Income Tax
(A.Y. 2009-10 &
2010-11)
INDEX
1. Introduction
2. Residential Status 3. Tax Rates
4. Income from Salary
5. Income from House Property
6. Income from Business & Profession 7. Capital Gains
8. Income from Other Sources
9.
08/07/2009Clubbing of Income
2Contd…
10.Set-off Carry Forward
11.Deductions from Gross Total Income 12.Agricultural Income
13. Advance Tax
14.Assessment Procedures
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Charge of Income Tax
Income tax is charged in assessment year at rates specified by the Finance Act applicable on 1
stApril of the relevant assessment year.
It is charged on the total income of every person for the previous year.
Total Income is to be computed as per the provisions of the Act.
Income tax is to be deducted at source or paid in advance wherever required under the provision of the Act.
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Important Definitions
1. Person u/s 2(31) includes,
i. An Individual,
ii. Hindu Undivided Family (HUF), iii. A Company,
iv. A Firm,
v. An Association of Persons(AOP) or Body of Individuals (BOI),
vi. A Local Authority,
vii. Every other Artificial Juridical Person
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Contd…
2. Assessment Year u/s 2(9) means, the period of 12 months commencing on the 1
stApril every year. It is the year (just after previous year) in which income is earned is charged to tax. The current Assessment is 2009-2010.
3. Previous Year u/s 2(34) means, the year in which income is earned.
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Contd…
4. Gross Total Income (G.T.I) :- The aggregate income under the 5 heads of income (viz. Salary, House Property, Business or Profession, Capital Gains & Other Sources) is termed as “Gross Total Income”.
5. Total Income (T.I) :- Total Income of assessee is gross total income as reduced by the amount permissible as deduction under sections 80C to 80U.
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Index
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Types of Residential Status
The different types of residential status are:-
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Resident(R)
Not Ordinarily Resident (NOR) Non-Resident (NR)
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Residential Status of Individual
The residential status of individual will be determined as under-
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Assessee Basic Condition Additional Condition Resident He must satisfy at one
of the basic conditions. Not required.
Not Ordinarily Resident
He must satisfy at least one of the basic conditions.
He must satisfy either one or both the additional conditions given u/s 6(6).
Non-Resident Should not satisfy any
of the basic conditions. Not required.
08/07/2009
Contd…
Basic Conditions u/s 6(1):
i. He must be in India for a period of 182 days or more during the previous year; or
ii. He must be in India for a period of 60 days or more during the previous year and 365 days or more during the four years immediately preceding the previous year.
Additional Conditions u/s 6(6):
i. He must be a non-resident in India in nine out of the ten previous years preceding that year; or
ii. He must be in India during 7 preceding previous years for aggregate period of 729 days or less.
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Residential Status of HUF
The residential status of HUF depends upon the control and management of its affairs.
– Resident HUF: If the control and management of the affairs of HUF is situated wholly or partly in India then HUF is said to be Resident in India.
– Non- Resident HUF: If the control and management of the affairs of HUF is situated wholly outside India then HUF is said to be Non- Resident in India.
– Not Ordinarily Resident HUF: A resident HUF is said to be ‘Not Ordinarily Resident’ in India if Karta or manager thereof, satisfies any of the additional
conditions u/s 6(6).
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Residential Status
According to section 6(3) an Indian Company is always Resident in India. A foreign Company will be resident in India if Control or Management of its affairs is wholly situated in India.
Residential Status of a firm or AOP or other person depends upon control and management of its affairs.
Resident: If the control and management of the affairs of a firm or AOP or other person is situated wholly or partly in India then such a firm or AOP or other person is said to be resident in India.
Non-Resident: If the control and management of the affairs of a firm or AOP or other person is situated outside India then such a firm or AOP or other person is said to be non-resident in India.
14 08/07/2009
Incidence of Tax
Particulars
Particulars Tax Incidence Tax Incidence R R NOR NOR NR NR Income received in India by or on behalf of
Income received in India by or on behalf of assessee
assessee Yes Yes Yes Yes Yes Yes
Income deemed to received in India by or Income deemed to received in India by or
on behalf of assessee
on behalf of assessee Yes Yes Yes Yes Yes Yes Income accruing or arising in India
Income accruing or arising in India Yes Yes Yes Yes Yes Yes Income deemed to accrue or arise in India
Income deemed to accrue or arise in India Yes Yes Yes Yes Yes Yes Income which accrues or arise outside
Income which accrues or arise outside India
India Yes Yes No No No No
Index 15 08/07/2009
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RATES OF INCOME TAX (Assessment Year 2009-10)
1. In case of every Individual/ HUF/ AOP/BOI artificial juridical Person.
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INCOME INCOME
(A.Y. 2009-10)
(A.Y. 2009-10) INCOME INCOME
(A.Y. 20010-11)
