completion of construction of property. Step 6: Deduct 20% of Pre-construction Interest: (if any) Any interest, if any, paid by you up to the financial year prior to the year in which property was acquired or construction of property was completed will be allowed here. The deduction will be at one-fifth or 20% of the amount so paid, for the year of acquisition or completion and 4 succeeding years. Step 7: Amount of Rent received relating to an earlier year, which was allowed as Unrealised Rent in computing your income. Did you receive any rent on a house property relating to an earlier year?



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If yes, was this amount a part of any amount claimed and allowed as deduction towards Unrealised Rent in computing your Income from House Property in an earlier year? If yes, then the whole of this amount is to be considered. Step 8: Amount of Rent received relating to an earlier year, not being any amount claimed as Unrealised Rent earlier. The amount received. Deduct 30% for statutory deduction. Net amount, i.e. 70% of the amount received will be considered. Step 9: Income from House Property equals Amount at Step 3 less the Total of Amounts at Steps 4, 5, 6,plus the amounts at 7 and 8. If in your case, it is negative, it will be a loss under the head ‘Income from House Property’. 13. How is Income from A Let Out House Property

Computed? Step 1: ‘Gross’ Annual Value- It is the higher of Municipal Valuation and the actual rent receipts. If due to the house remaining vacant for part of a year, the rent receipt is lower, then take this lower figure. Note: Any self-occupied house property, which is not considered as self-occupied due to your exercising the option, will be treated as Let Out Property. Step 2: Deduct Property Tax for the Property.



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Step 3: ‘Net’ Annual Value: Nil, reducing the Amount at Step 2 from the Amount at Step1 arrives at this Amount. Step 4: Deduct Statutory Deduction: 30% of ‘Net Annual Value’ in Step 3. Step 5: Deduct Interest paid on any loan borrowed for acquisition, construction, reconstruction etc.- Actual amount paid for the period from the financial year of acquisition or completion of construction of property. Step 6: Pre-construction Interest: (if any) Any interest, if any, paid by you up to the financial year prior to the year in which property was acquired or construction of property was completed will be allowed here. The deduction will be at one-fifth or 20% of the amount so paid, for the year of acquisition or completion and 4 succeeding years. Step 7: Amount of Rent received relating to an earlier year, which was allowed as Unrealised Rent in computing your income. Did you receive any rent on a house property relating to an earlier year? If yes, was this amount a part of any amount claimed and allowed as deduction towards Unrealised Rent in computing your Income from House Property in an earlier year? If yes, then the whole of this amount is to be considered. Step 8: Amount of Rent received relating to an earlier year, not being any amount claimed as Unrealised Rent earlier.



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The amount received. Deduct 30% for statutory deduction. Net amount, i.e. 70% of the amount received will be considered. Step 9: Income from House Property equals Amount at Step 3 less the Total of Amounts at Steps 4, 5, 6,plus the amounts at 7 and 8. If in your case, it is negative, it will be a loss under the head ‘Income from House Property’. 14. How is Income from An Unoccupied House Property

Computed? Step 1: ‘Gross’ Annual Value- It is the Municipal Valuation. (If it is not considered as self-occupied) Step 2: Deduct Property Tax for the Property. Step 3: ‘Net’ Annual Value: Nil, reducing the Amount at Step 2 from the Amount arrived at in Step1 arrives at this Amount. Step 4: Deduct Statutory Deduction: 30% of ‘Net Annual Value’ in Step 3. Step 5: Deduct Interest paid on any loan borrowed for acquisition, construction, reconstruction etc.- Actual amount paid for the period from the financial year of acquisition or completion of construction of property. Step 6: Pre-construction Interest: (if any) Any interest, if any, paid by you up to the financial year prior to the year in which property was acquired or construction of property was completed will be allowed here.



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The deduction will be at one-fifth or 20% of the amount so paid, for the year of acquisition or completion and 4 succeeding years. Step 7: Amount of Rent received relating to an earlier year, which was allowed as Unrealised Rent in computing your income. Did you receive any rent on a house property relating to an earlier year? If yes, was this amount a part of any amount claimed and allowed as deduction towards Unrealised Rent in computing your Income from House Property in an earlier year? If yes, then the whole of this amount is to be considered. Step 8: Amount of Rent received relating to an earlier year, not being any amount claimed as Unrealised Rent earlier. The amount received. Deduct 30% for statutory deduction. Net amount, i.e. 70% of the amount received will be considered. Step 9: Income from House Property equals Amount at Step 3 less the Total of Amounts at Steps 4, 5, 6, plus the amounts at 7 and 8. If in your case, it is negative, it will be a loss under the head ‘Income from House Property’.

SECTION C: Capital Gains

15. Do you need to include “Capital Gains”? Have you transferred any agricultural land in urban areas, vacant plot, residential house, jewellery, bonds, shares, stocks, debentures, or any other property or asset during the year?



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If so, you will have to fill details of income under this head. Also, if you have an unabsorbed loss under this head to carry forward and set off in this or later years, you will need to fill details under this head. 16. Most importantly, check whether the

property or asset you have transferred is at all a capital asset (to result in any capital gain).

The following assets are not considered as

capital asset: i. Stock-in-trade, consumable stores,

stores items, raw materials, etc. held for business purposes,

ii. Agricultural land in a rural area, iii. Personal effects, like wearing

apparel, furniture, motor car, etc., but not jewellery (like ornaments, precious metals, precious or semi-precious stones etc),

iv. Certain bonds like Gold Deposit Bonds, etc.

17. Further, there are three important

general exemptions to consider while computing Capital Gains: 1) Any income received from transfer of a

capital asset, which is units of Unit Scheme, 1964 of UTI and the transfer is made after 1st April 2002 is totally exempt under Sec 10(33).

2) Long-term capital gains from transfer of equity shares in a company or a unit of an equity-oriented mutual fund scheme (and on which securities transaction tax has been paid) made after September 2004 after being



42

held for 12 months or more are exempt. Section 10(38).

3) Long-term capital gains from transfer of eligible equity shares purchased on or after 1st March 2003 but before 1st March 2004 after being held for 12 months or more. Eligible shares are shares forming part of BSE-500 Index purchased and sold through a recognised stock exchange and a share allotted through a public issue and listed in a stock exchange after 1st March 2003 but before 1st March 2004 and sold in a recognised stock exchange. Sec 10(36).

18. Method of computation of capital gains from transfer of

assets require you to segregate them into two categories: • Short-term capital assets, • Long-term capital assets.

Make a list of your short-term capital assets transferred during the year and similarly a list of long-term assets. Financial assets held for more than 12 months and all other assets held for more than 36 months are Long-term in nature. Financial assets mean shares, securities listed in the stock exchange, units of UTI or any mutual funds. All other assets are of short-term nature. 19. You will make separate computation for each of your

assets transferred. All these will get summarized in your computation of Capital Gains.



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20. Short-term capital gains resulting from transfer of equity shares in a company or units of an equity oriented mutual fund scheme after September 2004 is chargeable to a special lower tax rate of 10% (Section 111A). Therefore, this needs to be kept in mind at every step and the total of such gains entered where required in the Form.

21. For each short-term asset, fill in the left side column with

heading “A. Short-term Asset” Step 1: Note down the following:

a. Particulars or details of assets transferred, b. Date of Acquisition: Date-Month-Year, c. Date of Transfer: Date-Month-Year, d. Mode of transfer: By agreement, delivery, etc., e. Full value of ‘consideration’: your sales proceeds, f. Cost of acquisition, including stamp duty costs,

registration charges, etc., g. Cost of any improvement to the asset during the period of

holding, h. Any expenditure on transfer.

Step 2: Difference between e. and the total of f. , g. and h. above is to be computed as balance for this item. Step 3: If the asset transferred is agricultural land or industrial undertaking and the sales proceeds are used to buy another agricultural land or industrial undertaking within the prescribed period, you will be entitled to an exemption. You can also deposit the sales proceeds in a notified bank account and put to the prescribed use subsequently as required. You can get partial or full exemption as applicable. Please refer to the Section Your Likely Doubts or Queries for more detailed information. Please fill the exempt amount with reference to these details.



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Step 4: Compute the amount at Step 2 above less the amount of exemption at Step 3. Step 5: If you have transferred an asset (which you were required to hold for a specified minimum period for an exemption you availed earlier) before the stipulated period, you will be liable for additional deemed capital gains under sections 54, 54B, 54D or 54G. Please refer to the Section Your Doubts or Queries for more detailed information. Please fill the deemed capital gains amount with reference to these details. Step 6: Compute the amount at Step 4 above plus the deemed capital gain at Step 5 above. 22. Similarly compute for each short-term asset.

