income tax module 2

8/18/2019 Income Tax Module 2

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INCOME TAX

MODULE 2


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INTRODUCTION:

Under chapter 4 of Income Tax Act, 1961 (Section 14), income of a person under various defined heads of income The total income is first assessed uincome and then it is char!ed for Income Tax as under rules of Income Tax

Accordin! to Section 14 of Income Tax Act, 1961, there are follo"in! headunder "hich total income of a person is calculated#

$eads of Income# Salar%

$eads of Income# $ouse &ropert%

$eads of Income# &rofit In 'usiness &rofession

$eads of Income# apital *ains

$eads of Income# +ther Sources


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$A-S +. I/+0# SAA23

Income under heads of salar% is defined as remuneration received % an indivirendered % him to underta5e a contract "hether it is expressed or implied AcIncome Tax Act In order to understand the meanin! of expression salar%, one

mind the follo"in! norms#

2elationship et"een pa%er and pa%ee

Salar% and "a!es 7 onceptuall% not different

Salar% front former emplo%er, present emplo%ers or prospective emplo%er

Salar% income must e real and not fictitious

.ore!oin! of salar%

8oluntar% pa%ments

Salar% paid tax7free


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Under section 1(1), salar% is defined to include the follo"in!#

a "a!es :

an% annuit% or pension :

c an% !ratuit%:d an% fees, commission, per;uisites or profits in lieu of or in addition to an% s

e an% advance of salar% :

f an% pa%ment received % an emplo%ee in respect of an% period of leave not a

! the portion of the annual accretion in an% previous %ear to the alance at the

emplo%ee participatin! in a reco!ni


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'ASIS +. $A2* +. SAA23 I/+'asis of char!e as per section 1? 7 As per section 1?, salar% consis

An% salar% due from an emplo%er (or a former emplo%er) to an a previous %ear, "hether actuall% paid or not:

An% salar% paid or allo"ed to him in the previous %ear % or on emplo%er (or a former emplo%er), thou!h not due or efore it ec

An% arrears of salar% paid or allo"ed to him in the previous %ear

ehalf of an emplo%er (or a former emplo%er), if not char!ed to ian% earlier previous %ear


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ALLOWANCE

Allo"ance is !enerall% defined as a fixed ;uantit% of mone% or ot!iven re!ularl% in addition to salar% for the purpose of meetin! sore;uirement connected "ith the services rendered % the emplo%ecompensation for unusual conditions of that service

Perquisite: &er;uisite ma% e defined as an% asual molument attached to an office or position in Addition to Salar% or @a!es Isomethin! that enefits a man % !oin! in to his o"n poc5et &er;

e provided in cash or in 5ind &er;uisites are included in salar% iif the% are received % an emplo%ee from his emplo%er


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THE TAX – FREE PERQUISITES•0edical facilit%, 0edical reimursement

2efreshments Susidi


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TAXABLE PERQUISITES

2ent7free accommodationoncessional rent accommodation

*ifts !iven % emplo%er exceedin! 2s?>>>>

Interest free loan exceedin! 2sD>>>>


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$ouse 2ent Allo"ance#7 &rovided that expenditure on ren

actuall% incurred, exemption availale shall e the least of

follo"in! #

(i) $2A received

(ii) 2ent paid less 1>E of salar%

(iii) 4>E of Salar% (?>E in case of 0umai, hennai, Fo

-elhi) Salar% here means 'asic G -earness Allo"ance, if

dearness allo"ance is provided % the terms of emplo%me


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W!t is i"#$u%e% i" &ri"'e (e"e&its !"% )* !re te+ t!

The .inance Act D>>? has introduced a ne" tax called HIncome7tax on frin!e e>1>4D>>6 This shall e in the form of additional income tax levied on frin!e

or deemed to have een provided % an emplo%er to his emplo%ees durin! the p

R!te )& T!, :.

The tax on frin!e enefits shall e levied at the rate of J>E on the value of frin provided

Li!(i$it+ t) P!+: .

The liailit% to pa% this tax is to e orne % the emplo%er includin!i) a compan%ii) a firmiii) an association of persons or od% of individuals excludin! an% fund or trusteli!ile for exemption us 1>(DJ) or 1DAAiv) a local authorit%v) an artificial Buridical person


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INCOME FROM HOUSE PROPERT/

Accordin! to hapter 4, Section DD 7 D of Income Tax Act, 196 provision of income under head of house propert% In ever% secti

D there are detail specification of house propert% income It is dincome earned % a person throu!h his house or land

@hat Income omes Under $ead of $ouse &ropert%K

Annual value of uildin! or land o"ned % assessee There is a c potential of propert% to !enerate income not on the rent received

propert% is used for ma5in! profit in usiness then it "ill e taxathis head ut "ill e taxale under head of profit in usiness pro


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CONCEPT OF 0BUSINESS1 AND 0PROFESSION1

34 Busi"ess# Accordin! to Section D(1J), H'usiness includes a

Trade - It means purchase and sale of !oods carried on profit motive

Commerce - It means trade carried on a lar!e scale

Manufacture- 0a5in! of ne" and different article out material % &h%sical or mechanical laour

Any adventure or concern in the nature of trade, commmanufacture-


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The expression adventure in nature of trade clearl% su!!ests tha

transaction cannot e properl% re!arded as trade or usiness A s

transaction outside the assessees line of usiness ma% constitute

nature of trade and commerce

@hether an activit% is an adventure or concern in the nature of t

commerce or manufacture is to e decided on the asis of cumul

of the facts and circumstances of each case

An example of such adventure or concern is "here the assessee

plot of land and uilds a complex on it and divides it into office sells each of these, there% ma5in! a profit from the entire activi


