A Summer Internship Project

On

A Study Of Planning For Salaried Individuals

At
H&R Block, Pune

By
Paryant Agarwal
Roll no.- 1838

MBA (Finance)
Batch: AY 2018-20

Under the Guidance of

Prof. Ananth Iyer

In partial fulfilment of the requirement for the award of

Degree of Master in Business Administration (MBA)

Submitted Through
Universal Business School, Karjat.

1
 DECLARATION

This is to declare that I Paryant Agarwal student of Universal

Business School, Mumbai (Karjat), CMBA2Y2 AY 2018-2020, has
given original data and information to the best of my knowledge in
the project report titled A Study Of Planning For Salaried
Individuals is a record of independent work carried out by me under
the guidance and supervision of Prof. Ananth Iyer towards the partial
fulfilment of requirement for the PGDM course.

I also agree in principal not to share the vital information with any
other person outside the organization and that I have not submitted it
for any award or any other title, degree or diploma.

Date:

Place: Mumbai (Karjat)

Name: Paryant Agarwal

Roll No: CMBA2Y2/1838

Specialization: Finance

2
 CERTIFICATE
This is to certify that the project entitled “A Study Of Planning For Salaried
Individuals”, submitted to Universal Business School, Mumbai (Karjat) in the
partial fulfilment of the requirements for the award of the Post Graduate
Diploma in Management (PGDM) embodies the results of bonafide project
work carried out by Paryant Agarwal under the guidance and supervision of
Prof. Ananth Iyer.
To the best of my knowledge the results embodied in this project have not been
submitted to any other university or institute for the award of Degree or
Diploma. The assistance and help received during this investigation has been
duly acknowledged.

Faculty Guide Name: CA Hemant Bafana

Prof. Ananth Iyer

Program Director (PGDM): Prof. Elora Basumatary

Date: 31/07/2019
Place: Mumbai (Karjat)

3
 Acknowledgement

It gives me immense pleasure to present this Concurrent Project Report.

However, it would not have been possible without the help and support of all
the team members of H&R Block.

I would like to thank my CA Hemant Bafana and Prof. Ananth Iyer for
guiding me in my tenure of internship on A Study Of Planning For Salaried
Individuals without their support and guidance, I wouldn’t have come so far to
prepare this report.

I would like to express my thankfulness to Placement team of Universal

Business School, who gave me this great opportunity to work on this Interesting
project.

I am also grateful to my loving parents and my kind friends whose prayers,

affection and support are always a source of encouragement. Their suggestions
and supply of information were really very valuable and helpful to me. Their
continuous encouragement and support helped me for completing this project
successfully.

Your name: Paryant Agarwal

Batch: CMBA2Y2

Roll No: 1838

Specialization: Finance

Universal Business School, Mumbai (Karjat)

4
 Table of Contents
1. Chapter – 1 Executive Summary ............................................................................... 4

1.1 Residential Status ....................................................................................................... 5

2. Chapter – 2 Taxes in India .......................................................................................... 8

2.1 Introduction ................................................................................................................ 9

2.2 Importance of taxes to the economy ........................................................................... 12

2.3 Industry Profile ........................................................................................................... 14

3. Chapter – 3 Company Profile.......................................................................................16

3.1 Overview ..................................................................................................................... 17

3.1.1 Vision .................................................................................................................... 18

3.1.2 Mission.................................................................................................................. 18

4. Chapter – 4 Relevant Activity..................................................................................... 20

5. Chapter – 5 Research Methodology............................................................................ 26

6. Chapter – 6 Theoretical Background .......................................................................... 29

7. Chapter – 7 Detailed Income Heads ........................................................................... 34

7.1 Income from Salary......................................................................................................35

7.1.1 Exemptions ............................................................................................................ 36

7.1.2 Deductions ............................................................................................................. 39

7.1.3 Form 16 ................................................................................................................. 45

8. Chapter – 8 Data analysis and interpretation ............................................................. 49

9. Conclusion .................................................................................................................. 54

5
 Chapter 1

Executive Summary

6
The Income Tax Act, 1961 is the changing statute of Income Tax in India. It provides for
levy, administration and collection of Income Tax. Recently the Government of India has
brought out a draft statute called the Direct Taxes Code intended to replace the Income Tax
Act, 1961 and the Wealth Tax Act, 1956. Moreover, Government has also introduced GST
(Goods and Sales tax) which is implemented and executed from 1st July 2017.

This report includes a detailed analysis of how to file an income tax return of a salaried
individual in India. It includes all the components which are as follows:

 Industry profile
 Company profile
 Residential status of an individual
 Different heads of income
 Exemptions under section 10
 Deductions under section 80
 Standard deduction
 Form 16
 Form 26AS
 Tax deducted at source

It includes all the necessary provisions and laws which is useful in filing the income tax
return of an individual, components and usage of Form 16 and Form 26AS.

This is a task-based project. Company has assigned the following tasks to their interns:

1. Filling Income Tax Return.

2. Resolving Client Queries.
3. Helping Individuals for E verification of ITR V
4. Downloading Form 26AS other required documents for Individuals.
5. Linking Aadhar No. with their PAN
6. Rectification in Aadhar or PAN if there is any miss match
7. Generate a list of prospective customers by Referring.
8. Retention of old customers through calling.
9. Advice Individuals regarding Tax Planning for next year.

1.1 Residential status

The residential status of an assesse is useful in determining the scope or chargeability of the
income for the assesse i.e. whether taxable or not. For an individual to be a resident, any one
of the following basic conditions must be satisfied –
• Presence of at least 182 days in India in the previous year.
• Presence of at least 60 days in India during the previous year and 365 days for 4 years
immediately preceding the relevant previous year.

However, in case the individual is an Indian citizen who leaves India during the previous year
for the purpose of employment or as a member of a crew of an Indian ship or in case the
person is of Indian origin who comes to visit India during the previous year, the only the first

7
of the above condition is applicable. To determine whether the resident individual is an
ordinary resident, the following both additional conditions are to be satisfied –
• Resident of India in at least 2 out of 10 years immediately preceding the relevant previous
year.
• Presence of at least 730 days in India for 7 years immediately preceding the relevant
previous year.

The total income of a person is segregated into 5 heads –

1. Income from salary.

2. Income from house property.
3. Profit and gains from business or profession.
4. Capital gains.
5. Income from other sources.

8
Some incomes under Section 80 are allowed as deductions after calculating the total income
from the five heads, then the income which remains after deducting the allowed incomes is
taxable as per the Income Tax Act, 1961.
Tax planning is a process individuals, businesses and organizations use to evaluate their
financial profile, with the aim of minimizing the amount of taxes paid on personal income or
business profit. Effective tax planning entails analysing investment instruments, expenditures
and other factors such as filing status for their tax liability impact.