23. If this is your only item of capital asset transferred, then the amount at Step 6 above will be your Income chargeable under the head ‘Capital Gains’.

24. For each long-term asset, fill in the right side column with

heading “B. Long-term Asset”.

Step 1: Note down the following:

1) Particulars or details of assets transferred, 2) Date of Acquisition: Date-Month-Year, 3) Date of Transfer: Date-Month-Year, 4) Mode of transfer: By agreement, delivery, etc., 5) Full value of ‘consideration’: your sales proceeds, 6) Cost of acquisition, including stamp duty costs,

registration charges, etc., 7) Cost of any improvement to the asset during the period of

holding,



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8) Indexed cost of acquisition, including stamp duty costs, registration charges, etc.,

9) Indexed cost of any improvement to the asset during the period of holding,

10) Any expenditure on transfer.

For more on items no. 8) and 9) refer the following.

Step 2: You will have to compute the indexed costs as under:

Indexed cost of acquisition or improvement= Cost of acquisition x Cost Inflation Index for the year of transfer / Cost Inflation Index for the year of acquisition or improvement. For example, Date of Transfer: 11 Feb 2005 Date of Acquisition: 22 Mar 1990 Cost of acquisition: Rs 1,00,000 Cost Inflation Index for 2004-05: 480 Cost Inflation Index for 1989-90: 172 Then, Indexed cost of acquisition = Rs 1,00,000 x 480/ 172 = Rs 2,79,070

25. Long-term capital gains are charged to tax at a flat rate of 20%. If you have transferred long-term assets other than listed securities (like shares, debentures, etc) or mutual fund units, then you can restrict your capital gains tax liability by replacing cost of acquisition and cost of any improvement by Indexed cost



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of acquisition and Indexed cost of improvements. You are allowed some benefit for inflation.

26. However, if you have transferred long-

term assets being listed securities, not being shares or units of equity-oriented mutual funds, then you can restrict your capital gains tax liability to 10% of capital gains without taking the benefit of indexed cost of acquisition and improvements. You will have to make the less expensive choice.

Step 3: If you have transferred assets other than listed securities or mutual fund units, then compute the difference between 5) and the total of 8), 9) and 10). However, if you have transferred long-term assets being listed securities not being shares, or mutual fund units of other than equity-oriented funds, then you will have to compute both: a) Difference between 5) and the total of 8), 9)

and 10) above is to be computed as balance for this item.

b) Difference between 5) and the total of 6), 7) and 10) above is to be computed as balance for this item. You will have to choose between 20% of a) and 10% of b). If first alternative is lower then opt for indexation and if the second alternative is cheaper for you, then ignore indexation.



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27. You are entitled to a part or full

exemption of capital gains on transfer of some assets, if you acquire similar or prescribed assets immediately or within the prescribed period. The new assets will have to be held for a minimum period of 3 years. These may be summarized as under:

Under Section

Original Asset Quantum to Invest

New Asset Time Limit

54 Residential house property

Capital gains Residential house property

Within 1 year before or 2 years after to acquire or within 3 years to construct

54 B Agricultural land

Capital gains Agricultural land

Within a period of 2 years

54 D Industrial undertaking

Capital gains Industrial undertaking

Within a period of 2 years to purchase land and or building or to construct a building for shifting, re-establishing or setting up another industrial undertaking

54EC Long-term capital assets

Capital gains Bonds for 3 years issued by National Housing Bank

Within 6 months

54 ED Listed Capital gains Long-term Within 6



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securities (like shares or debentures) or mutual fund units

specified shares, being shares forming part of a public issue by a public company registered in India

months

54 F Assets other Than residential house property

Net consideration

Residential house property

Within 1 year before or 2 years after to acquire or within 3 years to construct

The quantum of exemption is in proportion that the invested amount bears to the total capital gains or net consideration that is required to be invested. Till the capital gains or net consideration is put to prescribed use, this can be deposited in a notified bank account. However, if the new asset is not held for the prescribed period, then the capital gains being exempted now will get included as deemed capital gains in the year of transfer of the new asset.

Step 4: Now compute the amount of exemption applicable to you. Step 5: If you have transferred an asset (on which an exemption was allowed earlier) within the prescribed holding period, then you will have a deemed capital gain equivalent to the amount of exemption allowed earlier. Compute the amount of deemed capital gains. Step 6: Now compute the Income chargeable under the head ‘Capital Gains’ as the amount computed at Step 3 above less the amount at Step 4 above plus the amount if any at Step 5 above.



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28. If you have transferred other long-term assets, similarly compute for each.

Step 7: Compute your Total Income chargeable under the head ‘Capital Gains’ by totaling the amounts relating to all the assets. If computation for some of the assets were negative, then the total would be the net amount. 29. If the total comes to negative, you

would have a loss against Long-term Capital Gains, which can only be carried forward and set off against Long-term capital gains in next and subsequent years. However, the period is restricted to a total of 8 subsequent years.

SECTION D: Income from Other Sources:

30. First, take note of the following exemptions available to you:

Any sum received under a life insurance policy including bonus but not the following:

a. An amount paid earlier for a policy for providing an annuity to a handicapped dependent’s benefit on which benefit under Sec 80 DD has been allowed,

b. An amount received under a Keyman policy,

c. A sum received under a policy issued on or after 1st April 2003 on which annual premium exceeds 20% of actual capital sum assured in any year.



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Dividend from a domestic company declared, paid or distributed after 1st April 2003.

Income from units of a mutual fund (not on transfer of units)

Interest on Post Office National Savings Certificates

Interest on Post Office Savings Account

Interest on Post Office Cumulative Deposit Scheme

Interest on 7% Savings Bonds 2002 issued before 1st March 2003

Interest on 8% Relief Bonds issued before 1st March 2003

Interest on 6.5% Relief Bonds 2003 Interest on balances in Public Provident Fund Account

Interest on Deposit Scheme for Retiring Government Employees

Interest on Deposit Scheme for Retiring Employees of Public Sector companies

Interest on Gold Deposit Bonds 1999

Interest on notified bonds of local authorities

31. Have you received any dividends on which dividend tax

has not already been paid? If so, consider and include this amount in the first item.



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32. Have you received any interest? If you have any interest received from banks, post offices, debentures, bonds, etc, which are not exempt, it will be considered and included here in the second item. 33. Have you received any rental income from machinery,

plant, and furniture with or without building? This amount will be considered and included here, if not included as business income. However, depreciation, maintenance expenses and any other expenses wholly and exclusively incurred in this connection can be deducted. 34. Have you received any family pension? Family pension amounts received by wife or family members relating to an employee’s employment are considered and included here. 35. Have you (not being an employee) received any sum

from a Keyman insurance policy including bonus? Receipts under a Keyman policy including bonus is to be included here where you never had an employer-employee relationship with the organization. 36. Have you received a gift of more than Rs 25,000 during

the year?

If you have received more than Rs 25,000 without consideration, or simply speaking as a gift, it will be includible as your income under Income from Other Sources. However a gift is not taxable if it is received from a relative or on the occasion of your marriage, or under a will or by way of inheritance or in contemplation of death of the payer. Now relative for this purpose means:

• your spouse,



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• your brother or sister, • brother or sister of your spouse, • brother or sister of either of your parents, • any of your lineal ascendant or descendant, • any lineal ascendant or descendant of your wife, • spouse of any of the above.

37. Do you have any of the following:

• Royalty from foreign enterprises, or • Remuneration received from foreign sources by teachers,

professors, etc, or • Remuneration received from foreign sources for rendering

other services, or • Professional income from foreign sources of an author,

playwright, artist, etc.?

Amount received as per Form 10H or 10HH as applicable will be includible here. 38. Do you own and maintain racehorses? If so, include income related to this and deduct the related expenses. 39. Do you have any winnings from lotteries, crossword

puzzles, gambling, betting etc.?

The gross amount of receipts is to be included here.

SECTION E.1: Statement of Set-off of Current Year’s Loss under Sec 71: 40. If you do not have any loss computed under any head

of income, then write “N.A.” boldly at the top of the section.

41. However, if you have any loss in any item, fill the

columns up to (iii) with relevant amounts.



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Then, fill column (iv) by deducting the loss from column (ii) or (iii) as applicable from the positive income figures of column (i). You may refer to relevant questions of Part Three, if in doubt.

SECTION E.2- Set off of Unabsorbed Losses and Allowances Brought Forward from Preceding Assessment Years and Carried Forward This is a part, which needs utmost care in filling up, since it may have much impact in this as well as future years. 42. If we are filing return for assessment

year 2006-07, our 8th preceding year is 1998-99 and the 1st preceding year is 2005-06.

