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FAQs on Income Tax
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What is Salary income?
What type of income falls under Salary income?
What is Leave Encashment?
What is Annuity?
What is Gratuity?
What is Allowance?
What is Perquisite?
Who has to pay Income tax?
Who is an assessee in Income Tax?
What is Assessment year in Income Tax?
What is a PAN (permanent account number)?
Do I have to apply for a permanent account number (PAN)? How do I apply?
What are the types of income chargeable to Income tax?
What is residential status under Income Tax Act?
Is it compulsory to maintain books of accounts?
Is it compulsory to get the books audited?
How and where can I pay income tax?
What do you mean by Income Tax Return filing?
Is it compulsory to file a return of income when there is loss?
Do I have to pay tax on all the money earned?
Do I have to file a return even if my income is lower than the exemption limit? What is 1/7 criterion?
There are various returns available on Income Tax Departments site, which one do I need to file?
What are the due dates for filing returns for various assesses?
What is E-filing of return?
Who are eligible to file e-return?
What do you mean by 'belated return'?
What are the consequences of filing belated return?
What is the penalty?
What is Advance Tax?
What is House Property Income?
How to calculate AV of the property?
What are the deductions U/s-24?
What is Capital Gain?
What is Capital Asset?
Are there any assets that do not come under the heads of Capital Assets?
What is Transfer of Capital Assets?
What rate of tax is payable on capital gains?
How is long term capital gain calculated? Give example of Indexation?

FAQs on Income Tax III Salary Income Posted By - Mr. C.S. Sudheer

Income under heads of salary is defined as remuneration received by an individual for services rendered by him to undertake a contract whether it is expressed or implied. According to Income Tax Act there are following conditions where all such remuneration are chargeable to income tax:

When due from the former employer or present employer in the previous year, whether paid or not
When paid or allowed in the previous year, by or on behalf of a former employer or present employer, though not due or before it becomes due.
When arrears of salary is paid in the previous year by or on behalf of a former employer or present employer, if not charged to tax in the period to which it relates.

Under section 17 of the Income Tax Act, 1961 there are following incomes which come under head of salary:

Salary (including advance salary)
Annual Bonus
Income From Provident Fund
Leave Encashment

Leave encashment is the salary received by an individual for leave period. It is a chargeable income.

It is an annual income received by the employee from his employer. It may be paid by the employer as voluntarily or on account of contractual agreement. It is not taxable until the right to receive the same arises. Under section 56, Income Tax Act, 1961 other annuities come under a will or granted by a life insurance company or accruing as a result of contract which comes as income under from other sources.

It is salary received by an individual paid by the employee at the time of his retirement or by his legal heir in the case of death of the employee.

It is the amount received by an individual paid by his/her employer in addition to salary. Under section 15 of the Income Tax Act, 1961 these allowance are taxable excluding few conditions where they are entitled of deduction/ exemptions.

Under Income Tax Act following types of allowance are defined:

House Rent Allowance:

Under sections 10(13A) of Income Tax Act, 1961 allowance is defined as an amount received by an employee paid by his/ her employer as a rent of his/her house. It is a taxable income. There is no exemption in tax if he is living in his own house or house for which he is not paying rent. There are following amount which are exempt from tax:

Actual house rent paid by that individual Rent paid for the accommodation over 10% of the salary 50% of the salary if house is placed at Delhi, Mumbai, Kolkata, Chennai or 40% of the salary in it is placed in any other city.

Entertainment Allowance:

It is the amount paid by employer for availing entertainment services. Under section 16(ii) of Income Tax Act, 1961 it is entitled to deduction in tax from is salary. But in this case deduction is given to his gross salary which also includes entertainment allowance. Deduction in tax against this allowance can be divided into two parts: In case of Government employee entitled to minimum deduction of:

Entertainment allowance received
20% of basic salary excluding any other allowance Rs. 5000

In case of other employee entitled to minimum deduction of

Entertainment allowance received
20% of basic salary excluding any other allowance
Rs. 7500 Entertainment allowance received during 1954-1955

Other Special Allowances

Children Education Allowance
Tribal Area Allowance
Hostel Expenditure Allowance
Remote Area Allowance
Compensatory Field Area Allowance
Counter Insurgency Allowance
Border Area Allowance
Hilly Area Allowance

Following allowances are exempt from income tax:

Allowance given to a citizen of India, who is a government employee, for rendering services outside India
Allowances given to Judges of High Courts
Allowance given Judges of Supreme Court
Allowances received by an employee of UNO

