note tax

(1)

Ch.1

Ch.1 BASIC BASIC CONCEPTSCONCEPTS

Financial

Financial Year Year :: The year starting from April 1 and ending on March 31 of the next year is knownThe year starting from April 1 and ending on March 31 of the next year is known as a financial year.

as a financial year. Assessment Ye

Assessment Year: AY is a ar: AY is a financial year financial year in which in which the income the income earned during earned during the preious the preious year isyear is taxed.

taxed. !reious Y

!reious Year "sec 3#: The year ear "sec 3#: The year in which the income is in which the income is earned is called the pearned is called the preious year.reious year. $.g.:

$.g.: 1.

1. %nc%ncome earome earned &y 'Y( )td in the year *++ned &y 'Y( )td in the year *++,-*,-*++ wi++ will &e taxed in the year *++ll &e taxed in the year *++-*-*++/++/.. The same would &e taxa&le irrespectie of the

The same would &e taxa&le irrespectie of the accounting year followed &y the assessee.accounting year followed &y the assessee. %n the aforesaid the year *++,-+ is the preious year and the year *++-+/ is the %n the aforesaid the year *++,-+ is the preious year and the year *++-+/ is the assessment year.

assessment year. *.

*. The incThe income of ' comprome of ' compriseises of only pros of only properperty incty income tiome till Marll March 1+0 *++ch 1+0 *++. 2n Marc. 2n March 1+0h 1+0 *++ he starts a new &usiness of computer hardware. From the date gien &elow0 find *++ he starts a new &usiness of computer hardware. From the date gien &elow0 find out the taxa&le income of ' or the assessment years *++-+ to *++,-+.

out the taxa&le income of ' or the assessment years *++-+ to *++,-+. !roperty income: 4s. 5*0+++6- eery

!roperty income: 4s. 5*0+++6- eery year.year.

7usiness income: 4s 1+0+++6- for the period ending 31 March *++ and 4s.+++6-for 7usiness income: 4s 1+0+++6- for the period ending 31 March *++ and 4s.+++6-for the period ending 31 march *++,.

the period ending 31 march *++,.

8hat would &e the taxa&le income of ' for the AY +-+0 +-+,0 +,-+9 8hat would &e the taxa&le income of ' for the AY +-+0 +-+,0 +,-+9 %ncome earned during the preious year

%ncome earned during the preious year is taxed during the assessment year. Therefore a year isis taxed during the assessment year. Therefore a year is an assessment year and preious year simultaneously. oweer in certain cases the income is an assessment year and preious year simultaneously. oweer in certain cases the income is taxed in the year in which it is earned. The exceptions to the rule are as

taxed in the year in which it is earned. The exceptions to the rule are as under:under: 1.

1. %ncom%ncome of e of non-rnon-resideesident fnt from rom shippshipping. ing. "sec1"sec1,*#,*# *.

*. %ncom%ncome of persons le of persons leaieaing %ndia eing %ndia either perther permanentmanently or for lonly or for long period of tig period of time "sec1,me "sec1,5#5# 3.

3. %ncom%ncome of e of &odies &odies formeformed for d for short short duratduration. ion. "sec1"sec1,5A#,5A# 5.

5. %ncom%ncome of persoe of persons tryns trying to aliing to alienate hienate his assets assets with s with iew to aiew to aoidinoiding paymeng payment of his taxt of his tax.. "sec 1,#

"sec 1,# .

. incincome of diome of discoscontintinuenued &usid &usinesness."s."secsec1,1,##

;!erson ;sec *"31#: ;!erson ;sec *"31#:

The term persons include: The term persons include:

a#

a# an an iindndiiiidudualal &#

&# a ia indndu unu undidiiided ded fafamimilyly c

c## a ca coommppaannyy d

d## a a ffiirrmm e#

e# an assocan associatiiation of person of persons and a &oons and a &ody of inddy of indiidiiduals whuals whether iether incorpncorporateorated or notd or not f#

f# a loca local al auauththororiityty g#

g# $er$ery artifiy artificial <urcial <urisdiisdictionctional person not falal person not falling undeling under any of the precedir any of the preceding categorng category.y. The aforesaid is an inclusie list and the last category coers all those that do not fall in any The aforesaid is an inclusie list and the last category coers all those that do not fall in any of theof the preceding classification. preceding classification. Assessee =sec* ",#>: Assessee =sec* ",#>:

1

(2)

(3)

Assessee means a person &y whom any tax or any other sum of money "i

Assessee means a person &y whom any tax or any other sum of money "i.e. penalty or interest is.e. penalty or interest is paya&le under the act. %t includes:

paya&le under the act. %t includes: 1.

1. $$ery perery person in resson in respecpect of whom any prot of whom any proceeceedinding under thg under the act has &een take act has &een taken for theen for the assessment of his income or loss or the amount of refund due to h

assessment of his income or loss or the amount of refund due to h im.im. *.

*. any perany person wson who is deho is deemed temed to &e an aso &e an assesseesessee."re."represepresentatintatie asse assessee#essee# 3.

3. an assan assessee essee in defin default ault " ad" adance tance tax and ax and T?@ T?@ not denot deducteducted#d#

Overview of tax on income: Overview of tax on income:

%ncome Tax is an annual Tax charged at the tax rates applica&le for the assessment year0 which %ncome Tax is an annual Tax charged at the tax rates applica&le for the assessment year0 which are fixed &y the annual finance act.

are fixed &y the annual finance act. 7asic concept of %ncome:

7asic concept of %ncome: 1.

1. 4e4egugulalar anr and ded defifininite ste sourourcece *.

*. ?i?iffefferenrent fort form of inm of incomcome "cae "cash6sh6kinkind#d# 3.

3. 4e4ececeipipt t 6s 6s acaccrcruauall 5.

5. %%llllegegal al iincncoomeme .

. ??iispspututed ted tiitltlee .

. 4eli4elief or ef or reim&reim&ursemursement oent of exf expense pense is nois not it incomencome ,.

,. ?i?iersioersion of incomn of income &y oer rie &y oer riding tiding title 6tle 6s applics application oation of incof incomeme .

. @ur@urpluplus fros from mutm mutual acual actitiitity not an iy not an inconcome.me. /.

/. TTeempomporarrary or y or perpermanmanent ent incincomeome 1+.

1+. tax ftax freree ince incomeome 11.

11. 4eceipt on 4eceipt on account of dhraccount of dhrmada0 gaushala emada0 gaushala etc is not tc is not an income.an income. 1*.

1*. dealdealuatiuation of on of currecurrencyncy 13.

13. %ncom%ncome ince includes ludes lossloss.. 15.

15. Appropriation Appropriation of payment of payment &etween capit&etween capital and al and interest.interest. 1.

1. same isame income cncome cannot &e tannot &e taxed twaxed twiceice 1.

1. incomincome should &e ree should &e real and not fical and not fictiontionalal 1,.