Since loss from owning race horses can be carried forward to 4 subsequent years for set-off, while other items for 8 such years, loss from owning race horses of assessment year 2001-02 and loss from other heads of assessment year 1997-98 cannot be carried forward for set off beyond this year. You may refer to relevant questions of Part Three, if in doubt. Fill in the table keeping the above in mind.



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SECTION F: Statement of Total Income: Item No.1 – 1A. Salaries : Here fill the amount from the particular Section 1B. Income from House Property : Here fill the amount from the particular Section 1C. Capital Gains :

(i) Short term : Here fill the amount from the particular Section

(ii) Long term : Here fill the amount from the particular Section

1D. Income from Other Sources : Here fill the amount from the particular Section 2. Total: Total the above figures 3. Brought forward unabsorbed losses from earlier years a. Gross Total Income (2-3): Fill this by deducting. b. Deduction under Chapter VIA (wherever admissible): Fill this table by referring to the following eligible items, - They are:

• Following investments qualify as specified investments up to a total of Rs 1,00,000 in aggregate:

• Life insurance premium covering self, spouse or child, • Purchase of deferred annuity on the life of self, spouse or child, • Deductions from salary by or on behalf of government for securing a deferred annuity, • Contribution to Provident Fund, • Contribution to Public Provident Fund in the name of self, spouse or



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child (this item is limited to Rs 70,000 by Public Provident Fund Act), • Employee’s contribution to an approved superannuation fund, • Deposit into a 10-year or 15-year Post Office CTD Account in the name of self, spouse and child, • Subscription to any notified government security or deposit scheme, • Subscription to National Savings Certificate Scheme (VI Issue) or National Savings Certificate Scheme (VII Issue), Accrued Interest also is eligible, (Refer Appendix 2 for your eligible amount), • Subscription to any notified Government Savings Certificate, • Contribution in the name of self, spouse or child in Unit Linked Insurance Plan of Unit Trust of India, • Contribution in the name of self, spouse or child in Unit Linked Insurance Plan of LIC Mutual Fund, • Payment for a contract for annuity plan of any insurance company, • Amount paid to subscribe to a notified scheme of any mutual fund, • Contribution to any notified pension plan of any mutual fund, • Contribution to any notified pension plan or any notified deposit scheme of National Housing Bank, • Subscription to any notified deposit scheme of any authority or public company providing housing finance provided that the interest does not qualify for deduction under Sec 80L, • Tuition fees excluding development fees and donation for two children,



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• Principal payments of housing loans, • Stamp duty, registration fees and other expenses on transfer of house property to assessee, • Subscription to eligible public issue of shares, debentures or capital by an infrastructure company or public financial institution, • Subscription to units of eligible issue of approved mutual fund schemes.

• Amount up to Rs 10,000 paid or deposited in a pension scheme of an insurance company (Sec 80CCC),

• Central Government’s contribution to an employee’s account in a specified pension fund not exceeding 10% of salary (Section 80CCD),

• From this year, there is an overall limit of Rs 1,00,000 covering Sections 80C, 80CCC and 80CCD mentioned above.

• Medical insurance premium paid to cover self, spouse, dependent children and parents up to Rs 10,000 (Sec 80D),

• Amount paid for medical treatment of a dependant with a disability and into any prescribed scheme of insurance companies or UTI for benefit of a dependant with a disability, up to Rs 50,000, in case of severe disability Rs 75,000, (Sec 80DD),

• Amount paid for prescribed disease of self or dependents or a member of HUF up to Rs 40,000 (Sec 80DDB),

• Any amount paid towards interest on loan taken from financial institutions or approved charitable institution for higher education for a maximum of 8 years starting with the year when repayment starts (Sec 80E),



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• Donation to listed national funds in full, other prescribed purposes items: 50% of amount donated provided the deduction does not exceed 10% of Gross Total Income as reduced by any other deduction allowable (Sec 80G),

• If you do not get income by way of House Rent Allowance, but pay a rent for your residential accommodation, then the rent paid in excess of 10% of total income can be deducted up to Rs 2000 per month or 25% of your ‘total income’, (Sec 80GG),

• Income of royalty or for grant of copyright of authors of books of literary, artistic or scientific nature up to Rs 300,000 (Sec 80QQB), • 15% of remuneration received by a citizen of India, from a University or educational institution abroad in the capacity of a professor, teacher or research worker if the amount is brought into India in convertible foreign currency (Sec 80R), • 15% of remuneration received by a resident of India, from a Foreign government or nonresident abroad in the capacity of an author, playwright, artist, musician, actor or sportsman if the amount is brought into India in convertible foreign currency (Sec 80RR), • 15% of remuneration received by a citizen of India, from any employer for any services rendered outside India if the amount is brought into India in convertible foreign currency (Sec 80RRA), • royalty on patents, up to Rs 300,000 (Section 80RRB), • For a resident Indian assessee who is certified by stipulated medical authority to having a physical disability, Rs 50,000; incase of severe physical disability defined



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as 80% disability- Rs 75,000. A copy of certificate from medical authority needs to be attached (Section 80U).

c. Total Income (5-6): Fill this figure by deducting.

6. Total Income (as rounded off to nearest multiple of ten): Consider the last two digits. If the last digit is 0 to 5, make it 0 and if last digit is 6 to 9, make the ten’s place one higher and put 0 as last digit. For example, 26 will become 30, 24 will become 20 and 30 will remain 30.

8.NET AGRICULTURAL INCOME FOR RATE PURPOSES: Fill, if applicable.

9. Income in Schedules A to D arising to spouse/ minor child / son’s wife:

Others’ Income Includible in Your Income: Does your minor child have any income? If yes, then is it earned by the child by manual work or application of any special skills? If the answer is no, then the minor child’s income is includible in your income. Income falling in this category will be computed under different heads as detailed above but added to your income under a separate heading. However, there is a deduction available to you (of Rs 1500 per child), which will partially or fully nullify the liability. Typically, bank interest or any other passive income would fall in this category.



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Have you transferred any asset to your wife or husband or daughter-in-law for inadequate consideration (or price or value)? If so, income from such asset will be included in your income. Income falling in this category will be computed under different heads as detailed above but added to your income under a separate heading. Typically transfer of money to wife or husband or daughter in law will come within this clause. However transfers in connection with agreement to live apart with spouse will not come within this requirement. State Name and Relationship and fill the amounts.

10. INCOME INCLUDED IN SCHEDULE A TO D WHICH IS

CHARGEABLE TO TAX AT SPECIAL RATES:

Please refer to the Section on Capital Gains. Long-term Capital Gains are normally chargeable at 20% flat rate; at your option it may be 10% in respect of financial assets, where indexation benefit is not taken. In respect of Short-term capital gains from equity shares or units in an equity-oriented mutual fund scheme transferred after 9th September 2004 a special rate of 10% is applicable. Similarly, there is a special rate of 30% for any winnings from lotteries, crossword puzzles, gambling, betting etc. Please fill this portion keeping these in mind.

11. Total Income chargeable at special rate: Now fill this figure referring to item no. 10 above.



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12. Total Income chargeable at normal rate: Fill by deducting amount against 11 from amount against 7 above.

SECTION G: Statement of Taxes:

Item No. 1: (a) Tax at special rates: Calculate and fill. (b) Tax at normal rates: Your normal income tax payable would be:

a. for your total income up to Rs 1,50,000 (for total income less Rs 1,00,000) at 10% or a maximum of Rs 5,000,

b. for your total income above Rs 1,50,000 and up to Rs 2,50,000 (for total income less Rs 1,50,000) 20% plus Rs 5,000, or a maximum of Rs 25,000,

c. for your total income exceeding Rs 2,50,000, 30% plus Rs 25,000.

Calculate with reference to above. You can also refer to Appendix 1 for easy and fast calculation. Item No. 2: Tax on Total Income:[1(a) + 1(b)] – Fill by adding. Item No. 3: Rebate on Sec 88, 88B and 88C – Fill by referring to the following, -

There is only one kind of rebate available now:

• With respect to security transaction tax

for Profits and Gains from Business and Profession which is outside the scope of this book (Section 88E).

Item No. 4: Total Rebate [3(a)+ 3(b) + 3(c)] – Fill by adding Item No. 5: Balance (2-4): Fill by deducting. Item No. 6: Surcharge on 5 above: Up to Rs 10,00,000- Nil.



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Above Rs 10,00,000- 10% of income tax (from the first rupee of income tax, but marginal relief applies between Rs 10,00,010 to Rs 10,37,310 so that addl. tax + surcharge for income above Rs 10,00,000 cannot exceed additional income above Rs 10,00,000).

