income tax-ppt-revised
DESCRIPTION
The Tax rate have been revised for 2013-14. The exemption limit has been increased to 2 lakhs . The second slab has been increased to 5laksTRANSCRIPT
Income Tax
(A.Y. 2011-12 & 2012-13)
T.VENKATARAMANAN.FCMA.FCS
04/10/2023
2Define tax
Tax is a payment made to the government of a country with out “ quid pro quo”i.e. nothing in return.
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3
From where government get authority to tax? WHAT DOES IT SAY?
The authority to tax is derived by the government from the constitu tion of the country.-i.e. article 265 of the INDIAN CONSTITUTION. It states that no tax shall be levied or collected by the government without the authority of law.
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4What are the objective of taxation ?The objective of taxation may be expressed as 4 Rs1)Revenue to the government(2)redistribution of wealth (3)Reprising (4)representation
5
Briefly describe Indian tax system
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(article 246)& vii schedules. 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 for agricultural/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 utilitieslike water supply, drainage, etc.
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Match the following:1 Entry no 82
2 83
3 84
4 85
5 92 A,B,C
6 97
a Any other item
b Income tax other than agrl.
c Customs including export
d Excise excluding liquor/norcotics
e Inter state –sales & services
f Corporate tax
6
04/10/2023
7What are the two types of taxes ? Distinguish between them.
The two types of taxes are (1)DIRECT (2)INDIRECT
NO DIRECT INDIRECT
1 ON PERSONS ON GOODS &services
2 Collected from assessee direct
Collected by dealers &remitted to govt.
3 Burden not shiftable Cannot be shifted
4 On income On sale/purchase
Direct tax Income tax
INDEX1. Introduction2. Residential Status3. Tax Rates4. Income from Salary5. Income from House Property6. Income from Business & Profession7. Capital Gains8. Income from Other Sources9. Clubbing of Income
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Contd…10.Set-off Carry Forward11.Deductions from Gross Total Income12.Agricultural Income
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Introduction
04/10/202311
Charge of Income Tax
Income tax is charged in assessment year at rates specified by the Finance Act applicable on 1st April of the relevant assessment year.
It is charged on the total income of every person for the previous year.
Total Income is to be computed as per the provisions of the Act.
Income tax is to be deducted at source or paid in advance wherever required under the provision of the Act.04/10/2023
12
Important Definitions1. Person u/s 2(31) includes,
a. An Individual, b. Hindu Undivided Family (HUF),c. A Company,d. A Firm,e. An Association of Persons(AOP) or Body of
Individuals (BOI),f. A Local Authority,g. Every other Artificial Juridical Person
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AOP & BOI
14
SEC 2(31) WHICH DEFINES A PERSON ALSO INCLUDES “AOP & BOI”The supreme court in CIT Vs Indra balakrishna 39 ITR 546defines AOP to mean Two or more persons joining in a common purpose or common action with a view To produce income .however conclusion can be drawn in this regard only on the basis of facts & circumstances
It may noted that the provisions relating to AOP & BOI ARE ONE & THE SAME As regards computation & taxability of income
The main difference between the two is that , in the case of association of persons Even body corporates & firms can be members where as in BOI ONLY INDIVIDUALS canbe members.
15
Application of income an aSSESSEE either on his own volition or otherwise foregoes his income for any reason it amounts to application of income & cannot be excluded from his total income
X inherits a property subject to the right of residence in favour of his mother , a part of the sale consideration paid to his mother to forego her right of residence is diversion of income.such diversion of income is at source by over riding title then such income cannot be taxed in the assessee’s hands
DIVERSION & APPLICATION OF INCOME
Contd…
2. Assessment Year u/s 2(9) means, the period of 12 months commencing on the 1st April every year. It is the year (just after previous year) in which income is earned is charged to tax. The current Assessment is 2011-2012.
3. Previous Year u/s 2(34) means, the year in which income is earned.
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Contd…4. Gross Total Income (G.T.I) :- The aggregate
income under the 5 heads of income (viz. Salary, House Property, Business or Profession, Capital Gains & Other Sources) is termed as “Gross Total Income”.
5. Total Income (T.I) :- Total Income of assessee is gross total income as reduced by the amount permissible as deduction under sections 80C to 80U.
