DEFINITION & INCOME FROM SALARIES

AND
INCOME FROM HOUSE PROPERTY
MASTER OF COMMERCE
ACCOUNTANCY
SEMESTER III
(2016-17)

SUBMITTED BY:
AKSHATA RAVINDRA GAWAND
ROLL NO. 7
GUIDE NAME :
Prof. KISHOR . D

VIVEKANAND EDUCATION SOCIETYS

COLLEGE OF ARTS, SCIENCE & COMMERCE
Sindhi Society, Chembur , Mumbai- 400071.

DEFINITION & INCOME FROM SALARIES

AND
INCOME FROM HOUSE PROPERTY
MASTER OF COMMERCE
ACCOUNTANCY
SEMESTER III
Submitted
In Partial Fulfillment of the requirements
For the Award of the Degree of
Master of Commerce Accountancy
By
AKSHATA .R. GAWAND
7
VIVEKANAND EDUCATION SOCIETYS COLLEGE OF
ARTS, SCIENCE & COMMERCE Sindhi Society,
Chembur, Mumbai- 400071.

VIVEKANAND EDUCATION SOCIETYS

COLLEGE OF ARTS, SCIENCE & COMMERCE
Sindhi Society, Chembur, Mumbai- 400071

CERTIFICATE
This is to certify that Shri/Miss Akshata Ravindra Gawand
M.Com.

Accountancy

Semester

III

(2016-17)

has

successfully completed the project on Definition & Income

from Salaries And Income from House Property under the
guidance of Prof. Kishor .

Course Coordinator

Principal

Project Guide/ Internal Examiner

External Examiner

DECLARATION

I, Akshata Ravindra Gawand , the student of M. Com.

(Accountany) Semester III (2016-17) hereby declare that I have
completed this Project on Definition & Income from Salaries
And Income from House Property
The information submitted is true and original to the best of my
knowledge.

_____________________
Students Signature
Akshata Gawand
7

Acknowledgement

First of all immensely and wholeheartedly I thank God and also my parents for
giving me this opportunity for successful completion of my project work . Also I
thank the management for giving us a chance for doing this course. I wish to
express my sincere thanks to all my teachers, for the continuous and creative ideas,
given during my studies and also for this project .I am deeply indebted to my
mentor,

my

guide and

my

respected

teacher

Prof.

Kishor , for his patience, valuable inputs, motivations toperform more better and hi
s instincts support without which the project work would not have completed .I am
extremely indebted to the internet technology for the valuable help rendered to me
by providing the necessary materials and support needed for the preparation of this
project work.

Research Methodology

The information collected is from secondary data.

Secondary Sources :
Secondary data is a data which is collected and complied for
different purpose, which is used in research for the study. The secondary
data includes material collected from internet, newspaper, books and
magazines.

Executive Summary
Salary, as commonly understood, means a fixed payment made periodically
as compensation for regular services rendered. It covers wages paid for manual
work, salary paid

for clerical jobs and remuneration paid to executive and

managers. Salary, in simple words, means remuneration of a person, which he has

received from his employer for rendering services to him. The remuneration
received by professionals like doctors, architects, lawyers etc. cannot be covered
under salary since it is not received from their employers but from their clients.
The relationship of payer and payee must be of employer and employee for an
income to be categorized as salary income. The deductions on Income from
Salary falls under the Section 16 of the Income Tax Act. House property consists of
any building or land appurtenant thereto of which the assessee is the owner. The
appurtenant lands may be in the form of a courtyard or compound forming part of
the building. Income from house property is taxable in the hands of its legal owner
in whose name the property stands. Owner for this purpose means a person who
can exercise the rights of the owner not on behalf of the owner but in his own right.
Some incomes from house property are exempt from tax. They are neither taxable
nor included in the total income of the assessee for the rate purposes.

Contents
Definition & Income from Salaries
1. Introduction
2. Meaning of Salary
3. Definition
4. Characteristics of Salary
5. Gross Salary
6. Deductions on Income from Salary
7. Exemptions
8. Computation of Income from Salary
Income from House Property
9. Meaning of House Property
10.
Essential conditions for taxing income under this head
11.
Determination of Annual Value
12.
Basis of Charge (S. 22)
13.
Meaning Of Terms
14.
Property exempt from Tax
15.
How to compute Income from House Property
16.
Conclusion
17.
Bibliography

Definition and Income from Salary

Introduction
Salary, as commonly understood, means a fixed payment made periodically as
compensation for regular services rendered. It covers wages paid for manual work,
salary paid for clerical jobs and remuneration paid to executive and managers. It
includes all sums paid by an employer to an employee by way of Basic Salary,
Allowances, Perquisites etc. to understand how income under the head Salary is
computed, one must have answers to the following questions1. Who are the person liable to pay tax on Salaries?
2. When is salary taxable on accrual or on receipt?
3.What is the place of accrual for salary income?
Salary includes your Gross salary, Provident Fund, Insurance, Leave pay, Gratuity ,
Employee State insurance and Labour.

