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INCOME TAX ACT, 1961


It is a tax imposed by the Government of India on any
body who earns income in India.

Who is supposed to pay Income Tax?


Any Individual or group of Individual or artificial bodies
who/which have earned income during the previous
years are required to pay Income tax on it. The Act
recognizes the earners of income under seven
categories. Each category is called a Status. These are
Individuals, Hindu Undivided Family [HUF], Association
of Persons [AOP], Body of individuals [BOI], Firms,
Companies, Local authority, Artificial juridical person.
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Previous Year:
Income earned in the twelve months contained in the
period from 1st April to 31st March (commonly called
Financial Year) is taken into account for purposes of
calculating Income Tax. Under the income tax Act this
period is called a Previous year.

Assessment Year:
It is the twelve-month period 1st April to 31st March
immediately following the previous year. In the
Assessment year a person files his return for the income
earned in the previous year.
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Applicability of Income Tax:


The Income tax Act applies to all persons who earn
income in India. Whether they are resident or non-
resident.

Resident:
If an individual stays in India for 182 days or more in a
year, he is treated as resident in that year regardless of
his citizenship. If the stay is less than 182 days he is a
non-resident.
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Taxable Income:
Under the Act, all incomes earned by persons are
classified into 5 different heads, such as:
 Income from Salary
 Income from House property
 Income from Business or Profession
 Income from Capital gains
 Income from other sources
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Exempt Income (Section 10):
Section 10 grants certain exemptions on incomes earned by the
assessees. Some of which arAgricultural income
1) Leave Travel Concession received from employer.
2) Gratuity (As per conditions mentioned in the Act)
3) Commuted pension (As per conditions)
4) Leave Encashment (As per conditions)
5) Compensation received for voluntary retirement- upto maximum
of Rs.5 lacs.
6) House Rent Allowance (As per conditions)
7) Payments received from recognized provident fund.
8) Prescribed allowances.
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Meaning of salary:
Salary under the Act is defined U/s 17(1), which includes
the following:-
 Wages
 Annuity or Pension
 Gratuity
 Fees, commission, perquisites, profit in lieu of salary
 Any advance of salary
 Leave Travel Concession
 Transferred balance in a recognized Provident Fund,
to the extent it is taxable.
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Allowances:
i. Entertainment Allowance - Exempt only for
Govt. employees.
ii. Conveyance Allowance - Exempt to the
extent of expenditure incurred.
iii. Children Education allowance - Exempt upto
Rs.100 p.m. per child to a maximum of 2
children.
iv. Transport Allowance- Exempt upto Rs.800
p.m.
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v. House Rent Allowance (HRA)- exempt upto minimum


of the following:
 50% of salary, if residential house is situated at
Mumbai, Kolkata, Delhi or Chennai and 40% in other
cases.
 HRA received
 Rent paid minus 10% of salary.
(Salary here means basic salary+DA+Commission)
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Deduction under Section 80C:


Section 80 C provides deduction in respect of specified
qualifying amounts (investments/ contributions/
deposits/ payments) made by the tax payer during the
previous year. For example-
 Life insurance premium
 Subscription to National Saving Certificates
 Subscription towards notified units of Mutual Funds

The maximum amount deductible is Rs.1,00,000.


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Rates of Income Tax (Assessment Year 2010-11):

(For individuals)
NET INCOME RANGE RATES
Upto Rs.1,60,000 Nil*
Next Rs.1,60,000-Rs.3,00,000 10%
Next Rs.3,00,000-Rs.5,00,000 20%
Next Above Rs.5,00,000 30%

Education cess: 3% of income tax

* Women - Net Income upto Rs.1,90,000 is exempt from tax.


*Senior citizens (65yrs or more) - Net Income upto Rs.2,40,000 is
exempt from tax.
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For Domestic Companies:


 Income-tax: 30% of total income.
 Surcharge: 10% of such income tax, provided that
the total income exceeds Rs. 1 crore.
 Education Cess: 3% of the total of Income-tax and
Surcharge.
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Return Of Income:
                 
                 
          
               
                  

    
Last dates for filing of return:
STATUS LAST DATE
Companies 30th September
Other Entities that require audit 30th September
of their accounts
Other cases 31st July
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Calculation of tax:
Basic salary xxx
Commission xxx
Allowances (minus exemptions) xxx
@ oss sala  xxx
Other income xxx
@ oss Total income xxx
Less: Deduction u/s 80C xxx
Net Income xxx
Income tax on net income xxx
Add: Surcharge xxx
Add: Education Cess xxx
Add: Secondary and higher edu. Cess xxx
Tax paable xxx

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