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Index
04/10/202318
Residential Status
Types of Residential Status
The different types of residential status are:-
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Resident(R)
Not Ordinarily Resident (NOR)
Non-Resident (NR)
Residential Status of Individual
The residential status of individual will be determined as under-
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Assessee Basic Condition Additional Condition
Resident He must satisfy at one of the basic conditions. Not required.
Not Ordinarily Resident He must satisfy at least one of the basic conditions.
He must satisfy either one or both the additional conditions given u/s 6(6).
Non-Resident Should not satisfy any of the basic conditions. Not required.
Contd…Basic Conditions u/s 6(1): i. He must be in India for a period of 182 days or more
during the previous year; orii. He must be in India for a period of 60 days or more during
the previous year and 365 days or more during the four years immediately preceding the previous year.
Additional Conditions u/s 6(6):iii.He must be a non-resident in India in nine out of the ten
previous years preceding that year; or
iv. He must be in India during 7 preceding previous years for aggregate period of 729 days or less.04/10/2023
21
Residential Status of HUFThe residential status of HUF depends upon the control and management of its affairs.
› Resident HUF: If the control and management of the affairs of HUF is situated wholly or partly in India then HUF is said to be Resident in India.
› Non- Resident HUF: If the control and management of the affairs of HUF is situated wholly outside India then HUF is said to be Non- Resident in India.
› Not Ordinarily Resident HUF: A resident HUF is said to be ‘Not Ordinarily Resident’ in India if Karta or manager thereof, satisfies any of the additional conditions u/s 6(6).
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Residential StatusAccording to section 6(3) an Indian Company is always Resident in India. A foreign Company will be resident in India if Control or Management of its affairs is wholly situated in India.Residential Status of a firm or AOP or other person depends upon control and management of its affairs.
Resident: If the control and management of the affairs of a firm or AOP or other person is situated wholly or partly in India then such a firm or AOP or other person is said to be resident in India.
Non-Resident: If the control and management of the affairs of a firm or AOP or other person is situated outside India then such a firm or AOP or other person is said to be non-resident in India.
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Residential status -
24
Mr,A a British citizen, comes to India for the first time during 2004-5 .his stay inIndia for 2005-6, 2006-7 .2007-8, 2008- 9,& 2009 -10 are as follows a)55 days; 60 days ;80 days ,160 days & 70 days respectively .Determine his residential status for AY 2010-11
ANS :HIS STAY IN INDIA For 2009-10 is 70 days ; (b) stay in the preceeding 4 years355. days.he fails in both conditionsd therefore he is a NONRESIDENT
25
B stays from 10/10/2009 for 173.days.he does not satisfy the 1st condition.but he has stayed for more than 365 days in the preceding 4 yrs. Hence he is resident.he was resident in 9 out of 10 yrs & has been in India for more than 729 days
in the preceding 7 yrs Therfore BisR.O.R.
Mr. B a Malaysian , leaves India after a period of 10 years stay on 01/06/2007.During FY 2008-9 HE COMES TO INDIA FOR 46 DAYS .Later he returns to India for good on 10/10/2009.Determine his residential status for the AY 2010-11.Will your answer be different if his date of departure was15/05/2007?
Residential Status continued
26Ans:1)yes may be legal or illegal(2)yes 3)no (4)yes (5) no. (6) no.