(A.Y. 20010-11) TAX RATETAX RATE Up to 150000 Up to 160000 NIL
Next 150000 Next 140000 10%
Next 200000 Next 200000 20%
Above 500000 Above 500000 30%
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Contd…
2. In case of resident women below 65 years of age.
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INCOME INCOME
(A.Y. 2009-10)
(A.Y. 2009-10) INCOME INCOME
(A.Y. 2010-11)
(A.Y. 2010-11) TAX RATETAX RATE Up to 180000 Up to 190000 NIL
Next 120000 Next 110000 10%
Next 200000 Next 200000 20%
Above 500000 Above 500000 30%
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Contd…
3. In case of resident senior citizen i.e. age of 65 years or above
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INCOME INCOME
(A.Y. 2009-10)
(A.Y. 2009-10) INCOME INCOME
(A.Y. 2010-11)
(A.Y. 2010-11) TAX RATETAX RATE Up to 225000 Up to 240000 NIL
Next 75000 Next 60000 10%
Next 200000 Next 200000 20%
Above 500000 Above 500000 30%
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Contd…
PERSONS TAX RATE
FIRMS
FIRMS 30%30%
DOMESTIC COMPANY
DOMESTIC COMPANY 30%30%
FOREIGN COMPANY
FOREIGN COMPANY 40%40%
LOCAL AUTHORITIES
LOCAL AUTHORITIES 30%30%
CO-OPERATIVE SOCIETIES CO-OPERATIVE SOCIETIES
Up to 10000 Up to 10000 10000-20000 10000-20000 Above 20000 Above 20000
10%10%
20%20%
30%30%
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Surcharge & Cess
PERSON RATE OF SURCHARGE
Individual / AOP / BOI / Individual / AOP / BOI / HUF / Artificial Juridical HUF / Artificial Juridical Person
Person 10% of tax liability if Income Exceeds Rs 10 Lacs10% of tax liability if Income Exceeds Rs 10 Lacs FirmFirm 10% of tax liability, if Income exceeds Rs. 1 Crore10% of tax liability, if Income exceeds Rs. 1 Crore Domestic Company
Domestic Company 10% of tax liability, if Income exceeds Rs. 1 Crore10% of tax liability, if Income exceeds Rs. 1 Crore Foreign company
Foreign company 2.5% of tax liability, if Income exceeds Rs. 1 Crore2.5% of tax liability, if Income exceeds Rs. 1 Crore Co-operative Society
Co-operative Society N.A.N.A.
Local Authority
Local Authority N.A.N.A.
Education Cess and Secondary & Higher Education Cess is applicable on Education Cess and Secondary & Higher Education Cess is applicable on every person @ 2% & 1% respectively on tax liability and surcharge applicable, every person @ 2% & 1% respectively on tax liability and surcharge applicable, if any.
if any.
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Note: surcharge on personal income-tax will be eliminated from A.Y. 2010-11
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Meaning
Salary includes [section17(1)] :-
i. Wages
ii. Any annuity on pension iii. Any gratuity
iv. Any fees, commission, bonus, perquisite on profits in lieu of or in addition to any salary on wages
v. Any advance of salary vi. Any earned leave
vii. Employers contribution (taxable) towards recognized provident fund.
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BASIS OF CHARGE
Income is taxable under head “Salaries”, only if there exists Employer - Employee Relationship between the payer and the payee. The following incomes shall be chargeable to income-tax under the head “Salaries”:-
1.Salary Due
2.Advance Salary [u/s 17(1)(v)]
3.Arrears of Salary
Note:
(i)Salary is chargeable on due basis or receipt basis, whichever is earlier.
(ii)Advance salary and Arrears of salary are chargeable to tax on receipt basis only.
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Allowances
Allowance is generally defined as a fixed quantity of money or other substance given regularly in addition to salary for the purpose of meeting some particular requirement connected with the services rendered by the employee or as compensation for unusual conditions of that service.
1.Dearness Allowance - It is Always Taxable.
2.City Compensatory Allowance - It is Always Taxable.
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Contd…
3. House Rent Allowance
Exemption In Respect Of House Rent allowance is regulated by rule 2A. The least of the three given below is Exempt from Tax.
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1
An Amount Equal to 50 % of Salary. Where Residential House in situated at Bombay, Calcutta, Delhi or Madras and An Amount Equal to 40 % of Salary where Residential House is situated at any Other Place.
2
House Rent Allowance Received by The Employee in Respect of The Period during which Rental Accommodation is Occupied by the Employee during the Previous Year.
3 The Excess of Rent Paid over 10 % of Salary.
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Contd…
4. Entertainment allowance [sec.169(ii)]-
Entertainment allowance is first included in salary in come under the head “salaries” and thereafter a deduction is given on the basis enumerated below:
27
Government Government Non-Non- GovernmentGovernment
Least of the Following is deductible : Least of the Following is deductible : 1. Rs. 50001. Rs. 5000
2. 20 % of basic salary 2. 20 % of basic salary
3. Amount of entertainment 3. Amount of entertainment
allowance grated during the previous allowance grated during the previous yearyear
Nothing is deductible Nothing is deductible
Status of Employee Status of Employee
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Contd…
5. Special allowances prescribed as exempt under section 10(14) – In the cases given below the amount of exemption under section 10(14) is :–
i. The amount of the allowance ; or
ii. The amount utilized for the specific purpose for which allowance is given.