Every individual salaried person who wants to save his/her tax liability, they have provided
with some provisions from the government which are exemptions under section 10 and after
the income of a person is calculated from all the heads, the liability can be reduced by
applying the provisions of deductions under section 80.

9
Chapter 2

Tax in India

10
Introduction:

The Income Tax was added in India for the first time in 1860 by the British rulers following
the mutiny of 1857. The duration between 1860 and 1886 turned into a length of experiments
inside the context of Income Tax. This duration led to 1886 whilst first Income Tax Act came
into lifestyles. The pattern laid down in it for the levying of tax maintains to be performed
even today although in some modified shape. In 1918, another Income Tax Act, 1918
changed into surpassed, but it became quick lived and become changed by way of Income
Tax Act, 1922 and it remained in lifestyles and operation until 31st March 1961.

The previous taxation structure of the US played a completely vital function inside the
running of our economy. Some time again the emphasis become on better charges of tax and
more incentives. While designing the taxation shape, it must be seen that it is in conformity
with our financial and social objectives. It needs to know not impair the incentives to non-
public financial savings and investment float and on the other hand, it ought to not result in
lower in sales for the State.

Tax Slabs Rates

1. Individual resident aged below 60 years (i.e. Born on or after 1st April 1955) or any NRI/
HUF/ AOP/ BOI/ AJP*

Tax Calculator: AY 2019-20

INCOME SLABS TAX RATES

Where the taxable income does not exceed Nil
RS. 2,50,000/-.

Where the taxable income exceeds RS. 5% of amount by which the taxable income
2,50,000/- but does not exceed RS. exceeds RS. 2,50,000/-.
5,00,000/-.

Where the taxable income exceeds RS. 20% of the amount by which the taxable
5,00,000/- but does not exceed RS. income exceeds RS. 5,00,000/-.
10,00,000/-.

Where the taxable income exceeds RS. 30% of the amount by which the taxable
10,00,000/-. income exceeds RS. 10,00,000/-.

Table 1: Tax Slab for Individual Resident Aged Below 60 Years

 Surcharge: 10% of the Income Tax, where taxable income is more than RS. 1 crore.
(Marginal Relief in Surcharge, if applicable)

11
  Education Cess: 3% of the total of Income Tax and Surcharge

2. Senior Citizen (Individual resident who is of the age of 60 years or more but below the age
of 80 years at any time during the previous year i.e. born on or after 1st April 1935 but before
1st April 1955)

Income Tax: Tax Calculator: AY 2019-20

INCOME SLABS TAX RATES

Where the taxable income does not exceed NIL
RS. 3,00,000/-.

Where the taxable income exceeds RS. 5% of the amount by which the taxable
3,00,000/- but does not exceed RS. income exceeds RS. 3,00,000/-.
5,00,000/-

Where the taxable income exceeds RS. 20% of the amount by which the taxable
5,00,000/- but does not exceed RS. income exceeds RS. 5,00,000/-.
10,00,000/-

Where the taxable income exceeds RS. 30% of the amount by which the taxable
10,00,000/- income exceeds RS. 10,00,000/-.

TABLE 2: TAX SLAB FOR SENIOR CITZEN

 Surcharge: 10% of the Income Tax, where taxable income is more than RS. 1 crore.
(Marginal Relief in Surcharge, if applicable)

 Education Cess: 3% of the total of Income Tax and Surcharge (TAXMANN, 2018).

3. Super Senior Citizen (Individual resident who is of the age of 80 years or more at any time
during the previous year i.e. born before 1st April 1935)

Income Tax: Tax Calculator: AY 2019-20

INCOME SLABS TAX RATES

Where the taxable income does not exceed NIL
RS. 5,00,000/-.

Where the taxable income exceeds RS. 20% of the amount by which the taxable
5,00,000/- but does not exceed RS. income exceeds RS. 5,00,000/-.
10,00,000/-

12
Where the taxable income exceeds RS. 30% of the amount by which the taxable
10,00,000/- income exceeds RS. 10,00,000/-.

Table 3: TAX SLAB FOR SUPER SENIOR CITIZEN

 Surcharge: 10% of the Income Tax, where taxable income is more than RS. 1 core.
(Marginal Relief in Surcharge, if applicable)

 Education Cess: 3% of the total of Income Tax and Surcharge.

13
Importance of taxes to the economy

Tax is a contribution exacted by the Government. It is a non-penal but compulsory and

unrequited transfer of resources from the private to the public sector, levied based on
predetermined criteria.
The classical economic were in view that the only objective of taxation was to raise
government revenue. But with the changes in circumstances and ideologies, the aim of taxes
has also been changed. These days apart from the object of raising the public revenue, taxes
is levied to affect consumption, production and distribution with a view to ensuring the social
welfare through the economic development of a country. For economic development of a
country, tax can be used as an important tool in the following manner:

1. Optimum allocation of available resources:

Taxes are the most important source of public revenue. The imposition of tax leads to
diversion of resources from the taxed to the non-taxed sector. The revenue is allocated on
various productive sectors in the country with a view to increasing the overall growth of the
country. Tax revenues may be used to encourage development activities in the less
developments’ areas of the country where normal investors are not willing to invest.

2. Raising government revenue:

In modern times, the aim of public finance is not merely to raise enough financial resources
for meeting administrative expense, for maintenance of low and order and to protect the
country from foreign aggression. Now the main objective is to ensure the social welfare. The
increase in the collection of tax increases the government revenue. It is safer for the
government to avoid borrowings by increasing tax revenue.

3. Encouraging savings and investment:

Since developing countries have mixed economy, care has also to be taken to promote capital
formation and investment both in the private and public sectors. Taxation policy is to be
directed to raising the ratio of savings to national income.

4. Reduction of inequalities in income and wealth:

Through reducing inequalities in income and wealth by using an efficient tax system,
government can encourage people to save and invest in productive sectors.

5. Price Stability:

In underdeveloped countries, there is another role to maintain price stability to ensure growth
with stability.

14
6. Control mechanism:

Tax policy is also used as a control mechanism to check inflation, consumption of liquor and
luxury goods and to protect the local poor industries from the uneven competition. Taxation
is the only effective weapon by which private consumption can be curbed and thus resources
transferred to the government. Thus, the economy can ensure sustainable development.

Thus, it can be said that the economic development of a country depends various reasons one
of them are on the presence of an effective and efficient taxation policy.

15
Industry Profile

16
This company comes under the ambit of Financial Service Industry and the competitors being
the Accountancy Companies, Chartered Accountants, and Corporate Lawyers who has their
specialization in Taxation, Tax Advisors or Experts and those companies who are the
Intermediary Agent of the Income Tax Department. This is a very small industry as compared
to other Financial Service Sector. The Chartered Accountant Firm dominates the industry
because people have faith in their own CA’s rather than referring to the any other resource of
filing Income Tax Return.

In this industry, one of the most notable aspects of the tax preparation industry is how
seasonal it is. The industry only comes into being for essentially and mainly for four months
before July 31st of every year, the day on which income tax returns are due for individuals.