1,. chacharge orge on pern personson 1.

1. AwAward receard receipt &y spipt &y sports morts manan 1/.

1/. reenreenue receipue receipts 6s capitts 6s capital receipal receiptsts *+.

*+. ololuntuntary paymary paymentent *1.

*1. priprie of we of winninninging

$xtended meaning of income sec $xtended meaning of income sec *"*5#:*"*5#:

1.

1. prprofofitits s anand gd gaiainsns *.

*. ?i?iiidenddend: : didiideidend declnd declareared d &y domes&y domestic comtic companpany is y is taxtaxa&la&le e in the hands of compain the hands of companyny and not shareholders

and not shareholders 3.

3. BoBolunluntartary conty contri&ri&utiution receon receieied &y trustd &y trust.. 5.

5. !er!erCuiCuisitsites ies in thn the hane hands ods of emf emplployeoyeee .

. Any Any spespeciacial all allowlowancance ane and &ed &enefnefititss .

. DiDity ty comcompenpensatsatory ory allallowowancancee ,.

,. 7en7enefiefits or ts or perperCuiCuisitsites of es of dirdirectector or .

. 7ene7enefit fit or peor perCuirCuisites sites to a to a reprrepresentesentatiatie assee assesseessee /.

/. Any Any sum sum chachargergea&la&le u6e u6s *s *0 51 0 51 and and // 1+.

1+. DapDapitital gaal gainsins 11

11.. %ns%nsuraurance profnce profitit 1*.

1*. &anki&anking income of a coopeng income of a cooperatiratie societye society 13.

13. winwinning fning from lrom lotterotteryy 15.

15. employees employees contri&ution contri&ution towards towards proided proided fundfund 1.

1. amt receiamt receied under keymaed under keyman insurancn insurance policye policy 1.

1. amounamount exceedt exceeding +0ing +0+++ &y way of gif+++ &y way of giftt

2

(4)

Gross total income Gross total income As per section 150

As per section 150 the income is cothe income is computed under fie hemputed under fie heads:ads:

4

4ss 44ss

Com!tation of total income: Com!tation of total income: %ncome from salaries

%ncome from salaries

%ncome from ouse properties %ncome from ouse properties profit and gains from &usiness and

profit and gains from &usiness and professionprofession Dapital gains

Dapital gains

%ncome from other sources %ncome from other sources

Eross Total %ncome Eross Total %ncome )ess: deductions u6s + D to + 

)ess: deductions u6s + D to + 

Get total %ncome "rounded off# Get total %ncome "rounded off#

--Com!tation of Tax "ia#ilit$:

Com!tation of Tax "ia#ilit$: Tax on total income

Tax on total income )ess: re&ate u6s $ )ess: re&ate u6s $ 7alance 7alance Add: surcharge Add: surcharge Total Total

Add: education cess Add: education cess

Ta Taxx )ess: !repaid taxes

)ess: !repaid taxes " T?@0 self assessment

" T?@0 self assessment and Adance tax#and Adance tax#

Tax )ia&ility Tax )ia&ility

--4ounding off total %ncome: 4ounding off total %ncome:

The total income is to &e rounded off to the nearest multiple of ten rupees. The total income is to &e rounded off to the nearest multiple of ten rupees.

(5)

Ch.% &ESI'ENTIA" STAT(S AN' ITS TA) E**ECT ?ifferent Taxa&le $ntity:

1. %ndiidual

*. indu ndiided Family

3. A firm or an association of persons 5. a <oint stock company

. eery other person 4esidential status:

1. 4esident and ordinary resident in %ndia *. 4esident &ut not ordinary resident in %ndia 3. Gon-resident in %ndia.

?ifferent residential @tatus for different Taxa&le entity:

6

(8)

The term control and management refers to head and &rain that directs the affair of policy0 finance0 disposal of profits and ital things regarding the management of a company.

4esidential status of eery other person sec "5#:

lace of control !esidential status

Dontrol and management of his affairs are

situated-• 8holly in %ndia • 8holly outside %ndia

4esident Gon- resident

4esident

Inci+ence of Tax for +ifferent Taxa$ers:

%ncidence of tax on taxpayers depends on his residential status and also on the place and time of accrual and receipt of his income.

Tax inci+ence on In+ivi+!al an+ ,(* is as !n+er:

4esident and

ordinary resident

4esident &ut not ordinary resident

Gon resident %ndian %ncome

Foreign %ncome

• 7usiness is controlled

wholly or party from %ndia

• %ncome from profession set

up in %ndia

• 7usiness is controlled from

outside %ndia

• !rofession is set up

outside %ndia

• Any other foreign %ncome

Taxa&le in %ndia Taxa&le in %ndia Taxa&le in %ndia Taxa&le in %ndia Taxa&le in %ndia Taxa&le in %ndia Taxa&le in %ndia Taxa&le in %ndia Taxa&le in %ndia

Got taxa&le in %ndia Got taxa&le in %ndia Got taxa&le in %ndia

Taxa&le in %ndia

Got taxa&le in %ndia Got taxa&le in %ndia Got taxa&le in %ndia Got taxa&le in %ndia Got taxa&le in %ndia

(9)

Tax inci+ence on an$ other taxa$er -coman$ firm etc/ as !n+er:

4esident in %ndia Gon- resident in %ndia

%ndian %ncome Foreign income

Taxa&le in %ndia Taxa&le in %ndia

Taxa&le in %ndia Got Taxa&le in %ndia

Ch0. Income that is exemt from Tax

(10)

(11)

Aric!lt!re Income:

Agriculture income is exempt from tax &y irtue of sec 1+"1#. 7y irtue of sec *"1A# the expression Agriculture %ncome means:

1. Any rent or reenue deried from land0 which is situated in %ndia and is used for agriculture purpose.

• 4ent or reenue should &e deried from land "may &e in cash or kind#. • The land should &e in %ndia

• The land should &e for agriculture purpose.

*. Any income deried from such land &y agricultural operations including processing of the agriculture produce0 raised or receied as rent-in- kind so as to render it fit for the market or sale of such produce.

3. %ncome attri&uta&le to a farmhouse su&<ect to certain conditions.

• The &uilding should &e occupied &y a cultiator "as a landlord or tenant#. • e should &e in immediate icinity of agriculture land.

• The &uilding is used as a dwelling house or as a store house or other out

&uilding.

• The land is assessed to land reenue or local rates or alternatiely the land is

situated outside ;ur&an areasJ i.e. any area which is comprised within the municipality <urisdiction haing a population of not less than 1+0+++ persons or within  kms from the limits of any such municipality.

%f the a&oe conditions are satisfied then0 income from a farm &uilding is exempt from tax. $griculture income is included for ta% rate purposes only.

Secial Provisions in resect for newl$ esta#lishe+ !n+erta2in Sec 13-A/: $ligi&ility:

Any undertaking which satisfy the following conditions is eligi&le to get deduction: 1. %t must &egin manufacture or production in free trade (one

*. %t should not &e formed &y splitting6 reconstruction of &usiness.