Whichever is lower.
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Contd…
Exemption is available on the aforesaid basis in the case of following allowances :-
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NAME OF ALLOWANCE
NAME OF ALLOWANCE NATURE OF ALLOWANCENATURE OF ALLOWANCE Travelling Allowance/
Travelling Allowance/
Transfer Allowance Transfer Allowance
Any allowance granted to meet the cost of travel on Any allowance granted to meet the cost of travel on tour or on transfer (including sum paid in connection tour or on transfer (including sum paid in connection with transfer, packing and transportation of personal with transfer, packing and transportation of personal effects on such transfer).
effects on such transfer).
Conveyance Allowance
Conveyance Allowance Conveyance allowance granted to meet the Conveyance allowance granted to meet the expenditure on conveyance in performance of duties expenditure on conveyance in performance of duties of an office (expenditure for covering the journey of an office (expenditure for covering the journey between office and residence is not to be included).
between office and residence is not to be included).
Daily Allowance
Daily Allowance Any allowance whether granted on tour or for the Any allowance whether granted on tour or for the period of journey in connection with transfer, to meet period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee the ordinary daily charges incurred by an employee on account of absence from this normal place of duty.
on account of absence from this normal place of duty.
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Contd…
6. When exemption does not depend upon expenditure - In the cases given below, the amount of exemption does not depend upon expenditure incurred by the employee. Regardless of the amount of expenditure, the allowances given below are exempt to the extent of –
i. the amount of allowance ; or
ii. the amount specified in rule 2BB,
Whichever is lower.
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Contd…
Name of allowance
Name of allowance Exemption as specifiedin rule 2BBExemption as specifiedin rule 2BB Special Compensatory
Special Compensatory (Hill Areas) Allowance (Hill Areas) Allowance
Amount exempt from tax varies from Rs. 300 per mount to Amount exempt from tax varies from Rs. 300 per mount to Rs. 7,000 per month
Rs. 7,000 per month Border area allowance
Border area allowance The amount of exemption varies from Rs. 200 Per month The amount of exemption varies from Rs. 200 Per month to Rs. 1,300 per month
to Rs. 1,300 per month Tribal areas/ scheduled
Tribal areas/ scheduled areas allowance
areas allowance Rs. 200 Per MonthRs. 200 Per Month Allowance for transport
Allowance for transport employees
employees
The amount of exemption is- The amount of exemption is-
a.a.70 per cent of such allowance; or 70 per cent of such allowance; or
b.b.Rs. 6,000 per month, whichever is lower.Rs. 6,000 per month, whichever is lower.
Children education Children education allowance
allowance
The amount exempt is limited to Rs. 100 per month per The amount exempt is limited to Rs. 100 per month per child up to a maximum of two children.
child up to a maximum of two children.
Hostel expenditure Hostel expenditure allowance
allowance
It is exempt from tax to the extent of Rs. 300 per month It is exempt from tax to the extent of Rs. 300 per month per child up to a maximum of two children.
per child up to a maximum of two children.
Compensatory field area Compensatory field area allowance
allowance
Exemption is limited to Rs. 2,600 per month in some Exemption is limited to Rs. 2,600 per month in some cases.
cases.
Contd…
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Name of Allowance
Name of Allowance Exemption as Specified in Rule 2BBExemption as Specified in Rule 2BB Compensatory modified
Compensatory modified area allowance
area allowance
Exemption is limited to Rs.1,000 per month in some Exemption is limited to Rs.1,000 per month in some cases.
cases.
Counter insurgency Counter insurgency allowance
allowance
Exemption is limited to Rs.3,900 per month in some Exemption is limited to Rs.3,900 per month in some cases.
cases.
Transport allowance Transport allowance
It is exempt up to Rs. 800 per month (Rs. 1,600 per It is exempt up to Rs. 800 per month (Rs. 1,600 per month in the case of an employee who is blind or month in the case of an employee who is blind or orthopedically handicapped)
orthopedically handicapped) Underground allowance
Underground allowance Exemption is limited to Rs. 800 per month.Exemption is limited to Rs. 800 per month.
High altitude allowance High altitude allowance
It is exempt from tax up to Rs. 1,060 per month (for It is exempt from tax up to Rs. 1,060 per month (for altitude of 9,000 to 15,000 feet) or Rs. 1,600 per month altitude of 9,000 to 15,000 feet) or Rs. 1,600 per month (for altitude above 15,000 feet).
(for altitude above 15,000 feet).
Highly active field area Highly active field area allowance
allowance It is exempt from tax up to Rs. 4,200 per month.It is exempt from tax up to Rs. 4,200 per month.
