final summer project
TRANSCRIPT
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A study on procedure ofTaxation and Auditing in P.A. &
Associate at Bhubaneswar.
Conducted at-: P.A. & Associates (Chartered Accountant)
Submitted in partial fulfillment of the course requirement of Post Graduate
Diploma in Management.
Submitted by: Guided by :
Shaswat Panigrahi K.K. Agrawalla
Reg. No-: DSBSPGDMA1042. (Chartered Accountant)
College Guide:
Prof. KV Ramanathan
April 2011June 2011
Dayananda Sagar Business School
Shavige Malleswara Hills, Kumaraswamy Layout
Bangalore560078
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Guide Certification
This is to certify that the report title A Study on Procedure of Taxation &
Auditing has been prepared under my guidance and supervision. The report is
submitted in partial fulfillment of the requirement for the award of Post Graduate
Diploma in Management (Approved by AICTE) by Shaswat Panigrahi, Reg No-
:DSBSPGDMA1042 and this report / study has not formed a basis for the award
of any degree or diploma in any university / institution.
Place - Bangalore
Date (Prof. K.V. Ramanathan)
Director
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Student Declaration
I hereby declare that the report/ study titled A Study on Procedure of
Taxation & Auditing prepared under the guidance of Kamal Ku
Agrawalla chartered accountant at P.A & Associates, submitted in partial
fulfillment of the requirement for the award of Post Graduates Diploma in
Management (AICTE) in Dayananda Sagar Business School is my original work
and has not been submitted for the award of any other degree/ diploma in anyuniversity / institution.
Place - Bangalore
Date (Shaswat Panigrahi)
Signature
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ACKNOWLEDGEMENT
I am very much obliged to DSBS for giving me such an opportunity to
give the presentation.
This summer I have an opportunity to work on this Summer Internship
Project (SIP) Taxation I express my sincere gratitude to all those to
their render helping hand directly or indirectly in completing our
presentation and without their valuable encouragement it would not have
been possible on my part to complete the arrangement.
I express my deep gratitude to my Guide Mr. Kamal Kumar Agarwalla
for his constant guidance and help in successfully completing my
summer internship project.
My special thanks go to Lecturer. K.V. Ramanathan who also helped
me to complete my project successfully and giving tips on how to
formulate the taxation project and was kind enough to approve my
project.
Lastly I would also like to express my heartily thanks to Prof.
R.K.Vijayasarathy and all the faculties of DSBS for providing possible
informations during the project.
Shaswat Panigrahi.
Reg no -:DSBSPGDMA1042
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Contents
Chapter
No
Topic Pages
I Introduction 9 - 14
Objective of the Study 14
Importance of Tax management 15 - 16
Scope of study 16 - 17
Research Methodology 18 - 19
II Organization Structure 21
Profile of the company 22
Mission & Vision 23
Review on Tax 24 - 39
III Case analysis and interpretation of Taxation
& Auditing.
Basis Of Income
41 - 55
Finding out Tax Liability 56 - 57
Computation of income from salary 57 - 61
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IV Finding, suggestion and conclusion 63 - 67
Bibliography 68
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Chapter - 1
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Introduction
A tax is a financial charge or other levy imposed on an individual or a
legal entity by a state or a functional equivalent of a state.
An income tax is a tax levied on the income of individuals or businesses
(corporations or other legal entities). Various income tax systems exist,
with varying degrees oftax incidence. Income taxation can
be progressive, proportional, or regressive. When the tax is levied on the
income of companies, it is often called a corporate tax, corporate income
tax, or profit tax. Individual income taxes often tax the total income of
the individual (with some deductions permitted), while corporate income
taxes often tax net income (the difference between gross receipts,
expenses, and additional write-offs). Various systems define income
differently, and often allow notional reductions of income (such as a
reduction based on number of children supported).
Cooley defines taxation as the process or means by which the sovereign,
through its law-making body, raises income to defray the necessary
expenses of government. Expressed in another way, it is a method of
apportioning the cost of government among those who in some measure
are privileged to enjoy its benefits and must, therefore, bear its burdens.
http://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Incomehttp://en.wikipedia.org/wiki/Tax_incidencehttp://en.wikipedia.org/wiki/Progressive_taxhttp://en.wikipedia.org/wiki/Flat_taxhttp://en.wikipedia.org/wiki/Regressive_taxhttp://en.wikipedia.org/wiki/Corporate_taxhttp://en.wikipedia.org/wiki/Corporate_taxhttp://en.wikipedia.org/wiki/Regressive_taxhttp://en.wikipedia.org/wiki/Flat_taxhttp://en.wikipedia.org/wiki/Progressive_taxhttp://en.wikipedia.org/wiki/Tax_incidencehttp://en.wikipedia.org/wiki/Incomehttp://en.wikipedia.org/wiki/Tax -
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Malcolm explains that taxation is the power vested in the legislature to
impose burdens or charges upon persons and property for the purpose of
raising revenue for public purposes.
India has a well developed tax structure with a three-tier federal
structure, comprising the Union Government, the State Governments
and the Urban/Rural Local Bodies. The power to levy taxes and duties is
distributed among the three tiers of Governments, in accordance with the
provisions of the Indian Constitution. The main taxes/duties that the
Union Government is empowered to levy are Income Tax (except tax on
agricultural income, which the State Governments can levy), Customs
duties, Central Excise and Sales Tax and Service Tax. The principal
taxes levied by the State Governments are Sales Tax (tax on intra-State
sale of goods), Stamp Duty (duty on transfer of property), State Excise
(duty on manufacture of alcohol), Land Revenue (levy on land used foragricultural/non-agricultural purposes), Duty on Entertainment and Tax
on Professions & Callings. The Local Bodies are empowered to levy tax
on properties (buildings, etc.), octroi (tax on entry of goods for
use/consumption within areas of the Local Bodies), Tax on Markets and
Tax/User Charges for utilities like water supply, drainage, etc.
Since 1991 tax system in India has under gone a radical change, in line
with liberal economic policy and WTO commitments of the country.