3. %t should not &e formed &y transfer of old machinery. "@econd hand imported and *+K# 5. @ale consideration should &e remitted to %ndia in conerti&le foreign exchange.

. 7ooks of account should &e audited

. 4eturn of income should &e su&mitted on Time.

(12)

Amount of deduction

The deduction under sec 1+A is as under:

!rofit of the &usiness x $xport turnoer .

of the undertaking Total turnoer of the &usiness carried on &y the undertaking

$xport

turnoer-%t means the consideration in respect of export &y the undertaking of articles or things or computer software receied in or &ought in %ndia &y the assessee in conerti&le foreign exchange within the prescri&ed period.

!eriod of ?eduction:

The assessee can claim deduction for a period of 1+ consecutie assessment years &eginning with the assessment year releant to the preious year in which the undertaking &egins to manufacture or produce.

The aforesaid deduction is not aaila&le to any undertaking from the a ssessment year *+1+-11. @pecial !roisions:

%ncase of an undertaking0 which &egins to manufacture or produce things or computer software &etween 1April *++* to March 31 *++ in any special economic one0 is aaila&le as follows for 1+ assessment years:

First  years-1++K of profit deried from the export of such articles or things or computer software. "First  consecutie years#.

Gext * years- +K of such profits and gains in deducti&le.

Gext 3 years- a further deduction is aaila&le to the extent of +K of the profit proided an eCuialent amount is created as @pecial $conomic (one re-inestment Allowance 4esere. Charita#le an+ &eliio!s tr!sts an+ instit!tions:

%ncome of a charita&le trust is exempt according to the proisions of section 110 1* and 13. The trust should &e one esta&lished in accordance with law and its o&<ects should fall within the definition of the term ; charita&le purposeJ.

ere the charita&le purpose includes relief to the poor0 education0 medical relief and the adancement of any other o&<ect of general utility.

%ncome of the trust:

• %ncome means the real income0 which has &een receied &y the assessee.

• The amount deducted as tax at source cannot &e considered as income for this purpose. • ?epreciation should &e allowed while computing income for this purpose.

• Boluntary contri&ution or donations are deemed to &e a part of income deried from

(13)

• %f a oluntary contri&ution is made with a specific direction than it shall form a part of the

corpus of the trust and not deemed as the income of the trust. Application of the income of the trust:

%f the income applied to charita&le or religious purposes0 during the preious year fall short of K of the income deried during the year due to &elow mentioned reasons then the trust can us the income as &elow:

4eason for less than K application of income

8hen the income can &e spend %ncome has not &een receied during the

preious year

Any other reason

The year in which the income is receied or the following su&seCuent year.

?uring the preious year immediately following the year in which the income is deried.

%f the income is not applied during the extended time then the income will &e taxa&le in the next year.

Accumulation of income:

The trust or institution may accumulate or set apart either the whole or part of its income for future application for such purposes. @uch income so accumulated will not form the income of the trust. Forfeiture of exemption:

%f the &enefits of any amenities or serices are deried &y any specified persons as per section 13 then the exemption gien to trust stand forfeited.

The following income do not Cualify for exemption: 1. %ncome for priate religious purposes only

*. %ncome for the &enefit of particular religious community 3. %ncome for the &enefit of interested persons

5. Funds not inested in specified securities6 deposits

$g:

?uring the preious year *++-+,0 a charita&le trust gets the following income:

a. Boluntary contri&ution "with specific direction that they 4s shall form part of the corpus of trust 1*0/+0+++ &. Boluntary contri&ution "without specific direction#

103+0+++

c. %ncome from property held in trust

?uring the preious year *++-+,0 the trust spends 4s. 0/+0+++ for charita&le purpose in %ndia. 7esides it gies donation of 4s. 05+6- to the charita&le trusts. %t sets apart 4s. 150++0+++ for the purpose of construction of a charita&le hospital up to March 310*+1*.

(14)

Ch.4 INCO5E (N'E& T,E ,EA' SA"A&IES 5eanin of salar$

1. 4elationship of an employer and employee *. @alary and wages not conceptually different 3. @alary can &e from more than one source 5. %t can &e in cash or kind

Salar$ Sec 16-1/:

@alary under 1,"1#0 is defined to include the following: 1. wages

*. any annuity or pension 3. any gratuity

5. any fees0 commission0 perCuisites0 or profits in lieu of or in addition to any salary or wages.

. any adance on salary

. any payment receied &y an employee in respect of any period of leae not aailed &y him.

,. the portion of the annual accretion in any preious year to the &alance at the credit of an employee participating in a recognied proident fund to the extent it is taxa&le.

. the contri&ution made &y the central goernment to the account of an employee under a pension scheme.

Basis of Chare Sec 17:

1. Any salary due from an employer whether actually receied or not. *. Any salary receied in the preious year whether actually due or not.

3. Any arrears of salary paid or allowed to him in the preious year &y or on &ehalf of an employer0 if not charged to income tax for any preious year.

Com!tation of income from Salar$:

%ncome from @alary

%ncome &y way of allowance Taxa&le alue of perCuisites

Eross @alary )ess: deductions u6s 1

$ntertainment Allowance !rofessional Tax

%ncome from salaries

4s. 4s. --

(15)

---"eave Salar$:

)eae @alary refers to the encashment of the leae standing to the credit of an employee either at the time of his retirement6 or leaing his <o& or at any time during his serice.

Tax treatment:

&ature of 'eave encashment (tatus of employee )hether it is ta%a*le )eae encashment during continuity

of employment

Eoernment6 non goernment employee

Dhargea&le to Tax

)eae encashment at the time of retirement 6 leaing the <o&

Eoernment employee Fully exempted

)eae encashment at the time of retirement 6 leaing the <o&

Gon goernment employee

Fully or partly exempted from tax in some cases.

Gon goernment employee getting )eae encashment at the time of retirement 6 leaing the <o&: %n case of a non-got employee including a local authority or pu&lic sector undertaking0 leae salary is exempt from tax on the &asis of following:

1. !eriod of earned leae "in no. of months# to the credit of employee x Aerage @alary per month. "cannot exceed more than 3+ days in a year#

*. 1+ x aerage monthly salary

"Ag monthly salaryL &asic salary dearness allowance commission on turnoer#

3. Amt specified &y Eot. "3++0+++# 5. )eae encashment actually receied Gote: Any part of the year is to &e ignored. $g:

1. Mr. !radeepkumar retires on 1st

Huly *++, after sering 1yrs of serice and receies 4s. +0+++ as amount of leae encashment for 1 months. is employer allows 5 days leaes for eery completed year of serices. ?uring serice he has encashed leae for a period of 1* months. Dalculate the taxa&le amount of leae encashment if his salary during 16,6+ to 16,6+, is 4s. +++6- per month.