State with reasons whether the following receipts are income u/s 2(24) of the IT.ACT1)INCOME EARNED BY SMUGGLING GOLD INTO INDIA2)Gift received by a doctor from a patient 3)Gift received by son from father on his marriage4)Award received by a sports person5)Award received by a nonprofessional sport person6)Reimbursement of travelling expenses by a sales person
27
Determine the legal status of the following persons:
1)Chaitali coop H.S.ltd (6)XYZ & CO unregd firm2)Mr.janakinandan (7)Jt.family of Rajesh,his wife &children3)Mukund Iron Ltd. (8)Shramik sena4)Mr.Badri prasad (9)mumbai municipal corporation5)Union Bank of Allahabad (10)mumbai university
Ans :1)AOP (2)An Individual (3) co. (4 )individual(5) Co (6) AOP/BOI (7)HUF (8)boi (9)local authority(10)Artificial judicial person
Incidence of Tax
ParticularsTax Incidence
R NOR NR
Income received in India by or on behalf of assessee Yes Yes Yes
Income deemed to received in India by or on behalf of assessee Yes Yes Yes
Income accruing or arising in India Yes Yes Yes
Income deemed to accrue or arise in India Yes Yes Yes
Income which accrues or arise outside India Yes No No
28
29
From the following details calculate total income of Mr. S for the financial year 2012 -13 (a) as resident (b) not ordinarily resident ( c ) non resident
No Details of income Rs
1 Income from property remitted from lanka to the assessee in india
210,000
2 Profit from business in india 100,000
3 Loss from business in lanka ,managed from india
80,000
4 Dividend from foreign cos recd. o/s India
60,000
5 Interest on deposits from Indian cos
120,000
6 Total 5,17,000
30
Total income of Mr. S for the financial year 2012 -13(a) as resident (b) not ordinarily resident ( c ) non resident
No
Details of income R NoR Non R
1 Income from property remitted from lanka to the assessee in india
210,000
210,000
210,000
2 Profit from business in india
100,000
100,000
100,000
3 Loss from business in lanka ,managed from india
(80000)
(80000)
NT
4 Dividend from foreign cos recd. o/s India
60,000
Not taxable
Not taxable
5 Interest on deposits from Indian cos
120,000
120,000
120,000
6 Total 410,000
350,000
430,000
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TAX RATES
RATES OF INCOME TAX (Assessment Year 2009-10)
1. In case of every Individual/ HUF/ AOP/BOI artificial juridical Person.
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S.No INCOME TAX RATE
1 Up to 200,000 NIL
2 200,010-500000 10%
3 500010-1000000 20%
4 Above1000000 30%
Contd…
2. In case of resident women below 65 years of age.
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S.No INCOME TAX RATE
1 Up to 200000 NIL
2 200010-500000 10%
3 500010-1000000 20%
4 Above 1000000 30%
Contd…3. In case of resident senior citizen i.e. age of 65 years or above
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S.No INCOME (A.Y. 2010-11)
TAX RATE
1 Up to 250000 NIL
2 250010-500000 10%
3 500010-1000000 20%
4 Above 1000000 30%
Contd…PERSONS TAX RATE
FIRMS 30%
DOMESTIC COMPANY 30%
FOREIGN COMPANY 40%
LOCAL AUTHORITIES 30%
CO-OPERATIVE SOCIETIESUp to 1000010000-20000Above 20000
10%20%30%
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Surcharge & CessPERSON RATE OF SURCHARGE
Individual / AOP / BOI / HUF / Artificial Juridical Person
10% of tax liability if Income Exceeds Rs 10 Lacs
Firm 10% of tax liability, if Income exceeds Rs. 1 Crore
Domestic Company 10% of tax liability, if Income exceeds Rs. 1 Crore
Foreign company 2.5% of tax liability, if Income exceeds Rs. 1 Crore
Co-operative Society N.A.
Local Authority N.A.
Education Cess and Secondary & Higher Education Cess is applicable on every person @ 2% & 1% respectively on tax liability and surcharge applicable, if any.
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Index
Note: surcharge on personal income-tax will be eliminated from A.Y. 2010-11
37
Income not Included in total income
1)Agricultural income u/s 10(1)2)Receipt from HUF U/S 10 (2)3)Share of profits from firm10(2A)4)Interest to NON RESIDENT5)Interest from govt sec to NRI6)LTC(7)Remuneration of foreign diplomat(8)Foreign allowance (9)Income consultant u/s10(8A)(10)gratuity
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Income from Salary
MeaningSalary includes [section17(1)] :-i. Wagesii. Any annuity on pensioniii. Any gratuityiv. Any fees, commission, bonus, perquisite on profits
in lieu of or in addition to any salary on wages v. Any advance of salary vi. Any earned leavevii.Employers contribution (taxable) towards
recognized provident fund.
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BASIS OF CHARGEIncome is taxable under head “Salaries”, only if there exists Employer - Employee Relationship between the payer and the
payee. The following incomes shall be chargeable to income-tax under the head “Salaries”:-1.Salary Due2.Advance Salary [u/s 17(1)(v)]3.Arrears of Salary
Note:(i)Salary is chargeable on due basis or
receipt basis, whichever is earlier.(ii)Advance salary and Arrears of salary
are chargeable to tax on receipt basis only.