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ESSENTIAL FEATURES OF A BUSINESS ARE

(a) 2e!ularit% of transactions or continuit% of activities:(b) +Bective of earnin! profits:

(c) Application of laour and s5ill


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24 PROFESSION# AS &2 STI+/ D(J6), &2+.SSI+/ I/8+ATI+/

Profession- It involves occupation re;uirin! purel% intelmanual s5ill, "hich is ased on continuous learnin! and It is exercised to earn a livin! E.g. &olitics is a professio

Vocation - It means an% "or5 performed on the stren!th natural ailit% for that "or5 It need not e for ma5in! an

nor need it involve an% s%stematic and or!ani


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INCOMES CHAR5EABLE TO TAX UNDER THE HEAD 6AND 5AINS OF BUSINESS OR PROFESSION7 8SECTION

(1)&rofits and !ains of an% usiness or profession carried on % astime durin! previous %ear

24 ompensation or other pa%ment due to or received % an% pers


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(J) Income derived % trade, professional or other similar associa

specific services rendered to its memers

(4) &rofits on sale of import licence:(?) ash assistance a!ainst exports from *overnment of India an

-ra"ac5:


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(6) 8alue of an% enefit or per;uisite, "hether convertile into mo

arisin! from exercise of usiness or profession:

() Interest, salar%, onus, commission or remuneration due to or r partner from the firm Such income is taxale in hands of partners

it is allo"ed as deduction in hands of firm An% amount not allo"e

deduction to firm under Section 4>(), is not taxale in the hands o


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94 An% sum received or receivale, in cash or in 5ind, under an a!reement f

!4 /on7competition ie not carr%in! out an% activit% in relation to an% usin

(4 xclusivit% ie not sharin! an% 5no"7ho", patent, cop%ri!ht, trademar5, franchise or an% other usiness or commercial ri!ht of similar nature or infor

techni;ue li5el% to assist in the manufacture or processin! of !oods or provis

xceptions # $o"ever, sum received for transfer of usiness, or transfer of ri

manufacture, produce or process an% articlethin!, "hich is char!eale under

is not taxale under this Section

;4 An% sum (includin! onus) received under Fe%man Insurance &olic%


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5ENERAL CONDITIONS TO BE FULFILLED FOR CHAR5IN5 AUNDER THE HEAD 0PROFITS AND 5AINS OF BUSINESS OR PR

34 There shoud be !rofits and gains# +nl% real profits and !ains are

income tax and not mere !ross receipts $o"ever, there is an exceptio

trade is valued at lo"er of cost or mar5et price

24 Profits and gains may be of any business or !rofession" &rofits an

an ille!al usiness are also char!eale to tax under this head $o"eve

follo"in! incomes are not taxale under this head #

!4 2ent of house propert% is taxale under Section DD even if propertstoc5 in trade of recipient of rent or the recipient of rent is en!a!ed in

of lettin! properties on rent

(4 -ividends are taxale under the head HIncome from +ther Source

securities are held as stoc57in7trade or assesee is a dealer in shares


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=4 #usiness or !rofession shoud be carried on at any tim !revious year" The usiness or profession must have ee

for some time durin! the previous %ear $o"ever, a tempsuspension of activities of the usiness does not necessarto discontinuance of the usiness


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W!t is te s#e>e )& (usi"ess %e%u#ti)"s? !$$)*!"#e:

'efore stud%in! the nature and amount of permissile and non perm

deductions under sections J> to 4J-, it "ill e useful if one 5eeps

follo"in! principles !overnin! admissiilit% of these deductions#

(1) The allo"ances laid do"n under Section J> to J are cumulativ

alternative

(D) xpenditure should have een incurred in connection "ith asse

usiness(J) xpenditure should relate to the previous %ear in "hich usines

carried on


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=4 +nus to proof Lit is the responsiilit% of the assessee to prove

particular deduction is admissile in his case

@4 $o ao%ance in res!ect of e&!enditure incurred before date oof business# In case of ne"l% set up usiness or profession, previo

commences on the date of its settin!7up So, an% expenditure incu

settin! up of usiness or profession is not deductile It is onl% "

has een put into such a shape that it can start functionin! as a u

manufacturin! or!ani


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6 /o allo"ance in respect of non7assessale usiness

xpenditure relatin! to ille!al usiness

= no allo"ance in respect of anticipated losses

9 no deduction in respect of depreciation of investment

1> enefit of expenditure ma% extend to someod% else

11 no allo"ance in respect of exhaustion of "astin! assets


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WHAT ARE THE SPECIFIC DEDUCTIONS UNDER ACT-

Sections J> to J cover expenses "hich are expressl% allodeduction "hile computin! usiness income, sections 4>,4J' cover expenses "hich are not deductile

The follo"in! expenses are expressl% allo"ed as deductio profits and !ains of usiness or profession


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DEDUCTION IN RESPECT OF RENT RATES TAXES REPAIRS ANINSURANCE FOR BUILDIN5 ETC 8SECTION


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!#i"er+ !"% &ur"iture 8se#ti)"


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CONDITIONS TO BE FULFILLED IN ORDER TO CLAIMDEPRECIATION UNDER SECTION

income tax module 2

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