Island duty allowance
Island duty allowance It is exempt up to Rs. 3,250 per month.It is exempt up to Rs. 3,250 per month.
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Contd…
7. Allowance to Government employees outside India [Sec. 10( 7)] - Any allowance paid or allowed outside India by the Government to an Indian citizen for rendering service outside India is wholly exempt from tax.
8. Tiffin allowance - It is taxable.
9. Fixed medical allowance – It is taxable.
10.Servant allowance - It is taxable.
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Contd…
11.Allowance to High Court and Supreme Court Judges - Any allowance paid to High Court Judges under section & 22C of the High Court Judges (Conditions of Service) Act, 1954 is not chargeable to tax.
12. Allowance received from a United Nations Organization - Allowance paid by a United Nations Organization to its employees is not taxable by virtue of section 2 of the UN (Privileges
and Immunities) Act, 1974.
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PERQUISITES
Perquisite may be defined as any Casual Emolument or Benefit attached to an office or position in Addition to Salary or Wages. It also denotes something that benefits a man by going in to his own pocket.
Perquisites may be provided in cash or in kind.
Perquisites are included in salary income only if they are received by an employee from his employer.
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“Perquisites” as defined u/s 17 (2)
The term “perquisites” is defined by section 17 (2) as including the following items:
1.The value of Rent-free Accommodation provided to the assessee by his employer
2.The value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer
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Contd…
3. The value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases :
i. By a company to an employee who is a director thereof ;
ii. By a company to an employee, being a person who has substantial interest in the company ;
iii. By any employer (including a company) to an employee to whom provisions of (i) and (ii) above do not apply and whose income under the head “salaries” exclusive of the value of all benefits or amenities not provided for by way of monetary benefits, exceeds Rs. 50,000
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Contd…
4. Any sum paid by the employer in respect of any obligation which but for such payment would have been payable by the assessee. Obligation of Employee met by Employer.
5. Any sum payable by the employer, whether directly or through a fund other than a recognized provident fund or approved superannuation fund or a deposit-linked insurance fund, to effect an assurance on the life of the assessee or to effect a contract for an annuity
6. The value of any other fringe benefits or amenity as may be prescribed
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TERMINAL BENEFITS
1. Gratuity [Sec.10(10)] – Gratuity is a retirement benefit. It is generally payable at the time of cessation of employment and on the basis of duration of service. Tax treatment of gratuity is given below:
Status of Employee Status of EmployeeStatus of Employee Status of Employee
Government Employee Government
Employee
Non-government employee covered by
the payment of Gratuity Act, 1972
Non-government employee covered by
the payment of Gratuity Act, 1972
Non-government employee not covered
by the payment of Gratuity Act, 1972
Non-government employee not covered
by the payment of Gratuity Act, 1972 It is fully exempt
from tax under
section 10(10)(i) Least of following is exempt:
1)“15 days’ salary” x “Length of service”
2)Rs. 3, 50, 000
3)Gratuity actually received.
Least of following is exempt:
1)“½ month avg. salary” x
“Length of service”
2)Rs. 3, 50, 000
3)Gratuity actually received.
Contd…
2. PENSION [SEC. 17(1)(ii)] - Pension is chargeable tax as follows :-
PENSION PENSION
Taxable for Government as
well as Non- Government
employees Entire Commuted
Pension is exempt whether or not Gratuity received.
UNCOMMUTED COMMUTED
Government Employee
Non-Government Employee
1/3 of commuted
pension is exempt If Gratuity
Received
If Gratuity not Received
1/2 of commuted
pension is exempt
Contd…
3.Annuity [Sec. 17(1)(ii)] – An annuity payable by a present employer is taxable as salary even if it is paid voluntarily without any contractual obligation of the employer. An annuity received from an ex-employer is taxed as profit in lieu of salary.
4.Retrenchment compensation [Sec. 10(10B)] – Compensation received by a workman at the time of retrenchment is exempt from tax to the extent of the lower of the following:
a. an amount calculated in accordance with the provisions of sec. 25F(b) of the Industrial Disputes Act, 1947; or b. such amount as notified by the Government (i.e., Rs, 5, 00, 000); or c. the amount received.
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Contd…
5. Compensation received at the time of Voluntary Retirement [sec.10 (10C)] - Compensation received at the time of voluntary retirement is exempt from tax, subject to certain conditions.
Maximum amount of exemption is Rs. 500000.
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Provident Fund
Provident Fund Scheme is a welfare scheme for the benefit of employees. The employee contributes certain sum to this fund every month and the employer also contributes certain sum to the provident fund in employees A/c. the employers contribution to the extent of 12% is not chargeable to tax.
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LEAVE SALARY
Encashment of leave by surrendering leave standing to one’s credit is known as “leave salary”.