04/10/202340
AllowancesAllowance is generally defined as a fixed quantity of money or other substance given regularly in addition to salary for the purpose of meeting some particular requirement connected with the services rendered by the employee or as compensation for unusual conditions of that service.1.Dearness Allowance - It is Always Taxable.2.City Compensatory Allowance - It is Always Taxable.
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Contd…3. House Rent Allowance
Exemption In Respect Of House Rent allowance is regulated by rule 2A. The least of the three given below is Exempt from Tax.
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1An Amount Equal to 50 % of Salary. Where Residential House in situated at Bombay, Calcutta, Delhi or Madras and An Amount Equal to 40 % of Salary where Residential House is situated at any Other Place.
2 House Rent Allowance Received by The Employee in Respect of The Period during which Rental Accommodation is Occupied by the Employee during the Previous Year.
3 The Excess of Rent Paid over 10 % of Salary.
Contd…4. Entertainment allowance [sec.169(ii)]-
Entertainment allowance is first included in salary in come under the head “salaries” and thereafter a deduction is given on the basis enumerated below:
04/10/2023 43
GovernmentNon- Government
Least of the Following is deductible :1. Rs. 50002. 20 % of basic salary 3. Amount of entertainment
allowance grated during the previous year
Nothing is deductible
Status of Employee
Contd…
5. Special allowances prescribed as exempt under section 10(14) – In the cases given below the amount of exemption under section 10(14) is :–
i. The amount of the allowance ; or ii. The amount utilized for the specific
purpose for which allowance is given.Whichever is lower.
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Contd…Exemption is available on the aforesaid basis in the case of following allowances :-
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NAME OF ALLOWANCE NATURE OF ALLOWANCE
Travelling Allowance/ Transfer Allowance
Any allowance granted to meet the cost of travel on tour or on transfer (including sum paid in connection with transfer, packing and transportation of personal effects on such transfer).
Conveyance Allowance Conveyance allowance granted to meet the expenditure on conveyance in performance of duties of an office (expenditure for covering the journey between office and residence is not to be included).
Daily Allowance Any allowance whether granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from this normal place of duty.
Contd…
6. When exemption does not depend upon expenditure - In the cases given below, the amount of exemption does not depend upon expenditure incurred by the employee. Regardless of the amount of expenditure, the allowances given below are exempt to the extent of –
i. the amount of allowance ; orii. the amount specified in rule
2BB,
Whichever is lower.04/10/202346
Contd…Name of allowance Exemption as specifiedin rule 2BB
Special Compensatory(Hill Areas) Allowance
Amount exempt from tax varies from Rs. 300 per mount to Rs. 7,000 per month
Border area allowanceThe amount of exemption varies from Rs. 200 Per month to Rs. 1,300 per month
Tribal areas/ scheduled areas allowance
Rs. 200 Per Month
Allowance for transport employees
The amount of exemption is-a.70 per cent of such allowance; or b.Rs. 6,000 per month, whichever is lower.
Children education allowance The amount exempt is limited to Rs. 100 per month per child up to a maximum of two children.
Hostel expenditure allowanceIt is exempt from tax to the extent of Rs. 300 per month per child up to a maximum of two children.
Compensatory field area allowance
Exemption is limited to Rs. 2,600 per month in some cases.
04/10/2023 47
Contd…
Name of Allowance Exemption as Specified in Rule 2BB
Compensatory modified area allowance
Exemption is limited to Rs.1,000 per month in some cases.
Counter insurgency allowance Exemption is limited to Rs.3,900 per month in some cases.
Transport allowance It is exempt up to Rs. 800 per month (Rs. 1,600 per month in the case of an employee who is blind or orthopedically handicapped)
Underground allowance Exemption is limited to Rs. 800 per month.
High altitude allowance It is exempt from tax up to Rs. 1,060 per month (for altitude of 9,000 to 15,000 feet) or Rs. 1,600 per month (for altitude above 15,000 feet).
Highly active field area allowance
It is exempt from tax up to Rs. 4,200 per month.
Island duty allowance It is exempt up to Rs. 3,250 per month.
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Contd…7. Allowance to Government employees
outside India [Sec. 10( 7)] - Any allowance paid or allowed outside India by the Government to an Indian citizen for rendering service outside India is wholly exempt from tax.