Under section 17(2) of Income Tax Act, 1961 perquisite is defined as:

Amount paid for the rent-free accommodation provided to the assessee by his employer
Any concession in the matter of rent respecting any accommodation provided to the assessee by his employer
Any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases:

1. By a company to an employee, who is a director thereof
2. By a company to an employee being a person who has a substantial interest in the company
3. By any employer to an employee whose income under the head 'Salaries' exceeds Rs.24000 excluding the value of non monetary benefits or amenities
4. Any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee
5. Any sum payable by the employer whether directly or through a fund, other than a recognised provident fund or EPF, to effect an assurance on the life of the assessee or to effect a contract for an annuity

There are following perquisites which are tax free:

Medical facility
Medical reimbursement
Subsidized Lunch/ Dinner provided by employer
Facilities For Recreation
Telephone Bills
Products at concessional rate to employee sold by his/ her employer
Insurance premium paid by employer
Loans to employees by given by employer
House without rent
Residence Facility to member of Parliament, judges of High Court/ Supreme Court
Conveyance to member of Parliament, judges of High Court/ Supreme Court
Contribution of employers to employee's pension, annuity schemes and group insurance

Tax benefits on Housing Loan

Posted By - Mr. C.S. Sudheer- On-23/06/08

Loans are very important for all of us to realize some of our major dreams in time. We all look forward different kinds of benefits from loans we take. Of course it may be less interest rate, low processing fee, easy documentation, time taken to release the loan and finally, the very important thing we expect from a loan is Tax Benefit.

Tax benefits from loans are in different types and even it depends on the nature of loan taken. We take loan for personal use or to fund for our children’s education or construction of our house. We don’t get any tax benefit from the loan taken for our personal use. But of course we can claim tax exemption on the loan taken for education and house construction. As I have posted an article on Tax Benefits on Educational Loan, now I am giving you the complete details of tax benefits which can be availed on Home loan or the loan taken to construct a house.

Nowadays, it is very difficult to fund the entire amount for your house construction, because of skyrocketing real estate prices and construction costs. Therefore, we all take home loans from different banks at different rate of interest. It is again very difficult to repay the loan, but if you do your financial planning and tax planning properly, you can save a huge amount legally by considering the prevailing tax laws.

According to the income tax laws applicable, the interest paid on the capital borrowed for the acquisition or construction of house property is eligible for deduction up to the maximum limit of Rs 150000 per annum. You also get a 20% rebate on repayment of principal of the housing loan per annum. While this was earlier subject to a maximum of Rs 10,000, it is now Rs 1,00,000 and people can avail this benefit under section 80c of the income tax Act.

Points to be considered:

You should be residing in the home for which the loan is taken. If you are residing in a city but buying property in your home town to prepare for retirement, this will not be applicable. The property has to be acquired or constructed before April 1, 2003. The money should have been borrowed to construct or acquire property on or after April 1, 1999. If it was prior to this date, the deduction is only valid up to Rs 30,000.

You may find it more convenient and cheaper to finance the property out of your own resources. But do remember, you would be losing the tax shelter on account of the deduction available as well as the tax rebate. You can claim a rebate for housing loan only on producing the interest certificate from the lending institution. Taking a loan from a family member or a friend, who may get you a loan at cheaper rate of interest, or no interest at all, but will not qualify for such deductions. Only loans taken and interest paid thereon, to specified financial institutions which offer housing loans, qualify for deduction under the Income Tax Act, 1961.

If the loan is jointly taken by you and your spouse, you both are entitled to tax benefits. Since both will be claiming the deductions and rebate, you will have to approach the financial institution and ask for a certificate. This certificate will state how much of the loan is your responsibility and how much you are contributing towards the repayment. Your tax deduction and rebate can be calculated based on this amount

FAQs on Income Tax I - Basics

Posted By - Mr. C.S. Sudheer- On-15/01/09

Any individual, corporate, firm, society or any judicial legal entity having income earned & received in India will be liable to pay Income tax to the Income tax Department of India.

Assessee is a person by whom Income tax is payable under Income tax Act, 1961 of India.

Let's say your Financial Year is from 1st April-2007 to 31st March-2008, then Assessment year for Income Tax purpose is year ending on 31st March, 2009 (1st April 2008 to 31st March 2009). In this case Financial Year would be called previous year.