The different companies who enter in this industry does not enter solely to prepare tax return,
but they also try to provide year-round assistance to the clients and it also gives a part-time
opportunity. It will not provide year-round business, and this can be a unique benefit for
those looking for extra work for a couple of months, but a detriment to those looking for
more of a full-time franchise.

17
 Chapter: 3

Company Profile

18
The company was founded by Henry and Richard Bloch in 1955 in Kansas City, U.S.A.
Through nearly 63 years of service, H&R Block has remained committed to the original
founding cornerstones that led to its eventual launch in India in January 2012. These
cornerstones include giving the best client experience, hiring and training the best tax experts
in the industry, a pledge to stand behind our work and a commitment to serving clients how
and where it is most convenient for them. H&R Block India strives to blend tax expertise
with a strong focus on continually improving the client experience to provide all its clients
with an unparalleled value proposition.

In 1955, brothers Henry and Richard Bloch founded the company known today as H&R
Block. The pair began working together in the late 1940s, operating the United Business
Company, which provided book-keeping services to small businesses in Kansas City,
Missouri.

As an added courtesy, the brothers offered individual income tax return preparation to the
executives of their client companies. Word of this particular service spread and before long
they were preparing individual tax returns by the score. Henry and Richard saw that
concentrating on tax preparation services would be both an innovative and sound business
venture. Thus, H&R Block Inc. was formed in 1955, with Henry as president and CEO and
Richard as the chairman of the board.

As the company has evolved and achieved significant milestones, H&R Block has remained
committed to the factors that led to its success; superior customer service, a pledge to stand
behind our work and a commitment to serving clients. H&R Block is a tax preparation
company in the United States, claiming more than 25 million tax returns prepared worldwide,
with offices in Canada, Australia, Brazil and India. The Kansas City based company also
offers banking, payroll, personal finance, and business consulting services.

Founded in 1955 by brothers Henry and Richard Bloch, the company today operates about
11,000 retail tax offices in United States plus another 1,700 abroad. The company offers its
own consumer tax software called H&R Block Home, as well as online tax preparation and
electronic filing from their website.

H&R Block is the largest tax preparer in the world. It was the first tax preparation company t
create a business centred on tax preparation, pioneer a new business model called franchising,
helps introduce electronic filing of tax returns.

19
Overview:

Type: Public

Founders: Henry Bloch

Richard Bloch

Founded: Kansas City, U.S, 1955

Area served: United States, Canada, Australia, Brazil, and India.

People: CEO: Jeff Jones

CFO: Tony Bowen
Chairman: Robert A. Gerard

Website: www.hrblock.com

Global Presence:

1. United States
 Started in 1955
 Served 25 million clients
 Has about 11,000 offices

2. Canada
 Started in 1964
 Served 2.4 million clients
 Has 1200 offices

3. Brazil
 Started in 2011
 25,000 clients targeted

4. Australia
 Started in 1971
 Served 6,75,000 clients
 Has 400 offices

5. India
 Started in 2012
 Has 6 offices – Gurgaon, Ahmadabad, Mumbai, Pune, Hyderabad, Bangalore

20
Mission:
The mission of H&R Block is to look at the client’s life through tax and find ways to help:

1. In creating brand identity by experiencing personal attention, convenience, proactive

and expertise.

2. In building lifelong relationships with clients.

3. In creating expertise in work, giving convenience and guarantee for clients.

Vision:

H&R Block’s vision reflects the opportunity they see to execute our purpose successfully for
their clients; to be the leading global consumer tax company bringing tax and related
solutions to clients year-round. They are about consumer tax in global market with access
anywhere, anyway, anytime.

Products:

Tax Preparation

Banking

Competitors information:
Clear tax is the major competitor for H&R block in India. It’s basically a Bangalore based
company which was established in the year 2016. They came up with so many offers at the
end of the season, even though H&R par away ahead in their sales.

Some other major competitors of H&R Block are:

 TaxSpanner
 FilingMantra

21
 Chapter 4

Relevant Activity

22
The interns have completed following activities:

1. TAX FILING

Process of E-filling followed by H&R Block

General process followed by H&R Block while filling of Income Tax is as follows:

Registration

Process Tax
E-File of E- Summary
Preparation
Filing

Approval

23
STEP.1 Registration:
A Client need to register himself in H&R Block portal, with mail id and required documents
and bank details.

STEP.2 Tax Summary Preparation:

After going through all the documents, advisor prepares the tax summary and share with the
client.

STEP.3 Approval:

Client must review his/her tax summary and approved for further process.

STEP.4 E-File:
After getting approval from client, advisor has to E-file the return from his/her side.

STEP.5 E Verification:
Once the filing is done, the client is required to do the e-verification procedure from his end
i.e. e- filing verification online with one-time password called as electronic verification Code
for income tax payers which will replace the sending of paper acknowledgement to the CPC
Bangalore.

2. RESOLVING CLIENT QUERIES:

Following are certain queries asked by Individuals and their solution provided by interns.

QUERY SOLUTION

1. Even if no taxes have been deducted Form-16 is a certificate of TDS. In this case it
from salary, Is there a need for will not apply. However, your employer can
employer to issue Form 16? issue a salary statement

2. What is pre construction period? Pre-construction period is the period

commencing from the date of borrowing of
loan and ends on earlier of the following:

Date of repayment of loan or 31st March

immediately prior to the date of
completion of the construction/acquisition
of the property.

3. Can a non-resident claim rebate Rebate under section 87A is available only
under section 87A? to an individual who is resident in India,

24
 hence, non-residents cannot claim rebate
under section 87A.

4. Two houses are occupied by me and YES, income from house property is a
my family, Is there any Tax notional income and only in respect of one
Implication? residential unit, if-self occupied, it will be
considered as nil. In case of the other
residential unit, fair rent will have to be
treated as your income and will be taxed
accordingly

5. I have not received TDS certificate Yes, the tax credit in your case will be
from deducter, can I claim TDS in reflected in your Form 26AS and, hence,
my return of income? you can check Form 26AS and claim the
credit of the tax accordingly.

3. HELPING INDIVIDUALS FOR ELECTRONIC VERIFICATION

CODE (EVC) PROCEDURE:
Income tax department recently launched a facility of e- filing verification online with one-
time password called as electronic verification Code for income tax payers which will replace
the sending of paper acknowledgement to the CPC Bangalore.

What is Electronic Verification Code?

Electronic verification Code is a one-time password sent to registered mobile number filing
returns online. The EVC will be a 10-digit alpha-numeric number. Invalid, already used or
unmatched EVC shall be rejected. As of now, any taxpayer, whose income is RS 5 lakh or
under every year and has no refund claims, they can directly generate the ‘Electronic
Verification Code' (EVC) for e-filing and validating their Income Tax Return (ITR).