Item No. 7: Tax Payable [(5) +(6)]: Fill by adding Item No. 8: Relief u/s 89: If you have received salary in arrears, because of which you have become liable to higher average tax rate, then relief to the extent of difference in average tax rates is available. You will need to fill and attach Form 10E to claim this relief. Item No. 9: Balance tax payable [7-8]: Fill by deducting. Item No. 10: (a) Late/ non-filing of return u/s 234A – Interest on tax due (if any) from 31st July to date of filing return on calendar months basis at the rate of 10% per annum (b) Default in payment of Advance Tax u/s 234B – If the tax due after computation was Rs 5000 or less which is paid as Self-Assessment Tax, or if the difference is up to 10% of the total tax payable after deducting TDS, then this item is not applicable. Otherwise, tax is payable from 1st April to 31st July (or the actual date of filing return) at 10% per annum on calendar month basis.



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(c) Deferment of Advance Tax u/s 234C – If you have not paid Advance Tax at specified percentages (30% by 15th September, 60% by 15th December and 100% by 15th March) on due dates then interest on shortfall on each date will be calculated at 10% per annum. Please note that deferment, default and late filing interest together take into account the periods of delay and the due amounts, from the due dates till date of filing return. Item No. 11: Total of 10 – Fill by adding Item No. 12: TOTAL TAX AND INTEREST PAYABLE (9+11) – Fill by adding Item No. 13: Prepaid Taxes: If no tax is payable, write “Not Applicable”. (A) Advance Tax (Attach Challans)- Fill the table if you have paid any advance tax, Write “Not Applicable” at the top of the table, if not applicable to you. (B) Tax Deducted/ Collected at Source: [Attach Certificates] – Fill this table from your TDS Certificates from employer, bank, etc. All information are available in the certificates. (C) Tax on Self-Assessment (attach challan) – Fill the details, if you have paid the difference of tax payable after calculating your exact liability. Please note that filing of a return without payment of the tax due as per return would make the return invalid. (D) Other prepaid taxes, if any. Please specify and attach proof. Item No. 14: TOTAL [13(A) + 13(B) +13(B)+13(D)] – Fill by adding



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Item No. 15: TAX AND INTEREST PAYABLE (12-14) – Fill by deducting Item No. 16: REFUND DUE, IF ANY (12-14) – Fill by deducting

Part Three: Your Likely Doubts and Queries Answered.

General: 1. Who Needs to File An Income Tax Return? You need not pay tax if your total income is up to Rs 100,000. But you may still need to file your income tax return, if your gross total income (sum of income under different heads before availing overall applicable deductions) is Rs 1,00,000 or more. For women below 65 years this figure is Rs 1,35,000 and for persons 65 years or older it is Rs 1,85,000. For this purpose, items of income, which are totally exempt from tax, are not counted. For example, agricultural income, leave encashment at the time of retirement, etc will not be considered for this purpose, since they fall in the list of exempt items of income. Salaried employees with salary income up to Rs 1,50,000 can avoid filing returns if the employer has taken all items of income into account. This is effective year 2004-05. In such a case, your tax declaration to employer will be considered as the return. However, unless you have declared income other than salary (everybody is likely to have at least some bank interest), it will not be possible to take advantage of this provision in the current year.



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There are some important conditions for this. More important ones are: • You must be an employee as on 31st March of the year, • You must have worked for only one employer during the

year, • Your Total Income should not include Profits and Gains from

Business or Profession, Capital gains and agricultural income (although exempt from tax).

• Your employer should have deducted all tax due and your tax deduction certificate should contain all your sources of income,

• Your tax deducted by the employer must be the only tax deducted on your income. Tax deducted on your bank interest, etc will make you ineligible.

2. Do You Need to File A Return, Even If No Tax is Payable? Yes. If your gross total income exceeds Rs 1,00,000, then, even if you do not have a tax due, or, even if your tax dues have become nil, because of available deductions on eligible investments that you have already made, you need to file your Income Tax Return. 3. By When Must You File Your Tax Return? For salary earners, and, all other persons not requiring mandatory audited accounts to be attached to their returns the due date for filing your tax return is 31st July every year. However, you’ll only include your income for the financial year just ended. For example, you need to include your income for the financial year 1st April 2005 to 31st March 2006 for your tax return due on 31st July 2006. This mandatory date is crucial if you have to take advantage of set-off of loss under any head relating to a year in a later year. If your return is not filed in time, the loss computation of that return does not get the set-off advantage later.



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Otherwise, you can file your tax return even after this due date, till the following 31st March without any damage if there is no tax due (with penal interest on due tax, if any tax is due). However if you file the return after the next 31st March, you may expose yourself to a penalty up to Rs 5,000. Thus, for income for the period 1st April 2005 to 31st March 2006, the return can be filed without penalty (but with penal interest on dues) up to 31st March 2007 and beyond 31st March 2007 till 31st March 2008 with penalty. After a further period of one year that is, in our example, after 31st March 2008 you cannot file your tax return at all, as it becomes time-barred. 4. What if One Doesn’t File A Tax Return? If you fail to file your tax return for any financial year after the next 31st March, or if the tax due on your income, after adjusting Tax Deducted at Source (TDS) and any Advance Tax paid by you, exceeds Rs 3,000, then you can face imprisonment for 3 months to 3 years, with fine. If the tax evaded exceeds Rs 100,000 the punishment is rigorous imprisonment for 6 months to 7 years, with fine.

5. What are Your Different Options for Filing Your Return? Traditionally Chartered Accountants/ Tax Consultants help you file your Tax Returns. Now, the law, forms and arrangements have been simplified for you to file returns on your own in prescribed form available in the Income Tax Offices and in the market. With spread of internet, the government has also made available a software called SAMPARK which is available at a website to help you prepare your returns. This however came after the launch of some online services making tax return preparation and filing easy for you on the net.



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Lately, the government is trying to promote filing of returns with your employer and the employer in turn filing them with the Authorities in a computerized format in bulk. This facility called SUVIDHA is at present available in select cities only. However, the responsibility for timeliness and correctness entirely lies with you. Even if your employer or other agencies make mistakes or omission, the liability lies only with you, just like in the case of Chartered Accountants or Tax Consultants who act as your agent. 6. Which option should you choose? You can choose whichever option you find convenient. However, you will do well to assure yourself that any major mistakes or omission or excess tax due does not result. 7. Where Should You File Your Return? You should file your return either at the place where tax on your salaries have been deducted or at the place where you reside. You will have to file your return at the jurisdictional Income tax Office. 8. What is Exempt Income? Exempt income falls within the definition of income. However, no tax is to be charged on them. The law lists specific items as fully exempt or partially exempt (up to a limit) incomes. Exempt incomes do not count for ‘total income’ (under the Income Tax Act) on which tax is levied. 9. What is a Deduction? You are entitled to deduct prescribed items either fully or to a limited extent from your income. This allows you to reduce both your income and the tax liability. This deduction can be at the stage of determining your income under a head of income or at



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the stage of determining your total income (as it has been prescribed for specific items). For example, you are entitled to a deduction from your income from house property towards housing loan interest while computing income under the head ‘Income from House Property’, whereas deduction for medical insurance premium up to Rs 10,000 is available to you while computing your ‘total income’. 10. What is a Rebate? Currently only one type of rebate is available which applies to Profits and Gains from Business or Profession and therefore not discussed.

11. What is Surcharge? Income tax surcharge is a temporary additional levy which is applicable from year to year according to the year’s Finance Act as legislated from year to year. Currently, you would be liable for surcharge if your ‘total income’ exceeds Rs 10,00,000. 12. What is Education Cess? Effective September 2004, you need to pay an additional 2% over and above your Income Tax Liability (including Surcharge, where applicable) as Education Cess. If your net tax due is Rs 100, then another Rs 2 will be payable as Education Cess. 13. How Much Tax Do You Pay? You need to pay your income tax payable plus income tax surcharge, if any. Your income tax payable would be:



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a. 10% on your total income up to Rs 1,50,000 (for total income less Rs 1,00,000), plus

b. 20% on your total income up to Rs 2,50,000 (for total income less Rs 1,50,000), plus

c. 30% of your total income exceeding Rs 2,50,000.