The permanent account number is allotted by the assessing officer to any person for the purpose of identification. It's a Unique 10 digits number for e.g. KKJMN6994P.

If you fall under any of the below mentioned categories, you have to apply for PAN in Form 49A:
If your total income in the previous year exceeds maximum amount not chargeable to tax.
If you are carrying on business or profession, whose total sales, turnover or gross receipts, are or is likely to exceed Rs 500,000.

If you are assessable as charitable trust.
You have to quote your PAN on:

Income tax return
Any correspondence with Income Tax Authority
Challans for payment of direct taxes
Application for installation of a telephone connection (including a cellular telephone)
Application for opening a bank account
Application for opening DMAT account
Documents pertaining to sale or purchase of a motor vehicle (other than two wheelers) & immovable property valued at Rs 500,000 or more
Documents pertaining to a time deposit/fixed deposits exceeding Rs 50,000 with a bank
Documents pertaining to deposits exceeding Rs 50,000 in any account with a Post-Office Savings Bank
Documents pertaining to a contract of a value exceeding Rs 1 million (Rs 10 lakhs) for sale or purchase of securities (shares, debentures)

At the time of purchase of Mutual fund units.
Payment to hotels and restaurants against their bills for an amount exceeding Rs. 25,000 at any one time

However following people may not apply for PAN:
Who have agricultural income and are not in receipt of any other income chargeable to income tax NRIs
Central Government, State Government and Consular Officers, in transactions where they are the payers. Application for allotment of PAN can be submitted in form No. 49A.

1. Salary Income
2. House Property Income
3. Income from business or profession
4. Income from sale of capital assets
5. Other income

In India, as in many other countries, the charge of income tax and the scope of taxable income vary with residential status of the assessee.
There are three categories of taxable entities viz.
(1) Resident and ordinarily resident (ROR)
(2) Resident but not ordinary resident (RNOR)
(3) Non-residents (NR)

The law prescribes two alternative criterions to decide the residential status of an assessee. Both criterions relate to the physical presence of the taxpayer in India in the course of the previous year which would be the twelve months from April 1 to March 31.

A person is said to be "resident" in India in any previous year if he -

(a) Is in India in that year for an aggregate period of 182 days or more; or
(b) having within the four years preceding that year been in India for a period of 365 days or more, is in India in that year for an aggregate period of 60 days or more.

The above provisions are applicable to all individuals irrespective of their nationality. However, as a special concession for Indian citizens and foreign citizens of Indian origin, the period of 60 days referred to in Clause (b) above, will be extended to 182 days in two cases: (i) where an Indian citizen leaves India in any year for employment outside India; and (ii) where an Indian citizen or a foreign citizen of Indian origin (NRI), who is outside India, comes on a visit to India.

In the above context, an individual visiting India several times during the relevant "previous year" should note that judicial authorities in India have held that both the days of entry and exit are counted while calculating the number of days stay in India, irrespective of however short the time spent in India on those two days may be. A "non-resident" is merely defined as a person who is not a "resident" i.e. one who does not satisfy either of the two prescribed tests of residence.

An individual, who is defined as Resident in a given financial year is said to be "not ordinarily resident" in any previous year if he has been a non-resident in India 9 out of the 10 preceding previous years or he has during the 7 preceding previous years been in India for a period of, or periods amounting in all to, 729 days or less.

In India >= 182 days in FY Yes Yes No
NR in India in 9 out of 10 preceding FYs No Yes NA
In India for <=729 days in preceding 7 FYs No Yes NA
In India >= 60 days in FY and >= 365 days in preceding 4 FYs NA NA No
(FY = Current Financial Year)

*Threshold limit for resident women assessees below 65 years of age and resident individuals of 65 years and above to be further increased to Rs. 1,35,000/- and Rs. 1,85,000/- respectively.

Plus surcharge @ 10% applicable if total income exceeds Rs. 10,00,000/ Education Cess @ 2% is payable on tax plus surcharge

However if you are a company or a partnership firm you will have to pay tax on all income earned. Till 31st March 2003, "not ordinarily resident" was defined as a person who has not been resident in India in 9 out of 10 preceding previous years or he has not during the 7 preceding previous years been in India for a period of, or periods amounting in all to, 730 days or more.

Yes, IF you are carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other notified profession. And Yes, IF you are carrying on business or profession (other than professions mentioned earlier) and IF the income from business or profession exceeds Rs.1,20,000/ - or the total sales, turnover or gross receipts in the business or profession exceeds Rs. 10 lakhs in any one of the three years immediately preceding the previous year.