Some of the changes are:
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Reduction in customs and excise duties Lowering corporate Tax Widening of the tax base and toning up the tax administration
Types
Personal -: A personal or individual income tax is levied on the total
income of the individual (with some deductions permitted). It is often
collected on a pay-as-you-earn basis, with small corrections made soon
after the end of the tax year. These corrections take one of two forms:payments to the government, for taxpayers who have not paid enough
during the tax year; and tax refunds from the government for those who
have overpaid. Income tax systems will often have deductions available
that lessen the total tax liability by reducing total taxable income. They
may allow losses from one type of income to be counted against another.
For example, a loss on the stock market may be deducted against taxes
paid on wages.
Corporate -: Corporate tax refers to a direct tax levied on the profits
made by companies or associations and often includes capital gains of
a company. Earnings are generally considered gross revenue minus
expenses. Corporate expenses related to capital expenditures are usually
deducted in full (for example, trucks are fully deductible in the Canadian
tax system, while a corporate sports car is only partly deductible) over
http://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/Tax_yearhttp://en.wikipedia.org/wiki/Taxpayerhttp://en.wikipedia.org/wiki/Tax_refundhttp://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Tax_refundhttp://en.wikipedia.org/wiki/Taxpayerhttp://en.wikipedia.org/wiki/Tax_yearhttp://en.wikipedia.org/wiki/PAYE -
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their useful lives by using percentage rates based on the class of asset
they belong to.
Accounting principles and tax rules about recognition of expenses and
revenue will vary at times, giving rise to book-tax differences. If the
book-tax difference is carried over more than a year, it is referred to as
a deferred tax. Future assets and liabilities created by a deferred tax are
reported on the balance sheet.
Payroll -: A payroll tax generally refers to two kinds of taxes:
employee and employer payroll taxes. Employee payroll taxes are taxes
which employers are required to withhold from employees' pay, also
known as withholding, pay-as-you-earn (PAYE) or pay-as-you-
go (PAYG) tax. These withholdings contribute to the payment of an
employee's personal income tax obligation; if the payments exceed this
obligation, the employee may be eligible for a tax refund or carry
forward to future periods.Employer payroll taxes are paid from the employer's own funds, either
as a fixed charge per employee or as a percentage of each employee's
pay. Payroll taxes often cover government social insurance programs,
such as social security, health care, unemployment, and disability. These
payments do not count toward the income taxes of employees and
http://en.wikipedia.org/wiki/Deferred_taxhttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Employeehttp://en.wikipedia.org/wiki/Employerhttp://en.wikipedia.org/wiki/Wagehttp://en.wikipedia.org/wiki/Withholding_taxhttp://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/PAYGhttp://en.wikipedia.org/wiki/PAYGhttp://en.wikipedia.org/wiki/Tax_refundhttp://en.wikipedia.org/wiki/Social_insurancehttp://en.wikipedia.org/wiki/Social_securityhttp://en.wikipedia.org/wiki/Publicly-funded_health_carehttp://en.wikipedia.org/wiki/Unemploymenthttp://en.wikipedia.org/wiki/Disabilityhttp://en.wikipedia.org/wiki/Disabilityhttp://en.wikipedia.org/wiki/Unemploymenthttp://en.wikipedia.org/wiki/Publicly-funded_health_carehttp://en.wikipedia.org/wiki/Social_securityhttp://en.wikipedia.org/wiki/Social_insurancehttp://en.wikipedia.org/wiki/Tax_refundhttp://en.wikipedia.org/wiki/PAYGhttp://en.wikipedia.org/wiki/PAYGhttp://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/Withholding_taxhttp://en.wikipedia.org/wiki/Wagehttp://en.wikipedia.org/wiki/Employerhttp://en.wikipedia.org/wiki/Employeehttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Deferred_tax -
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employers, but are normally deductible by the employer as a business
expense.
Inheritance -: The inheritance tax, estate tax and death duty are the
names given to various taxes which arise on the death of an individual.
In international tax law, there is a distinction between an estate tax and
an inheritance tax: the former taxes the personal representatives of the
deceased, while the latter taxes the beneficiaries of the estate. However,
this distinction is not universally recognized. For example, the
"inheritance tax" in the UK is a tax on personal representatives, and is
therefore, strictly speaking, an estate tax.
Capital gains tax -: A capital gains tax is the tax levied on profits from
the sale of capital assets. In many cases, the amount of a capital gain is
treated as income and subject to the marginal rate of income tax.
In an inflationary environment, capital gains may be, to some extent,
illusory. If prices in general have doubled over five years, then selling an
asset for twice the price it was purchased at five years earlier represents
no gain at all. Partly to compensate for such changes in the value of
money over time, some jurisdictions, such as the United States, give a
favorable capital gains tax rate based on the length of holding. European
jurisdictions have a similar rate reduction to nil on certain property
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transactions that qualify for the participation exemption. In Canada, 20
50% of the gain is taxable income. In India, Short Term Capital Gains
Tax (arising before one year) is 10% [15 % from F.Y 2008-09 as per
Finance Act 2008] flat rate of the gains and Long Term Capital Gains
Tax is nil for stocks and mutual fund units held one year or more,
provided the sale of shares involved payment of the Securities
Transaction Tax, and 20% for any other assets held three years or more.
Objective Of the Study
1.To understand the day to day activity of the Chartered AccountantFirm
2.To understand the various obstacles faced by the CharteredAccountant Firm
3.To know the techniques they are using for the calculations of theTaxation and balance sheet.
4.To know how the auditing process is done in a Charteredaccountant firm.
5.To understand how the auditing works for the companies benefit.
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Importance Of Tax Management
The nature of the state power to tax is two-fold. It is both an
inherent power and a legislative power. It is inherent in nature being an
attribute of sovereignty. It has been argued that it is literally impossible
for the state to run its affairs without taxes. Its existence and operations
are dependent primarily from the revenues and charges imposed from
various sources. It is a legislative power because it involves
promulgation and implementation of rules. Taxation is a set of rules,
how much is the tax to be paid, who pays the tax to whom and when it
should be paid.