Grat!it$ Sec 13-13/:

Eratuity is a retirement &enefit and is generally paya&le at the time of cessation of employment and on the &asis of duration of serice.

(tatus of employee +a% treatment

Eoernment $mployee Fully exempted from Tax

Gon goernment employee coered &y the payment of Eratuity Act0 1/,*

$xempted to the )east of the following:



30+0+++6- Eratuity actually receied

 1 days last drawn salary x length of serice6*

Gon goernment employee not coered &y the payment of Eratuity Act0 1/,*

$xempted to the )east of the following:



30+0+++6- Eratuity actually receied

 alf-month aerage salary for each

(16)

Tax treatment of gratuity:

Gote:

1. %n case where the employee is coered &y gratuity Act0 1/,* then the year is to &e rounded off to the nearest whole. "a&oe  months the year to &e rounded off to one.# *. %n case where the employee is not coered &y the gratuity Act0 1/,* then the years are

the completed years of serice" any fraction is to &e ignored#. $g:

1# '0 an employee of !N Do. )td0 receies 4s. ,0+++ as gratuity. e is coered &y the payment of gratuity Act0 1/,*. e retires on ?ecem&er 1*0 *++ after rendering serices of 3 years and  months. At the time of retirement his monthly &asic salary and dearness allowance was 4s.*05++6- and 4s. ++ respectiely. Dalculate the amount of exemption. *# %n the a&oe example calculate the amount of exemption if ' was not coered &y

the Eratuity Act0 1/,*.

3# Mr. ' retired on 1st_{April *++, after sering for 3+ years and , months. e was}

getting salary 4s. 0+++6- pm from 1616*++ to 3161*6*++ and thereafter 4s. 0*++6- pm. e receied ?A O 4s. 10+++ pm "forming part of salary for computation of retirement &enefits# and *Kcommission on sales achieed &y him. Turnoer achieed &y him during 1+ months "preceding the month in which he retired# 4s. 0++0+++. e receied a gratuity of 4s. 100+++. Dompute the exempted amount of gratuity.

Pension Sec 16-1/-ii/:

ncommuted !ension: !eriodical payment of pension.

Dommuted !ension: )ump sum payment in lieu of periodical payment. Taxa&ility of commuted pension:

ncommuted !ension is always chargea&le to tax for &oth goernment and non-goernment employee.

(tatus of employee ratuity received/ not received

-%emption Eoernment $mployee Eratuity may or may not &e

receied

$xempted from Tax

Gon-Eoernment $mployee

Eratuity is receied 2ne-third of the pension0 which he is normally entitled to receie0 is exempt from tax.

Eratuity is not receied 2ne-half of the pension0 which he is normally entitled to receie0 is exempt from tax.

(17)

$g:

1. ' retires from a priate company on 3+th_{April *++,. e gets a pension of 4s. *5+++6- per}

month. pto 3+th_{Hune *++,. From 1}st_{Huly *++, onwards he gets two-third of his pension}

commuted for 4s. 10+0+++6-. e was not in receipt of any gratuity at the time of retirement. Dompute the taxa&le amount of pension for the assessment year *++-+/. *. Dalculate the taxa&le pension of ' for the AY *++-+/0 in the a&oe ex. if ' was in receipt

of Eratuity as per gratuity Act 1/,*.

Pension Scheme for an emlo$ee 8oinin Central Government on or after 9an 1 %334 : nder the new scheme it is compulsory for an employee to contri&ute 1+K of salary eery month towards their pension account and a matching contri&ution will &e made &y the goernment. @uch contri&ution will &e deducti&le under u6s + DD?. 8hen the pension is receied out of the aforesaid amount it will &e taxa&le in the hands of recipient.

'ifferent form of Allowances:

Allowances is generally defined as a fixed Cuantity of money or other su&stance gien regularly in addition to salary for the purpose of meeting some particular reCuirement connected with the serices rendered &y the employee or as compensation for unusual conditions for that serice. %t is fixed0 predetermined and gien irrespectie of actual expenditure.

,o!se rent Allowance:

The least of the following amount would &e taxa&le:

1. An amount eCual to +K of the salary0 where the residential house is situated at Mum&ai0 Iolkatta0 ?elhi or Dhennai and an amount eCual to 5+K of salary where residential house is situated at any other place.

*. ouse 4ent Allowance receied &y the employee. 3. The excess of rent paid oer 1+K of the salary.

@alary means &asic salary and includes dearness allowance and commission &ased on the fixed percentage of turnoer.

$g:

 Mr. ' is employed in a company in Agra. e is getting a &asic salary of 4s. +++6- pm0 ?earness allowance O1+K of &asic pay0 commission &ased on fixed percentage of turnoer 4s. *50+++6- pa. Actual rent paid &y the assessee 4s. *0++6- pm. Dompute the taxa&le amount of 4A.

Entertainment Allowance:

$ntertainment Allowance is first included in the salary income and thereafter a deduction is gien on the following &asis:

(tatus of -mployee -%emption $mount

Eoernment $mployee

)east of the following is deducti&le: a# 4s. +++

&# *+K of &asic salary

c# actual amount of entertainment allowance

(18)

Gon-goernment employee $ntertainment allowance is not deducti&le

$.g.:

'0 a goernment employee gets 4s. 5+0+++ per annum as &asic pay. %n addition0 he receies 4s. 0++ as entertainment allowance. is actual expenditure on entertainment for official purpose howeer exceeds 4s. /+++6-. 8hat would &e the amount of deduction9

Secial Allowances:

8hen exemption depends upon actual expenditure &y the employee:

%n these &elow mentioned cases the amount of expenditure is the least of the

 Amount of allowance

 The amount utilied pertaining to allowance )ist of the allowances is as under:

1. Traeling Allowance6 transfer allowance *. Doneyance allowance

3. ?aily allowance 5. elper allowance . 4esearch Allowance . niform Allowance

8hen exemption does not depend upon the expenditure: These allowances are exempt to the least of the following:

 Amount of allowance

 PAmount specified in rule *77

Name of allowance Nature of allowance Exemption

Tri&al Area6 scheduled area allowance

This allowance if gien in Madhya !radesh0 Tamil Gaidu0 ttar !radesh0 Iarnatka0 Tripura0 Assam0 8est 7engal0 7ihar0

2rrisa.

4s. *++ pm

Dhildren $ducation Allowance

Eien for children education $xemption limited for 4s. 1++6-per month 1++6-per child limited to a maximum of two children.

ostel $xpenditure Allowance

This allowance is granted to an employee to meet the hostel expenditure on is child

$xemption limited for 4s. 3++6-per month 3++6-per child limited to a maximum of two children.

Transport Allowance %t is gien to an employee to meet his expenditure for commuting from his office to his residence.