(i) Every person carrying on business shall get his accounts audited if the total sales, turnover or gross receipts in business exceed Rs. 40 lakhs in the previous year. (ii) Every person carrying on profession shall get his accounts audited if his gross receipts exceed Rs. 10 lakhs in the previous year

FAQs on Income Tax II - Payment & Return filing
Posted By - Mr. C.S. Sudheer- On-15/01/09

Tax can be paid by way of cash, cheque or draft in any authorised national banks, in the prescribed challan. The challan can be obtained from Income tax Offices.

Income Tax Return is a statutory return to be filed by assessee with Income Tax Department stating the total income earned & tax paid/payable by him during the previous financial year.

If a person has sustained a loss in the previous year and wishes to carry forward the loss to the subsequent year he should furnish a return of loss in the prescribed form before the due date.

No, if you are an individual or HUF, you do not have to pay tax till you reach a specified exemption limit; once you cross that limit tax have to be paid as per following rates, slab wise:

For F.Y. 2008-09

IncomeRate (%)
Up to 150000*NIL
150000 to 30000010
300000 to 50000020
Above 50000030

*Threshold limit for resident women assessees below 65 years of age and resident individuals of 65 years and above to be further increased to Rs. 1,35,000/- and Rs. 1,95,000/- respectively.

Plus surcharge @ 10% applicable if total income exceeds Rs. 10,00,000/
Education Cess @ 2% is payable on tax plus surcharge

However if you are a company or a partnership firm you will have to pay tax on all income earned.

Proposed under Budget 2008, is as follows:

For A.Y. 2009-10 and For F.Y. 2008-09

IncomeRate (%)
Up to 150000NIL
150001 to 30000010
300001 to 50000020
Above 50000030

Threshold limit for resident women assessees below 65 years of age and resident individuals of 65 years and above to be further increased to Rs. 1,80,000/- and Rs. 2,25,000/- respectively. Surcharge @ 10% applicable if total income exceeds Rs. 10, 00,000/-. Education Cess @ 2% leviable on tax plus surcharge.

If you are Individual or HUF, then Yes, if you fulfils any one of the following conditions at any time during the previous year:

Ownership/lease of a motor vehicle.
Occupation of any category or categories of immovable property as may be specified by the board by notification whether by way of ownership or tenancy or otherwise.
Incurred expenditure on himself or any other person on travel to a foreign country other than Bangladesh, Bhutan, Maldives, Nepal, Pakistan or Sri Lanka (not being a travel to Saudi Arabia for Hajj or travel to China on pilgrimage to Kailash Mansarovar).
Subscription of a cellular telephone (not being a wireless in local loop telephone).
Holder of a credit card (not being an add-on card or not being a Kisan credit card, issued by a bank or an institution).
Member of a club where entrance fees charged is Rs 25,000 or more.
Expenditure of Rs 50,000 or more during the previous year towards consumption of electricity.
However, the government has specified that the above provision is not applicable in the case of a Non-Resident Indian (NRI).

Also if you are at least 65 years of old and not engaged in any business /profession, then you may not file return even when you fulfill conditions 2 or 4 above.

Class of AssesseesCategoryForm
Individuals, HUF, Firms etc. (except companies and charitable assessees)All cases Form No. 2D or Saral form
One by Seven schemeForm No. 2C
Business or Profession incomeForm No. 2
Non- business incomeForm No.3 or 3D
Non- business income, No Capital Gain, No agriculture income3 or 2D or 2E (Naya Saral)
Non business income and total income less than Rs 2 lakhsForm No. 2A
Charitable assessesAll casesForm No 3A
Company except charitable assessesAll casesForm No 1
Search casesAll casesForm No 2B

31st July
CategoryDue date
For four categories namely:
A. Companies
B. All auditable cases
C. Working partner of auditable firms,
D. Persons covered other than 1/7 scheme,
31st October
In any other case

The Electronic Furnishing of Return of Income Scheme was introduced in 2004. Under this scheme, eligible assessees can file their returns of income electronically through authorised persons to act as e-return intermediaries on or before the due date.

The intermediaries digitalise the data of such returns and transmit the same electronically to the e-filing server of Income Tax Department under their digital signatures.