MODES:

Case 1: Where the EVC (Electronic Verification Code) in generated after Verifier logs in to
the e -filing website https: //incometaxindiaefiling.gov.in through Net- Banking

Case 2: Where the EVC (Electronic Verification Code) is generated after Aadhaar
authentication using Aadhaar One Time Password (Aadhaar OTP)

Case 3: Where the EVC (Electronic Verification Code) is generated using Automatic Teller
Machine (ATM) of a Bank

Case 4: Where the EVC (Electronic Verification Code) is generated and sent to the
Registered Email ID and Mobile Number of Assessee with E -filing Website

25
 4. DOWNLOADING FORM 26AS FOR INDIVIDUALS.

What is Form 26AS?

Form 26AS basically is an official form that contains details of deducted tax by tax
deductors. The form also contains details of tax deducted at source, tax collected at source,
details of advance tax, along with Refunds and high value transactions deducted on behalf of
the taxpayer.

Understanding Form 26AS:

Form 26AS is also known as annual statement which contains all tax related information of a
taxpayer. The details give a clearer picture of the tax commitments of a taxpayer. It is
associated with PAN.

Listed below are the details that Form 26AS will contain.

 Tax deducted by the deductors on behalf of the taxpayer

 Details of tax collected by the tax collectors on behalf of the taxpayer

 Advance tax, self-assessment tax, regular assessment tax deposited by PAN holders/
taxpayers

 Paid refund

 Details of Annual Information Report transaction

Structure of Form 26AS:

Form 26AS is mainly divided into three parts, A, B and C. Listed below is a detailed
explanation of all the three parts that constitute Form 26AS.

Part A:

Part A of the Form 26AS contains details of the tax deducted at source. It contains details of
all the taxes deducted at source from salary, pension income and interest income. It contains
details of the deductor including their name and TAN along with details of the tax amount
deducted.

Part B:

Part B contains details of the collected at source (TCS) by the seller or merchant of the goods
that was sold to the customer. It contains all details in respect to the seller and tax collected.

26
Part C:
Part C contains details of the direct tax paid by the taxpayer. It includes advance tax, self-
assessment tax and the details of the challan through which the tax was deposited.

5. RETENTION OF OLD CUSTOMERS

In this task each intern was given an application named HELLO CALL. It contained a list of
more 500 old Individuals. The intern was supposed to call each of them and ask about the
Current Years Tax Filling. If the client has not filled return yet, then they were convinced to
file it with H & R Block.

27
 Chapter 5

Research Methodology

28
Literature Review:

1- Michael G. Allingham and AgnarSandmo study ―Income tax

evasion:
A theoretical analysis‖ May 1972. This study was done in U.S.A, they established a model
around tax evasion. This study had developed the basic unit for the study of tax evasion in
income tax, and it was the first special study about tax evasion ,Researchers in these study are
pioneers in these field, All researchers in the tax evasion, make this study the cornerstone of
their researches and all researchers indicate to this study because these study is considered as
main title for another study around tax evasion objective of the study was "Our objective in
this paper is therefore the more limited one of analyzing the individual taxpayer‘s decision on
whether and to what extent to avoid taxes by deliberate underreporting".

2- Abdulsalam study ―phenomenon of tax Evasion in the Republic in

Yemen, 2003
This study was done in Yemen the problem of this study was what are the reasons of increase
of tax evasion in Yemen and to find out the factors helping to avoid this phenomenon, and
negative effect on Macroeconomic in Yemen.

Objective and Scope of study:

1. A study of rules and regulations of taxation for salaried individuals.

2. Using tax saving instruments for tax planning of salaried individuals and studying the
effects of tax planning.

Data collection method:

4.3.1 Primary Data:

Primary data is the date which is collected directly by the researcher. Primary data can be
collected from many sources and can use various approaches to get the required date which is
more precise, realistic, accurate. Investigation and observations are the two main tool of
collecting the primary data.

4.3.2 Secondary Data:

Secondary data is not collected by the researcher directly. These data will be taken from the
researcher who has already done. This data will be collected and make analysis on the data by
some other researcher. Researcher must analyse the whole date and make interpretations for
the secondary data. In current study we used this type of data from companies report and
market trading apps and websites.

29
Limitations:
The summer internship period of 3 months was not enough to get a detailed
understanding of all the ways in which tax planning can be done for a salaried
individual.

This project studies the tax planning for individuals with salary income.

The tax rates and other related data are all subject to Financial year 2018-19 i.e
Assessment year 2019-20.

30
 Chapter 6
Theoretical Background

31
Income tax department is one of the important parts of Ministry of Finance, Government of
India. In 1860, it started working with the implementation of the first Income Tax Act. After
implementation of this Act, people became aware of the actual meaning and motto of Income
Tax Department. The department followed this act for 5 years after which, in 1865, the
second Act came into force. There was a major change in this Act relative to the first Act.
With this Act, the department started working with a new concept of agriculture income.

However, the original story of income tax came into being in 1922 with the implementation
of the Income Tax Act- 1922. It showed a major change from the last Act by imposing the
change in the year of assessment on the income of last year. It also declared that the tax rates
would be announced by Finance Acts.

After this in 1956, the Government revised this Act with few changes keeping the original in
its format. For its review, a committee was formed. This committee made a few changes and
submitted the Income Tax Bill in Lok Sabha in April 1961. The President accepted this Bill
on 13th September 1961. Since 1961, our Government has been using this Act for running
our system.

Hite and McGill in their study state that tax practitioners must be a credible source of
information for tax payers they are to offer tax advice, and have it receipted. As tax system
becomes more complex, tax payers turn to tax practitioners for expert advice.

Kennedy and Henry in their study state that, the Income Tax Act may appear as though it is
difficult to comprehend but once a methodical approach is employed in reading and using it,
understanding the income tax law becomes easier. The reader should find out who is liable to
pay the tax, based upon which the tax will be levied, the tax rates to be applied to the tax base
and how or when the tax is to be paid. These are the four requirements of a tax law which can
be found in the divisions of each part of the Act. When these are identified, understanding of
the other structural elements will not be difficult.

Direct Taxes
The Wealth Tax was abolished in the Union Budget (2016 - 2017) presented by Union
Finance Minister Arun Jaitley on 28 February 2015. Now only one type of Direct Tax exists
in the India taxation system – Income Tax.

What is Income Tax?

Income tax is an annual tax on income. The Income Tax Act (Section 4) provides that in
respect of the total income of the previous year of every person, income tax shall be charged
for the corresponding assessment year at the rates laid down by the Finance Act for the
assessment year. Section 14 of the Income Tax Act further provides that for the purpose of
charge of income tax and computation of total income, all income shall be classified under
the following heads of income:

1. Income from Salaries

2. Income from house property
3. Profits and Gains from business and profession

32
 4. Capital Gains
5. Income from Other sources

The total income from all the above heads of income is calculated in accordance with the
provisions of the Act as they stand on the first day of April of any assessment year. In this
project, an attempt is being made to discuss the various provisions relevant to the salaried
class of tax payers as well as pensioners and senior citizens.

