A PROJECT REPORT ON DIRECT TAX

Submitted in partial fulfillment of the requirement

For
MCOM PART 2nd SEM 3rd
{2015-2016}
BY
MISS: RAJESHRI .D.GIRI
Under the guidance of MS ANURADHA KAYASTH

UNIVERSITY OF MUMBAI
SHETH T.J.EDUCATION SOCIETYS
SHETH N.K.T.T COLLEGE OF COMMERCE &
SHETH J.T.T COLLEGE OF ARTS, THANE (WEST)

SHETH T.J.EDUCATION SOCIETYS

SHETH NKKT COLLAGE OF COMMERCE &
SHETH JTT COLLEGE OF ARTS
CERTIFICATE
This is to certify that MISS: RAJESHRI DHARMENDRA GIRI
M.com Part 2nd, semester - 3rd , Roll No 46 has undertaken and

of

completed

the project report on- DIRECT TAX During the academic year 2015
2016 Under the guidance of MS ANURADHA KAYASTH
on

submitted

2015 date to this, College in fulfillment of curriculum of

M.com UNIVERSITY OF MUMBAI This is bonafide project work and

information presented is true and to the best of my knowledge and belief.

PROJECT GUIDE

EXTERNAL EXAMINE

COURSE COORDINATOR

PRINCIPAL

DECLEARATION

I RAJESHRI DHARMENDRA GIRI here by declared that project report

entitled

DIRECT

TAX

under

the

guidance

of

MS:ANURADHA KAYASTH submitted in partial Fulfillment of the

requirement for the award of degree of MASTER OF COMMERCE by
UNIVERSITY OF MUMBAI is my original work.

RAJESHRI DHARMENDRA GIRI

CLASS: MCOM PART 2nd
DIVISION: A
ROLL NO 46
PLACE: THANE

SIGNATURE:

ACKNOWLEDGMENT

I take this opportunity to express and record my thanks and gratitude to

SHETH N.K.T.T. COLLEGE THANE and entire faculty of semester 3 rd of
M.com course in the college.
Further I also acknowledgment my sincere and special thanks and
gratitude to my project guide, PROF, A. O. KHADSE Project
COORDINATTOR and PRINCIPAL DR P.M.KARKHELE without whose
continues guidance and encouragement It would not been possible for me
to complete this project work.
I express my thanks to all my colleagues, friend with whom I have had
debates and discussion on the subject which has also helped.

INDEX

SECTION-1
Definitions ( S.2)
Person, Assessee, Income.
Basis of Charge (S. 3to 9 )
Previous Year, Assessment Year, Residential Status,
Scope of Total Income, Deemed income
Exclusions from Total Income ( S.10)
Exemptions related to specified Heads of incomes to be
covered with the relevant provisions such as Salary, Income
from Other Sources.
Agricultural Income
Sum received from HUF by a member
Share of a profit from Firm
Income from Minor Child
Dividend
Heads of Income
(Including relevant items from S 2 and S 10)
Salary (S. 15 to S. 17)
Income from house Property (S. 22 to S. 27)
Profits and Gains from Business, Profession & Vocation (S.
28 to 32 35, 36, 37, 40, 40A, 43B)
Capital Gains (S. 45 to S 50C)
Income from Other Sources (S.56 to S. 59)
Deduction U/s 80
S. 80C, 80CCF: 80D, 80DD, 80DDB, 80E, 80U:
Computation of Income and tax for Individual, Firm and
Company (excluding MAT)
Advance Tax payment- S 208
Provisions for filing of returns ( Including forms of
Return)
Sec-139(1), 139(5)