Government financial operations are well-nigh impossible without
taxation. Apart from this, taxation can be a powerful means in order to
achieve the goals of social progress and the objectives of economic
development. It serves as a device to encourage the growth certain
activities by way of giving exemptions, discourage use of certain
products by way of imposing heavier charges like those sin taxes which
are imposed upon tobacco products, or strengthen anaemic enterprises,
also by way of tax exemptions. Local industries may be protected
through taxation by imposing high customs duties to foreign goods.
Moreover, taxation can also be used to reduce inequities or inequalities
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in wealth and income by progressively higher taxes as in the case of
estate and income tax.
So based on the foregoing premises, it is clear that taxation is indeed the
lifeblood of the state, without which the existence of the state will be put
to jeopardy.
Scope Of study
The scope of the study is to have a clarity on the Tax rules which are
implemented according to the Income tax act 1961 and companies act
1956.
To get to know the changes which are made in the amendments everyfiscal year during the budget. To have a clear vision of the auditing
practices which is being done at the companies and the procedure they
follow to make a note of the following verifications of the ledger
balances, cash books which are verified with the hard copy like receipts.
To have an idea about the pay roll processes and the functions they
practice at the firm to note down to make their trial balance and making
a report on how the companies either if it is making profit or loss and
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showing the processed auditing by giving a report on the following
verifications to the company and filing the taxation amount at the
taxation department in the government on behalf of the company.
The scope of the study was also to find out certain problems which the
chartered accountants are facing during their work and how they are
managing the work.
During the study the main objective was to find out gaping in their work,
To acknowledge the job environment at a chartered accountant firm, to
have a corporate experience by working with the executives of the firm
and gain access to the knowledge they have while implementing taxation
and what other valuable functions they are functioning in the
organization to gain profits for their company
and how they are managing the time for their projects and completing
the work within the desired time.
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Research Methodology
The source of data can be obtained for study can be divided into two
types.
1.Primary Data
2.Secondary DataThe primary data were collected from the department of finance and
from the discussion with the head of the department officials.
The data thus gained from the department officials were of vocal data
based on the trasanctions made in the term of the auditing, how the
formulas are imposed, the basics about the taxation on the priliminaries
and its exemption and what is the limit for having a tax auditing like a
business or firm gaining 60,00,000 or more than it would have to do
auditing for its tax filing from a chartered accountant.
The secondary data has been collected from the Annual report of various
companies maintained by the chartered accounting firm P.A &
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Associates. The files and the hard data got from the various data filings
kept in the firm to have our research done to find out the problems they
are facing in the firm and to find out its solution for the firm to progress
further and save time to gain profits.
Limitations -:
There may be limitations to this study because the study duration of the
summer internship project is very short and it is not possible to
observe every aspect of taxation practices and auditing.
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Chapter2
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Organization Structure
Prashant Ku Panda (CA)
Head of the P.A & Associates.
Kamal Ku Agarwalla
(CA)
R.C Routray
(CA)
Prabhasini
(Accountant)
Prafulla
(Accountant)
Santosh
ICWAI
Amit (ICWAI)
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Profile of the company
P.A & Associates, Chartered Accountant Company, a leading
chartered accounting company, with office in Bhubaneswar,
Rourkela, Sambalpur and cuttack is rendering comprehensive
professional services in the area of Direct Tax consultancy,
Payroll processing, NRI Services, Us GaapFIN48 tax reportingand other regulatory compliances.
Established by CA Mr. Prashant Kumar Panda, who qualified in the
year 1985, the Company's constant endeavor is to craft a premier
focused professional practice providing high quality services and
integrating value added knowledge, for its people, clients and society asa whole.
P & A Associates approach blended with personal touch has earned
the Chartered accounting Company enormous confidence of all its
clients, which is reflected in an enduring business relationship that it
enjoys with them and also in the consistent growth in portfolio of its
services. The Chartered accounting Company regards the provision of
a personal, high quality service to the clients as an absolute priority.
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Mission and Vision
With Quality is Priority as an ultimate aspiration, P & A
Associates vision is to nurture a professional Company of repute
which is competitive, dynamic and focused team leader in the areas of
its operation, providing the best opportunity to progress and grow to
all those who are associated with it and also serving the best.
Excellence, Integrity and Independence, the Motto of our Institute of
Chartered Accountants of India, is the ultimate objective of the
Chartered accounting Company in all its professional commitments.
The Company always strives to improve the quality of life and the
standard of living, for society as a whole.
The Companys Offices in Bhubaneswar and Cuttack are fully equipped
with modern infrastructure.
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Review Of Tax
Taxation
Tax system in India is divided in to two types, Direct Tax andIndirect Tax.
Direct Taxes that comprising of income tax, wealth tax, etc. arethose whose burden falls directly on the taxpayer.
The indirect taxes are levied on goods and services and itsultimate falls indirectly on the consumers. The indirected taxes are
comprising of sales tax, service tax, VAT, excise duty, custom duty,
etc.
Income Tax
Income Tax is all income other than agricultural income levied
and collected by the central government and shared with the states.
According to Income Tax Act 1961, every person, who is an assessee
and whose total income exceeds the maximum exemption limit, shall
be chargeable to the income tax at the rate or rates prescribed in the
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finance act. Such income tax shall be paid on the total income of the
previous year in the relevant assessment year.
The total income of an individual is determined on the basis of his
residential status in India.
Detailed Income tax Rates for financial year 2011-12 -(AY 2012-13)
The Income Tax Rates applicable for the financial year 2011-12
(Assessment year 2012-13) have been revised. The following is the
New Income Tax structure for the year 2011-12.
In case of individual (other than II and III below) and HUF
Income Level Income Tax Rate
i.Where the total income does
not exceed Rs.1,80,000/-.NIL
ii.
Where the total income
exceeds Rs.1,80,000/- but does
not exceed Rs.5,00,000/-.