LEAVE ENCASHMENT
During Employment Retirement / Leaving the Job
Chargeable to Tax
Non-Government Employee Government
Employee
Fully Exempt
Least of following is exempt :- 1)Earned Leave on the basis of Average Salary
2)10 x Average monthly salary 3)Rs. 300000
4)Leave Salary Received
Deductions Admissible in Computing Income under head ‘SALARIES’
1. Entertainment allowance granted by employer [Sec.16(ii)]: This deduction is available in case of Government employees only.
2. Employment Tax / Professional Tax [Sec.16(iii)]:
Any sum paid by assessee on account of a tax on employment within the meaning of Article 276(2).
Under the said article employment tax cannot exceed Rs. 2500 p.a.
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Relief in respect of
Advance or Arrears of Salary u/s 89
When an assessee is in receipt of a sum in the nature of salary, being paid in arrears or in advance, due to which his total income is assessed at a rate higher than that at which it would otherwise have been assessed, Relief is granted on an application made by the assessee to the assessing officer.
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Basis of Charge
The basis of charge of income under the head
‘income from house property’ is the Annual Value of the property. Annual Value is inherent capacity of the property to earn an income. It is the amount for which the property might reasonably be expected to let from year to year.
Income from house property is charged to tax on Notional Basis, as generally tax is not on receipt of income but on the inherent potential of the house property to generate income.
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Conditions to be Satisfied
1. The property must consist of buildings or lands appurtenant to such buildings.
2. The assessee must be the owner of such house property.
3. The property should not be used by the owner thereof for the purpose of any business or profession carried on by him, the profits of which are chargeable to tax.
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Computation of Gross Annual Value (GAV)
Particulars Amount Amount
(a) Fair Rent of the House xxx
(b) Municipal Value of House xxx
(c) Whichever is more of (a) and (b) XXX
(d) Standard Rent xxx
Expected Rent Expected Rent [whichever is less of (c) and (d)][whichever is less of (c) and (d)] XXXXXX
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Step 1 : Calculate Expected Rent as follows:-
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Contd…
Step 2 : Compare Expected Rent & Actual Rent Receivable (ARR).
Where the property or any part thereof is let out,
If ARR is more than ER referred to in Step 1, then, GAV
= ARR
If ARR is less than ER and it is due the vacancy of property then, GAV = ARR
If ARR is less than ER not owing to vacancy GAV = ER
Note: ARR = Rent Received / Receivable less Unrealized Rent
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Net Annual Value (NAV)
Net Annual Value is the sum computed after deducting from Gross Annual Value, the taxes levied by any local authority in respect of the property.
NAV = GAV – Municipal Taxes Paid
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Meaning
1. Municipal Valuation :- For collecting municipal taxes, local authorities make a periodical survey of all building in their jurisdiction. Such valuation may be taken as strong evidence representing the earning capacity of a building.
2. Fair Rent of the Property :- Fair rent of the property can be determined on the basis of a rent fetched by a similar property in the same or similar locality.
3. Standard Rent :- Standard rent is the maximum rent which a person can legally recover from his tenant under a Rent Control Act.
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Self-occupied Property [Sec. 23(2)]
Property is considered to be self – occupied where,
the property consisting of house or part thereof is in the occupation of the owner for the purposes of his own residence; or
such property cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at
any other place, he has to reside at that other place in a building not belonging to him.
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Contd…
In case of Self-occupied House Property Net Annual Value is always Zero.
Since NAV is zero, the municipal taxes paid by the owner of the house are not deductible.
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Deduction Admissible u/s 24
i. Statutory deduction :- 30% of Annual Value (i.e.
30% of NAV)
ii.Interest payable on capital borrowed for acquisition, construction, repair, renewal or reconstruction of house property :- Actual amount of interest for the year on accrual basis plus 1/5
thof the interest, if any, pertaining to the pre-
acquisition or pre-construction period.
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Deduction for Interest on
Capital Borrowed in case of SOP
Maximum limit of deduction in respect of interest on capital borrowed in case of a Self-occupied property whose annual value is assessed at NIL, is Rs. 1,50,000
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CASECASE MAXIMUM MAXIMUM DEDUCTION DEDUCTION Interest on capital borrowed on or after
Interest on capital borrowed on or after 1-4-1999 for acquisition or construction 1-4-1999 for acquisition or construction of house
of house 1,50,0001,50,000
In any other case
In any other case 30,00030,000
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Recovery of Unrealized Rent [Section 25AA]
Any amount of rent realized by the assessee during the previous year, which he could not realize from a property let to a tenant, shall be deemed to be income chargeable under the head “Income from house property”.
100% of the amount actually received is taxable in the previous year in which it is realized.
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Arrears of Rent [Section 25B]
Arrears of rent shall be deemed to be income chargeable under the head “Income from house property”. It shall be charged to income tax as income of previous year in which it is received.