$xempted to the extent of 4s. ++6- per month

@pecial Dompensatory " ill Areas# Allowance

%t includes any special allowance in the nature of special compensatory "hill areas# allowance or high altitude allowance or uncongenial climate

Amount exempt aries from 4s. 3++ per month to 4s. ,+++ per month.

(19)

allowance or aalanche allowance.

nderground allowance nderground allowance is granted to an employee who is working in uncongenial0 unnatural climate in underground mines.

$xemption limited to 4s.++ per month.

Per!isites:

!erCuisites can &e defined as any casual emolument or &enefit attached to an office or position in addition to salary or wages. Therefore a perCuisite to &e taxa&le under the head salaries:

a. allowed &y an employer to an employee

&. allowed during the continuance of his employment c. directly dependent upon serice

d. resulting in the nature of personal adantage to the employee e. deried &y irtue of employers authority

!erCuisites: @ec 1,"*#

The term perCuisite is defined to include the following:

1. The alue of rent Qfree accommodation proided to the assessee &y his employer. *. The alue of any concession in rent for accommodation proided &y the employee

3. Balue of any &enefit or amenity granted or proided free of cost or at concessional rate in any of the &elow cases:

a# &y a company to an employee who is a director thereof

&# &y a company to an employee0 haing an su&stantial interest in the company

c# any person not included in any of the a&oe two categories haing a cash salary of more than

+0+++6-5. any sum paid &y the employer in respect of any o&ligation which &ut for such payment would hae &een paya&le &y the assessee

. any sum paya&le &y the employer0 to effect an assurance on the life of the assessee or to effect a contract for an annuity

. the alue of any other fringe &enefits or amenity as may &e prescri&ed. Taxa&ility of perCuisites:

8hen it is an o&ligation of $mployee:

%f the employer meets an o&ligation of an employee then the perCuisite is always chargea&le to tax.

%f the employer0 pays any &ills which are in the name of employee0 then they are taxa&le in the hands of employee.

8hen not an o&ligation of employee:

%n any other case0 where it is not an o&ligation of an employee0 the &elow ta&le list all perCuisites which are taxa&le in the hands of the employee0 4emaining perCuisites are not taxa&le in employees hands regardless of the expenditure incurred &y the employer.

Taxable Perquisites in the hands of the employee

Exceptions

(20)

Furnished6 unfurnished house without rent or at concessional rent

$xceptions are:

 A rent free house in a remote area,

 hotel accommodation in case of transfer for not exceeding 15 das!

@erices of a sweeper0 gardener0 watchman or personal attendant

Taxa&le in the hands of @pecified person only

@upply of gas0 electricity or water for household purpose

Taxa&le in the hands of @pecified person only

$ducation Facility to employeeRs family mem&ers Taxa&le in the hands of @pecified person only

)eae trael Doncession $xempted if it is gien twice in a &lock of four years.

Amount paya&le &y an employer directly or indirectly to effect an assurance on the life of employee or to effect a contract of an annuity

Any contri&ution to recognied proident fund or super annuation fund is exempted.

%nterest free or concessional loan Following are exempted:

 "oan not exceeding 20,000,

 "oan for medical treatment !roiding use of moa&le asset !roiding use of computer6 laptop or

motor car Transfer of moa&le asset Gone

Medical expenditure reim&ursement in excess of 4s. 10+++

Following are exempted:

 #n em$loer% go&t hos$ital

 'x$enditure in case of s$ecified treatment

 (ealth insurance $remium

 )edical facilities outside #ndia @pecified6 Gon specified $mployee:

The following are specified employees: a# An employee who is a director

&# An employee0 haing a su&stantial interest in the company: *+K or more oting power in the employer-company.

c# any person not included in any of the a&oe two categories haing a salary "excluding the alue of all &enefits6 amenities not proided &y way of monetary payment# of more than +0+++6-.

;al!ation of rent<free !nf!rnishe+ accommo+ation:

a# Dentral and @tate Eoernment $mployees:

The alue of such accommodation proided to employee is eCual to the license fee0 which would hae &een determined &y the central or state goernment.

&# !riate sector or other employees:

Balue of the perCuisite depends on salary of the employee and lease rent of the accommodation.

(21)

opulation of city as per 21 census here accommodation is provided

)here the accommodation is oned *y the employer

)here the

accommodation is taken on lease or rent *y the employer

$xceeding * lakhs 1K of salary in respect of the period for which the accommodation is occupied &y the employee

)ower of amount of lease rent paid6 paya&le or 1K of the salary

$xceeding 1+ )akhs &ut not exceeding * lakhs

1+K of salary in respect of the period for which the accommodation is occupied &y the employee

Any other ,.K of salary in respect of the period for which the accommodation is occupied &y the employee

@A)A4Y:

For the purpose of aluation the salary includes a# 7asic salary

&# ?earness allowance0 if terms of employment so proide c# 7onus

d# Dommission e# Fees

f# All other taxa&le allowance "excluding amount not taxa&le# g# Any monetary payment which is chargea&le to Tax

$g:

'0 an employee of A7D"!# )td is posted in A<mer" population 1 )akhs#0 draws 4s. 3++0+++ &asic salary0 4s. 1+0+++ as dearness allowance"forming part of salary#0 and 4s. +++ as commission . 7esides0 the company proides a rent free accommodation in A<mer. The house is owned &y company and has a fair rent of 4s. +0+++ p.a. ?etermine the taxa&le alue of perCuisite.

;al!ation of rent<free f!rnishe+ accommo+ation: Accommodation is not in a hotel:

a# Find out the alue of the perCuisite on the assumption that the accommodation is unfurnished.

&# Baluation of furniture is done:

 1+K per annum of the original cost of the furniture if the furniture is owned &y the employer

 actual hire charges paya&le0 if f urniture is hired &y the employer. Accommodation in a hotel:

The perCuisite is alued at the lower of the two amounts:

(22)

a# *5K of salary paid or paya&le for the period during which such accommodation is proided in the preious year.

&# Actual charges paid or paya&le &y the employer to the hotel. $g:

' receied during the preious year ending March 310*++,0 emolument consisting of &asic pay: 4s. 1*0+++: special allowance: 4s 1,0+++ and reim&ursement of medical expenditure: 4s. 3++6-. is employer has also proided a rent-free furnished flat in Mum&ai. )ease rent of the unfurnished flat is 4s. +0+++. @ome of the household appliance proided to ' "with effect from Hune1 0*++# are owned &y the employer " cost price 4s. 3+++#. $mployer pays 4s. 1+0+++ as hire purchase charges for the three air conditioners installed. Dompute the alue of perCuisite if:

a# ' is a @ecretary in the ministry of )aw and 4s. 5+++ is the license fee of unfurnished flat as per the Dentral Eoernment rules.

&# ' is the managing director of A7D"!# )td. 8hat difference would it make if ' was proided a hotel accommodation through out the year "tariff &eing 4s. 1*+0+++ per annum#

;al!ation rovi+e+ at concessional rent:

The &elow rules will apply for furnished as well as unfurnished accommodation:

 Find out the alue of perCuisites on the assumption that no rent is charged &y the employer.