Indirect Taxes

The Goods and Services Tax (GST) has replaced many indirect taxes in India after it was
passed in the Parliament on 29th March 2017. The Act came into effect on 1st July 2017.
Goods& Services Tax Law in India is a comprehensive, multi-stage, destination-based tax
that is levied on every value addition.

In simple words, GST is an indirect tax levied on the supply of goods and services. This law
has replaced many indirect tax laws that previously existed in India.

GST is one indirect tax for the entire country.

The GST journey began in the year 2000 when a committee was set up to draft law. It took 17
years from then for the Law to evolve. In 2017 the GST Bill was passed in the Lok Sabha and
Rajya Sabha. On 1st July 2017 the GST Law came into force.

33
The following is the list of indirect taxes in the pre-GST regime:

Central Excise Duty

Duties of Excise
Additional Duties of Excise
Additional Duties of Customs
Special Additional Duty of Customs
Cess
State VAT
Central Sales Tax (CST)
Purchase Tax
Luxury Tax
Entertainment Tax
Entry Tax
Taxes on Advertisements
Taxes on lotteries, betting and gambling

CGST, SGST, and IGST has replaced all the above taxes.

Rules and regulations for taxation of salaried individuals under the Income
Tax Act, 1961.
Before we jump to the rules and regulations for taxation of salaried individuals, let us look at
some basic terminologies used in the world of taxation.

PAN (Permanent Account Number) –

1. It consists of 10 Digit Alpha Numeric digits.

2. The first 5 and the last 5 digits are alphabets in capital and the rest are numbers.
3. The 5th alphabet is the Surname initial of the PAN holder.

TAN (Tax Deduction Account Number) –

1. It consists of 10 Digit Alpha Numeric digits.

2. The first 4 and the last digit are alphabets in capital and the rest are numbers.
3. The 4th alphabet is the Company initial of the TAN holder.

Financial Year (F.Y) and Assessment Year (A.Y) –

Financial year starts form 1st April and ends on 31st March. Assessment year is the year
immediately following the financial year wherein the income for the financial year is
assessed. Currently financial year is from 1st April 2018 to 31st March 2019 and the
assessment year is from 1st April 2019 to 31st March 2020

34
TDS (Tax Deducted at Source) –
TDS is a means of collecting income tax in India, governed under the Income Tax Act of
1961. Any payment covered under these provisions can be paid after deducting prescribed
percentage. It is managed by the Central Board of Direct Taxes (CBDT) and is a part of the
Department of Revenue managed by the Indian Revenue Service (IRS). It has a great
importance while conducting tax audits. Assessee is also required to file quarterly return to
CBDT. Return states the TDS deducted and paid to the government during the quarter to
which it relates.

35
 Chapter 7

Detailed Income
Heads

36
There are five different income heads for salaried individual in India as discussed earlier in
this report. These are as follows:

1. Income from Salary

2. Income from House Property
3. Income from Business and Profession
4. Income from Capital Gains
5. Income from Other Sources

In this report, we will mainly discuss about two different heads i.e. income from salary, house
property.

INCOME FROM SALARY

Salary is a form of periodic payment from an employer to an employee which may be
specified in an employment contract. Salary is a fixed amount of money or compensation
paid to an employee by an employer in return for work performed. Salary is commonly paid
in stages at fixed intervals.

1. Gross Salary

The total of the monthly pay-out before any deduction is called the Gross salary. It generally
includes –

Basic pay/ Basic salary

 DA – Dearness Allowance
House Rent Allowance
Leave Travel Allowance
City Compensatory Allowance
Other Allowances

Gross salary is the amount calculated by adding up one's basic salary and allowances, before
deduction of taxes and other deductions. It includes bonuses, over-time pay, holiday pay, and
other differentials.

2. Value of Perquisites

Perquisite is defined in Section 17 (2) of the IT Act as including –

Value of rent-free / concessional rent accommodation provided by the employer.

Any sum paid by employer in respect of an obligation which was payable by the
assessee.

37
 Value of any benefit / amenity granted free or at concessional rate to specified
employees, etc.

The value of any specified security or sweat equity shares allotted transferred, directly
or indirectly, by the employer or formal employer, free of cost or at concessional rates
to the assessee.

The amount of any contribution to an approved superannuation fund by an employer

in respect of the assesse, to the extent it exceeds one lakh rupees.

The value of any other fringe benefit or amenity as may be prescribed.

3. Profit in Lieu

Any payment received or due in addition to the salary from the employer is called Profit in
Lieu of Salary. There are several occasions when an individual will receive an amount in
addition to or in lieu of salary. When this is the case then there is a distinct way in which this
would be taxed and hence it would be included in the income of the individual but there is a
need to look at the manner and way in which this would be considered for taxation purpose.

Allowance to the extent Exempt u/s 10 –

This head contains information about the partially or fully tax-exempt allowances received
from your employer such as house rent allowance (HRA) and leave travel allowance (LTA).
In the ITR-1 form, in this section you must fill information of only those allowances that are
fully or partially tax-exempt. This information will be available in Part-B of Form-16 under
the head 'Allowances to the extent exempt under section 10'.

There are various allowances exempt under section 10 for salaried individuals. The major
ones are:

House Rent Allowance (HRA) –

House Rent Allowance is received by the salaried class. A deduction is permissible u/s 10
(13A) of the Income Tax Act. You can claim exemption on your HRA under the Income Tax
Act if you stay in a rented house and get HRA from your employer.

The HRA deduction is based on salary, HRA received, the actual rent paid and place of
residence. The place of residence is important as in case of metro cities like Mumbai,
Chennai, Delhi, Kolkata, the exemption on HRA is 50 percent of the basic salary, while for
other cities it is 40 percent of basic salary.

The least value of these is allowed as tax exemption on HRA –

Actual HRA the employer provides as a part of salary in the relevant period during
which the rental accommodation was occupied.

38
 Actual rent paid for the house less 10 percent of the basic salary.

50 percent of basic salary if you are residing in a metro city, or 40 percent if you are
residing in other cities.

In order to claim the exemption, the rent must be paid for the rented premises which you
occupy. Also, the rented premises must not be owned by you. If the rented house is not
owned by the individual, the exemption of HRA will be available up to the limits specified
which can be derived from the ‘Annexure part of Form 16 or the salary slips of each month at
the time of preparing Income Tax Return.

Leave Travel Allowance (LTA) –

LTA exemption can be claimed where the employer provides LTA to employee for leave to
any place in India taken by the employee and their family. Such exemption is limited to the
extent of actual travel costs incurred by the employee. Travel has to be undertaken within
India as overseas destinations are not covered for the exemption.

LTA shall be exempt from the least of the following –

Amount received.

Amount spent.

