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Income tax in India
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The Indian Income Tax department is governed by the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue, under the Ministry of Finance, Govt. of India.

The government of India imposes an income tax on taxable income of individuals, Hindu Undivided Families (HUFs), companies, firms, co-operative societies and trusts and any other artificial person. Levy of tax is separate on each of the persons. The levy is governed by the Indian Income Tax Act, 1961.

Charge to Income-tax

Income tax is a tax payable, at the rate enacted by the Union Budget (Finance Act) for every Assessment Year, on the Total Income earned in the Previous Year by every Person. The chargeability is based on the nature of income, i.e., whether it is revenue or capital.

Residential Status

The inclusion of a particular income in the Total Income of a person for income-tax in India is based on his residential status. There are three residential status, viz., (i) Resident & Ordinarily Residents (Residents) (ii) Resident but not Ordinarily Residents and (iii) Non Residents. There are several steps involved in determining the residential status of a person

All residents are taxable for all their income, including income outside India. Non residents are taxable only for the income received in India or Income accrued in India. Not Ordinarily residents are taxable in relation to income received in India or income accrued in India and income from business or profession controlled from India.

Heads of Income The total income of a person is divided into five heads, viz., taxable:

1.	Income from Salary 2.	Income from House Property 3.	Income from profits and gains of Business or Profession 4.	Income from Capital Gains 5.	Income from Other sources

Income from Salary

All income received as a salary is taxed under this head such that the Employer & Employee relation-ship exists. Income charged under the head “Salary Income” includes :

Basic Pay				: in full Dearness Allowance			: in full House Rent Allowance		       :  in full - Less deductions allowed u/s City Compensatory Allowance	       :  in full Personal Pay				: in full Medical Allowance			: in full(except reimbursement upto Rs.15000/-) Conveyance Allowance		       :  over and above Rs.800/- p.m. Any other allowance			:  in full Value of Perquisites			: Rent free accommodation, Car, Gas, Water etc.

Exemptions: Following exemptions are allowed from Salary Income:

1.	Medical reimbursement: Up to Rs. 15,000 per year is tax free if supported by bills. 2.	Conveyance allowance: Up to Rs. 800 per month (Rs. 9,600 per year) is tax free. 3.	House rent allowance: the least of the following is available as deduction a)	Actual HRA received b)	50% of 'salary' in case of Metro locations (40% for non Metro) c)	rent paid minus 10% of 'salary'. Salary for this purpose is basic+DA forming part+commission on sale on fixed rate.

Deduction: Certain deductions are allowed from the total income while calculating taxable income.

i) Section 80C Deductions: Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt. The total limit under this section is Rs.100,000 which can be any combination of the below:

•	Contribution to Provident Fund or Public Provident Fund •	Payment of Life Insurance premium •	Investment in Pension Plans •	Investment in Equity Linked Savings schemes (ELSS) of mutual funds •	Investment in specified government Infrastructure Bonds •	Investment in National Savings Certificates •	Payments towards principal repayment of housing loans. Also any registration fee or stamp duty paid. •	Payments towards tuition fees for children to any school or college or university or similar institution. (Only for 2 children)

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

ii) Section 80D: Medical Insurance Premiums: Medical insurance, popularly known as Mediclaim Policies, provide deduction up to Rs 30,000. This deduction is additional to Rs.1,00,000 savings. This deduction is available for premium paid on medical insurance for oneself, spouse, parents and children.

iii) Interest on Housing Loans: For self occupied properties, interest paid on a housing loan up to Rs.150,000 per year is exempt from tax. However, this is only applicable for a residence constructed within three financial years after the loan is taken and also the loan if taken after April 1, 1999. If the house is not occupied due to employment, the house will be considered self occupied.

Tax Rates In India, Individual income tax is a progressive tax with three slabs. From April 1, 2008 new tax slabs apply, which are as follows:

Slab 					Rate of Tax Upto Rs.1,50,000 *			NIL Rs.1,50,001 – Rs.3,00,000		10% Rs.3,00,001 – Rs.5,00,000		20% Above Rs.5,00,000			30%


 * - Rs. 1,80,000 for women and Rs.2,25,000 for senior citizens

Surcharge: A 10% surcharge (tax on tax) is applicable if the taxable income is above Rs. 10 lakh.

Education Cess: All taxes in India are subject to an education cess, which is 2% of the total tax payable. With effect from assessment year 2008-09, Secondary and Higher Secondary Education Cess of 1% is applicable on the subtotal of taxable income.

Tax Deduction at Source: Employers must withhold tax compulsorily, if income exceeds minimum exemption limit, as Tax Deducted at Source (TDS), and provide their employees with a TDS Certificate (Form 16) which shows the tax deductions and net paid income. Calculation of Tax on Salary Income

Example – 1 Salary Income Basic Pay			: 				 6,00,000 HRA Received		: 		 300,000 Less exempt			: i) Actual HRA		 300,000 ii) Rent Paid over 10%  180,000 iii) 50% of Salary	  300,000			    -	- 180,000						  1,20,000	Conveyance Allowance	: 		      9,600 Less exempt					    - 9,600						---	          NIL	Medical Allosance		:   		   15,000   - exempt by bills				  -12,000						  -	       3,000		Bonus				: 				  4,50,000								--- Total Salary Income	(1)					11,73,000

Less Deductions: i)	under section 80C	Provident Fund		  72,000	PPF				   70,000	LIC				   29,000	School Fee			   24,000	Pension Plan			   10,004	House Loan installment	   30,000					--	Total				2,35,004					--		  1,00,000 ii) under section 80D Mediclaim Policy preimum 					NIL

iii) Interest on Housing Loan		1,92,000		 1,50,000										-- Net Taxable Income (1-i-ii-iii)				  9,23,000								======== Tax payable On first Rs.1,50,000	@ NIL		=   NIL Next Rs.1,50,000	@ 10%	= Rs.   15,000 Next Rs.2,00,000	@ 20%	= Rs.   40,000 Balance Rs.4,23,000	@30%		= Rs.1,26,900 Total					= Rs.1,81,900 Add education cess @3% 		= Rs.     5,457 Total Tax payable			= Rs.1,87,357	Calculation of Tax on Salary Income

Example – 1 Salary Income Basic Pay			: 				 6,00,000 HRA Received		: 		 300,000 Less exempt			: i) Actual HRA		 300,000 ii) Rent Paid over 10%  180,000 iii) 50% of Salary	  300,000			    -	- 180,000						  1,20,000	Conveyance Allowance	: 		      9,600 Less exempt					    - 9,600						---	          NIL	Medical Allosance		:   		   15,000   - exempt by bills				  -12,000						  -	       3,000		Bonus				: 				  5,50,000								--- Total Salary Income	(1)					12,73,000

Less Deductions: j)	under section 80C	Provident Fund		  72,000	PPF				   70,000	LIC				   29,000	School Fee			   24,000	Pension Plan			   10,004	House Loan installment	   30,000					--	Total				2,35,004					--		  1,00,000 ii) under section 80D Mediclaim Policy preimum 				         NIL

iii) Interest on Housing Loan		1,92,000		 1,50,000										-- Net Taxable Income (1-i-ii-iii)				10,23,000								======== Tax payable On first Rs.1,50,000	@ NIL		=   NIL Next Rs.1,50,000	@ 10%	= Rs.   15,000 Next Rs.2,00,000	@ 20%	= Rs.   40,000 Balance Rs.5,23,000	@30%		= Rs.1,56,900 Total					= Rs.2,11,900 Add Surcharge			= Rs.   21,190 Add education cess @3% 		= Rs.     6,357 Total Tax payable			= Rs.2,39,447