 From the alue so arried deduct the rent charged &y the employer from the employee. ;al!ation of er!isite in resect of free +omestic servant:

The alue of &enefit to the employee "or any mem&er of his household# resulting from the proision &y the employer for serices of a sweeper0 a gardener0 a watchman or a personal attendant0 shall &e the actual cost to the employer0 that is0 the total amount of the salary paid or paya&le &y the employer "or any other person on his &ehalf# for such serices as reduced &y the amount paid &y the employee for such serices.

;al!ation of er!isite in resect of as electricit$ or water rovi+e+ free of cost :

This perCuisite is taxa&le in the hands of specified employees only proided the connection is in the name of employer. %f in the name of employee then the employer would &e paying on &ehalf of the employee and is taxa&le in all cases.

0ode of valuation If purchased from outside If supplied *y the employer from on sources

Dost to employer "A# Amount paid 6paya&le &y the employer to the outside agency

Manufacturing cost per unit incurred &y the employer

@u&: Amount recoered from the employee "7#

4ecoery from the employee 4ecoery from the employee

Taxa&le Balue of perCuisite "A-7#

(23)

;al!ation in resect of free e+!cation:

This perCuisite is taxa&le in the hands of a specified employee only and only in those cases where the educational institute is owned and maintained &y the employer or where such education facility is proided in any institute &y reason of employeeRs employment with the employer. The aluation of the facility would &e as under:

ifferent (ituations $mount chargea*le to ta% 8here the education facility is proided to

employees children

• 8here the cost6 alue of &enefit

does not exceed 4s. 1+++ per child per month

• 8here such amount exceeds 4s.

1+++6-8here education facility is proided to other mem&ers of the household

G%)

Dost of education in a similar instituted in a similar locality Q 4s 1+++ Q amount recoered &y employee

Dost of education in a similar instituted in a similar locality Q amount recoered &y employee

%f the fee is paid &y the employer for employees children then there is no exemption aaila&le for &oth specified and non-specified employees. @imilarly reim&ursement of school fees is also taxa&le in the hands of &oth specified and non-specified employees.

;al!ation in resect of rovi+in !se of mova#le assets:

The alue of &enefit to the employee resulting from the use &y the employee "or any mem&er of his household# of any moa&le asset "other than car0 computer and laptop# &elonging to the employer shall &e determined at 1+K per annum of the actual cost of such asset. %t is taxa&le in the hands of all employees i.e. specified and non specified. The taxa&le amount shall &e reduced &y the amount0 if any0 recoered &y the employee.

0ode of aluation er3uisite in respect of mova*le asset

#ned *y employee +aken on hire *y employee

A. Find the cost to the employer

1+K p.a of actual cost Amount of rent paid or paya&le

(24)

7. Amount recoered from the employee

4ecoery from the employee 4ecoery from the employee

Taxa&le Balue of perCuisite "A-7#

7alancing amount "if positie# 7alancing amount "if positie#

;al!ation in resect of Transfer of mova#le Asset : The aluation will &e done as follows:

0ode of aluation er3uisite in respect of sale of mova*le assets to employee -lectronic Items/

computers

0otor car $ny other asset Find out the cost to the

employer "A#

Actual cost to the employer

Gormal wear and tear for completed years for which the asset was used &y the employer for his &usiness. "7#

+K for each completed year &y reducing &alance method

*+K for each completed year &y reducing &alance method

1+K for each completed year of actual cost.

Amount recoered &y the employee "D#

!aid &y employee for acCuiring such asset

Taxa&le Balue "A-7-D#

7alancing amount "if positie#

$lectronic %tems refer to data storage and handling deices like computer0 digital diaries and printers. They do not include household appliances.

;al!ation of 5e+ical *acilities:

Fixed medical Allowance is always chargea&le to tax. 7ut Medical expenditure reim&ursed in excess of 4s. 10+++ is chargea&le to tax. The following are the exemptions to the rule that is in the following cases there is no monetary ceiling:

 %n employer hospital

 goernment hospital

 $xpenditure in case of specified treatment

 ealth insurance premium

 Medical facilities outside %ndia

Foreign Medical Facility:

For medical treatment outside of the employee or any mem&er of the employee shall &e excluded to the extent it is permitted &y the 4esere 7ank of %ndia.

oweer the cost of trael of the employee6 any mem&er of his family and his one attendant shall &e excluded only for those employee whose gross total income excluding such traeling expenditure does not exceed 4s. *++0+++6-.

(25)

The leae trael concession is exempted twice in a &lock of four years. And the exemption is aaila&le to &oth %ndian citien and foreign citien. $xemption is &ased on actual expenditure and is aaila&le only in respect of fare. %f the <ourney is performed &y the circuitous route then the amount of exemption is aaila&le in respect of the shortest route.

The exemption is aaila&le for the family meaning spouse and two children0 parents0 &rothers and sisters of indiidual who are mainly or wholly dependent on him.

Any other Facility proided to employee:

Any other facility or perCuisite like car0 lunch0 refreshment0 traeling0 touring gift0 credit cards0 clu&s etc proided to employee is not taxa&le in the hands of employee.

Permissi#le +e+!ction from Salar$ Income:

The following deductions are permitted from the head %ncome form salaries : 1. $ntertainment Allowance

As discussed earlier the entertainment allowance is first included in the salary and then allowed as deduction.

*. !rofessional Tax

!rofessional Tax also known as tax on employment is allowed as deduction in the year in which it is paid. %f the employer pays the professional tax0 it is first included in the salary of the employee as a perCuisite as it is an o&ligation of the employee and then allowed as deduction from the gross salary.

Provi+ent *!n+:

!roident Fund scheme is a retirement &enefit scheme. nder this scheme0 stipulated sum of money is deducted from the employeeRs salary and an eCual matching contri&ution is made &y the employer. The contri&ution is inested in gilt-edged securities and interest is earned thereon. Thus the &alance of proident fund consist of:

a# $mployers contri&ution

&# %nterest on employers contri&ution c# $mployees contri&ution

d# %nterest on employees contri&ution =in+s of Provi+ent *!n+:

$mployees proident fund ca &e diided into three a# @tatuary !roident Fund:

%t is set up under the proisions of !roident Fund Act0 1/,*. This fund is maintained &y the Eoernment0 semi goernment organiation0 local authority0 railway0 uniersity and recognied educational institutions.

&# 4ecognied !roident Fund:

A proident fund to which the proident Fund Act01/,* applies is a recognied proident fund. This fund is recognied &y the commissioner of %ncome Tax.

c# nrecognied !roident Fund:

%f the commissioner of %ncome Tax does not recognie a proident fund then it will &e under the category of unrecognied proident fund.