The amount of income tax surcharge would be 10% of your income tax liability only if your income exceeds Rs 10,00,000. For special rates on Long Term Capital Gains and Short Term Capital Gains refer in more details under Capital Gains. In every case an additional 2% levy on your tax will go towards Education Cess. 14. Where Do You Pay Your Tax? If your tax hasn’t been deducted at source, or you have additional items on which your tax liability exceeds the amount of tax deducted, then you have to pay your tax through a challan in cash or in cheque into any designated branch of Reserve Bank of India, State Bank of India or any notified bank. 15. Can You File Your Returns Without Paying All Tax Due? No. You need to pay all due tax before filing your tax return. You would need to provide Name of the Bank Branch, BSR Code of Bank Branch, Date of Deposit, Serial No. Of Challan and Amount paid for each tax payment. 16. What If You’ve Overpaid Your Tax? If you’ve overpaid your tax or excess amounts over what is due from you has been deducted from you, then you can get a refund of the excess tax deducted or paid on your account. 17. Does Interest Come Into the Picture? Yes. If any refund is paid to you, then you’ll also be entitled to interest on this amount at prescribed rate, which changes from time to time.



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18. By When Will My Tax Assessment Be Over? The Authorities will complete your assessment within 2 years from the assessment year for which you filed your return. For example, you will file return for income during the period of 1 year ended 31st March 2006 within July 2006. Your assessment year is 2006-07. Your assessment will be completed before 31st March 2009. However, most returns are assessed within 1 year from the date of filing. 19. How Will Tax Refunds Come To You? It normally comes to you by post. However, the Department is making arrangements to credit your bank account declared to them through ECS (Electronic Clearing System). Salaries: 20. What “Salary” Means For Income Tax? You must have an employer-employee relationship to claim your receipts as Salary. Merely providing a service would not result in a salary. There has to be a contract of service, not a contract for service. ‘Salary’ for income tax includes:

• Wages, • Any annuity or pension, • Gratuity, • Fees, commissions, perquisites or profits in lieu of or in

addition to salary or wages, • Advance salary, • Encashment of any leave not availed of, • Central Government’s Contribution to an employee’s

pension fund account, on which employee’s contribution qualifies for deduction from income,

• Credit to Provident Fund above specified amounts.



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21. What is “Perquisite”? When is it taxable? “Perquisite” means employee benefits given in kind. Perquisites (other than concessional or rent-free accommodation and employees’ stock options) are included as salary only if cash salary exceeds Rs 50,000 in a year. Fringe benefits or amenity provided by an employer, which is chargeable to Fringe Benefits Tax in the hands of the employer, is not a perquisite in the hands of an employee. Moreover, there are specific valuation rules for different perquisites.

22. Which items are chargeable to Fringe Benefits Tax in the

hands of the employee? Fringe Benefits Tax is not payable by an employer who is an individual or sole proprietor. Following items are included in items chargeable to Fringe Benefit Tax:

• Any privilege, service, facility or amenity, directly provided to employees or former employees; these include reimbursements

• Any free or concessional tickets for private journeys provided to employees or their family members

• Employers contribution to approved superannuation fund • Entertainment expenses • Hospitality expenses other than food and beverage

provided at office or factory or non-transferable paid vouchers usable only at eating joints or outlets

• Conference expenses • Employees’ welfare expense • Conveyance, tour and travel including foreign travel • Use of hotel, boarding and lodging • Motor car expenses • Use of telephone and mobile phones • Guest house maintenance other than for training • Festival celebrations • Use of health club and similar facilities • Use of any other club facilities



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• Gifts • Scholarships

23. How Perquisites are valued for Income Tax? The following are the major items of perquisites:

i. Accommodation – Accommodation includes

house, flat, farmhouse, hotel accommodation, motel, service apartment, guesthouse, a caravan, mobile home, ship, etc. If accommodation is provided at a remote area at a mining site or an offshore oil exploration site or a project execution site or an offshore site it is not a perquisite. Value of accommodation provided to a government employee is equivalent to the licence fee charged. In respect of non-government employees, if employer owns the accommodation, its value is 20% of salary in a city with 4 lakhs or more population as per 2001 census. It would be 15% in other places. If the employee has paid any rent the value will be reduced to that extent. In respect of non-government employees, if the accommodation is taken on lease or rent, the value is the actual lease rental paid. If the employee has paid any rent the value will be reduced to that extent. On transfer to a new place, an employee may occupy accommodation at two places for a maximum period of 90 days without any additional valuation in perquisite.

ii. Gas, electricity, water –

The values of these benefits will be the actual charges paid to any outside agency or if



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supplied from own resources, the actual manufacturing cost.

iii. Interest-free or concessional loans –

Value of this benefit will be calculated with a reference rate of interest in mind at simple interest. For housing loan, the reference rate may be 13%. Thus if employer charges 7% on a housing loan, the perquisite value will be 6% of outstanding amounts. However, the reference rate will be the rate charged by State Bank of India on similar loan on the first day of the financial year, i.e. April 1 2005 in relation to a return to be filed in July 2006.

iv. Holiday expenses – Holiday expenses for self and family members by way of costs of traveling, touring, accommodation and any other expenses will be equal to the sum of expenditure actually incurred by the employer.

Where the employer maintains such facility and the facility is not available uniformly to all employees, the value will be with reference to similar facilities offered to public by other agencies. Where a member of his household accompanies an employee on an official tour and the employer incurs expenditure with respect to such member, the amount so incurred will be the value of perquisite. Where an official tour is extended as a vacation, the value of perquisite will be limited to expenses of such extended period. In all these situations, the value will be reduced by the amount paid by or recovered from the employee.



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v. Free or concessional travel – This relates to

any undertaking engaged in the carriage of passengers or goods. No perquisite value is considered for a railway employee enjoying free or concessional rail travel.

With respect to others, the value of benefit will be the value at which such facility is offered to public as reduced by any amount paid by or recovered from the employee.

vi. Free education – If the educational institution is not maintained and owned by the employer, the value of expenditure incurred by the employer will equal the value of the benefit.

If free or concessional education is available in an institution to a member of employee’s household by reason of the employment, the value of the benefit will be with reference to cost of similar education in a similar institution in or near the locality. However, if the cost does not exceed Rs 1000 per month, the value will be nil. If the educational institution is maintained and owned by the employer, the value of the benefit will be with reference to cost of similar education in a similar institution in or near the locality. However, if the cost does not exceed Rs 1000 per month, the value will be nil.

vii. Gifts, vouchers, etc. – If gift, voucher or

token in lieu of gift is received by an employee or a member of his household, then the value of benefit will be equal to the amount of such gift. However, if aggregate value of such gifts does not exceed Rs 5000 in a year, the value will be nil.



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viii. Credit card expenses – The value will equal

expenditure paid or reimbursed by employer on amount of expenses (including membership fees and annual fees) incurred by an employee or a member of his household including on add-on cards.

The value will be nil, if incurred for official purposes, but certain conditions need to be fulfilled.

ix. Club expenses – In respect use of health

club, sports and similar facilities made available uniformly to all employees, the value of perquisite is considered as nil.

In the case of corporate membership of clubs obtained by the employer, the initial fee of corporate membership will not be considered for valuation of perquisites. If an employee incurs club expenses, wholly and exclusively for business purposes, the perquisite value will be nil. However, necessary certification requirements will have to be fulfilled. In any other case, amount of expenditure incurred as club expenses by an employee or a member of his family and paid or reimbursed by the employer will be considered for the value of perquisite.

x. Use of movable assets by employees – If an employee or any member of his family uses any moveable asset owned or hired by the employer, the value of the benefit will be 10% of cost of asset or the actual hiring charges paid by the employer. This does not apply to a laptop or computer.

xi. Transfer of assets to employees – If the

employer transfers any moveable asset



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directly or indirectly to an employee or a member of his household, the value of benefit will be the actual cost of the asset reduced by 10% per annum for every completed year of use by employer on account of normal wear and tear and any sum paid by or recovered from the employee as consideration for transfer.

If the asset is a computer or an electronic item, the rate for wear and tear will be 50% per annum instead of 10%; similarly for a motor car the rate for wear and tear will be 20% per annum.

xii. Value of any other benefit/ amenity/ service/ privilege – If an employer pays telephone including mobile phone expenses on behalf of the employee, the value of benefit is nil.

Similarly, if the employer provides books or journals for discharge of his work, the value of the benefit is nil. However, in general, value of any benefit, amenity, service, right or privilege will be equal to the cost to the employer for the same.

xiii. Stock options (non-qualified options) –

Stock options are right of an employee to subscribe to shares of the employer company at special reduced prices compared to the market value.

Qualified options are stock options granted to employees as per Central government guidelines effective 1st April 2001. These are taxed only at the time of sale of shares. Non-qualified stock options are taxed at two stages, as perquisite when granted and as capital gains at the time of transfer. The value of a non-



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qualified option is the difference between the market price on the exercise date and the exercise price of the option to the employee.

