The income tax is charged in respect of the total income of the previous year of every 'person'. Here the person means--

1. an individual
2. a Hindu undivided family (HUF)
3. a company (both Indian & foreign Company doing business in India).
4. a firm i.e. a partnership firm or Association of Persons or Body of Individuals.
5. a local authority.
6. Every artificial, juridical person, not falling within any of the above categories.

Previous year

The Financial Year, which begins on 1st of April and ends on 31st March in which the income is earned, is known as the previous year. The financial year beginning on 1st of April 2009 and ending on 31st March 2010 is the previous year for the assessment year 2010-2011.

Under the scheme of computation of total income under the Income Tax Act, the income falling under each head is to be computed as per the relevant provisions of the Act relating to computation of income under that head. The aggregate of income under each head is known as 'Gross Total Income'

Heads of Income.

1. Income from Salary.

1. Basic Salary – Taxable
2. Dearness Allowance – Taxable
3. Bonus – Taxable in the year of receipt.
4. Salary in lieu of notice – Taxable in the year of receipt.
5. Fees or commission Remuneration for extra works – Taxable.
6. Compensation/Annuity from employer – for termination of employment or modification of terms of employment is taxable.
7. Encashment of unutilized leave on service – Taxable.
8. Salary Paid by Foreign governments to its employee serving in India is Taxable in India.
9. City compensatory Allowance – Taxable.
10. Tiffin allowance / fixed medical allowance – Taxable.
11. Servant Allowance – Taxable. However if servant is engaged by employee and salary is reimbursed by employer such amount shall be fully taxable for employees. However if servant is engaged by employer the perquisite will be taxable if salary only if salary per annum is more than Rs 50,000...
12. House Rent Allowance – Exempt to the extent prescribed under Income Tax Act if rent is paid.
13. Medical allowance exempt upto Rs 15,000 if supported by bills.

2.Income From House Property.

The annual value of property, consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him, the profits of which are chargeable to income tax, shall be chargeable to income tax
under the head "Income from House Property".

1. The sum for which the property might reasonably be expected to be let out from year to year;
2. Where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable;
3. Where the property or part of the property is let and was vacant during the whole or any part of the previous year and, owing to such vacancy, the actual rent received or receivable by the owner in respect thereof is less than the sum referred to clause (a) the amount so received or receivable.
   The annual value of a house or part of a house shall be taken as nil if the property consists of such house or part of the house and is occupied by the owner himself for the purpose of his own residence. However this shall be permitted in respect of only one house. In case employee has 2 houses one which is occupied shall be tax free and other shall be deemed to be let out and taxed.

Income from house property' shall be computed after making the following deductions:

• A sum equal to 30% of the annual value;
• If the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital. Where such property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, on or after 1st April 2003, the amount of deduction under this clause shall not exceed Rs 1, 50,000. However this deduction shall be allowed only when the employee has possession of the house and not before that.
• Any municipal tax paid by the owner. (Should de deducted while determining the annual value).

For charging the income under the head "Profits and Gains of business," the following conditions should be satisfied:

• There should be a business or profession
• The business or profession should be carried on by the assessee.

The business or profession should have been carried on by the assessee at any time during the previous year.

Condition for taxing Capital Gain:

• There is a capital asset
• There is transfer of capital asset.
• Such transfer was not exempt u/s 47.

Income of every kind, which is not chargeable to income tax under the heads (1 to 4)

The following income shall be chargeable to income tax under the head "Income from other sources", namely: -

1. Dividend.
2. Interest in bank or Fixed Deposits or Bonds or National Saving Certificate and NSS.
3. Any winning 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.
4. Where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income tax under the head "Profits and gains of business or profession."

Surcharge-Nil

Note: -

• Education cess is applicable @ 3 per cent on income tax.

Agricultural income is exempt from income tax.

• A Firm is taxable at the rate of 30% plus education cess of 3 % and if the net income exceeds Rs.1 Crore then surcharge @ 10% will also be applicable.
• In the case of domestic Company the rate for charging income tax is 30% Plus Education cess @ 3 %and if the net income of the company exceeds Rs. 1 crore then surcharge @ 10 % will also be applicable.
• In the case of foreign companies the rate for charging income tax is 40% Plus Education cess @ 3 % and if the net income exceeds Rs. 1 Crore then surcharge @ 2.5 % will also be applicable.

Save Tax

Section 80C of the Income Tax Act proposed in Union Budget gives you a bigger tax break than what the current regime offers.

• Deduction in respect of Life Insurance Premium, Contribution to Provident Fund, etc.
• Rs 1 lakh can be invested under this section without any individual sub-limits

Schemes eligible for Section 80C benefits

• PPF (to the extent of Seventy Thousand only.)
• ELSS - Mutual Funds
• NSC
• KVP
• Life Insurance.
• Post Office Time Deposit Account.

Section 80E

Under this section, deduction is available for payment of interest on a loan taken for higher education from any financial institution or an approved charitable institution. The loan should be taken for either pursuing a full-time graduate or post-graduate course in engineering, medicine or management, or a post-graduate course in applied science or pure science.

Under this section deduction is made in respect of donations to certain funds, charitable institutions, etc. Deduction is not available for donations given in kind.

The deduction is available only for the entity to which donations is made is an approved charitable institution by the government. A receipt of the institute, in evidence made, should be attached to the return of income.

Approved Entities under Section 80G (Donation)

Filing of Return

Filing of Return - compulsory if income before claiming deduction under Section 80 is Taxable
The assesse is obliged to voluntarily file the return of income without waiting for the notice of the assessing officer calling for the filing of the return. The time limit for filing of the return by an assessee if his total income of any other person in respect of which he is assessable exceeds the maximum amount not chargeable to tax shall be as follows:

• Where the assessee is an individual employee 31st day of July of the assessment year.
• A firm where tax audit is not required to be filed by 31st day of July of the assessment year.
• In companies  , firms and individual doing business and requiring Tax audit ( Turnover more than Rs 40 lakhs) to be  filed by 30th day of September of the assessment year.