Taxable amount is computed as under :-
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PARTICULARS
PARTICULARS AMOUNTAMOUNT
The amount received as arrears of rent
The amount received as arrears of rent XXXXXX Less:
Less: 30% of such amount 30% of such amount xxxxxx Amount taxable as arrears of rent
Amount taxable as arrears of rent XXXXXX
Index
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Basis of Charge [sec. 28]
The following income is chargeable to tax under the head
“Profits and gains of business or profession”:
1.Profits and gains of any business or profession;
2.Any compensation or other payments due to or received by any person specified in section 28(ii);
3.Income derived by a trade, professional or similar association from specific services performed for its members;
4.The value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession;
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Contd…
5. any profit on transfer of the Duty Entitlement Pass Book Scheme.
6. Any profit on the transfer of the duty free replenishment certificate;
7. Export incentive available to exporters;
8. Any interest, salary, bonus, commission or remuneration received by a partner from firm; Any sum received for not carrying out any activity in
relation to any business or not to share any know-how, patent,
copyright, trademark, etc.
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Contd…
9. Any sum received under a Keyman insurance policy including bonus;
10. Profits and gains of managing agency; and 11. Income from speculative transaction.
Income from the aforesaid activities is computed in accordance with the provisions laid down in section 29 to 44D.
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Expenses Expressly Allowed
1. Rent, rates, taxes, repairs and insurance for building [Sec.
30]
2. Repairs and insurance of machinery, plant and furniture [Sec. 31]
3. Depreciation allowance [Sec. 32]
4. Tea/coffee/rubber development account [Sec. 33AB]
5. Expenditure on acquisition of patent rights and copyrights [Sec. 35A]
6. Insurance premium [Sec. 36 (1) (i)]
7. Premier for insurance on health of employees [Sec. 36(1) (ib)]
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Contd…
8. Bonus or commission to employees [Sec. 36(1)(ii)]
9. Interest on borrowed capital [Sec. 36(1)(iii)]
10. Employer’s contribution to recognized provident fund and approved superannuation fund [Sec. 36(1)(iv)]
11. Contribution towards approved gratuity fund [Sec.
36(1)(v)]
12. Employee’s contribution towards staff welfare schemes
13. Bad debts [Sec. 36(1)(vii)]
14. Family planning expenditure [Sec. 36(1) (ix)]
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Contd…
15. Banking cash transaction tax, securities transaction tax and commodities transaction tax.
16. Advertisement expenses [Sec. 37(2B)].
17. General Deduction [Sec. 37(1)].
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EXPENSES NOT DEDUCTIBLE
[Section 37(1)]
1. Damages and penalty paid for transgressing the terms of agreement with the State.
2. Penalty and damages paid in connection with infringement of law.
3. Litigation expenditure incurred for curing any defect in the title of assets or completing that title.
4. Litigation expenses for registration of shares.
5. Fees paid for increase of authorized capital.
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Contd…
6. Expenditure on raising equity share capital and preference share capital. However, expenditure on issue of bonus shares id deductible.
7. Amount paid for acquiring technical know-how which is to be utilized for the purpose of manufacturing any new article and such know-how is to become the property of the assessee at the end of the stipulated period.
8. Amount expended for acquiring a business or a right of permanent character or an asset which generates income or for avoiding compensation in business.
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Contd…
9. Payments made for acquisition of good will.
10. Expenditure incurred for acquiring right over or in land to win minerals.
11. Fees paid to obtain license to investigate and search minerals.
12. Payment made in consideration of acquiring a monopoly right to manufacturer a producer (royalty payable on the basis of goods produced under the same arrangement is, however, deductible).
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Contd…
13. Tax paid by the assessee (who is defaulter by not deducting tax at source under section 195) on behalf of non-resident.
14. Compensation paid to contracting party with the object of avoiding an unnecessary investment in capital assets.
15. Expenditure on shifting of registered office.
16. Insurance premia paid by a firm on life insurance policies of its partners.
17. Amount paid by liquor contractor to police staff and other officer to enable it to make unauthorized purchases and sales of liquor.
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Contd…
18. Amount paid by a company to the Registrar of Companies as filing fee for enhancement of capital base of the company.
19. Payment made by assessee company which was partner in a firm, to outgoing partners of firm on account of their agreeing to restrain from carrying on similar business for a period of 15 years.
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Specific Disallowances
1. Interest, Royalty, fees for Technical Services payable outside India,if on such amount tax is deductible but tax has not been deducted or deposited with Government.