24. What are “Profits in lieu of Salary”? This would include items like pre-joining bonus, sum received under a Keyman insurance policy (including on account of bonus), compensation in connection with termination or modification of terms and conditions of employment. 25. How reimbursements allowed by employer are considered

for tax? Reimbursements of amounts spent by the employees to meet expenses “wholly, necessarily and exclusively incurred in the performance of duties” are exempt, if the amounts are actually spent. Any other reimbursements would normally be included as perquisite. 26. Exemptions on Certain Cash Receipts (Including

Allowances) Conveyance costs for travel to work and back reimbursed are exempt up to Rs 800 per month. Any amount reimbursed in excess would be included as salary to the extent of the excess. Charges for telephones at residence reimbursed by employer are chargeable to the extent of personal call charges incurred by the employee. Medical expenses incurred up to Rs 15,000 for self and dependants and reimbursed are exempt. Any excess amount reimbursed would be chargeable.

27. What is ‘Income Chargeable under the Head Salaries’?



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This is the sum total of all items of salary as per income tax law, but excludes fully or partially exempt items to the extent of the exemption. This is not necessarily the amount on which your tax is calculated. It is important to understand that you may be entitled to some more deductions, which are allowed after “Gross Total Income” is calculated. ‘Income from House Property’: 28. What is a “House Property”? Any building, and land appurtenant thereto, not used for a business or profession carried on by you, is considered as a house property. If you have a number of house properties and income from house properties are the major sources of income, then it would constitute a business and therefore get assessed under the head Profits and Gains from Business or Profession. But if your income from house property is minor, then it would be assessed under this head. 29. Who is Assessable for a House Property? The owner of a house property is assessed for income from that property. 30. What is ‘Income from House Property’? Whether you have any receipts from your house property or not, you would be assessed to tax under this head if you own a house property. You would be assessed for income tax on a ‘notional’ amount of income, based on annual value of property. 31. What is ‘Annual Value’?



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‘Annual Value’ is either the value at which the house can be let or the actual rent receipts. If the house is vacant for a part of the year, then the rent received for a part of the year will only be considered. However in respect of one property, you can opt to have the value as nil if you self-occupy it. However, if you own more than one house and if you have kept it for your own use, then you can get this benefit of nil value for only one house of your choice. You can also deduct any municipal taxes paid on the property in arriving at the ‘Annual Value’. 32. What are the Deductions Available on A “House Property”

from ‘Annual Value’? The following deductions are available from ‘annual value’:

• A flat 30% of annual value, • Any interest paid on borrowed capital used to acquire,

construct, repair, renew or reconstruct the house property. If the loan is taken after 1st April 1999, the interest deducted will be restricted to Rs 1,50,000.

33. What about a loss under the Head ‘Income from House

Property’? Any loss computed under this head can be set off against income from any other head during the same year. Any loss not fully absorbed by income from other sources can be carried forward to subsequent years. In later years it can be set off only against income from house property. This carry forward of unabsorbed losses can be done for 8 years from the first year. Capital Gain: 34. What is “Capital Gain”? “Capital Gain” is one of the heads of income for the purpose of charging income tax to you. It means the change in value of your “capital asset” realised at the time of its transfer. For example if you had spent Rs 100,000 to acquire a capital asset



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and you realise Rs 150,000 at the time of its transfer, then Rs 150,000 less Rs 100,000 i.e. Rs 50,000 is the capital gain. It is possible to have a loss instead of profits as well under this head. Cost of acquisition of a capital asset deducted to arrive at capital gains can include costs related to the acquisition like stamp duty and registration charges of a property but it will not include securities transaction tax. 35. What is and What is Not A “Capital Asset”? ‘Capital asset’ means property of any kind held by you. But the following are not considered as capital asset, implying no capital gains will arise from them:

• Stock-in-trade held for the purposes of business or profession,

• Personal effects, (It includes all moveable property held for personal use of self or dependants, like wearing apparel and furniture other than jewellery.)

• Agricultural land in India in rural areas, • Specific government bonds, like Special Bearer Bonds,

Gold Deposit Bonds, etc.

36. How is “Capital Gains” Taxed? “Capital Gains” is taxed in two different ways depending on whether it is resulting from Short-term or Long-Term Capital Assets. Short-term capital gains are taxed at normal tax rates except in the case of equity shares and units of an equity-oriented mutual fund transferred after September 2004 (where there is a special rate), but there are special rates applicable for Long-term capital gains. Long-term capital gains arising after September 2004 from equity shares and units of an equity-oriented mutual fund are exempt. 37. What About A Loss Instead of A “Capital Gain”?



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It is possible that there can be a loss arising to you on transfer of a capital asset instead of a gain. If this loss arises from transfer of a short-term capital asset, i.e. if there is a short-term loss then this loss can be set off against either short-term or long-term capital gains from any other assets transferred. In other words you will have a lower “Gross Total Income” and “Total Income” as a result of a short-term capital gain, if the whole loss can be absorbed by capital gains from any other asset, whether short-term or long-term. However, long-term capital loss, i.e. loss arising out of transfer of a long-term capital asset, can be set off only against long-term capital gains. 38. What are Long Term and Short Term for Capital Gains? For determining whether an asset is short-term or long-term, holding period of the asset is the key factor. If you hold the asset for more than 36 months (in case of financial assets being shares, securities listed in the stock exchange, units of UTI or any mutual funds, 12 months), then the asset is long-term. Otherwise, it is short-term. Thus for a share the period is more than 12 months, but for a house property the period of holding needs to be more than 36 months to qualify as a long-term capital asset. 39. How is Capital Gains computed? Capital Gains is the difference between (A) full value of consideration on transfer of the capital asset and (B) cost of acquisition plus cost of improvement to the asset. In the case of a long-term asset (except in case of bonds or debentures other than capital indexed bonds), indexed cost of acquisition and indexed cost of improvements are considered at your option. 40. What is Indexed Cost Of Acquisition?



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Indexation is a method of compensating for inflation cost of the asset. Cost Inflation Index for the financial year 1981-82 is taken as 100. Every year the government, on the basis of Consumer Price Index, declares this index. Index for any year prior to 1981-82 is taken as 100. Indexed cost of acquisition or improvements is cost of acquisition multiplied by index for the year of transfer divided by the index for the year of acquisition. For example if an asset is acquired for Rs 1,00,000 in 1986-87 when index was 140 and is transferred in 1995-96 when the index is 281, then the indexed cost of acquisition will be Rs 100,000 multiplied by 281 divided by 140, that is Rs 2,00,714.28. Thus indexation gives you a benefit of Rs 100,714.28 by way of considering the cost higher on account of inflation. 41. How Much is the Cost Inflation Index and What is Its

History from year to year? Cost Indexes for various years are as under: Financial Year Cost Inflation Index

1981-82 100 1982-83 109 1983-84 116 1984-85 125 1985-86 133 1986-87 140 1987-88 150 1988-89 161 1989-90 172 1990-91 182 1991-92 199 1992-93 223 1993-94 244 1994-95 259 1995-96 281 1996-97 305 1997-98 331



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1998-99 351 1999-00 389 2000-01 406 2001-02 426 2002-03 447 2003-04 463 2004-05 480 2005-06 497

42. How much tax is payable on Capital Gains? Short-term capital gains are charged the same tax as any other income. Long-term capital gains are charged tax at a flat rate of 20%. Short-term capital gains arising from sale of equity shares or a unit of an equity-oriented mutual fund are chargeable at a rate of 10%. But, if you transfer long-term assets being listed securities (like shares, debentures, etc) or mutual fund units, capital gains are exempt. 43. What are the exemptions available from Capital Gains? Income from transfer of a long-term capital asset being an equity share in a company or a unit of an equity-oriented mutual fund is exempt from tax. In the following situations exemptions are also available to you from capital gains:

• Residential house property: The amount of capital gains arising on sale of a residential house property, being a long-term asset, used within 1 year before or 2 years after to acquire or within 3 years to construct another house property is exempt. However, the new property will have to be held for a period of 3 years.

If by the date of submission of your return, you do not use the sales proceeds for the acquisition, then it will have to be



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deposited in a notified bank or institution. If not used for 3 years as required, it will be included as capital gain at the end of 3 years. (Sec 54)

• Agricultural land: The amount of capital gains arising on sale of agricultural land, (which was used in previous 2 years by you or your parents for agriculture,) utilised within a period of 2 years to purchase any other agricultural land is exempt. However, the new property will have to be held for a period of 3 years.

