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    Residential Status     Scope of Income    |   Income from Salary      CENVAT Credit      Tax Implications on Securities        Common Deductions  
  In this section, we discuss the direct tax implications for individual assessees. The taxability of an individual depends on a combination of his residential status and place of accrual of income.  

Residential Status:

Residential status of an individual depends on his total stay in India during the previous year relevant to assessment year. For this purpose, assessees are categorized as follows:

Resident in India Non Resident
- If his stay in India during the previous year was for 182 days or more
- If he was in India for 60 days in the previous year and also for 365 days or more during 4 preceding previous years
If such conditions are not satisfied.

Scope of Income

Generally residents are required to pay taxes on their worldwide incomes whereas non residents pay tax only on incomes accrued/received in India.


Heads of Income

Certain incomes are granted exemptions. Thereafter the taxable income is assessed in five broad heads of income as stated hereunder:

  • Income from Salary
  • Income from House Property
  • Income from Business & Profession
  • Capital Gains
  • Income from Other Sources
  Income from Salary:

Payments received under an employer – employee relationship are taxed under this head. The tax is levied on the gross
receipts. However, various allowances are granted exemptions. Further, certain benefits are taxed in the hands of the employer as fringe benefits at concessional rates whereas other benefits are treated as perquisites and valued as per notional rules laid down. Effective salary structuring can therefore minimize the outflow on account of personal taxation.

Income from House Property:

The income earned from letting out of a property (consisting of buildings) is taxed under this head. Since there is an ad-hoc deduction towards expenses and also since no depreciation claim is allowable, the provisions may result in huge tax outflow especially when companies hold the properties.One property occupied by the individual for personal residence is exempted from the valuation. If the said property is acquired on a loan, interest on such loan is deductible to the extent of Rs. 1,50,000/-

Capital Gains:

Income arising from transfer of capital assets is taxable under this head. For the purposes of levy of tax, the assets are classified as short term and long term. While the general cut-off period of holding the asset is 36 months, in case of shares and securities, the period is reduced to 12 months. Taxable Long term Capital Gains can be reinvested in specified investment vehicles (residential house, REC Bonds) to claim exemption from income tax.

  CENVAT Credit:

Excise Duties & Service Taxes paid on expenses and capital goods can be adjusted against the service tax payable on income and only the balance tax has to be paid. Credit for capital goods can be adjusted to the extent of 50% in the year in which it is purchased and balance in the successive year. However, when the recipient of service is liable to pay tax (in case of Import of service), the service tax paid on other expenses would not be available as CENVAT Credit against the service tax payable on such reverse charged expenses.


Tax Implications on Securities:

  Speculation / Business Short Term Long Term
How to identify? Non Delivery < 12 months > 12 months
Off – Market Deals (No STT Paid) Normal Normal 20% after indexation
Market Deals (STT Paid) Normal with credit of STT 15% Exempt
  Income from Other Sources:

It is a Residual head of Income wherein passive incomes are taxed, for example, interest on Fixed Deposits, National Saving Certificates etc. However, some passive incomes like PPF Interest, Dividends, etc. are exempted from tax.

  Taxability of Gifts:

Gifts (including foreign gifts) are treated as incomes in the hands of the donee. The donor has no tax implication except payment of stamp duty. However, it is necessary to establish the genuineness of the gift. The following gifts are exempt:

Exempt Gifts
Gifts from Relatives Gifts at the time of marriage
Gifts upto Rs. 50,000/- per annum Gifts in kind

Common Deductions:

80-C /
80-CCC /
Specified Investments and Expenditures can be claimed as deduction upto Rs. 1,00,000/- (see chart below)
80-D Mediclaim Premiums upto Rs.15000/- generally & upto Rs.20000/- in case of senior citizens
80-G Donation made for charitable purposes is allowed @ 100% in certain case and @ 50% in general
80-H For handicapped persons, generally Rs.50000/- & Rs.75000/-in case of severe disability
Eligible Investments
LIC Premiums PF / PPF Superannuation Fund NSC & Accrued Int.
ELSS of Mutual Fund Purchase of Resi. Flat Repayment of Housing Loan Stamp Duty & Other Expenses on Resi. Flat
ULIP Education Fees for Children Bank Fixed Deposits for 5 years LIC Pension Contributions
Senior Citizen Saving Scheme Rules, 2004 Post Office Time Deposit Rules, 1981    

Rates of Tax / Other Procedures

The rates of tax is summarised as under:

Income Levels (Rs.) Assessment Year 2009-2010 - 01.04.2008 to 31.03.2009
  Tax SC EC Total
0-150000 0.00 0.00 0.00 0.00
150001-250000 10.00 0.00 0.30 10.30
250001-300000 10.00 0.00 0.30 10.30
300001-500000 20.00 0.00 0.60 20.60
500001-1000000 30.00 0.00 0.90 30.90
1000001+ 30.00 3.00 0.99 33.99

The basic exemption limit is summarised as under:

Sr.No Situation AY 2009-2010
1 Individuals – General 150000/-
2 Individuals  -with an inclination to invest Rs.100000/- in specified investments 250000/-
3 Women Assessees 180000/-
4 Women Assessees – with an inclination to invest Rs.100000/- in specified investments. 280000/-
5 Senior Citizens 225000/-
6 Senior Citizens – with an inclination to invest Rs.100000/- in specified investments. 325000/-

A return of income is required to be filed generally by 31 July. An individual not having business income is expected to maintain the details of salary income (Form 16), a summary of bank transactions and a summary of investments including details of securities purchased and sold during the year.


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