[Sec. 40(a)(i)]
2. Fringe Benefit Tax [Sec. 40(a)(ic)]
3. Income-Tax [Sec. 40(a)(ii)]
4. Salary Payable Outside India without Tax Deduction [sec.
40(a)(iii)]
5. Provident Fund Payment without tax Deduction at Source [Sec. 40(a)(iv)]
6. Certain specified expenses in case of Partnership Firm
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Contd…
7. Interest paid by an AOP/ BOI to its members is not allowed as deduction by virtue of sec. 40(ba)
8. Payment to relatives in excess of fair value – not deductible [Section 40A(2)]
9. Expenditure in excess of Rs. 20,000 in aggregate in a day paid otherwise than by account payee cheque drawn on a bank or account payee bank draft – Not allowable [Section 40A(3))]
10. Amount not deductible in respect of certain unpaid liabilities [Sec.43B]
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Books of Accounts to be maintained [Section 44AA]
The persons carrying on specified professions are required to maintain specified books of account only if the gross receipts of their profession have exceeded Rs. 1,50,000
Every other person carrying on business or profession shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act.
a) If his income from business or profession exceeds Rs. 1,20,000;
b) Total sales/turnover/gross receipts thereof exceeds Rs.10,00,000
c) the assessee has claimed his income lower than deemed profits
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Tax Audit u/s 44AB
This section applies to following :-
The assessee is required to get his accounts of such
previous year audited by a Chartered Accountant before 30
thSeptember of the assessment year.
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Person carrying on - Accounts are to be audited for previous year in which -
Business Total sales, turnover or gross receipts exceed Rs. 40,00,000
Profession Gross receipts exceed Rs. 10,00,000 Business covered u/s
44AB, 44AE, 44AF, 4BB and 44BBB
He has claimed his income to be lower than the profits or gains so deemed under the respective section.
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Special Provisions for Computing Income on Estimated Basis 44AD, 44AE & 44AF
Not withstanding anything contained in Sections 28 to 43C, the following provisions will apply.
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Sec. 44 AD
Sec. 44 AD Sec. 44 AESec. 44 AE Sec. 44AFSec. 44AF Business of
Business of Assessee
Assessee Civil construction or Civil construction or supply of labour for it.
supply of labour for it. Plying, hiring or leasing Plying, hiring or leasing goods carriages owned goods carriages owned by him.
by him.
Retail trade in Retail trade in any goods or any goods or merchandise.
merchandise.
This This Section Section applies if applies if
Gross receipts of such Gross receipts of such business during the business during the previous year do not previous year do not exceed Rs. 40 lacs.
exceed Rs. 40 lacs.
Goods carriages owned Goods carriages owned by assessee at any time by assessee at any time during previous year during previous year doesn’t exceed 10 lacs doesn’t exceed 10 lacs
Total business Total business turnover in that turnover in that previous year previous year doesn’t exceed doesn’t exceed Rs. 40 lacs.
Rs. 40 lacs.
Deemed Deemed Profits
Profits 8% of Gross receipts 8% of Gross receipts (No. of heavy goods(No. of heavy goods
vehicle x Rs. 3500 x vehicle x Rs. 3500 x NM) + (No. of other NM) + (No. of other vehicles x Rs. 3150 vehicles x Rs. 3150 x NM)
x NM)
NM = No. of months NM = No. of months
5% of Gross 5% of Gross receipts or such receipts or such higher sum as higher sum as declared by him declared by him in his Return of in his Return of Income.
Income.
DEPRICIATION [Sec. 32]
Depreciation allowance [Sec. 32] - Depreciation shall be determined according to the provisions of section 32.
Conditions for claiming Depreciation - In order to avail depreciation, one should satisfy the following conditions:
– Asset must be owned by the assessee.
– It must be used for the purpose of business or profession.
– It should be used during the relevant previous year.
– Depreciation is available on tangible as well as intangible assets.
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Contd…
Block of Assets [Sec. 2(11)] - The term “block of assets” means a group of assets falling within a class of assets comprising –
– tangible assets, being buildings, machinery, plant or furniture;
– intangible assets, being know-how, patents, copyrights, trade marks, licenses, franchises or any other business or commercial rights of similar nature.
– In respect of which the same percentage of depreciation is prescribed.
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Contd…
Written Down Value [Sec. 43(6)] - Written down value for the assessment year 2009-10 will be determined as under:
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Step 1
Step 1 Find out the depreciated value of the block on the Find out the depreciated value of the block on the April 1, 2008.
April 1, 2008.
Step 2 Step 2
To this value, add “actual cost” of the asset (falling To this value, add “actual cost” of the asset (falling in the block) acquired during the previous year in the block) acquired during the previous year 2008-09.
2008-09.
Step 3 Step 3
From the resultant figure, deduct money From the resultant figure, deduct money received/receivable (together with scrap value) in received/receivable (together with scrap value) in respect of that asset (falling within the block of respect of that asset (falling within the block of assets) which is sold, discarded demolished or assets) which is sold, discarded demolished or destroyed during the previous year 2008-09.
destroyed during the previous year 2008-09.
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Contd…
Meaning of “Actual Cost” [Sec. 43(1)] - It means the actual cost to the assessee as reduced by the proportion of the cost thereof, if any, as has been met, directly or indirectly, by any other person or authority.
If written down value of the block of asset is reduced to zero, though the block is not empty - No depreciation is admissible.
If the block of assets is empty or ceases to exist on the last day of the previous year though the written down value is not zero - No
depreciation is admissible.