Any assessee except an Association of persons or Body of Individual, who has been allotted a permanent account number (PAN) and who is assessed or is assessable to tax in any of the sixty cities, which are presently on Income Tax network is eligible to file his return of income under this scheme.

If the return is not furnished within the time prescribed or within the time permitted under a notice issued, the person can furnish the return of any previous year at any time before the end of one year from the end of the relevant assessment year, or before the completion of the assessment year.

For e.g. Return is due on October 31, 2008 for the Assessment Year 2008-09. However, for some reason, if the person does not file his return by October 31, 2008, he can file belated return on or before 31st March 2010.

A penalty of up to Rs 5,000 is required to be paid if the tax man picks up your paper for assessment. In addition, a penal interest @ 1% per month would be charged for default in tax payments.

WHEN speaking of belated filing of returns, the tax payer is ought to be in either of the following two situations.

He or she has paid all his taxes but failed to file the returns on the due date for genuine reasons.
He or she has not only failed to file the returns but also failed to pay his taxes on the due date

In the first case, since the assessee has cleared all his dues to the government, no penalty or interest shall be charged; provided the returns is filed by the end of the assessment year. Thus, in our example, no penalty or interest shall be levied from the assessee if the returns are filed on or before March 31, 2008.

However, if the returns is not filed within this stipulated time period (till March 31, 2008) and the assessee's income is picked up for assessment, the taxman can impose a penal charge of up to Rs 5,000 under Section 271F of the Income-Tax Act in spite of the fact that a belated returns can be filed up to one year from the end of the assessment year or as in our example by March 31, 2009.

However, if the assessee belongs to the second category of people, who have failed to deposit the tax dues with the government before the due date, interest @ 1% per month or part of the month (simple interest) shall be levied on the amount of net tax due from him under section 234A of the Income-Tax Act from the date immediately following the due date till the date of filing of returns. Thus, if the return is filed, say on December 31, 2008, i.e., five months after the due date, the interest shall be levied at the outstanding tax amount @ 1% pm for five months.

Other consequences

A PERSON filing the returns after the due date, irrespective of the fact whether the tax has been paid or not, will not be allowed to carry forward the losses if any incurred by him during the financial year.

The losses that cannot be carried forward are the business losses, capital losses and losses arising from the business of owning and maintaining race horses. If the return is filed on the due date, the assessee is allowed to file a revised return if he wants to make any amendments to the original returns so filed.

However, this privilege is not available to a person filing belated returns. In case of refund of tax, the assessee is eligible to receive interest on such refund from the taxman. This interest is paid for the period starting from the date of filing of returns till the date of issue of refund order. Thus, in case of a belated return, the assessee is bound to lose out on interest on refund for the period for which the return is delayed. While tax payers can undoubtedly file belated returns, it is and has always been advisable to file returns within time. So, while you may have missed the bus this time round, make sure you catch up on time from next year.

Advance tax means the advance tax payable in accordance with the provisions of Chapter XVII-C. Tax shall be payable in advance during any financial year in respect of the total income of the assessee which would be chargeable to tax.

Advance tax shall be payable if the tax payable is Rs. 5000 or more.
Advance Tax Obligation (If tax payable exceeds Rs. 5,000)
Due Date of Installment payable on or before Amt. Payable as a % of Tax
For Cos.* For Other Assessees

15th June 15%
15th September 30% 30%
15th December 30% 30%
15th March Balance Balance

*MAT also subject to Advance Tax. Refer Circular No. 13 of 2001, [252 ITR (St) 52]
Advance Tax Obligation (In respect of Fringe Benefit Tax payable)

15th July
Advance Tax Obligation (If tax payable exceeds Rs. 5,000)
Due Date of Installment payable on or beforeAmt. Payable as a % of Tax
For Cos. *For Other Assessees
15th June15%¿
15th September30%30%
15th December30%30%
15th MarchBalanceBalance
*MAT also subject to Advance Tax. Refer Circular No. 13 of 2001, [252 ITR (St) 52]
Advance Tax Obligation (In respect of Fringe Benefit Tax payable)
Fringe Benefit Tax payable for quarter ended Due Date of Installment payable on or before Amt. Payable as a % of Fringe Benefit Tax payable for the quarter
September15th October100%
December15th January100%
March15th March100%

FAQs on Income Tax IV - House Property
Posted By - Mr. C.S. Sudheer- On-15/01/09

House property income is defined as income earned by a person through his house or land.