10% of amount by which
the total income exceeds
Rs. 1,80,000/-
iii.
Where the total income
exceeds Rs.5,00,000/- but does
not exceed Rs.8,00,000/-.
Rs. 32,000/- + 20% of the
amount by which the
total income exceeds Rs.5,00,000/-.
iv.Where the total income
exceeds Rs.8,00,000/-.
Rs. 92,000/- + 30% of the a
mount by which the total i
ncome exceeds Rs.8,00,000/-.
II. In case of individual being a woman resident in India and below the age of
60 years at any time during the previous year:-
Income Level Income Tax Rate
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i.Where the total income does
not exceed Rs.1,90,000/-.NIL
ii.
Where total income exceeds
Rs.1,90,000/- but does
not exceed Rs.5,00,000/-.
10% of the amount
by which the total
income exceeds Rs.1,90,000/-.
iii.
Where the total
income exceeds Rs.5,00,000/-
but does not exceed
Rs.8,00,000/-.
Rs. 31,000- + 20% of the
amount by which the t
otal income exceeds Rs.5,00,000/-.
iv.Where the total income
exceeds Rs.8,00,000/-
Rs.91,000/- + 30% of
the amount by which
the total income exceeds
Rs.8,00,000/-.
III. In case of an individual resident who is of the age of 60 years
or more at any time during the previous year:-
Income Level Income Tax Rate
i.Where the total income does
not exceed Rs.2,50,000/-.NIL
ii.Where the total incomeexceeds Rs.2,50,000/- but does
not exceed Rs.5,00,000/-
10% of the amount bywhich the total
income exceeds Rs.2,50,000/-.
iii.
Where the total
income exceeds Rs.5,00,000/-
but does not exceed Rs.8,00,000/-
Rs.25,000/- + 20% of the amount
by which the total income
exceeds Rs.5,00,000/-.
iv.Where the total income
exceeds Rs.8,00,000/-
Rs.85,000/- + 30% of the amount
by which the total income
exceeds Rs.8,00,000/-.
IV. In case of an individual resident who is of the age of 80 years
or more at any time during the previous year:-
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Income Level Income Tax Rate
i.Where the total income does
not exceed Rs.2,50,000/-.NIL
ii.
Where the total income
exceeds Rs.2,50,000/- but doesnot
exceed Rs.5,00,000/-
Nil
iii.
Where the total income
exceeds Rs.5,00,000/- but does
not exceed Rs.8,00,000/-
20% of the amount by which the
total income exceeds
Rs.5,00,000/-.
iv.Where the total income
exceeds Rs.8,00,000/-
Rs.60,000/- + 30% of the
amount by which the total
income exceeds Rs.8,00,000/-.
Note : -
Education cess is applicable @ 3 per cent on income tax, inclusiveof surcharge if there is any.
A marginal relief may be provided to ensure that the additional ITpayable, including surcharge, on excess of income over Rs
1,000,000 is limited to an amount by which the income is more
than this mentioned amount.
Agricultural income is exempt from income-tax.
Income Tax Timeline in India (History)-
1860 1860 Introduced for the first time for a period of five
years to cover the 1857 mutiny expenses. It was
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abolished in 1873.
1877 1877 The tax system was revived as a result of the Great
Famine of 1876.
1886 1886 Introduced as Act II of 1886. It laid down the basic
scheme of income tax that continues till the present day.
1918 1918 Introduced as Act VII of 1918. It had features like
aggregation of income from various sources for the
determination of the rate, classification of income under
six heads and application of the Act to all income that
accrued or arose or was received in India from whatever
source in British India.
1922 1922 On the recommendations of the All-India Income
Tax Committee, the father of the present act was
introduced. The central government was vested with the
power to administer the tax.
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1961 1961 The Act came into force from 1 April 1962, it
extended to the whole of India.
1997 1997 Establishment of the Tax Reform Committee under
the chairmanship of Dr. Raja J. Chelliah. It was followed
by restructuring the income tax with parameters like
lower taxes, fewer slabs, higher execptions, etc.
2003 The Kelkar Task Force, which was followed by
outsourcing of PAN/TAN, exemption of dividend
income, compensated by levy of the dividend distributed
tax to be paid by the company.
Income Tax Rates Across the World
Country Personal Income Tax Rate
Australia 0% - 48.5%
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Canada 16% - 29%
Estonia 24% - 24%
Denmark 44% - 63%
Hong Kong 0% - 33%
India 0% - 33%
Israel 10% - 49%
Malaysia 0% - 29%
Mexico 3% - 32%
Russia 13% - 13%
Singapore 0% - 22%
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UK 0% - 40%
US 10% -35%
Residence Rules
An individual is treated as resident in a year if present in India
I. for 182 days during the year orII. for 60 days during the year and 365 days during the preceding
four years. Individuals fulfilling neither of these conditions are
nonresidents. (The rules are slightly more liberal for Indian citizens
residing abroad or leaving India for employment abroad.)
A resident who was not present in India for 730 days during the
preceding seven years or who was nonresident in nine out of ten
preceding yeas I treated as not ordinarily resident. In effect, a
newcomer to India remains not ordinarily resident.
For tax purposes, an individual may be resident, nonresident or not
ordinarily resident.
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Non-Residents and Non-Resident Indians
Residents are on worldwide income. Nonresidents are taxed only
on income that is received in India or arises or is deemed to arise in
India. A person not ordinarily resident is taxed like a nonresident but
is also liable to tax on incomeaccruing abroad if it is from a business
controlled in or a profession set up in India.