If by the date of submission of your return, you do not use the sales proceeds for the purchase, then it will have to be deposited in a notified bank or institution. If not used for 3 years as required, it will be included as capital gain at the end of 3 years. (Sec 54B)

• Industrial undertaking: The amount of capital gains arising from compulsory acquisition of land and buildings which were part of your industrial undertaking, (which was used in previous 2 years by you for the industrial undertaking,) utilised within a period of 2 years to purchase land and or building or to construct a building for shifting, re-establishing or setting up another industrial undertaking is exempt. However, the new property will have to be held for a period of 3 years.

If by the date of submission of your return, you do not use the sales proceeds for the purchase, then it will have to be deposited in a notified bank or institution. If not used for 3 years as required, it will be included as capital gain at the end of 3 years. (Sec 54D)

• Long-term capital assets: The amount of capital gains arising from transfer of long-term capital assets invested in long-term specified assets, currently being bonds for 3 years issued by National Housing Bank, is exempt.

However, if partly invested proportionate capital gains will be charged. (Sec 54EC)

• Listed securities (like shares or debentures) or mutual fund units: The amount of capital gains arising from transfer of long-term capital assets being listed securities (like shares or debentures) or mutual fund units invested in acquiring long-term specified shares, being shares



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forming part of a public issue by a public company registered in India, is exempt.

However, if partly invested proportionate capital gains will be charged. (Sec 54ED)

• Other Than Residential house property: The amount of net consideration, i.e. net sale proceeds, arising on sale of a long-term asset other than a residential house property, used within 1 year before or 2 years after to acquire or within 3 years to construct another house property is exempt. However, the new property will have to be held for a period of 3 years.

However, if partly invested, proportionate capital gains will be charged. This exemption will not be available if you already have more than one house property or buy or construct any more house property thereafter within specified periods (Sec 54F). 44. What if your loss computed under capital gains cannot be

set off against any gains in the same year? Any loss that cannot be set off against capital gains can be carried forward for setting off in the similar way wholly or partially over one or more subsequent years. However, the period is restricted to 8 subsequent years. Income from Other Sources: 45. What is ‘Income from Other Sources’? Any item which falls within the definition of income and arises from a source which does not fall in any of the following:

• Salaries, • Income from house property, • Profits and Gains from Business or Profession, • Capital Gains

would be taxed under the head ‘Income from Other Sources’.



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46. What are the items commonly falling under this head? Most common items falling under this head are interest received from banks, post offices, debentures, bonds, etc. Rent received other than from a house property and which is not a business, for example rent for a machine for the owner would also come under this head. Dividends, which are not exempt, will also fall under this head. Your other income will also include any receipt of money over Rs 25,000 received without any consideration other than wedding gifts, gifts from a relative as specified, gifts through a will or in contemplation of death. 47. How is it computed? It is computed after allowing the eligible deductions from gross receipts. 48. What are the Available Deductions from ‘Income from Other

Sources’? There is a provision to deduct expenses directly related to the particular receipt. For example if interest is paid on borrowed money on which interest is earned, then interest paid can be deducted from interest received. Depreciation and repairs and maintenance expenses related to the machine can reduce machinery rental value that will be included as income. Others’ Income Included in Your Income: 49. Does your minor child have any income? If yes, then is it earned by the child by manual work or application of any special skills?



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If the answer is no, then the minor child’s income is includible in your income. Income falling in this category will be computed under different heads as detailed above but added to your income under a separate heading. However, there is a deduction available to you (of Rs 1500 per child), which will partially or fully nullify the liability. Typically, bank interest or any other passive income would fall in this category. 50. Have you transferred any asset to your wife or husband or

daughter-in-law for inadequate consideration (or price or value)?

If so, income from such asset will be included in your income. Income falling in this category will be computed under different heads as detailed above but added to your income under a separate heading. Typically transfer of money to wife or husband or daughter in law will come within this clause. However transfers in connection with agreement to live apart with spouse will not come within this requirement.

51. Under which heads of income will others’ income be included?

Income of others includible in your income will get included under respective heads of income in the same way, as it would be included in their respective total income. Total Income: 52. What is “Gross Total Income”? “Gross Total Income” is the sum total of incomes calculated under all the heads:

• Salaries, • Income from house property, • Profits and Gains from Business or Profession,



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• Capital Gains, • Income from Other Sources.

In other words, it is the total income before allowing overall available deductions from income. 53. What Deductions Are Available from “Gross Total Income”? There is a large number of items which can be deducted to the extent it is included in “Gross Total Income”. They are: • Specified investments up to a total of Rs 1,00,000 in

aggregate in the following: • Life insurance premium covering self, spouse or child, • Purchase of deferred annuity on the life of self, spouse or child, • Deductions from salary by or on behalf of government for securing a deferred annuity, • Contribution to Provident Fund, • Contribution to Public Provident Fund in the name of self, spouse or child (this item is limited to Rs 70,000 by Public Provident Fund Act), • Employee’s contribution to an approved superannuation fund, • Deposit into a 10-year or 15-year Post Office CTD Account in the name of self, spouse and child, • Subscription to any notified government security or deposit scheme, • Subscription to National Savings Certificate Scheme (VI Issue) or National Savings Certificate Scheme (VII Issue), Accrued Interest also is eligible, (Refer Appendix 2 for your eligible amount), • Subscription to any notified Government Savings Certificate, • Contribution in the name of self, spouse or child in Unit Linked Insurance Plan of Unit Trust of India, • Contribution in the name of self, spouse or child in Unit Linked Insurance Plan of LIC Mutual Fund,



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• Payment for a contract for annuity plan of any insurance company, • Amount paid to subscribe to a notified scheme of any mutual fund, • Contribution to any notified pension plan of any mutual fund, • Contribution to any notified pension plan or any notified deposit scheme of National Housing Bank, • Subscription to any notified deposit scheme of any authority or public company providing housing finance provided that the interest does not qualify for deduction under Sec 80L, • Tuition fees excluding development fees and donation for two children, • Principal payments of housing loans, • Stamp duty, registration fees and other expenses on transfer of house property to assessee, • Subscription to eligible public issue of shares, debentures or capital by an infrastructure company or public financial institution, • Subscription to units of eligible issue of approved mutual fund schemes.

• Amount up to Rs 10,000 paid or deposited in a pension scheme of an insurance company (Sec 80CCC),

• Central Government’s contribution to an employee’s account in a specified pension fund not exceeding 10% of salary (Section 80CCD),

• There is an overall limit of Rs 1,00,000 covering Sections 80C, 80CCC and 80CCD mentioned above.

• Medical insurance premium paid to cover self, spouse, dependent children and parents up to Rs 10,000 (Sec 80D),

• Amount paid for medical treatment of a dependant with a disability and into any prescribed scheme of insurance companies or UTI for benefit of a dependant with a disability, up to Rs 50,000, in case of severe disability Rs 75,000, (Sec 80DD),

• Amount paid for prescribed disease of self or dependents or a member of HUF up to Rs 40,000 (Sec 80DDB),



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• Any amount paid towards interest on loan taken from financial institutions or approved charitable institution for higher education for a maximum of 8 years starting with the year when repayment starts (Sec 80E),

• Donation to listed national funds in full, other prescribed purposes items: 50% of amount donated provided the deduction does not exceed 10% of Gross Total Income as reduced by any other deduction allowable (Sec 80G),

• If you do not get income by way of House Rent Allowance, but pay a rent for your residential accommodation, then the rent paid in excess of 10% of total income can be deducted up to Rs 2000 per month or 25% of your ‘total income’, (Sec 80GG),

• Income of royalty or for grant of copyright of authors of books of literary, artistic or scientific nature up to Rs 300,000 (Sec 80QQB),

• 15% of remuneration received by a citizen of India, from a University or educational institution abroad in the capacity of a professor, teacher or research worker if the amount is brought into India in convertible foreign currency (Sec 80R),

• 15% of remuneration received by a resident of India, from a foreign government or nonresident abroad in the capacity of an author, playwright, artist, musician, actor or sportsman if the amount is brought into India in convertible foreign currency (Sec 80RR),

• 15% of remuneration received by a citizen of India, from any employer for any services rendered outside India if the amount is brought into India in convertible foreign currency (Sec 80RRA),

• royalty on patents, up to Rs 300,000 (Section 80RRB), • For a resident Indian assessee who is certified by stipulated

medical authority to having a physical disability, Rs 50,000; incase of severe physical disability defined as 80% disability- Rs 75,000. A copy of certificate from medical authority needs to be attached (Section 80U).