SECTION 2
CHANGES IN INCOME TAX SLAB RATES IN PREVIUOS FIVE YEAR

SECTION-I: DIRECT TAXES INCOME TAX

INTRODUCTION AND BASIC
CONCEPTS
Synopsis
1. Introduction and Objectives
2. Assessment Year
3. Previous Year
4. Person
5. Assessee
6. Assessment
7. Income
8. Gross Total Income
9. Total Income
10.Scheme of charging income tax
11.Self Examination Questions
1. INTRODUCTION AND OBJECTIVES :
Income tax is levied by the Central Government under entry
82 of the Union of Schedule VII to Constitution of India. This entry
deals with Tax on income other than agricultural income. This
task is achieved by the enactment of the Income Tax Act, 1961
[The Act].
The Act provides for the scope and machinery for levy and
collection of Income Tax in India. It is supported by Income Tax
Rules, 1962 and several other subordinate rules and regulations.
Besides, circulars and notifications are issued by the Central Board
of Direct Taxes (CBDT) and sometimes by the Ministry of Finance,
Government of India dealing with various aspects of the levy of
Income tax. Unless otherwise stated, references to the sections will
be the reference to the sections of the Income Tax Act, 1961.
Section 4, which is the charging section, provides that
Income tax is a tax on the total income of a person called the
assessee of the previous year relevant to the assessment year at
the rates prescribed in the relevant Finance Act
This lesson deals with all these aspects, which lay down the
basic framework for levy of income tax in India and also explains
the basic concepts and terms used in the income tax law.
2. ASSESSMENT YEAR S. 2(9)
Section 2(9) defines an Assessment year as the period of
twelve months starting from the first day of April every year
An assessment year begins on 1st April every year and ends on 31st
March of the next year. For example, Assessment year 2012-13
means the period of one year beginning on 1st April, 2011 and
ending on 31st March, 2012.

In an assessment year, income of the assessee during the

previous year is taxed at the rates prescribed by the relevant
Finance Act. It is therefore, also called as the Tax Year
3. PREVIOUS YEAR- S. 2(34) & S. 3
3.1. Defintion:
Section 3 defines Previous year as the financial year
immediately preceding the assessment year.
Income earned in one financial year is taxed in the next financial
year. The year in which income is earned is called the previous
year and the year in which it is taxed is called the assessment
year.
This will be explained from the following illustration

3.2. Common previous year for all source of income:

A person may earn income from more than one sources but
previous year will always be common for all the sources of income
.This will be so even if a person maintains records or books of
accounts separately for different sources of income.
Total income of a person from all the sources of income will
be taken together and considered in the previous year or
financial year immediately preceding the assessment year.
3.3. New Business or Profession:
Where , a business is newly set up during the previous year ,
or where a new source of income has arisen during the previous
year ,the previous year will be the period ( obviously less than one
year) commencing from the date of setting up of the new business
or the date of new source of income arising.
3.4. Exception:
There are some exceptions to the rule that income of the
previous year is taxable in the next assessment year. In such
cases, the income of is taxed in the previous year itself. As a result,
6
in such case, a financial year becomes the previous year as well as
the assessment year.
Theses exceptions are provided to ensure safeguards to
smooth collection of income tax from a class of taxpayers who may

not be traceable till the commencement of the normal assessment

year.
The Exceptions referred to above are:
a) Income of non-residents from shipping businessS.172;
b) Income of persons leaving India either permanently or for a
long period of time and not likely to return back S. 173-174 ;
c) Income of bodies formed for short duration for a particular
event or purpose S 174A;
d) Income of a person trying to alienate his assets with a view to
avoiding payment of tax S. 175 ,
e) Income of a discontinued business- S.176
f) Realisation of written off bad debts-S 41(1)
g) Dividend income-S 56
4. . PERSON S. 2(31)
4.1 Definition:
Section 2(31) gives an inclusive definition of person
Person includes:
a) an individual;
b) a Hindu undivided family (HUF);
c) a company;
d) a firm;
e) an Association of Persons(AOP) or a Body of
Individuals,(BoI) whether incorporated or not;
f) a local authority; and
g) every artificial juridical person not falling within any of the
preceding categories
4.2 Inclusive definition:
Since the above definition of person is inclusive one and
not exhaustive, there may be cases, when an entity not falling in
the above seven categories may still be treated as person inviting
the provisions of the Act.
4.3 Profit Motive not necessary:
As per Explanation to S. 2 (31), an entity need not be formed
for profit. Thus, Non-Profit Organisations or charitable trusts are
also covered by the definition of person although their income is
7
not taxable under the Act on satisfying the certain terms and
conditions.
4.4 Description of types of persons :
A brief description of these seven categories is as follows:
a. Individuals are all living persons of blood and flesh e.g. .Ram,
Shyam, Gopal, Albert, Ibrahim etc.
b. Hindu Undivided Families (HUF) or Hindu joint families are
regarded as separate tax entities in view of the specific law of
succession prevalent among the Hindus.
c. Company as per section 2(31) includes Indian as well as
foreign companies and public as well as private Companies.
Besides, the CBDT has the power to declare any institution as a
Company. Section 25 companies (charitable companies) are
also included under the purview but have separate exemptions

under the Act.