8. Tiffin allowance - It is taxable.9. Fixed medical allowance – It is taxable.
10. Servant allowance - It is taxable.
04/10/202349
Contd…11. Allowance to High Court and Supreme Court
Judges - Any allowance paid to High Court Judges under section & 22C of the High Court Judges (Conditions of Service) Act, 1954 is not chargeable to tax.
12. Allowance received from a United Nations Organization - Allowance paid by a United Nations Organization to its employees is not taxable by virtue of section 2 of the UN (Privileges and Immunities) Act, 1974.
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PERQUISITESPerquisite may be defined as any Casual Emolument or Benefit attached to an office or position in Addition to Salary or Wages. It also denotes something that benefits a man by going in to his own pocket. Perquisites may be provided in cash or in kind. Perquisites are included in salary income only if they are received by an employee from his employer.
04/10/202351
“Perquisites” as defined u/s 17 (2)
The term “perquisites” is defined by section 17 (2) as including the following items:1.The value of Rent-free Accommodation provided to the assessee by his employer 2.The value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer
04/10/202352
Contd…3. The value of any benefit or amenity granted or
provided free of cost or at concessional rate in any of the following cases :
i. By a company to an employee who is a director thereof ;
ii. By a company to an employee, being a person who has substantial interest in the company ;
iii. By any employer (including a company) to an employee to whom provisions of (i) and (ii) above do not apply and whose income under the head “salaries” exclusive of the value of all benefits or amenities not provided for by way of monetary benefits, exceeds Rs. 50,000
04/10/202353
Contd…4. Any sum paid by the employer in respect of any
obligation which but for such payment would have been payable by the assessee. Obligation of Employee met by Employer.
5. Any sum payable by the employer, whether directly or through a fund other than a recognized provident fund or approved superannuation fund or a deposit-linked insurance fund, to effect an assurance on the life of the assessee or to effect a contract for an annuity
6. The value of any other fringe benefits or amenity as may be prescribed
04/10/202354
TERMINAL BENEFITS1. Gratuity [Sec.10(10)] – Gratuity is a retirement benefit. It is
generally payable at the time of cessation of employment and on the basis of duration of service. Tax treatment of
gratuity is given below:
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Status of Employee
Government Employee
Non-government employee covered by
the payment of Gratuity Act, 1972
Non-government employee not covered by the payment of Gratuity
Act, 1972It is fully exempt from tax under
section 10(10)(i) Least of following is exempt:1) “15 days’ salary” x “Length of
service”2) Rs. 3, 50, 000
3) Gratuity actually received.
Least of following is exempt:1) “½ month avg. salary” x
“Length of service”2) Rs. 3, 50, 000
3) Gratuity actually received.
Contd…2. PENSION [SEC. 17(1)(ii)] - Pension is chargeable tax as
follows :-
04/10/2023 56
PENSION
Taxable for Government as
well as Non-Government employees
Entire Commuted Pension is exempt
whether or not
Gratuity received.
UNCOMMUTEDCOMMUTED
Government Employee
Non-Government
Employee
1/3 of commuted pension is
exempt
If Gratuity Received
If Gratuity not Received
1/2 of commuted pension is
exempt
Contd…3. Annuity [Sec. 17(1)(ii)] – An annuity payable by a present
employer is taxable as salary even if it is paid voluntarily without any contractual obligation of the employer. An annuity received from an ex-employer is taxed as profit in lieu of salary.
4. Retrenchment compensation [Sec. 10(10B)] – Compensation received by a workman at the time of retrenchment is exempt from tax to the extent of the lower of the following:
a. an amount calculated in accordance with the provisions of sec. 25F(b) of the Industrial Disputes Act, 1947; or
b. such amount as notified by the Government (i.e., Rs, 5, 00, 000); or
c. the amount received.
04/10/202357
Contd…
5. Compensation received at the time of Voluntary Retirement [sec.10 (10C)] - Compensation received at the time of voluntary retirement is exempt from tax, subject to certain conditions. Maximum amount of exemption is Rs. 500000.
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Provident Fund
Provident Fund Scheme is a welfare scheme for the benefit of employees. The employee contributes certain sum to this fund every month and the employer also contributes certain sum to the provident fund in employees A/c. the employers contribution to the extent of 12% is not chargeable to tax.