Capital gains on transfer of assets acquired in foreign exchange is not
taxable in certain cases. Non-resident Indians are not required to file
a tax return if their income consists of only interest and dividends,
provided taxes due on such income are deducted at source. It is
possible for non-resident Indians to avail of these special
provisions even after becoming residents by following certain
procedures laid down by the Income Tax act.
http://finance.indiamart.com/taxation/income_tax/definition_income_tax.htmlhttp://finance.indiamart.com/taxation/income_tax/definition_income_tax.htmlhttp://finance.indiamart.com/taxation/income_tax/definition_income_tax.htmlhttp://finance.indiamart.com/taxation/income_tax/definition_income_tax.htmlhttp://finance.indiamart.com/taxation/income_tax/definition_income_tax.htmlhttp://finance.indiamart.com/taxation/income_tax/definition_income_tax.html -
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Taxability of individuals is summarised in the table below
Status Indian
Income
Foreign
Income
Resident and ordinarily resident Taxable Taxable
Resident but not ordinary
resident
Taxable Not Taxable
Non-Resident Taxable Not Taxable
How to save tax
Investments under Sec 80CMediclaim Insurance PolicySec 80DPersonal Disability under Sec 80UDependent Disability ie. Handicapped dependent under Sec 80DD
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Interest on Educational Loan under Sec 80EDonations under Sec 80G
ALL THE ABOVE INVESTMENTS / EXEMPTIONS ARE
CLASSIFIED AS
DEDUCTION UNDER CHAPTER VI-A
INVESTMENT UNDER SEC 80C
What is the Limit ? Rs. 1 Lac is the limit. The Overall Rebate shall not exceed Rs. 1
Lac even if the Investments are more than Rs.1 Lac.
The investments allowed for exemption are In the name of Self or Spouse or Children or joint names
Life Insurance PremiumPublic Provident Fund (Max Rs.70 K per Account as
per PPF Rules)
ULIPUnit Linked Insurance PlanMutual Funds
In the name of Self or Joint namesPF, Voluntary PF (deducted in SalarySelf)Pension Plan (Self only)National Savings CertificateNSCHousing Loan principal
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Term Deposit for a fixed period not less than 5 yearsChildren Tuition Fee (Maximum 2 Children)
MEDICLAIM INSURANCE POLICYSEC 80D
Mediclaim policy taken in the name of employee or his spouse anddependent children:
Rs. 15 K or actual premium paid whichever is less.Mediclaim policy covering his parents alongwith his spouse and
children:
Additional exemption of Rs.15 K. ie. Rs.30K or actual premiumpaid whichever is less.
Where the parent is Senior Citizen and additional exemption ofRs.5 K. ie. Rs.35 K or actual premium paid whichever is less.
PERSONAL DISABILITY UNDER SEC 80U
A fixed deduction of Rs.50 K is allowed from his total income, ifthe person is suffering from permanent physical disability and a
higher deduction of Rs. 1 Lac is allowed if the person is suffering
from severe physical disability (ie. disability over 80%).
Person with disability means a person having a disability of notless than 40%.
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Who will certify 40% or 80% physical disabilityGovernment physician for permanent physical disability (40%
claim)
Neurologist or Civil Surgeon or Chief Medical Officer in aGovernment Hospital for severe physical disability ( 80% claim )
DEPENDENT DISABILITY SEC 80DD
A fixed deduction of Rs.50 K is allowed irrespective of amount paid for : Any expenditure incurred for the medical treatment, training and
rehabilitation of a handicapped dependent, or
Any amount paid or deposited under a scheme framed in this behalf by theLIC or any other insurer or UTI, approved by the Board in this behalf for
maintenance of handicapped dependent.
If the dependant is a person with severe disability (ie. disability over 80%),deduction is Rs. 1 Lac.
Dependent means the parents, spouse, children, brother or sister of theindividual.
Such dependent should not have claimed any deduction U/s 80U incomputing his total income.
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INTERSEST ON EDUCATION LOAN UNDER SEC 80E
Amount of interest paid on a loan taken from any financialinstitution for pursuing any higher education after senior secondary
examination for himself or for his spouse or children
This deduction would be allowed subject to a maximum of 8 yearsor till the full payment of interest is made, whichever is earlier.
There is no limit for claiming rebate. Any amount of Interest butnot the principal amount would be allowed as a deduction out of
total taxable income.
DONATION UNDER SEC 80G
Individuals are entitled for deductions under Sec 80G if they havedonated to Approved Funds and Charitable Institutions.
Donations to the following funds will qualify for 100% of theamount donated:
National Defence Fund Prime Ministers National Relief Fund National Illness Assistance Fund
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National Sports fund Maharashtra Chief Ministers Earthquake Relief Fund Andhra Pradesh Chief Ministers Cyclone Relief Fund Gujarat Relief Fund etc Any Fund set up by a State Government to provide medical
relief to the poor
Donations to the following funds will qualify for 50% of theamount donated:
Jawaharlal Nehru Memorial Fund Indira Gandhi Memorial Trust Rajiv Gandhi Foundation PM Drought Relief Fund National Childrens Fund
INTEREST ON HOUSING LOAN
A maximum of Rs. 1,50,000/- can be claimed as an exemption, ifthe property is self occupied.
There is no limit for claiming the Interest paid on Housing Loan, ifthe property is let out for rent. For this purpose, the employee has
to provide Form 12C, which contains the detailed calculation of
Loss on House Property taking the Rent Income, expenses incurred
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towards maintenance of the property (max of 30%) & Property tax
paid to the local authorities.
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Chapter -3
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Case analysis and interpretation of Taxation &
Auditing.
1st case
Gargson Properties (P) ltd (20072008)
1 Operating Results
The operating result of the company for the year are as follows
In lakhs
Particulars
2007-
2008
2006-
2007
Profit for the year after meeting all expenses but before providing for
depreciation 24.02 14.25
less : Depretiation for the
year 8.31 9.32proit / (loss) for the year 15.72 4.93
less : provision for income tax (including deferred tax) 4.2 1.73
less : provision for FBT 1.32 1.26
profit after tax 10.2 1.94
profit brought forward from previous year 31.34 29.41
profit carried forward to balance
sheet 41.54 31.35
The above table is the operating results table which shows how much the
company has gained profits in the recent year in comparison to the
previous year.
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The above line graph is made out from the tables operating results
which shows the variations or the differences in each point of the firms
an shows the percentage gain in the operations of the firm.