Meaning Of Salary
Salary, in simple words, means remuneration of a person, which he has received
from his employer for rendering services to him. But receipts for all kinds of
services rendered cannot be taxed as salary. The remuneration received by
professionals like doctors, architects, lawyers etc. cannot be covered under salary
since it is not received from their employers but from their clients. So, it is taxed
under business or profession head. In order to understand what is included in
salary, let us discuss few characteristics of salary.

Definition
According to Section 17(1) Salary includes:
1.
2.
3.
4.
5.
6.
7.
8.

Wages and salaries including advance of salary,

Annuity or pension
Gratuity
Fees and commission,
Perquisites,
Profits in lieu of salary or in addition to salary or wages,
Advance,
Contribution made by the Central Government , or any other employer in the

account of an employee under a pension scheme.

9. Payment received by any employee in respect of any period of leave not
availed of by him, i.e. leave encashment,
10. Annual accretion to the balance at the credit of an employee participating in
a recognized provident fund to the extent it is taxable, and
11.Transferred balance in a recognized provident fund to the extent it is taxable.

Characteristics of Salary

1. The relationship of payer and payee must be of employer and employee for an
income to be categorized as salary income. Example: Salary income of a Member
of Parliament cannot be specified as salary, since it is received from Government
of

India

which

is

not

his

employer.

2. The Act makes no distinction between salary and wages, though generally salary
is paid for non-manual work and wages are paid for manual work.
3. Salary received from employer, whether one or more than one is included in this
head.
4. Salary is taxable either on due basis or receipt basis which ever matures earlier:

i) Due basis when it is earned even if it is not received in the previous

year.
ii) Receipt basis when it is received even if it is not earned in the previous
year.
iii) Arrears of salary- which were not due and received earlier are taxable
when

due

or

received,

which

ever

is

earlier.

5. Compulsory deduction from salary such as employees contribution to

provident fund, deduction on account of medical scheme or staff welfare scheme
etc. are

Gross Salary:
Gross salary is the sum total of Basic pay + Dearness allowance + House Rent
Allowance + transport allowance + special allowance + other allowance.
You can invest under the Section 80C to a maximum of Rs.1,50,000. Or if you are
in a higher tax bracket, you can save Rs.45,000 in tax.
You can make the investment in Provident Fund, Life Insurance Premium, Equity
Linked Savings Scheme, Home Loan monthly instalment, National Savings
Certificate, Infrastructure Bond, Pension Funds, Tuition fees and Unit Linked
Insurance Plan.
Under Section 80D , you can claim Rs.25,000 as medical expenses and Rs.30,000
can be claimed by senior citizens.
The deductions on House Rent Allowance is the least of the following:

Either the actual HRA amount.

50% of your basic pay if the employee is living in metro and 40% if the
employee is living in a non-metro area.

Additional rent paid above 10% of his salary.

While you have a house of your own, you cannot claim deductions for Home loan
interest payment and rent. But some people do claim both while they are living in
their own homes. If they are staying with their parents, they show that they are
paying rent to their parents and claim the HRA.
The other case is when you have your own house, but you stay in a rented
accommodation, as the workplace is far from your home. You can then claim HRA
as well as deduction for the home loan interest payment.

Deductions on Income from Salary

The deductions on Income from Salary falls under the Section 16 of the Income
Tax Act. The deductions are:

Entertainment Allowance under Section 16(ii): Deduction is allowed by way

of entertainment allowance given by an employer. This deduction is available
only for the Government employees. The deduction is either the 1/5th of salary
without including the benefits or perquisites or other allowances or Rs.5,000,
whichever is lesser. The non-government employees can't avail this deduction.

Tax on Employment under Section 16(iii): The Professional Tax is allowed

as a deduction while computing income from salaries.

Exemptions
1. Leave Travel Concession [S. 10(5)]
2. Gratuity [S.10(10)]
3. Commutation of Pension [S.10(10A)]
4. Encashment of Leave Salary [S.10(10AA)]
5. Retrenchment Compensation [S.10(10B)]
6. Retirement Compensation to Employees [S.10(10C)]
7. Tax on Perquisites paid by Employer [S.10(10CC)]
8. Payment from Statutory/ Public P.F.[S.10(11)]
9. Payment from Recognised P.F [S.10(12)]
10. Payment from Superannuation Fund [S.10(13)]
11. House Rent Allowance [S.10(13A)]
12. Special Allowance for Expenses [S.10(14)]
13. Pension to Gallantry Award Winners [S.10(18)]

Computation of Income from Income from Salary:

Particulars

Basic pay

Amount

Amou
nt

XXXX
X

+ Dearness allowance

XXX

+ Annuity

XXX

+ Bonus

XXX

+ Commission

XXX

+ Arrears of salary

XXX

+ House Rent allowance

Amount of HRA exempted

XXX
(XXX)

XXX

+ Leave travel allowance

XXX

Amount exempted on Leave travel

(XXX)

XXX

allowance

+ Perquisites

XXX
(XXX)

XXX

Amount exempted

+ other allowances

XXX

(XXX)

Amount exempted

+ VRS/ Retrenchment compensation

XXX

(XXX)

Amount exempted

+ Gratuity received

XXX

Exempted gratuity

(XXX)

+ Leave encashment

XXX

(XXX)

Exempted leave encashment

XXX

XXX

XXX

XXX

+ Pension

XXX

(XXX)

Amount exempted

+ employers contribution (in excess of 12%

salary of employee)
+ Interest on PF in excess of the notified
amount

XXX

XXX

XXXX

Gross Salary

XXX

Deductions under the Section 16:

Entertainment allowance

XXX

Professional Tax paid

XXX

Income

chargeable

for

tax

under

Salaries

XXXX
X

Income from House Property

Meaning of House Property:-

House property consists of any building or land appurtenant thereto of which the
assessee is the owner. The appurtenant lands may be in the form of a courtyard or
compound forming part of the building. But such land is to be distinguished from
an open plot of land, which is not charged under this head but under the head
Income from Other sources or Business Income, as the case may be. Besides,
house property includes flats, shops, office space, factory sheds, agricultural land
and farm houses.
Further, house property includes all type of house properties, i.e., residential
houses, godowns, cinema building, workshop building, hotel building, etc.
Example:- Mr. X has one big house. It includes vast open area within its
boundaries. The house has been let out at a rent of Rs. 1,00,000 p.m., out of which
rent of Rs. 25,000 p.m. is attributable to the open land. In this case, entire rental
income is taxable under the head house property.

Essential conditions for taxing income under this head

Income from house property is taxable in the hands of its legal owner in whose
name the property stands. Owner for this purpose means a person who can
exercise the rights of the owner not on behalf of the owner but in his own right. A
person entitled to receive income from a property in his own right is to be treated
as its owner, even if no registered document is executed in his name. The following
three conditions must be satisfied before the income of the property can be taxed
under the head Income from House Property:
The property must consist of buildings and lands appurtenant thereto;

 The assessee must be the owner of such house property;

The property may be used for any purpose, but it should not be used by the
owner for the purpose of any business or profession carried on by him, the profit of
which is chargeable to tax. If the property is used for own business or profession, it
shall not be chargeable to tax. Ownership includes both free-hold and lease-hold
rights and also includes deemed ownership.

Determination of Annual Value

What is Annual Value?
Income from house property is taxable on the basis of annual value. Even if the
property is not let out, notional rent receivable is taxable as its annual value.
As per Sec. 23(1)(a) the annual value of any property shall be the sum for which
the property might reasonably be expected to be let out from year-to-year. In
determining the annual value there are four factors which are normally taken into
consideration. These are:
i) Actual rent received or receivable,
ii) Municipal value,
iii) Fair rent of the property,
iv) Standard rent.

Basis of Charge (Section 22)

The annual value of a property, consisting of any buildings or lands appurtenant
thereto, of which the assessee is the owner, is chargeable to tax under the head
Income from house property. However, if a house property, or any portion
thereof, is occupied by the assessee, for the purpose of any business or profession,
carried on by him, the profits of which are chargeable to income-tax, the value of

such

property

is

not

chargeable

to

tax

under

this

head.

Thus, three conditions are to be satisfied for property income to be taxable under
thishead.
1. The property should consist of buildings or lands appurtenant thereto.
2.

The

assessee

should

be

the

owner

of

the

property.

3. The property should not be used by the owner for the purpose of any business or
profession carried on by him, the profits of which are chargeable to income-tax.

Meaning Of Terms

Annual Value: This is the capacity of a property to earn income is its annual
value.

Municipal Value: This is the value of your property as evaluated by

municipal authorities on which they charge municipal tax. Municipal
authorities have a host of factors that they consider before assigning a
municipal value.

Fair Rental Value: The rent which a similar property with similar features
in the same (or similar) area would fetch is the fair rental value.

Standard Rent: Under the Rent Control Act, a standard rent is fixed and
owners cannot receive rent higher than that specified in the Rent Control Act.
This Act ensures that owners are paid fair rent, tenants are not exploited and
are protected from eviction.

Actual Rent received/receivable: This is the actual amount received by the

owner from the tenant as rent, depending on who pays the water, electricity
and other utility bills.