04/10/202359
60
TAX TREATMENT OF PROVIDENT FUNDS
SL.NO
PARTIculars
St.PF
RPF UNRECOG PF
PPF
1
EMPLOYER
WHOLLY EXEMPT
EXEMPT 12 %
EXEMPT
NO contribution by employer
2 8.5%
LEAVE SALARY Encashment of leave by surrendering leave standing to one’s
credit is known as “leave salary”.
04/10/2023 61
LEAVE ENCASHMENT
During EmploymentRetirement / Leaving the Job
Chargeable to Tax
Non-Government Employee
Government Employee
Fully Exempt
Least of following is exempt :-1) Earned Leave on the basis of
Average Salary2) 10 x Average monthly salary3) Rs. 5000004) Leave Salary Received
62
Computation of income from salaries
Salary Allowance Perks Profit in lieu of salary
basic DA Rent free accommodation
EPF & INTEREST
fees HRA Concession in rent
Puja bonus & incentives
commission Conveyance Amenities free of cost
Key man insurance policy
Pension CCA Obligation of employee paid by employer
gratuity Lunch allce LIP EMPLOYEE/annuity
Leave salry Medical allce Fringe benefit
Annuity Servant allce
Bonus taxable on receipt basis
Entertainment allce
Deductions Admissible in Computing Income under head ‘SALARIES’
1. Entertainment allowance granted by employer [Sec.16(ii)]: This deduction is available in case of Government employees only.
2. Employment Tax / Professional Tax [Sec.16(iii)]: Any sum paid by assessee on account of a tax on employment within the meaning of Article 276(2). Under the said article employment tax cannot exceed Rs. 2500 p.a.
04/10/202363
Relief in respect ofAdvance or Arrears of Salary u/s 89
When an assessee is in receipt of a sum in the nature of salary, being paid in arrears or in advance, due to which his total income is assessed at a rate higher than that at which it would otherwise have been assessed, Relief is granted on an application made by the assessee to the assessing officer.
04/10/202364
Index
04/10/2023
Compute the income of Sri Avinash working in central railway from the following particulars for the PY 2012-3:
65
1) Monthly basic salary Rs 58,000p.m2) DA rs 5000.pm.3)Spl allce Rs 3000/ pm4) Bonus Rs 25,0005) Car perk value Rs 13,5006) Entertainment allce since 1/4/94/Rs 2000.pm Of which he has already spent Rs 8000/=7)Books Rs 1500 & professiontax paid Rs 2500
Ans:696,000+ 60,000+36000+25000+13500+24000=854,000Less EA 5000/=+P.TAX 2500= 7500
=847,500
04/10/202366
Income from House Property
SECTIONS -22, 23, 24, 25, 26, &27
Basis of ChargeThe basis of charge of income under the head ‘income from house property’ is the Annual Value of the property. Annual Value is inherent capacity of the property to earn an income. It is the amount for which the property might reasonably be expected to let from year to year.Income from house property is charged to tax on Notional Basis, as generally tax is not on receipt of income but on the inherent potential of the house property to generate income.
04/10/202367
Conditions to be Satisfied
1. The property must consist of buildings or lands appurtenant to such buildings.
2. The assessee must be the owner of such house property.
3. The property should not be used by the owner thereof for the purpose of any business or profession carried on by him, the profits of which are chargeable to tax.
04/10/202368
Computation of Gross Annual Value (GAV)
Particulars Amount Amount
(a) Fair Rent of the House xxx
(b) Municipal Value of House xxx
(c) Whichever is more of (a) and (b) XXX
(d) Standard Rent xxx
Expected Rent [whichever is less of (c) and (d)]
XXX
04/10/202369
Step 1 : Calculate Expected Rent as follows:-
Contd…Step 2 : Compare Expected Rent & Actual Rent
Receivable (ARR).Where the property or any part thereof is let out,
If ARR is more than ER referred to in Step 1, then, GAV = ARR
If ARR is less than ER and it is due the vacancy of property then, GAV = ARR
If ARR is less than ER not owing to vacancy GAV = ER
Note: ARR = Rent Received / Receivable less Unrealized Rent
04/10/202370
Net Annual Value (NAV)
Net Annual Value is the sum computed after deducting from Gross Annual Value, the taxes levied by any local authority in respect of the property.