Tax is on rent received or receivable both. In other words, charge is on the real income as well as potential incomes that a property can generate. But if property is used assessee's own business then the potential it will be taxable under the head of profit or loss from business/ profession. Tax is on Annual value (AV) of building or land owned by assessee.

AV = NIL, if property is occupied by the assessee for the whole year.
AV = Annualised rent received/receivable - proportionate rent for the period of occupation of property by the assessee.
AV calculated would be eligible for deduction U/s-24.

(if assessee has two houses & if he occupies both the houses, AV calculated as above will be applicable in case of only one house, for the another house AV would be annualized rent receivable.)

In case where the assessee has only one residential house but it cannot be occupied by him for the reasons that he stays with his parents or owing to his employment, business or profession carried out on at any other place, he has to reside at that other place in a building not belonging to him, the annual value of such house shall be taken to be nil if the house is not actually let and no other benefit is derived by the owner from such house.

Following deductions are available:

A sum equal to 30% of the AV.

Interest on money borrowed for acquisition/ construction/ repair/renovatio n of property is deductible on accrual basis. Interest paid during the pre construction/ acquisition period will be allowed in five successive financial years starting with the financial year in which construction/ acquisition is completed. Deduction up to maximum of Rs. 1, 50,000/- is available provided that the acquisition/ construction of the property is completed within three years from the end of the financial year in which the capital was borrowed. This deduction is also available in respect of a self occupied property

FAQs on Income Tax VI - Capital gains
Posted By - Mr. C.S. Sudheer- On-15/01/09

Capital gain is defined as gains derived on transfer of capital asset.

Under section 2(14) of the Income Tax Act, 1961 Capital Assets is defined as property of any kind held by assessee including property held for his business or profession. It includes all type real. property as well as all rights in property. It is also defined as gains on transfer of assets in which there is no cost of acquisition like:

Goodwill of business generated by assessee
Tenancy rights
Stage carriage permits
Loom hours
Right to manufacture
Processing & production of any article or things

There are few assets which don't form a part of Capital Assets, which are as follows:

Stock of goods and raw materials used by assessee for his business or profession
Movable properties like wearing apparel, furniture, automobile, phone, household goods etc. Held by assessee. But Jewelry which is also an movable assets comes under heads of Capital Assets
Agricultural property in India. But agriculture land coming under municipal limits (in area having population more than 10,000) comes under Capital Assets. Agriculture lands within 8KM from municipal limit also comes Capital Assets if it is notified by the central government of India

Few Gold Bonds issued by government

Few special bonds issued by central government like Special Bearer Bonds, 1991

Under Section 2(47) of The Income Tax Act, 1961, transfer of capital assets is defined as:

Sale, exchange and relinquishment of assets
Extinguishment of any rights in capital assets
Acquisition of capital assets or rights

Conversion of capital asset by its owner as stock in trade of his business, it may be also a term transfer
Transfer of immovable property under Section 53A of Transfer of Property Act, 1882

Any transaction by which an assessee become enable to act as a member of cooperative society
Any transaction by which an assessee acquire shares in cooperative society

Short Term Capital gain*Long Term Capital gainDividend Income Dividend Distribution Tax
10%NilTax FreeNil

*When the shares/units are sold within one year of purchase, it would be taxed as short term capital gains. Budget 2008 proposes the rate to be increased to 15%.

In case of MF schemes other than equity (where equity holding is less than 65 per cent):

Short Term Capital gainong Term Capital gain Dividend Income Dividend Distribution Tax
As per your income slab 10% (20% with indexation) Tax Free 14.025%(12.5% plus 10% surcharge+2% Education Cess)

Capital gain = full value of transfer consideration


(i) indexed cost of acquisition and/or improvement
(ii) The amount of expenditure incurred in connection with such transfer.

No indexation benefit is available on bonds and deben¬tures as also in respect of Global Depository Receipts purchased by a resident employee under ESOP in foreign currency.


Let's understand the concept of indexation with the help of an example.

Let's assume Mr. A purchased a capital asset for Rs. 10 Lakhs in 1993-94. He sold it in Year 2007-08 for Rs. 100 Lakhs.
Cost of inflation index (as published by the central government) for 1993-94 = 244
Cost of inflation index (as published by the central government) for 2007-08 = 551
Now, when a long-term capital asset is acquired after 1-4-1981, the formula for calculating the "Indexed Cost of Acquisition" would be as under-

Indexed Cost Inflation Index of F.Y. %

Courtesy : Srini

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