0
10
20
30
40
50
60
70
80
1 2 3 4 5 6 7 8
Series2
Series1
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General report given by the Chartered Accountant.
[The turnover of the company has increased by 2% to rs 2369.33 lacs
from rs 2192.86 lacs in the previous year.
There was no such employee in the company drawing a salary more than
as prescribed under section 217(2A) of the companies Act 1956 during
the year.
Section 227 (4A) of the companies act, 1956
Accounting standard 15 Employee benefits referred to in subsection
(3c) of section 211 of the companies act 1956
Unsecured loans listed in the register maintained u/s 301 of the
companies act , 1956
0
5
10
15
20
25
30
35
40
45
1 2 3 4 5 6 7 8
Series1
Series2
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Loan
Satish garg
Asha Garg
Satish Garg (HUF)
Shradha Garg
Maintenance of the cost records under section 209 (1) of the companies
Act, 1956
From the above operationg results it is clear that the company has not
invited or accepted any deposit from public within the meaning of
section 58 A and section 58 AA or any other provisions of the Act and
rules framed there under.]
Profit & Loss Account for the year Ended as at 31st march
2007
Particulars Schedule Current Year
Previous
Year
I IncomeSales 219,286,312 179,916,302
Other Incomes 14 10,721,011 8,785,807
230,007,323 188,702,109
II Expenditure
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Cost of Sales 15 192,013,594 155,075,206
personnel expenses 16 3,838,109 3,608,931
administrative expenses 17 3,970,352 4,893,060
Selling Expenses 18 26,139,835 21,612,582
Interest 2,620,422 1,587,651
Depreciation 932,426 776,575
229,514,737 187,554,005
III profit before taxation 492,586 1,148,104
IV Provision for Tax
Current 140,077 242,244
Deferred 32,740 -2789
V Profit After Tax 319,770 908,649
VI Balance Brought forward from previous
year 2,940,382 2,178,433
VII Fringe Benefit Tax for the
year 1,25,643 1,46,700
VIII Balance carried to balance
sheet 3,134,509 2,940,382
IX Earning per share 19 0.24 0.69
X Accounting policies & notes
on a/c 20
The above table shows the profit and loss Account of the year ended
31st
marh 2007, the total of companies profits and loss incurred withcomparison to the previous year profit and loss Account.
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Annual Accounts 2006 - 2007
Balance Sheet
particulars schedule current year
Previous
YearI Sources of funds
1 Share holder's funds
share capital 1 13,171,000 13,171,00
Reserve &
surplus 2 3,134,509 2,940,38
2 Loan
Funds
SecuredLoan 3 28,662,405 32,196,68
unsecured
Loan 4 7,345,094 6,180,190
3 Deferred Tax liability 5 722,272 689,53
53,035,279 55,177,788
II Application of funds1 Fixed
assets
gross block 6 17,268,326 16,039,54
less :
Depreciation 3,892,713 2,960,287
net block 13,375,613 13,079,25
WIP (work in progress) 2,254,835 1,674,70
2 Investment 7 5,000 5,000
3 current assets, loans and
advances
Inventories 8 17,361,471 14,290,28
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The above table is the balance sheet of the Gargson (P) ltd for the year
of 20062007
Sundry
Debtors 9 10,599,884 20,010,27
Cash & bank
balances 10 5,054,684 6,735,09
Loans &
Advances 11 9,603,883 6,751,52
42,619,992 47,787,182
less: current liabilities &
provisions:
current
liabilities 12 5,280,091 7,542,05
net current
assest 37,339,831 40,245,124
4 Miscellaneous Expenditure to the extent not
written off or adjusted 13 60,000 1,73,700
53,035,279 55,177,787
III Accounting policies and notes
on account 20
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The above chart is the pie chart of the Gargson (P) ltd which shows the
difference in percentage of its profits gained in the current year than the
previous year.
1
49%3
51%
Chart Title
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Basis Of Income
Income from Business & Profession
particulars Amt
Profit as per profit & loss A/c 4,92,586
Add: Depriciation Considered separately 9,32,426
loss on sale of fixed assest 0
1,425,011
less: Depreciation u/s 32 of the Income Tax Act 1961 1,008,857
Gross taxable Income 416,154
less: carry Forward loss 0
Taxable Income 416,154
Rounded off to 416,150
Tax on Above 124,845
Add: Surcharge on above 12,485
Tax Payable 137,330
Add: Education cess 2,747
Total tax payable 140,077
less: Advance tax paid
TDS 41,957
Advance tax 2,50,000 2,91,957-151,880
The above table shows the basis of income of the Ganesh sponge ltd
where it shows that the company has paid all the taxes in advance and
would not have to pay in the current year.
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2nd Case Study
Ganesh Sponge (P) ltd
Basis of Income
Particulars Amount
I Income from Business & profession
profit as per profit & loss account after all expenses and depriciation 59,36,884
Add: Depritiation considered separately 74,51,245
II Profit Before Depreciation 13,388,129
less: depriciation U/S 32 of I.T Act 14,239,757
III Profit as per Income tax Act -851,629
IV Rounded off to -851630
V net profit for mat u/s 115 JB 59,36,884
VI less: Fringe benefit Tax 33,724
VII less: Depriciation loss brought forward 37,89,085
VIII Book Profit for mat U/s 115
JB 21,14,075
IX total tax under
mat 2,11,407
X Education cess 6342
XI Tax
payable 2,17,750
XII Tax paid U/s 140
A 2,17,750
The above table show the basis of income of the Ganesh Spong Ltd
where the calculation for tax payable is about 2,17,750
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Computation of Depreciation
Particulars Amount
Rate of
dep Depreciation Total Dep
Building
Op bal 10,242,464 10% 10,24,246
Additions
more than 180
days 0 10%
less than 180 days 0 5%
10,242,464 10,242,246
Plant &Machinery
Op bal 79,270,580 15% 11,890,587
Additions
More than 180
days 5,772,149 15% 865,822
less than 180 days 3,108,050 7.50% 233,104
88,150,779 12,989,513
Computer
Op bal 119,707 60% 71,824
addition
more than 180
days 63,317 60% 37,990
less than 180 days 31,500 30% 9450
214,524 119,265
Furniture &Fixture
Op bal 10,67,332 10% 4,06,733
Additions
more than 180
days 10%
less than 180 days 5%
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1,067,332 106,733
Total
Depreciation 14,239,757
The above table shows the calculation of the depreciation for the assests
of the company Ganesh Spong Ltd.