d. Partnership firms including Limited Liability Partnerships
(LLPs) are regarded as distinct taxable units separate from their
partners. Therefore, under the Act, firms are taxed as the firms
and individual partners are taxed separately in their personal
capacity.
e. BOI and AOP are the group of persons carrying on some
activities to earn income such as joint venture.
Normally AOPs are contractual in nature like a joint venture
agreement if such venture not formed as a partnership or a
company.
On the other hand, BOI may be due to circumstances such as
joint owner of a estate. Clubs, Societies, Charitable Trusts etc
are covered under this head.
f. Municipal corporations, Panchayats, Cantonment Board, Zila
Parishads etc are the examples of Local authorities.
g. Final category is residual category and covers all such persons
which are not covered in any of the above six categories.
8
Hindu Joint Family of Shri P.B. HUF
Pune Cantonment Board Local Authority
Mumbai University Artificial Juridical Person
Ramsay Brothers doing business
in partnership
Firm
5. ASSESSEES. 2(7)
5.1 Definition :
U/s 2(7) Assessee means a person by whom income tax or any
other sum of money is payable under the Act and it includes:
a. every person in respect of whom any proceeding under the
Act has been taken for the assessment of his income or loss
or the amount of refund due to him
b. a person who is assessable in respect of income or loss of
another person or who is deemed to be an assessee, or
c. an assessee in default under any provision of the Act
5.2 The definition of assessee is also inclusive one and may
include any other person is not covered in the above categories. In
other words, the definition of the assessee is so wide that so as to
include a person himself or his representative such as legal heir,
trustee etc. Moreover, importance is given not only to the amount of
tax payable but also to refund due and the proceedings taken.
9
5.3 Definition of the assessee covers the following class of
persons:
1. A person by whom income tax or any other sum of money is
payable under the Act
2. A person in respect of whom any proceeding under the Act
has been taken for the assessment of his :
a. income or
b. loss or

c. the amount of refund due to him

3. A person who is assessable in respect of income or loss of
another person or
4. A person who is deemed to be an assessee,
5. an assessee in default under any provision of the Act
5.4 A minor child is treated as a separate assessee in respect of
any income generated out of activities performed by him like
singing in radio jingles, acting in films, tuition income, delivering
newspapers, etc. However, income from investments, capital gains
on securities held by minor child, etc. would be taxable in the hands
of the parent having the higher income (mostly the father), unless if
such assets have been acquired from the minors sources of
income.
6. ASSESSMENT - S 2(8)
An assessment is the procedure to determine the taxable
income of an assessee and the tax payable by him. S. 2(8) of the
Income Tax Act, 1961 gives an inclusive definition of assessment
an assessment includes reassessment
U/s 139 of the Act, every assessee is required to file a self
declaration of his income and tax payable by him called return of
income.
The Income Tax officer may accept the return summarily
without making any enquiry into its contents. This is called as the
summary assessment-S (143(1).
Alternatively, the assessing officer may call upon the
assessee to explain his return of income and thereafter the
assessing officer after making necessary enquiry frames a
reasoned order determining the total income and the tax payable by
the assessee This is called the regular assessment-S 143(3).
Completed assessment becomes final except in certain
circumstances. These circumstances are;
a. U/s 147 , an assessment can be reopened to assess
income which has escaped assessment,
10
b. U/s 263 , the Commissioner of Income Tax may ask an
assessment to be redone if the assessment order is
erroneous and prejudicial to the interest of the revenue ,
c. U/s 264, the Commissioner of Income Tax at the application
of an assessee or suo motu, may ask an assessment to be
redone. This is normally done to give relief to the assessee.
d. U/s 254, the Income Tax Appellate Tribunal (ITAT) in appeal
proceedings may pass an order directing the assessment to
be redone .
In all the above cases reassessment of the income is
required to be done. The definition of assessment includes the
regular assessment and reopened or reassessment.
7. INCOME- S 2(24)
7.1 Definition;
Although, income tax is a tax on income, the Act does not
provide any exhaustive definition of the term Income. Instead, the