!u&lic !roident Fund:

The central goernment has esta&lished a pu&lic proident fund with a iew to &enefit the general pu&lic and mo&ilie saing. Any person whether salaried or self employed can inest in the same. Taxa&ility of contri&ution to !roident fund.

(26)

(tatutory provident Fund !ecogni4ed rovident Fund "nrecogni4ed rovident Fund $mployers contri&ution to proident fund

$xempt from tax $xempt upto1*K of salary. $xcess is taxa&le

$xempt from tax

?eductions u6s +D on employees contri&ution

Aaila&le Aaila&le Got Aaila&le

%nterest credited to proident fund

$xempt from tax $xempt from tax up to /.KS excess of interest oer this is taxa&le

$xempt from tax

)ump sum payment at the time of retirement

$xempt from tax $xempt from tax in some cases0 when not exempt proident fund will &e treated as unrecognied proident fund  'm$loees contri*ution exem$t  #nterest on em$loee contri*ution taxa*le under income from other sources

 'm$loer+s

contri*ution and interest thereon is taxa*le under the head income form salaries!

Gote:

1. @alary includes &asic salary0 dearness allowance6 dearness pay0 if terms of employment so proide and commission if receied as fixed percentage of turnoer achieed &y employee.

*. The accumulated &alance due and &ecoming paya&le to an employee participating in a recognied proident fund will &e excluded from his total %ncome in the following cases:

 %f he has rendered continuous serice with his employer for a period of  years or more.

 %f the employee is not a&le to fulfill the conditions of such continues serice due to his serice haing &een terminate &y reason of his ill health or &y reason of the contraction or discontinuance of the employers &usiness or any other reason &eyond the control of assessee.

 %f on the occasion of his retirement0 the employee o&tains employment0 to the extent the accumulated &alance d ue is transferred to another recognied proident fund maintained &y such employer.

(27)

For the preious year *++-+,0 ' su&mits the following information- 7asic @alary: 1*+0+++S dearness allowance: 5+0+++ "5K forming part of salary for retirement &enefits#S commission: +++ "i.e. 1K of turnoer ++0+++ achieed &y him# and children education allowance for his * children 4s. ,*++. The employer contri&utes 4s. *+0+++ towards proident fund to which a matching contri&ution is made &y '. %nterest credited in the proident fund account on March 10 *++, O 11Kcomes to /30++. %ncome of ' from other source is 4s. 0+++. Find the net income of ' for the assessment year *++,-+ if the proident fund is "a# statutory proident fund0 "&# recognied proident fund0 "c# unrecognied proident fund.

'e+!ction !>s ?3C:

@ection +D is introduced from assessment year *++-+, and it proides deduction in respect of specified Cualifying amount paid or deposited &y the assesses in the preious year.

• ?eduction would &e aaila&le from gross total income • %t is aaila&le for indu undiided family and indiiduals

• ?eduction is aaila&le on the &asis of specified Cualifying inestment6 contri&ution6

deposit6 payment made &y the assessee during the preious year.

• Maximum amount deducti&le is 4s. 1++0+++ under sec +D0 +DDD and + DD?.

Practical Problems:

Mrs. ' "age 1 years# is a part time college lecturer in ?elhi. ?uring the year *++-+,. she gets &asic salary of 4s. 1*3++ up to Hune 3+0*++ and 4s. 1*0,++ afterwards. 7esides she gets 3+K of 7asic salary as house rent allowance0 4s. 13+ per month as dearness allowance ",1K of it forming part of salary for computation of retirement &enefits and 4s. ++ per month as coneyance allowance which is entirely for personal purpose. 2n Huly 1+0*++ the employer transfer a music system to Mrs. ' on her completing 1+ years of serice" cost of music system purchased on sep 10 *++: **5,+# for 4s. ,++. @he is a mem&er of statuary proident fund to which &oth the employer and employee contri&utes O 1*K of &asic salary. Apart from the minimum contri&ution0 she makes an additional contri&ution of 4s. ++ per month to the proident fund. ?uring the preious year *++-+,0 4s. / is paid to her for checking answer sheet for different uniersities. ?etermine the taxa&le income and tax lia&ility on the assumption that she is paying a rent of 4s. 5+++6- per month.

'" age *# is an employee of a cooperatie society at Baranasi. ?uring the preious year *++-+,0 he gets 4s. ++ per month as &asic salary0 4s0 ++ per month as &onus and 4s. 5+ per month as dearness allowance" 3*K is forming part of the salary for computation of retirement &enefits# and 4s. *++ per month as medical allowance " medical expense is howeer more than 4s *++ per month#. e is a mem&er of a recognied proident fund to which the employer contri&utes 1101* "' also makes a matching contri&ution#. ' gets an interest free loan "repaya&le within  years# of 4s. *033+ from the employer for purchasing a house. 7esides he gets 4s. 1+03+0,+ as interest on company deposits from a priate sector undertaking. ?etermine the taxa&le income and tax lia&ility of ' for the assessment year *++,-+.

Ch.7 INCO5E *&O5 ,O(SE P&OPE&T@

This chapter deals with any income falling under the head income from house property. Basis of Chare -Sec %%/

%ncome is taxa&le under this head ;%ncome from ouse propertyJ if the following three conditions are satisfied:

1. The property should consist of any &uilding or land appurtenant thereto. *. The assessee should &e the owner of the property

(28)

3. he property should not &e used &y the owner for the purpose of any &usiness or profession carried on &y him0 the profit of which are chargea&le to income tax.

All the a&oe conditions should &e satisfied for a property income to &e made taxa&le under the head income from house property.

$xceptions:

%n the &elow mentioned cases rental income is not charged to Tax: a. %ncome from farmhouse.

&. Annual alue of ay one palace of any ex-ruler. c. !roperty income of any local authority.

d. !roperty income of an approed scientific research association. e. !roperty income of any educational institution and hospital f. !roperty income of a trade union.

g. ouse property held for charita&le purposes. h. !roperty income of a political party

i. !roperty income used for own &usiness or profession <. 2ne self occupied property.

7asis of computing income for a let out house property:

%ncome under the head house !roperty 4s.

Eross Annual Balue )ess Municipal Taxes

Get Annual Balue )ess: ?eduction u6s *5

 @tandard ?eduction

 %nterest on &orrowed capital

%ncome under the head house property

-

----Gross Ann!al ;al!e: Sec %0-1/

Tax under the head income from house property is a tax on the inherent capacity of the &uilding to yield income and not a tax on rent. The standard selection of the measure of the income is the annual alue.

Eross annual alue depends upon the following factors: a# Municipal Baluation

&# Fair rent c# @tandard rent

d# Annual 4ent "i.e. rent for the preious year or that part of the preious year when the property is aaila&le for letting out and there is no acancy and unrealied rent#

e# nrealied rent

f# )oss of rent &ecause of acancy g# Actual rent receied6 receia&le "d-e-f#

(29)

@teps for determining the gross Annual Balue:

.1 ?etermine the reasona&le expected rent as a# or &# whicheer is higher. %f the amount so determined is higher then the amount in c# limit the amount to c#.