Balance Sheet
Particulars Sc No 2010 2009
I Sources of funds
1 Shareholder's Funds
a) Capital 1 115,000,000 111,953,170
b) Reserve & Surplus 2 73,593,732 61,830,251
2 Loan Funds
a) Secured loan 3 295,503,885 219,770,170
b) unsecured loan 4 70,000,000 73,900,413
3 Deferred Tax Liability 5 34,334,722 18,084,702
588,432,339 485,538,706
II Application of funds
1 Fixed assets
a) gross block 6 440,513,309 273,584,902
b) less: Depriciation 41,678,503 26,466,686
c) Net block 398,834,806 247,118,216
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d) capital work in progress 2,124,593 48,895,525
2 Investments 7 420,746 398,530
3 Current Assets, loans & Advances
a) Inventories 8 108,090,128 121,343,869
b) Sundry debtors 9 24,680,615 16,633,195
c) Cash & Bank bal 10 6,837,784 34,325,182
d) Loans & Advances 11 57,475,531 31,791,110
197,084,058 204,093,356
4 less: current liabilities & provisions
a) Liabilities 4,727,520 10,630,490b) Provisions 5,745,303 5,032,393
10,472,823 15,662,883
c) Net Current Assets 186,611,233 188,430,473
5 Miscellaneous Expenditure 14 440,958 695,958
588,432,339 485,538,706
6 Significant accounting policies and notes ofa/c
The last table is the balance sheet which shows the company has gained
a profit in the recent year in comparision to previous year. The profit
percentage gained by the company is around 10% as shown in the pie
chart given below.
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The above chart shows the variations of the profit of the company in
respect to current year and the previous year.
The two cases which were handeled by me were the private companies
named Gargson (p) ltd and Ganesh spong (P) ltd in both the cases the
company had an profit margin of 2% and 10% respectively as shown by
the table and the graphs.
1
55%
2
45%
Chart Title
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Basis of Income
Income from Business & Profession.
Particulars Amt
Profit as per profit and loss A/c XXXX
Add: Depritiation XXX
Loss on sale of fixed assets XX
Less: Depritiation u/s 32 of the I.T Act 1961 XXX
Gross Taxable Income XXXX
Less: Carry Forward Loss XX
Taxable Income XXX
Tax on Above XXX
Add: surcharge on above XXX
Tax payable XXX
Less: Advance Tax Paid
TDS XXX
Advance Tax XXX XXX
XXXXXXX
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Finding out Tax Liability
1st
find out gross total income
2nd less deduction under sections 80C to 80U
3rd
After deducting the deduction from gross total income the value
which we get is Net Income.
4th
divide the net income into the following
4.1 income subject to special tax rates mentioned in para 0.1-6
4.2 remaining income subject to normal rates
5th
find out income tax on net income
5.1 tax on income specified in 4.1 (special tax) at the rates given in para
0.16
5.2 tax on remaining income at the normal rate given in para 0.1 1 or
0.12 or 0.13 or 0.14 or 0.15.
6th
Add surcharge @ 0%, 2%, 2.5%, 5%, or 7.5%
7th
find out the total of [(5) + (6)]
8th add education cess [2% of 7]
9th
add secondary and higher education cess [1% of (7)]
10th
Find out the total [(7) + (8) + (9)]
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11th
deduct: rebate under section 86, 89, 90, 90A or 91
12th
tax liability [(10)(11)]
13th add: Interest / Penalty etc
14th
less: pre paid taxes [i.e, advance tax, self assessment tax, Tds, tcs,
mat credit]
15th
tax payable [(12) + (13)(14)]
Computation of income from salary
Tax calculation for the year 2006 - 2007ASSUMING THERE IS NO CHANGE IN INVESTMENT AND INCOME
Name Gender (M / F) F
LOCATION MUMBAI Emp. No.:
CITY METRO
Salary Components P.M. P.A.
BASIC 7,000.00 84,000.00
CONVEYANCE ALLOWANCE 4,000.00 48,000.00
OTHER ALLOW II(MED) 0.00 0.00
HMA 0.00 0.00
HOUSE RENT ALLOW. 0.00 0.00
BONUS 0.00 0.00
SPECIAL ALLOWANCE 0.00 0.00
VARIABLE PAY 0.00 0.00
OTHER ALLOW I(LTA) 0.00 0.00
OTHER ALLOW III(PETR) 0.00 0.00
OTHER ALLOW III(DRIV) 0.00 0.00
0.00
0.00
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Total Gross Salary 11,000.00 132,000.00
Total Gross Annual Income 132,000.00
Less EXEMPTION
MEDICAL EXEMPTION 0.00
LTA EXEMPTION
HRA EXEMPTION 0.00
CONVEYANCE EXEMPTION 48,000.00
Total Exemptions 48,000.00
Gross Taxable Income 84,000.00
Less OTHER DEDUCTION ALLOWED
Profession Tax 2,500.00
INTERST ON HOUSING LOAN 0.00
Total Other Deductions 2,500.00
Net Annual Income 81,500.00
Less Deductions under Chapter VI A
Total investment under section 80C (as detailed in Table - I) Max.