term income has been defined in its widest sense by giving an

inclusive definition. It includes not only the income in its natural and
general sense but also incomes specified in section 2 (24).
Broadly the term Income includes the following:
i. profits and gains ;
ii. dividend;
iii. voluntary contributions received by certain institutions viz.
a. a trust or an institution created or established wholly or
partly for charitable or religious purposes( including a legal
obligation),
b. a scientific research association U/s 10(21),
c. a fund or trust or institution for promotion of sports-S 10(23),
d. any university or other educational institution- S 10(23),
e. any hospital or other institution S 10(23C)
f. an electoral trust
iv. Receipts by employees :
a. the value of any perquisite or profit in lieu of salary taxable
U/s 17(2)/(3)
b. any special allowance or benefit, specifically granted to the
assessee to meet expenses wholly, necessarily and
exclusively for the performance of the duties of an office or
employment of profit ;
11
c. any allowance granted to the assessee either to meet his
personal expenses at the place where the duties of his office
or employment of profit are ordinarily performed by him or at
a place where he ordinarily resides or to compensate him for
the increased cost of living ;
v. the value of any benefit or perquisite, whether convertible into
money or not, obtained a. from a company either by a director or by a person who has
a substantial interest in the company, or by a relative of the
director or such person, and any sum paid by any such
company in respect of any obligation which, but for such
payment, would have been payable by the director or other
person aforesaid ;
b. by any representative assessee U/s 160 or by any person on
whose behalf or for whose benefit any income is receivable
by the representative assessee and any sum paid by the
representative assessee in respect of any obligation which,
but for such payment, would have been payable by the
beneficiary;
vi. Incomes from business s-28
a. managerial compensation S. 28(ii) ,
b. income derived by a trade, professional or similar
association from specific services performed for its members
S. 28(iii),
c. Export benefits Duty drawback, cash assistance and
DEPB -S. 28(iiia), iiib)and (iiic),
d. the value of any benefit or perquisite taxable the value of any

benefit or perquisite taxable S 28 (iv);

e. sum received from non-compete agreements - S 28 (va);
f. Balancing charge/other receipts earlier allowed as deduction
S 41
g. the profits and gains of any business of insurance carried on
by a mutual insurance company or by a co-operative societyS.44 any surplus taken to be such profits and gains by virtue
of provisions contained in the First Schedule
h. the profits and gains of any business of banking (including
providing credit facilities) carried on by a co-operative
society with its members;
vii. any capital gains chargeable under section 45;
viii. (vii) any sum earlier allowed as deduction and chargeable to
income-tax under Section 59
12
ix. any winnings from lotteries, crossword puzzles, races including
horse races, card games and other games of any sort or from
gambling or betting of any form or nature whatsoever ;
x. any contribution received from employees towards any
provident fund or superannuation fund or Employees State
Insurance Act, 1948 , or any other fund for the welfare of such
employees ;
xi. any sum received under a Keyman insurance policy including
the sum allocated by way of bonus on such policy.
xii. any sum of money or value of property received as gift S 56(2)
and Shares of closely held companies transferred to another
company or firm are covered in the definition of gift except in the
case of transfer of such shares for reorganization of business by
amalgamation or demerger etc .
7.2 The term income includes not only the revenue receipts
arising or accruing regularly but also capital receipts like gifts and
even donations. On the other hand certain revenue receipts like
agricultural income are left out from the scope of the term income.
Some of the principles that have emerged out as a result of
customs, practices and judicial pronouncements to ascertain as to
what does or does not constitute income are as follows.
1. Revenue receipts are normally regarded as income unless
specifically exempted Income is like the fruit of a tree, where
tree is the source and fruits are the income.
2. Thus income is normally a regular periodical receipt, received
or derived from a certain source.
3. The source of income must be external. No one can earn
income by or from himself. Therefore, income accruing to
clubs, societies etc from their own members are not taken as
taxable income on the ground of mutuality.
4. Income may be in cash or kind.
5. Source of Income may be legal or illegal e.g. bribery,
corruption etc.
6. it is the receipt which is regarded as income and not the
application or use of the income.