For example, where an employer provides LTA of Rs. 50,000 but an employee spends only
Rs. 40,000 on the travel cost, then the exemption is limited to Rs. 40,000 only. In the same
case, if the employee spends Rs. 60,000 on the travel cost, then the exemption will be limited
to the maximum of Rs. 50,000.

Children Education Allowance –

Children Education Allowance, Section 10(14) (salaried employees can claim a pre-defined
allowance for two children).

Exemption is allowed up to Rs. 100 per month per child.

Agricultural Income-
Agricultural Income, Section 10(1) (from agricultural land, farm house, or sapling seedling
grown in nursery) for self-employed.
Fully exempt from tax.

39
Allowance to the extent Exempt u/s 16 –
Under section 16 can only be claimed if you have salary income or pension. These deductions
are:

Standard deduction:
Standard Deduction will be available of Rs. 40,000 per annum. This will include
medical and conveyance allowance as well for the whole year.
Even if a person has changed his job, which means he/she has multiple Form 16 and
both the companies has provided the person with the standard deduction of Rs.
40,000, then also the deduction will be taken into consideration as once.

Entertainment Allowance:
Entertainment allowance is the amount paid to the employee to use it for the purpose
of hospitality of customers. It is given as a part of salary. It is taxable in the hands of
the employee as per the provisions of Section 16.

Tax on employment/professional tax:

Professional tax is a tax on employment levied by a state under Article 276(2) of the
Constitution. Professional tax is allowed as a deduction from the gross salary, from the A.Y
1990-91. The following points should be kept in view –

Deduction is available only in the year in which the professional tax is paid.

If it is paid by the employer on behalf of the employee, it is first included in the salary
of the employee as a perquisite which would be taxable and then the same amount is
allowed as deduction on account of professional tax from gross salary.

40
There is no monetary ceiling under the Income Tax Act. Whatever professional tax is paid
during the previous year is deductible. Under Article 276 of the Constitution, a State
Government cannot impose more than Rs.2,500/- per annum as professional tax.

Income Tax Exemption on Interest paid on Housing Loan / Income or loss

from House Property:
Total deduction for interest paid on Housing Loan when the property is self-occupied has
been increased to RS. 2 lakhs as per amendment made in Section 24 of the Income Tax Act in
2014.

Also, in addition to Deduction of Interest payable on Housing Loan up to RS. 2 Lakhs from
the total income (and without any limit for Housing property rented out for an annual value),
the new section in the form of Section 80 EE introduced in the last Budget (2013) provides
for additional deduction / Income Tax Exemption for Interest paid on housing loan up to RS.
50,000.00 in respect of housing loan sanctioned / disbursed during the year 2016-17 for a
first-time house buyer with total property cost and amount of loan are not exceeding RS. 50
lakhs and RS. 35 lakhs respectively. This additional deduction of RS. 50,000.00 can either be
availed fully in the income tax assessment year 2019-20 (Financial Year 2018-19).

DEDUCTIONS U/S 80
Apart from Exemption there are some other rebate which is given by the government to the
salaried individuals in India.
There are some deductions which are provided by the government to the salaried individuals
so that they can reduce their tax liability by either investing or donating. These deductions
come under section 80. We will discuss these deductions in brief, following in this report.

Section 80C:

The total deduction under this section (along with section 80CCC and 80CCD) is
limited to RS. 1.50 lakhs. Some investments, savings, expenditure etc. covered under
Section 80 C are as follows:

1. Life Insurance Premium

Premium / Subscription for deferred annuity for individual, on life of self, spouse
or any child.
2. Contribution made under Employee’s Provident Fund Scheme.
3. Contribution to PPF for individual can be in the name of self/spouse, any child &
for HUF, it can be in the name of any member of the family.
4. Contribution by employee to a Recognized Provident Fund.
5. Sum deposited in 10 year/15-year account of Post Office Saving Bank.
6. Contribution to Unit Linked Insurance Plan of a Mutual Fund.
7. Contribution to fund set up by the National Housing Scheme.

41
 8. Housing Loan Principal amount paid.
9. Tuition fees paid at the time of admission or otherwise to any school, college,
university or other educational institution situated within India for the purpose of full-
time education of any two children. Available in respect of any two children.

Section 80CCC:

Deduction for Premium Paid for Annuity Plan of LIC or another Insurer.

This section provides a deduction to an individual for any amount paid or deposited in
any annuity plan of LIC or any other insurer. The plan must be for receiving a pension
from a fund referred to in Section 10(23AAB). Pension received from the annuity or
amount received upon surrender of the annuity, including interest or bonus accrued on
the annuity, is taxable in the year of receipt.

Note: The limit for maximum deduction available under Sections 80C, 80CCC and
80CCD (1) (combined) is RS. 1,50,000/- (RS. one lakh and fifty thousand only).

Section 80CCD:

 Employee’s contribution – Section 80CCD (1) is allowed to an individual

who makes deposits to his/her pension account. Maximum deduction allowed
is 10% of salary (in case the taxpayer is an employee) or 20% of gross total
income (in case the taxpayer being self-employed) or Rs.1,50,000/-,
whichever is less.

 Employer’s contribution to NPS – Section 80CCD (2) Additional deduction is

allowed for employer’s contribution to employee’s pension account of up to
10% of the salary of the employee. There is no monetary ceiling on this
deduction.

 Deduction for self-contribution to NPS – section 80CCD (1B) A new section

80CCD (1B) has been introduced for an additional deduction of up to
Rs.50,000/- for the amount deposited by a taxpayer to their NPS account.
Contributions to Atal Pension Yojana are also eligible.

NOTE- Deduction provided under section 80CCD (1B) is in addition to the

limit of Rs. 1,50,000.

 Section 80D – Medical Insurance

Deduction for the premium paid for Medical Insurance

You (as an individual or HUF) can claim a deduction of Rs.25,000 under section
80D on insurance for self, spouse and dependent children. An additional deduction for
insurance of parents is available up to Rs 25,000, if they are less than 60 years of age. If the
parents are aged above 60, the deduction amount is Rs 50,000, which has been increased in
Budget 2018 from Rs 30,000.

42
In case, both taxpayer and parent(s) are 60 years or above, the maximum deduction available
under this section is up to Rs.1 lakh.

Example: Rohan’s age is 65 and his father’s age is 90. In this case, the maximum deduction
Rohan can claim under section 80D is Rs. 100,000. From FY 2015-16 a cumulative
additional deduction of Rs. 5,000 is allowed for preventive health check.

 Section 80DD – Disabled dependent

Deduction for Rehabilitation of Handicapped Dependent Relative

Section 80DD deduction is available to a resident individual or a HUF and is available on:
 Expenditure incurred on medical treatment (including nursing), training and
rehabilitation of handicapped dependent relative
 Payment or deposit to specified scheme for maintenance of handicapped
dependent relative.
o Where disability is 40% or more but less than 80% – fixed deduction
of Rs 75,000.
o Where there is severe disability (disability is 80% or more) – fixed
deduction of Rs 1,25,000.