54. What is “Total Income”?



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The amount of income arrived at after deducting all eligible deductions from “Gross Total Income” is “Total Income”, NOT Net Total Income. Tax: 55. What is Net Agricultural Income? Why is it relevant? Agricultural Income is not taxed by the Central Government. It comes under the State Government and varies from state to state. However, the scheme of Income Tax determination involves adding Net Agricultural Income to Total Income determined as mentioned above solely for deciding on the applicable tax rate. For example, if you have Rs 190,000 of ‘total income’ and Rs110,000 of Net Agricultural Income, then the total is Rs 300,000. Tax on Rs 300,000 less tax on an income of Rs 110,000, which is exempt will be your tax payable. In other words, you are paying income tax on your income above the tax on first Rs 110,000, which is exempt. In effect your non-agricultural income will suffer higher tax than otherwise.

56. Is there a Refund Due to You? If you have an income tax due against which the tax deducted at source and tax paid on self-assessment are in excess in total, then refund would be due to you. Refund would be available to you plus the prescribed interest only after an assessment is made of your income included in your tax return.



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Appendix 1

READY RECKONER FOR QUICK TAX CALCULATION

Income Tax:

Part 1- For Total Income Between Rs 1,00,010 to Rs 1,50,000 If your Total Income is from Rs 100010 to Rs 150000, Compute your Income Tax from the following table by adding applicable amounts from A, B, C and D given below.

For example, if your Total Income is Rs 1,12,670, you should add the figures as under: Income Tax corresponding to Taxable Income Rs 1,10,000, (ie Rs 1000), Income Tax corresponding to Taxable Income Rs 2,000, (ie Rs 200), Income Tax corresponding to Taxable Income Rs 600, (ie Rs 60), And, Income Tax corresponding to Taxable Income Rs 70, (ie Rs 7) so that Income Tax for Taxable Income of Rs 1,12,670= Rs (1000+200+60+7)= Rs 1267 A B C D Taxable Income

Income Tax

Taxable Income

Income Tax

Taxable Income

Income Tax

Taxable Income

Income Tax

110000 1000 1000 100 100 10 10 1 120000 2000 2000 200 200 20 20 2 130000 3000 3000 300 300 30 30 3 140000 4000 4000 400 400 40 40 4 150000 5000 5000 500 500 50 50 5 6000 600 600 60 60 6 7000 700 700 70 70 7 8000 800 800 80 80 8 9000 900 900 90 90 9



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Part 2- For Total Income Between Rs 1,50,010 to Rs 2,50,000 If your Total Income is from Rs 1,50,100 to Rs 2,50,000, Compute your Income Tax from the following table by adding applicable amounts from A, B, C and D given below. For example if your Total Income is Rs 172670, you should add the figures as under: Income Tax corresponding to Taxable Income Rs 170000, (ie Rs 9000), Income Tax corresponding to Taxable Income Rs 2000, (ie Rs 400), Income Tax corresponding to Taxable Income Rs 600, (ie Rs 120), And, Income Tax corresponding to Taxable Income Rs 70, (ie Rs 14) so that Income Tax for Taxable Income of Rs Rs 172670= Rs (9000+400+120+14)= Rs 9534 A B C D Taxable Income

Income Tax

Taxable Income

Income Tax

Taxable Income

Income Tax

Taxable Income

Income Tax

160000 7000 1000 200 100 20 10 2 170000 9000 2000 400 200 40 20 4 180000 11000 3000 600 300 60 30 6 190000 13000 4000 800 400 80 40 8 200000 15000 5000 1000 500 100 50 10 210000 17000 6000 1200 600 120 60 12 220000 19000 7000 1400 700 140 70 14 230000 21000 8000 1600 800 160 80 16 240000 23000 9000 1800 900 180 90 18 250000 25000



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Part 3- For Total Income Above Rs 2,50,000 If your Total Income is from Rs 2,50,010 and above, Compute your Income Tax from the following table by adding applicable amounts from A, B, C, D and E given below. For example if your Total Income is Rs 20,12,670, you should add the figures as under: Income Tax corresponding to Taxable Income Rs 20,00,000, (ie Rs 5,55,000), Income Tax corresponding to Taxable Income Rs 10,000, (ie Rs 3000), Income Tax corresponding to Taxable Income Rs 2000, (ie Rs 600), Income Tax corresponding to Taxable Income Rs 600, (ie Rs 180), And, Income Tax corresponding to Taxable Income Rs 70, (ie Rs 21) so that, Income Tax for Taxable Income of Rs 20,12,670 = Rs (5,55,000+3000+600+180+21)= Rs 5,58,801 A B C D

E Taxable Income Income Tax

Taxable Income

Income Tax

Taxable Income

Income Tax

Taxable Income

Income Tax

Taxable Income

Income Tax

260000 28000 1000 300 100 30 10 3 270000 31000 2000 600 200 60 20 6 280000 34000 3000 900 300 90 30 9 290000 37000 4000 1200 400 120 40 12 300000 40000 10000 3000 5000 1500 500 150 50 15 400000 70000 20000 6000 6000 1800 600 180 60 18 500000 100000 30000 9000 7000 2100 700 210 70 21 600000 130000 40000 12000 8000 2400 800 240 80 24 700000 160000 50000 15000 9000 2700 900 270 90 27 800000 190000 60000 18000 900000 220000 70000 21000

80000 24000 90000 27000

1000000 250000 100000 30000 2000000 550000 200000 60000 3000000 850000 300000 90000 4000000 1150000 400000 120000 5000000 1450000 500000 150000 6000000 1750000 600000 180000

700000 210000 800000 240000 900000 270000



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Income Tax Surcharge: Amount of Income Tax Surcharge applicable for Taxable Income up to Rs 10,00,000 is Nil. Amount of Income Tax Surcharge applicable for Taxable Income from Rs 10,00,010 to Rs 10,37,310 is arrived at as under: Your Taxable Income Less Rs 10,00,000= Income Tax As Applicable + Income Tax Surcharge, i.e., Income Tax Surcharge= (Your Taxable Income Less Rs 10,00,000) less Income Tax As Applicable, (This formula ensures that you do not get a Net of tax income less than if your income was Rs 10,00,000) Amount of Income Tax Surcharge applicable for Taxable Income up above Rs 10,37,310 is 10% of Your Income Tax. Educational Cess: After arriving at the sum of Total Income Tax and Surcharge Amount, you have to add 2% of the total sum as Educational Cess.



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Appendix 2 Accrued Interest on National Savings Certificate, VIII Issue

All Figures in Rs. Year

1 Year2

Year3

Year4

Year5

Year6

Total

Purchased between 1/04/89 & 31/12/98- Rs 100

12.40 13.90 15.60 17.50 19.70 22.40 101.50

Purchased between 1/04/89 & 31/12/98- Rs 20,000

2,480 2,780 3,120 3,500 3,940 4,480 20,300


11.83 13.23 14.80 16.54 18.51 20.69 95.60


2,366 2,646 2,960 3,308 3,702 4,138 19,120


11.30 12.58 14.00 15.58 17.35 19.31 90.12


2,260 2,516 2,800 3,116 3,470 3,862 18,024


9.72 10.67 11.71 12.85 14.10 15.47 74.52

Purchased between 1/03/01 & 28/02/02- - Rs 20,000

1,944 2,134 2,342 2,570 2,820 3,094 14,904


9.20 10.05 10.97 11.98 13.09 14.29 69.59

Purchased between 1/03/02 & 28/02/03- - Rs 20,000

1,840 2,010 2,194 2,396 2,618 2,858 13,918

Purchased after 1/03/03- Rs 100

8.16 8.83 9.55 10.33 11.17 12.08 60.10

Purchased after 1/03/03- Rs 20,000

1,632 1,766 1,910 2,066 2,234 2,416 12,020



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Appendix 3

Important Amendments Through Budget 2006

Changes brought about by Union Budget of 2006 are relevant in planning your tax for this financial year and for filing your return in 2007. Highlights of these proposals are:

1. The one-by-six scheme for filing return, which required people not having taxable income but satisfying any of the six criteria (like having house, phone, credit card, etc.) to file tax is now omitted.

2. You can now buy a pension policy of an insurance company for a premium amount exceeding Rs 10,000 (the current limit) and get a deduction from your income. However, the overall limits of Rs 1,00,000 for all such deductions remain unchanged.

3. Fixed deposits with scheduled banks for periods of 5 years or more will also qualify for deductions along with other eligible investments for the overall limit of Rs 1,00,000.

4. You can now buy medical insurance policies from private insurance companies too to get the available deduction for premium paid up to Rs 10,000.

5. Capital gains from transfer of a long-term capital asset is exempt from tax if the capital gains are invested in any long-term specified asset under Section 54EC. The specified assets are now restricted to only bonds of National Highways Authority of India or Rural Electrification corporation Ltd.

6. Capital gains exemption under Section 54ED is removed. This had become irrelevant.

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How to File Your Own Income Tax Return With Due Attention & Care by Shiv N

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