7. Receipts, if diverted at the source are not regarded as

income/
8. Any dispute regarding the title of the income does not take
away its nature as income.
9. Gifts were considered as capital receipts. However the
position is drastically changed to include:
13
a. the personal gifts made by the employer in the definition
of salary,
b. the personal gifts made by the clients in the definition of
business income and
c. gifts of
cash in excess of Rs. 50,000 in aggregate,
any immovable property like land, building, property ,
the stamp duty value of which exceeds Rs 50,000,
Shares and other securities in excess having fair
market value of Rs 50,000 in aggregate
These gifts are subject to certain exemptions like gift mortis
causa (in contemplation of death) gifts on the occasion of
marriage and gifts from defined relatives (discussed later in
the chapter Income from Other Sources)
d. Fair market value or difference between the actual
consideration and fair market value of shares of closely
held companies transferred to another company or firm
except in the case of transfer of such shares for
reorganization of business by amalgamation or demerger
etc.
10.A distribution of surplus arising from a mutual activity is not
considered as income. Thus, a surplus received from a mutual
organisation like employees tea club, or a co-operative
housing society will not be the income on the ground of
mutuality.
11.Income may be recognised either on receipt basis or on
accrual basis depending upon the facts and circumstances of
each case and method of accounting applied in that case.
12.Income must be certain. Contingent income is not regarded as
income unless and until such contingency occurs and the
income arises to the assessee.
13.Income is the sum total of all receipts from all the sources and
considered accordingly.
14.Pin money received by a woman for personal expenses or
even the savings made by her from such receipts is not
considered as income. However the husband will not get any
credit from his income for these payments.
15.Income may be received in lump sum or in instalments. Thus,
arrears of salary received by a person in lump sum are
regarded as his income.
16.Normally only revenue receipts are regarded as income and
not the capital receipts unless specifically provided for. For
example: Maturity proceeds of Keyman Insurance Policy,

14
sales tax subsidy, Voluntary contribution by a donor to a trust
are considered as income though capital in nature.
17.Awards received by a professional sportsperson would be
income unless the award is in nature of a gift in personal
consideration. Some of the above items are discussed in detail
in latter chapters at appropriate places.
18.Even if the business is not of legal nature like smuggling,
bribery, hawala business, etc., the income arising out of such
business will still be taxable according to the decisions of the
courts.
19.Income of wife is be taxable in the hands of the husband if the
assets out of which the income is arising has not been
acquired out of the sources of the wife or from an asset gifted
by the husband except as consideration for living apart.
20.Income of minor children is be taxable in the hands of the
parents having higher income [ mother or father] except when
the income is arising from the efforts of the minor child say
modeling charges.
8. GROSS TOTAL INCOME- S -14:
Section 14 of the Act defines the Gross Total Income as the
aggregate of the incomes computed under the five heads after
making adjustments for set-off and carry forward of losses. The
five heads of income are as follows namely:
1. Income from Salaries
2. Income from House Property
3. Profits and Gains from Business & Profession
4. Capital Gains
5. Income from Other Sources
The aggregate income under these heads is termed as
Gross Total Income In other words; gross total income means
total income computed in accordance with the provisions of the Act
before making any deduction under sections 80C to 80U. However,
any exemptions as allowed by Section 10 are deducted from the
respective heads before arriving at the gross total income like
conveyance allowance, capital gains on sale of personal effects,
dividend income, etc.
9. TOTAL INCOME:
The total income of an assessee is computed by deducting
from the gross total income all permissible deductions available
under the Chapter VI A of the Income Tax Act, 1961. This is also
referred to as the Net Income or Taxable Income.
15
10. SCHEME OF CHARGING INCOME TAX
Income tax is a tax on the total income of an assessee for a
particular assessment year. This implies that;
Income-tax is an annual tax on income
Income of previous year is chargeable to tax in the next
following assessment year at the tax rates applicable for the
assessment. year This rule is, however, subject to some

exceptions discussed in Para 4 above.