To claim this deduction a certificate of disability is required from prescribed medical

authority.
From FY 2015-16 – The deduction limit of Rs 50,000 has been raised to Rs 75,000
and Rs 1,00,000 has been raised to Rs 1,25,000.

 Section 80DDB – Medical Expenditure

Deduction for Medical Expenditure on Self or Dependent Relative

 For individuals and HUFs below age 60

A deduction up to Rs.40,000 is available to a resident individual or a HUF. It
is available with respect to any expense incurred towards treatment of
specified medical diseases or ailments for himself or any of his dependents.
For an HUF, such a deduction is available with respect to medical expenses
incurred towards these prescribed ailments for any of the HUF members.

 For senior citizens and super senior citizens

In case the individual on behalf of whom such expenses are incurred is a
senior citizen, the individual or HUF taxpayer can claim a deduction up to Rs
1 lakh. Until FY 2017-18, the deduction that could be claimed for a senior
citizen and a super senior citizen was Rs 60,000 and Rs 80,000 respectively.
This has now become a common deduction available up to Rs 1 lakh for all
senior citizens (including super senior citizens) unlike earlier.

 For reimbursement claims

Any reimbursement of medical expenses by an insurer or employer shall be
reduced from the quantum of deduction the taxpayer can claim under this
section.

43
 Also remember that you need to get a prescription for such medical treatment from
the concerned specialist in order to claim such deduction.

 Section 80U – Physical Disability

Deduction for Person suffering from Physical Disability

A deduction of Rs.75,000 is available to a resident individual who suffers from a

physical disability (including blindness) or mental retardation. In case of severe disability,
one can claim a deduction of Rs 1,25,000.
From FY 2015-16 – Section 80U deduction limit of Rs 50,000 has been raised to Rs 75,000
and Rs 1,00,000 has been raised to Rs 1,25,000.

 Section 80 TTA – Interest on Savings Account

Deduction from Gross Total Income for Interest on Savings Bank
Account

If you are an individual or an HUF, you may claim a deduction of maximum Rs

10,000 against interest income from your savings account with a bank, co-operative society,
or post office. Do include the interest from savings bank account in other income.
Section 80TTA deduction is not available on interest income from fixed deposits, recurring
deposits, or interest income from corporate bonds.

 Section 80GG – House Rent Paid

Deduction for House Rent Paid Where HRA is not Received
 Section 80GG deduction is available for rent paid when HRA is not received.
The taxpayer, spouse or minor child should not own residential
accommodation at the place of employment
 The taxpayer should not have self-occupied residential property in any other
place
 The taxpayer must be living on rent and paying rent
 The deduction is available to all individuals

Deduction available is the least of the following:

 Rent paid minus 10% of adjusted total income
 Rs 5,000/- per month
 25% of adjusted total income*

 Section 80E – Interest on Education Loan

Deduction for Interest on Education Loan for Higher Studies
This deduction is for an individual for interest on loans taken for pursuing higher education.
This loan may have been taken for the taxpayer, spouse or children or for a student for whom
the taxpayer is a legal guardian.

44
80E deduction is available for a maximum of 8 years (beginning the year in which the interest
starts getting repaid) or till the entire interest is repaid, whichever is earlier. There is no
restriction on the amount that can be claimed.

 Section 80EE – Interest on Home Loan

Deductions on Home Loan Interest for First Time Home Owners

Deduction / Income Tax Exemption for Interest paid on housing loan up to RS.
50,000.00 in respect of housing loan sanctioned / disbursed during the year 2016-17
for a first-time house buyer with total property cost and amount of loan are not
exceeding RS. 50 lakhs and RS. 35 lakhs respectively. This additional deduction of
RS. 50,000.00 can either be availed fully in the income tax assessment year 2019-20
(Financial Year 2018-19).

 Section 80G – Donations

Deduction for donations towards Social Causes

The various donations specified in u/s 80G are eligible for deduction up to either
100% or 50% with or without restriction. From FY 2017-18 any donations made in
cash exceeding Rs 2,000 will not be allowed as deduction. The donations above Rs
2000 should be made in any mode other than cash to qualify for 80G deduction.

Donations with 100% deduction without any qualifying limit

National Defence Fund set up by the Central Government

 Prime Minister’s National Relief Fund
National Foundation for Communal Harmony
An approved university/educational institution of National eminence
Zila Saksharta Samiti constituted in any district under the chairmanship of the
Collector of that district
Fund set up by a State Government for the medical relief to the poor
National Illness Assistance Fund
National Blood Transfusion Council or to any State Blood Transfusion Council
National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental
Retardation and Multiple Disabilities
National Sports Fund
National Cultural Fund
Fund for Technology Development and Application
 National Children’s Fund
 Chief Minister’s Relief Fund or Lieutenant Governor’s Relief Fund with respect to
any State or Union Territory
 The Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air
Force Central Welfare Fund, Andhra Pradesh Chief Minister’s Cyclone Relief Fund,
1996
 The Maharashtra Chief Minister’s Relief Fund
 Chief Minister’s Earthquake Relief Fund, Maharashtra
Any fund set up by the State Government of Gujarat exclusively for providing relief
to the victims of earthquake in Gujarat

45
 Any trust, institution or fund to which Section 80G(5C) applies for providing relief to
the victims of earthquake in Gujarat
 Prime Minister’s Armenia Earthquake Relief Fund
 Africa (Public Contributions — India) Fund
Swachh Bharat Kosh
Clean Ganga Fund
National Fund for Control of Drug Abuse

Donations with 50% deduction without any qualifying limit

Jawaharlal Nehru Memorial Fund

 Prime Minister’s Drought Relief Fund
Indira Gandhi Memorial Trust
The Rajiv Gandhi Foundation

Donations to the following are eligible for 100% deduction subject to 10% of
adjusted gross total income

Government or any approved local authority, institution or association to be utilized

for the purpose of promoting family planning
Donation by a Company to the Indian Olympic Association or to any other notified
association or institution established in India for the development of infrastructure for
sports and games in India or the sponsorship of sports and games in India

Donations to the following are eligible for 50% deduction subject to 10% of
adjusted gross total income

Government or any local authority to be utilized for any charitable purpose other than
the purpose of promoting family planning
Any authority constituted in India for the purpose of dealing with and satisfying the
need for housing accommodation or for the purpose of planning, development or
improvement of cities, towns, villages or both
For repairs or renovation of any notified temple, mosque, gurudwara, church or other
places.

 Section 80GGC – Contribution to Political Parties

Deduction on contributions given by any person to Political Parties

Deduction under section 80GGC is allowed to an individual taxpayer for any amount
contributed to a political party or an electoral trust. It is not available for companies,
local authorities and an artificial juridical person wholly or partly funded by the
government. You can avail this deduction only if you pay by any way other than
cash.