Gross Annual Value (GAV): This is the highest among:

Rent received or receivable

Fair Market Value

Municipal Valuation

If the Rent Control Act is applicable, the GAV is highest among:

Standard Rent

Rent Received

Net Annual Value (NAV):

NAV = GAV Municipal Taxes Paid
Deductions: To arrive at the actual taxable income from house property, two
deductions are allowed, under Section 24 of the Income Tax Act :
Statutory Deduction: 30% of the NAV is allowed as a deduction towards repairs,
rent collection, etc. irrespective of the actual expenditure incurred. This deduction
is not allowed if the Annual Value is nil.
Interest on borrowed capital: is allowed as a deduction on accrual basis if the
money was borrowed to buy/construct the house. Deduction is allowed on
whichever is lesser between Rs.1,50,000 or the actual interest amount (in case the
construction was completed within 3 years of taking the loan, on or after 1-April1999.) In other cases, its between Rs.30,000, and the actual interest, whichever is
less.

Annual Value: Annual Value = NAV Deductions.

Owner/deemed owner: Income from house property is taxable to the owner of
the property. The owner is the person who is entitled to receive income from
property. This means that income is chargeable to the person who receives
financial benefit from the property, even if the property is not registered to him,
i.e. deemed owner. A deemed owner is an owner by implication and not
necessarily documented registration.

Property Incomes Exempt From Tax

Some incomes from house property are exempt from tax. They are neither taxable
nor included in the total income of the assessee for the rate purposes. These are:
1. Income from a farm house [section 2(1A) (c) and section 10(1)].
2. Annual value of one palace in the occupation of an ex-ruler [section
10(19A)].
3.

Property

income

of

local

authority

[section

10(20)].

4. Property income of an approved scientific research association [section

10(21)].
5. Property income of an educational institution and hospital [section
10(23C)].
6.

Property

7.

Income

8.

income
from

Property

of

property

income

registered
held

of

for
a

trade

charitable
political

union

[section

purposes
party

10(24)].

[section

[section

11].
13A].

9. Income from property used for own business or profession [section 22].
10. Annual value of one self occupied property [section 23(2)].

How do I Save Tax on Income from House Property?

Careful planning can enable you to save a sizeable amount from taxation. Some of
the things you can do to save tax are as follows:

Joint Home Loan If you jointly own a property with someone and
also apply for a joint home loan with your partner, you will both be eligible for
tax deductions on interest up to Rs. 1,50,000 each.

Planning a second home? If you already have one self-occupied

property registered to your name and wish to avoid paying taxes on a second
home, register the second property on your spouse/relatives name to avoid
excess taxation.

Joint ownership Taxation on income from house property can be

divided between co-owners, and hence lessen the load.

Ownership of more than one property If you own multiple

properties, only one of these can be registered as your residence and fall under
self-occupied property (SOP). It is important to evaluate the tax liability on all
your properties and choose the one with the highest tax liability to call home,
and let out the remaining. You can also change the SOP every year.

Empty houses that you own will still be taxed based on the fair rental
value, so its advisable to let any and all empty properties out, enabling income
and no loss because of taxation.

How to compute Income from House Property.

Income from house property contains the income generated by the owned property
of an individual.
Lets assume you have a property and are charging Rs. 15,000 per month as rent.
Lets also assume that you have paid Rs. 10,000 in municipal taxes for that year,
and have Rs. 50,000 as interest on borrowed capital.

Income of House Property

Amounts (in Rs.)

Total annual rental income value

15,000 x 12 = 1,80,000

Less: Municipal Taxes

10,000

Net Annual Value (NAV)

1,70,000

Deductions under Section 24

1,70,000

Standard deduction (30% of NAV)

Interest

on

borrowed

capital

1,19,000

(if

applicable)

Income from House Property

Conclusion

50,000

69,000

51,000

Salary received from employer, whether one or more than one is included in this
head. Salary is taxable either on due basis or receipt basis which ever matures
earlier.While income from employment is taxed under the head Salaries, income
from property is taxed under the head Income from House Property. Besides,
house property includes flats, shops, office space, factory sheds, agricultural land
and farm houses. Gross salary is the sum total of Basic pay + Dearness allowance
+ House Rent Allowance + transport allowance + special allowance + other
allowance.
Income from house property is taxable on the basis of annual value. Even if the
property is not let out, notional rent receivable is taxable as its annual value. In
determining the annual value there are four factors which are normally taken into
consideration. These are: i) Actual rent received or receivable, ii) Municipal value,
iii) Fair rent of the property, iv) Standard rent.

Bibliography

 http://elearning.nokomis.in/uploaddocuments/Advance%20Direct%20&
%20Indirect%20Tax/Chapter%20%E2%80%93%204%20INCOME
%20FROM%20SALARIES%20(SECTION%2015%20TO
%2017)/PPT/Chapter%204.pdf
http://www.incometaxindia.gov.in/tutorials/income-from-house-propertypractical.pdf
www.google .com