Tax rates are fixed by the annual Finance Act and not by the
Income-tax Act. For instance, the Finance Act, 2012 fixes tax
rates for the assessment year 2013-14 (Financial year 20122013)
Tax is charged on every person if the gross total income
exceeds the minimum income chargeable to tax.
Tax rates are given in the lesson dealing with computation of
income .
11. SELF ASSESSMENT QUESTIONS
1. Income of a previous year is chargeable tax in the immediately
following assessment year. Is there any exception to this rule?
Discuss
2. Define the term person
3. How would you calculate income-tax for the assessment year
2012-13 in the case of different assesses?
4. Explain how education cess will be computed for the
assessment year 2012-13? [Ans: 2%+1% ]
5. What will be the previous year for X, who starts his business
on April 6, 2011[ Ans: A.Y. 2012-13]
6. Will the answer to Q 5 be different, if X starts his business on
28th March, 2011? [ Ans: A.Y. 2011-12]
7. Explain that a financial year is a previous year and also an
assessment year. Every financial year can also be an
assessment year,
8. Previous year is a financial year immediately preceding the
Assessment year Comment
9. What will be the status of University of Mumbai?
[Ans: Artificial juridical person]
16
10. Indicate whether the following persons will be taxed as
individuals:
a) X a partner of a firm
b) Y, a managing director of A Ltd;
c) Z is the member of Z HUF
d) Municipal Commissioner of Mumbai in respect of the Income
of the Municipal Corporation
e) Municipal Commissioner of Mumbai in respect of his salary
from the Municipal Corporation
f) A minor acting in TV commercials
[Ans: All except (d) will be taxed, Firm X, A Ltd, Z HUF, Mun Corpn. Separate
tax entities]

INCOME TAX SLAB FOR 2009

Following income tax tables indicate income tax slab for "2008-2009". The first column
indicates the income tax slab, and the second column indicates the income tax applicable on
income. Income tax indicates the percentage that needs to be paid as tax on your income.
India Income tax slabs 2008-2009 for Men
Income tax slab (in Rs.)
Tax
0 to 1,50,000

No tax

1,50,000 to 3,00,000

10%

3,00,000 to 5,00,000

20%

Above 5,00,000

30%

India Income tax slabs 2008-2009 for women

Income tax slab(in Rs.)
Tax
0 to 1,80,000

No tax

1,80,000 to 3,00,000

10%

3,00,000 to 5,00,000

20%

Above 5,00,000

30%

India Income tax slabs 2008-2009 for Senior citizen

Income tax slab(in Rs.)
Tax
0 to 2,25,000

No tax

2,25,000 to 3,00,000

10%

3,00,000 to 5,00,000

20%

Above 5,00,000

30%

Main attraction - Income tax exemption limit increased. Income tax exemption limit for
senior citizens is now 2.4 lakh, for women it is 1.90 lakh and for all others the income tax
exemption limit will be 1.60 lakh.

Income tax slab base for 2009-2010 raised to 1.60 lakh for individual tax payer.
This in an increase of slab base from the earlier Rs 1.50 lakh.

For women the exemption limit according to latest tax slab will be Rs 1.90 lakh,
which is an increase of Rs 10,000 from the earlier rate of Rs 1.80 lakh.

Senior citizens will enjoy an extra Rs 15000 as the exemption limit is increased to
Rs 2.40 lakhs from an earlier 2.25 lakhs.

INCOME TAX SLAB FOR 2011

Following income tax tables indicate income tax slab for "2010-2011". The first column
indicates the income tax slab, and the second column indicates the income tax applicable on
income. Income tax indicates the percentage that needs to be paid as tax on your income.

India Income tax slabs 2010-2011 for Men

Income tax slab (in Rs.)
Tax
0 to 1,60,000

No tax

1,60,001 to 5,00,000

10%

5,00,001 to 8,00,000

20%

Above 8,00,000

30%

India Income tax slabs 2010-2011 for Women

Income tax slab (in Rs.)
Tax

0 to 1,90,000

No tax

1,90,001 to 5,00,000

10%

5,00,001 to 8,00,000

20%

Above 8,00,000

30%

India Income tax slabs 2010-2011 for Senior citizen

Income tax slab (in Rs.)
Tax
0 to 2,40,000

No tax

2,40,001 to 5,00,000

10%

5,00,001 to 8,00,000

20%

Above 8,00,000

30%

General basic exemption limit to be increased from 1,60,000 to 1,80,000. The

exemption limit for women assesses to be retained at 1,9 0,000.
Basic exemption limit for senior citizens to be increased from 2,40,000 to 2,50,000
Relaxation for Senior Citizens
Age criterion for senior citizens to be relaxed from 65 years to 60 years.
New category of very senior citizens of 80 years and above to be eligible
for higher basic exemption limit of 5,00,000.