46
Form 16 –
Indian tax forms are used to document information in compliance with the Income Tax Act of
1961 and in accordance with the income tax rules, which governs the process of filing
Income Tax returns in India.

Form 16 is a document which is used by salaried personnel as part of the process of filing
Income Tax returns in India. The Income Tax Act of 1961 and the Income Tax Rules of 1962
are the governing laws of the Income Tax Department of India. The Form 16 is an important
document that is in accordance with the rules and regulations laid down by the Income Tax
Department as well as the Government of India.

Form 16 is provided by an employer to the employee and is used by the employee as

reference as well as proof while filing income tax returns. The Form furnishes various details
such as salary income components of the employee, Tax Deducted at Source (TDS) by the
employer, and taxes paid by the employer to the Income Tax Department.

Features of Form 16 –
The following features make Form 16 an important part of the entire process of filing Income
Tax Returns in India. The Form is especially important to employees working in a company
or a firm.
It is applicable to salaried personnel.
It is a TDS Certificate issued by the employer.
Its acts as a proof that the employer has deducted TDS while paying to the employee.
It is a proof of the salary that the employee receives.
It reflects the amount of income tax paid by the employer on behalf of the employee.
It can be used as a proof by the employee if the Income Tax Department wishes to
scrutinize the Income Tax Returns in detail.
Only an employer with a TAN is eligible to deduct TDS and therefore issue a Form
16.
If TDS is not deducted, the employer is not under any obligation to issue a Form 16 to
the employee.

There are four parts of Form 16:

Part A, Part B, Annexure and Part 12BA

Specimen for the same are as follows:

47
Part A includes the TAN number, address of the company; Actual TDS deposited.

48
49
50
 Chapter - 8
DATA ANALYSIS
AND
INTERPRETATION

51
 Case 1 – Salary below 5 Lakhs

Particulars Amount (Rs.)

Gross Salary -
Salary as per provisions contained in Section 17(1) 3,75,566
Perquisites 863
Total 3,76,429

Less - Allowances u/s 10

HRA 38,248
Total 38,248

Balance 3,38,181

Less - Deductions u/s 16

Tax on Employment 2,500
Standard Deduction 40,000
Total 42,500

Income chargeable under the Head 'Salaries' 2,95,681

Less - Deductions under Chapter VI A

Section 80C, 80CCC & 80CCD
1. Provident Fund 10,620
2. LIP 45,893
Total 56,513

Total Deductions under Chapter VI A 56,513

Total Income 2,39,168

Tax on total income NIL
Education Cess at 4% NIL
Tax payable NIL
Less - Rebate u/s 87A (Max. up to 2500) NIL
Net Tax payable NIL

Interpretation –
In case 1, the overall tax liability of the individual comes to Rs.238/-.
Now according to the Income Tax Act, 1961, a rebate u/s 87A is provided to an individual
assesse when the Net Taxable Income is Rs.3,50,000/- or below it.
As the Net Taxable Income of the assesse is Rs.2,54,628/-, he is eligible for the rebate u/s
87A. The maximum amount of rebate an assesse can get is up to Rs.2,500/-.

52
The amount of rebate an assesse can get is the least of the following –

• Tax payable amount.

• Max. up to Rs.2,500/-.

Hence, after claiming the rebate, the Net Tax Payable becomes NIL.

Case 2 – Salary above 5 Lakhs

Particulars Amount (Rs.)

Gross Salary -
Salary as per provisions contained in 8,75,000
Section 17(1)
Perquisites 1,00,000
Total 9,75,000

Less - Allowances u/s 10

HRA 1,45,000
LTA 20,000
Total 1,65,000

Balance 8,10,000

Less - Deductions u/s 16

Tax on Employment 2,500
Standard deduction 40,000

Income chargeable under the Head 'Salaries' 7,67,500

Less - Deductions under Chapter VI A

Less - Deductions under Chapter VI A
Section 80C, 80CCC & 80CCD
1. Provident Fund 43,000
2. Children Tuition Fees 50,000
3. ELSS 1,00,000
Total 1,93,000

Total Deductions under Chapter VI A 1,50,000

Total Income 6,17,500

Tax on Total Income 36,000
Education Cess @ 4% 1,440

53
 Tax Payable 37,440
Less - Rebate u/s 87A (Max. up to 2500) NIL

Net Tax Payable 37,440

Interpretation –

In case 2, the overall tax liability of the individual comes to Rs.37,440/-.

As we can see, the deduction under section 80C (limit of maximum Rs.1,50,000/-) is fully
utilized. From tax benefit perspective, there is no point in making any investments under this
section as the maximum cap is already reached. We can invest in various other sections under
Chapter VI A such as 80D, 80G, 80CCD1(B), etc.

Case 3 – Salary above 10 Lakhs

Particulars Amount (Rs.)

Gross Salary -
Salary as per provisions contained in 14,75,000
Section 17(1)
Perquisites 2,50,000
Total 17,25,000

Less - Allowances u/s 10

HRA 2,10,000
LTA 25,000
Total 2,35,000

Balance 14,90,000

Less - Deductions u/s 16

Standard Deduction 40,000
Tax on Employment 2,500
Total 42,500

Income chargeable under the Head 'Salaries' 14,47,500

Less - Deductions under Chapter VI A

Section 80C, 80CCC & 80CCD
1. Provident Fund 61,000
2. ULIP 68,000
Total 1,29,000
Section 80D
Medical Insurance 20000
Total Deductions under Chapter VI A 149000

54
 Total Income 12,98,500
Tax on Total Income 2,02,050
Education Cess @ 4% 8,082
Tax Payable 2,10,132
Less - Rebate u/s 87A (Max. up to 2500) NIL
Net Tax Payable 2,10,132

Interpretation –

In case 3, the overall tax liability of the individual comes to Rs. 2,10,132/-.
As we can see, the deduction u/s 80C (limit of maximum Rs.1,50,000/-) is not fully utilized.
Also, the benefit of various other sections under Chapter VI A I not taken.

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CHAPTER – 9

CONCLUSION

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 In today’s world, where the standard of living is rising each day, tax planning is
essential for all citizens to help them make the most out of their income.

 The tax saving instruments can help in a major way to reduce the tax liability of an
individual, if used effectively.

 It is prudent to avoid last minute tax planning. Don’t invest in unwanted life insurance
policies or any other financial products just to save taxes. It is better to plan your
taxes based on your financial goals at the beginning of the financial year itself.

 People are more and more investing in life insurance policies and medical insurance
policies.

 It is ok to pay some taxes when you cannot save or invest in right financial products.
But don’t invest just to save taxes. The cost of buying wrong financial products may
overweigh the cost of taxes. Tax planning is not a goal but a tool. Tax planning is not
financial planning.

 People are more and more filing their taxes because they want to show their income
correctly and also there are a number of deductions a person can get in order to save
taxes.

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