.* %f Annual rent less unrealied rent is higher then the amount specified under step 1 then Annual rent less unrealied rent is su&stituted for the alue in step 1.

.3 %n case of acancy the gross annual alue so determined is ad<usted for the period for which the house is occupied.

E.g.:

5!s. In thousand6 Particular

A

B C  E !

Municipal aluation "a# Fair rent "&#

@tandard rent "c#

Annual rent if property is let out through the year +-+, "d#

nrealied rent "e#

!eriod for which property remains acant )oss due to acancy "f#

15+ 15 15* 1 15 1 , 1+ 1 1, 1 -1+ 1 1, 1 1  15 15+ 15 15* 1 ,+ 3 5* *31 ** *51 ** 5*  1+ 15+ 1+ 1*+ / --1+ +

8hen unrealied rent shall &e excluded:

nrealied rent shall &e excluded from rent receied6 receia&le only if the following conditions are satisfied:

1. The tenancy is &ona fide.

*. The defaulting tenant has acated0 or steps hae &een taken to compel him to acate the property.

3. The defaulting tenant is not in occupation of any other property of the assessee.

5. The assessee has taken all reasona&le steps to institute legal proceedings for the recoery of the unpaid rent or satisfies the assessing officer that legal proceeding would &e useless.

?educt municipal taxes:

From the gross annual alue municipal taxes hae to &e deducted to arrie at net annual alue. Municipal alue are deducti&le only if

1. these taxes are &orne &y the owner.

*. are actually paid &y him during the preious year.

'e+!ctions !>s %4:

The list of deductions u6s *5 is exhaustie that is no other deduction is allowed except whateer are explicitly mentioned. The following two deductions are allowed:

(30)

1. @tandard deduction

*. %nterest on &orrowed capital

@tandard deduction:

3+K of net annual alue is deducti&le irrespectie of any expenditure incurred &y the taxpayer. %nterest on &orrowed capital:

%nterest on &orrowed capital is allowa&le as deduction0 if capital is &orrowed for the purpose of purchase0 construction0 repair0 renewa&le or reconstruction of the house property.

Interest of pre7construction period :

%nterest of pre-construction period is allowed as deduction in fie eCual installments.

Interest of the current period :

a. Dapital is &orrowed on or after April 10 1///:

%nterest on &orrowed capital is allowed as deduction to the extent of 4s. 1+0+++6-proided the loan is taken for the acCuisition or construction of the property. oweer the loan is taken for the any other purpose "e.g. 4econstruction0 repair etc# the maximum amount deducti&le is 4s. 3+0+++.

&. Dapital is &orrowed &efore April 10 1///:

The interest on &orrowed capital is allowed as deduction up to 4s.

3+0+++6-#nterest on *orro-ed ca$ital is allo-ed as deduction e&en in those cases -hen the annual &alue of the house $ro$ert is nil!

Taxa#le income from self<occ!ie+ roert$: 8hen the property consist of:

a. Any house which is occupied for own &usiness &. 2ne house which is self occupied

c. A house property which is not actually occupied &y the owner owing to employment or &usiness6 profession0 carried on at any other place.

%n the aforementioned cases the annual alue of the house property shall &e taken as nil. hen more than one roert$ is occ!ie+ for resi+ential !rose:

8hen more than one house is occupied &y a person during the preious year for is residential purpose0 only one house is treated as self- occupied and all other houses will &e deemed to &e let out.

%n case of deemed to &e let out the gross annual alue is taken to &e the higher of municipal aluation or fair rent whicheer is higher to the maximum of standard rent.

hen a art of roert$ is self<occ!ie+ an+ a art is let o!t or a ho!se is self< occ!ie+ for the art of $ear an+ let o!t for the art of the $ear:

(31)

%n computing the income in the aforesaid situation the fair rent attri&uta&le to the self- occupied period6 portion should &e excluded in determining the annual alue. @imilarly the house tax and interest in loan attri&uta&le to Uelf-occupied period6 portion should &e ignored. %t means the house tax and interest on loan attri&uta&le to self-occupied portion6period cannot &e deducted to arrie at income from house property.

$.g.:

From the following information0 compute the annual alue of the house for AY +,-+ Municipal Balue- 4s. /+0+++

Municipal taxes paid- 4s. *+0+++

ouse was occupied for the first six months and for remaining six months it was let out O 4s. +++ p.m.

@pecial proisions when unrealied rent is recoered su&seCuently:

8hen a deduction has &een allowed to the assessee for any unrealied rent during the preious year and realied su&seCuently then that amount shall &e deemed to &e the income of the preious year and shall &e chargea&le to tax under the head ;income from house propertyJ as pe r the proisions of the act whether the assessee is an owner of that property or not.

!ro&lems:

1. From the information gien &elow0 find out the income under the head ; %ncome under the house propertyJ for the assessment year *++,-+ and *++-+/.

' "4s# Y "4s# Municipal aluation

Fair rent @tandard rent Annual rent

nrealied rent for the preious year *++-+, nrealied rent for the preious year *++,-+V nrealied rent of *++-+, realied during *++,-+ %nterest on &orrowed capital

1S+0+++ 10+++ 1,+0W++ *10+++ 3+0+++ G%) *0+++ 30+++ 1/+0+++ 1/0+++ 1,+0+++ 1,0+++ 3+0+++ Gil *0+++ 3+++

The a&oe properties hae &een let out throughout the preious years *++-+, and *++,-+. Municipal taxes are paid at the rate of *+K.

(32)

Ch. Income !n+er the hea+ B!siness  Profession

This head is coered &y sec * to sec 55?. This chapter deals with proisions which hae a &earing on the computation of taxa&le income.

Basis of chare -sec %?/:

The following income is chargea&le to tax under the head ;!rofit and gains from &usiness and professionJ:

1. !rofit and gain of any &usiness and profession

*. any compensation or other payment due or receied &y any person specified in sec *"ii#

• any compensation receied on termination of a managing agency of a foreign

company

• any compensation receied on termination of a managing agency of a %ndian

company

• Any compensation receied on termination of any agency or modification of

terms of agency.

• Any compensation receied from goernment or a corporation on taking oer of

management of property or &usiness.

*. %ncome deried &y a trade0 professional or similar association from specific serices performed for its mem&ers.

3. The alue of any &enefit or perCuisites0 whether conerti&le into any money or not0 arising from the &usiness or the exercise of any profession.

5. !rofit on sale of license "export6 import license#

. Dash assistance "su&sidy receied &y any person against exports under any scheme of goernment

. Any draw&ack of any duty of customs or excise.

,. Any interest0 salary0 &onus0 commission or remuneration receied &y a partner from firm. . Any sum receied for not carrying out any actiity in relation to any &usiness or not to

share any know-how0 patents0 copyrights0 trademarks etc. /. income from a speculatie transaction