Benefit available under section 80C is Rs 1,00,000/- 10,080.00
Other Investments (as detailed in Table - II) 0.00
Total Deductions under Chapter VI A (I) 10,080.00
Net Taxable Income Rounded 71,420.00
Net Tax Payable 0.00
Surcharge @ 10% on (Net Tax) 0.00
Education Cess @ 2% on (Net Tax + Surcharge) 0.00
Total Tax Payable for the Year 0.00
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Table - I
U/s 80 C
PROVIDENT FUND 10,080.00LIFE INSURANCE PREMIUM 0.00
VPF 0.00
PPF 0.00
ELSS 0.00
PENSION FUND (80CCC) 0.00
ULIP 0.00
NSC 0.00
CTD 0.00
PRINCIPLE AMOUNT OF HSG LOAN 0.00
STAMP DUTY AND REGISTRATION CHARGES 0.00
FIXED DEPOSIT IN SCHEDULED BANK 0.00
EDUCATION EXPENDITURE 0.00
INFRASTRUCTURE BONDS 0.00
INTEREST ON HOUSING LOAN 0.00
Total 10,080.00
HRE
RENT per month
Table - II
Mediclaim Premium u/s 80D (max Rs 10,000/-) 0.00
Handicapped Dependent u/s 80DD (max Rs 50,000/-) 0.00
Dependent's Medical treatment u/s 80DDB (max Rs 40,000/-) 0.00
Interest repayment for Education Loan u/s 80E 0.00
Person with disability u/s 80U (max Rs 50,000/-) 0.00
TOTAL 0.00
C 0 Name
Month Basic HRA
Apr-06 7,000.00 0.00
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May-06 7,000.00 0.00
Jun-06 7,000.00 0.00
Jul-06 7,000.00 0.00
Aug-06 7,000.00 0.00
Sep-06 7,000.00 0.00
Oct-06 7,000.00 0.00
Nov-06 7,000.00 0.00
Dec-06 7,000.00 0.00
Jan-07 7,000.00 0.00
Feb-07 7,000.00 0.00
Mar-07 7,000.00 0.00
TOTAL 84000 0
0
Rent ACTUAL HRA50% OR 40% OF
BASIC
0.00 - 3,500.00
0.00 - 3,500.00
0.00 - 3,500.00
0.00 - 3,500.00
0.00 - 3,500.00
0.00 - 3,500.00
0.00 - 3,500.00
0.00 - 3,500.00
0.00 - 3,500.00
0.00 - 3,500.00
0.00 - 3,500.00
0.00 - 3,500.00
0 0 42000
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City 1
RENT PAID - 10% OF BASIC. HRE
(700.00) -
(700.00) -
(700.00) -
(700.00) -
(700.00) -
(700.00) -
(700.00) -
(700.00) -
(700.00) -
(700.00) -
(700.00) -
(700.00) -
-8400 0
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Chapter4
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Finding, suggestion and conclusion
Findings
From the research the major problems which I found out that -:
There is no internal audit in the P.A & Associates charteredaccounting firm.
The firm is completing its projects within the time period gainingan advantage to complete more projects and gaining profits.
The firm has been working for big firms like Nalco, Hcl, Infosyshence gaining a profit margin.
The applications use by them to store the data are quite obsolete, asthey have been using tally 7.2 and Microsoft office 2000.
The firms work environment have a problem as the employees aregossiping most of the time which in return is decreasing the
efficiency of the firm to complete a work and catch hold of the
next one.
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Suggestion
According to the research or what I personally observed.
I can suggest to some extent:
To change the work environment
To put an internal audit
The firm should update its applications so as to have a betterinterface to work on which would be much more easier for them.
To focus more on the big companies like Mayfair, Nationalinformatics center, Indiabulls securities to gain higher profits.
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Conclusion
If your finances are complex, involving substantial capital sums and
intricate legal trusts, you should have your tax position managed by a
professional accountant or solicitor like the chartered accountants who
will value and verify your books and make the taxation reports for you.
Mainly during mine summer internship project what I conclude is that
the datas which is provided by the companies are mainly the hardcopiesof the receipt which are verified with the books where all the datas have
been stored or we can say as written down.
The fact I observed is that in the chartered accounting firm, they are
using Tally ERP 7.2 which on my behalf of a suggestion they should
update the application to Tally ERP 9 and the Microsoft excel is 1st
used
to input the data and recording all the transactions.
All the data are recorded mainly in both of these software mainly the
audit report is made on the basis of the books maintained by the
company by auditing those books.
The primary thing which could be learnt during this process are somebasics about the taxation rules which are implemented according to the
Income tax act 1961 and companies act 1956.
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The amendments rules are used, the recent amendments decided which
changes each fiscal year during the budgeting.
The financial minister changes these rules and amendments whilemaking the budget for the year. Thus further concluding that an
individual should invest his money in the plans
Contribute to a pension plan Invest in ISAs and/or Fixed Interest Savings Certificates
Use your annual CGT exemptions Spread your wealth between you and your spouse to minimise the
income and CGT burden
Consider giving away 3,000 each year to your children
To save his hard earned money for giving away in income tax so that he
could have a better future and his hard earned money is also not lost.
From this summer internship project valid for 2 month I also get to
know that the files which are mainly reviewed during the Auditing are
the hard copy of the receipts which the company have maintained and
the ledger balance and cash books maintained by the company. The
books are tallied with the soft notes and soft doc entered in the
computer.
The total net income is then calculated and from that the taxable value is
calculated.
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So this is what I concluded in my 2 months work experience at the
chartered firm P.A & Associates.
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Bibliography
http://www.incometaxindia.gov.in/
http://siadipp.nic.in/publicat/invpub/taxation.htm
http://en.wikipedia.org/wiki/Category:Taxation
http://financeminister.in/latest-india-income-tax-slabs
http://www.incometaxindia.gov.in/http://siadipp.nic.in/publicat/invpub/taxation.htmhttp://en.wikipedia.org/wiki/Category:Taxationhttp://financeminister.in/latest-india-income-tax-slabshttp://financeminister.in/latest-india-income-tax-slabshttp://financeminister.in/latest-india-income-tax-slabshttp://en.wikipedia.org/wiki/Category:Taxationhttp://siadipp.nic.in/publicat/invpub/taxation.htmhttp://www.incometaxindia.gov.in/