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Contd…
Additional depreciation @ 20% is available on new plant or machinery acquired & installed after 31.03.05, if used in production or manufacturing.
If asset is used for less than 180 days during the previous year, in which its purchased, then deprecation & additional depreciation is restricted to 50% of actual depreciation. However in subsequent year full depreciation is allowed irrespective of use.
When a depreciable asset(on which depreciation is claimed on straight line basis) of a power generating unit is disposed in a previous year, then terminal depreciation (loss) is deductible or balancing charge (gain) is taxable.
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Partnership
Deductibility of interest paid to partners by firm depends upon following :-
– Payment of interest should be authorized by the partnership deed – Payment of interest should pertain to the period after the
partnership deed.
– Rate of interest should not exceed 12 percent
Deduction of Remuneration to Partners can be claimed if paid :-
– to a Working Partner
– According to the Partnership Deed
– Does not exceed the Permissible Limits.
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Contd…
The maximum amount of salary paid to all the partners during the previous year should not exceed the limits given below :-
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In case of a firm carrying of a profession referred to in section 44AA In case of a firm carrying of a profession referred to in section 44AA
On the first Rs. 1,00,000 of the book
profit or in case of a loss Rs. 50,000 or at the rate of 90 percent of the book profit, whichever is more On the next Rs. 1,00,000 of the book
profit At the rate of 60 percent
On the balance of the book profit At the rate of 40 percent In the case of any other firm
In the case of any other firm
On the first Rs. 75,000 of the book
profit or in case of a loss Rs. 50,000 or at the rate of 90 percent of the book profit, whichever is more On the next Rs. 75,000 of the book
profit At the rate of 60 percent
On the balance of the book profit At the rate of 40 percent
Minimum Alternate Tax (MAT)
Applicability of Minimum alternate tax (MAT) sec. 115JB :-
•Minimum alternate tax (MAT) sec. 115 JB MAT is applicable in case of companies only.
•If tax liability of a company under normal provision is lower than 10% of book profit.
•In such case, book profit shall be deemed as total income
& 10% of book profits should be deemed as tax liability.
•Up to assessment year 2001-02 these provisions were covered by sec. 115 JA.
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Contd…
• A company is allowed credit of tax paid u/s 115- JB for the assessment year 2006-07 and onwards in accordance with the provisions of section 115-JAA.
• MAT credit can be carried forward for a period of seven years.
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Index
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Basis of Charge
Capital Gain’s tax liability arises only when the following conditions are satisfied:
1.There should be a capital asset.
2.The capital asset is transferred by the assessee
3.Such transfer takes place during the previous year.
4.Any profit or gains arises as a result of transfer.
5.Such profit or gains is not exempt from tax under section 54, 54B, 54D, 54EC, 54F, 54G, and 54GA
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Capital Assets
“Capital asset” is defined to include property of any kind, whether fixed or circulating, movable or immovable, tangible or intangible.
However, following are excluded from the definition of “capital assets”:
1.Any stock-in-trade, consumable stores or raw material held for the purposes of business or profession.
2.Personal effects of the assessee, that is to say, movable property including wearing apparel and furniture held for his personal use or for the use of any member of his family dependent upon him.
However, Jewellery, Archaeological Collections, Drawings, Paintings, Sculptures, or Art Work will not be considered as “personal effects”.
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Contd…
3. Agricultural land in India provided it is not situated –
– in any area within the territorial jurisdiction of a municipality or cantonment board, having a population of 10,000 or more; or
– in any notified area.
4. 6½ percent Gold Bonds, 1977 or 7 percent Gold Bonds, 1980 or National Defense Gold Bonds, 1980 issued by the Central Government.
5. Special Bearer Bonds, 1991.
6. Gold Deposit Bonds issued under Gold Deposit Scheme, 1999.
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Short-term / Long-term Capital Assets
“Short term capital asset” means a capital asset held by an assessee for not more than 36 months, immediately prior to its date of transfer. In other words, if a capital asset is held by an assessee for more than 36 months, then it is known as
“long term capital asset.”
However in following cases 36 months will be replaced by 12 months :-
• Equity or preference shares in a company
•Listed Securities
•Units of UTI
•Units of a mutual fund specified under section 10(23D)
•Zero coupon bonds
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Important Terms
1. Transfer of Capital Asset :- Transfer, in relation to capital asset, includes sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law [sec.
2(47)].
2. Full Value of Consideration :- The expression “full value”
means the whole price without any deduction whatsoever.
3. Expenditure on Transfer :- The expression “expenditure on transfer” means expenditure incurred which is necessary to effect the transfer.
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Contd…
4. Cost of Acquisition :- Cost of acquisition of an asset is the value for which it was acquired by the assessee. In case of Depreciable Asset COA is the WDV of asset in the beginning of the year. In case of Slump Sale COA is the Net Worth of the undertaking.
5. Cost of improvement :- Cost of improvement is capital expenditure incurred by an assessee in making any additions/ improvement to
the capital asset.
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