NAV = GAV – Municipal Taxes Paid
04/10/202371
Meaning1. Municipal Valuation :- For collecting municipal taxes,
local authorities make a periodical survey of all building in their jurisdiction. Such valuation may be taken as strong evidence representing the earning capacity of a building.
2. Fair Rent of the Property :- Fair rent of the property can be determined on the basis of a rent fetched by a similar property in the same or similar locality.
3. Standard Rent :- Standard rent is the maximum rent which a person can legally recover from his tenant under a Rent Control Act.
04/10/202372
Self-occupied Property [Sec. 23(2)]
Property is considered to be self – occupied where,
the property consisting of house or part thereof is in the occupation of the owner for the purposes of his own residence; or
such property cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him.
04/10/202373
Contd…
In case of Self-occupied House Property Net Annual Value is always Zero.
Since NAV is zero, the municipal taxes paid by the owner of the house are not deductible.
04/10/202374
Deduction Admissible u/s 24
i. Statutory deduction :- 30% of Annual Value (i.e. 30% of NAV)
ii.Interest payable on capital borrowed for acquisition, construction, repair, renewal or reconstruction of house property :- Actual amount of interest for the year on accrual basis plus 1/5th of the interest, if any, pertaining to the pre-acquisition or pre-construction period.
04/10/202375
Deduction for Interest on Capital Borrowed in case of SOP
Maximum limit of deduction in respect of interest on capital borrowed in case of a Self-occupied property whose annual value is assessed at NIL, is Rs. 1,50,000
04/10/202376
CASE
MAXIMUM DEDUCTION
Interest on capital borrowed on or after 1-4-1999 for acquisition or construction of house
1,50,000
In any other case 30,000
Recovery of Unrealized Rent [Section 25AA]
Any amount of rent realized by the assessee during the previous year, which he could not realize from a property let to a tenant, shall be deemed to be income chargeable under the head “Income from house property”.100% of the amount actually received is taxable in the previous year in which it is realized.
04/10/202377
Arrears of Rent [Section 25B]
Arrears of rent shall be deemed to be income chargeable under the head “Income from house property”. It shall be charged to income tax as income of previous year in which it is received.Taxable amount is computed as under :-
04/10/202378
PARTICULARS AMOUNT
The amount received as arrears of rent XXX
Less: 30% of such amount xxx
Amount taxable as arrears of rent XXX
Index
04/10/2023
79INCOME EXEMPT FROM TAX U/S 10INCOME FROM HP is exempted in the following cases:1)any one palace of ex ruler (2)local authority(3)scientific research assn.See sec 10 (19) to (27) p/78
04/10/2023
Paramveer is the owner of a residential house occupied by tenants X.Y.&Z the particulars of the houses are given below
80
Partic ulars
Ist unit Ii unit III UNIT
GROSS RATEABLE VALUE
12,000 14,000 15,000
FAIR RENT 9,000 15,000 16,000
ACTUAL RENT
11,400 10,800 18,000
Municipal tax
3240 3780 4050
Expenses on repair
1000 Nil nil
Expenses on collection
Nil 500 nil
Municipal taxes for I unit borne by owner II & III are borne by tenants
04/10/2023
Computation of Income from residential house occupied by tenants X.Y.&Z
81
Partic ulars
Ist unit Ii unit III UNIT
GROSS RATEABLE VALUE
12,000 14,000 15,000
FAIR RENT 9,000 15,000 16,000
ACTUAL RENT
11,400 10,800 18,000
Annual value
12,000 15,000 18,000
Municipal tax
3240 3780* 4050*
Net AV 8760 15,000 18,000
DEDUCTIONS U/S 24 30 % OF AV
2628 4500 5400
INCOME FROM hp
6132 10,500 12,600
Municipal taxes for I unit borne by owner II & III are borne by tenants
04/10/202382
Income from Business & Profession
SECTION 28 -44
Basis of Charge [sec. 28]The following income is chargeable to tax under the head “Profits and gains of business or profession”:1.Profits and gains of any business or profession;2.Any compensation or other payments due to or received by any person specified in section 28(ii);
3.Income derived by a trade, professional or similar association from specific services performed for its members;
4. The value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession;
04/10/202383
Contd…5. any profit on transfer of the Duty Entitlement
Pass Book Scheme.6. Any profit on the transfer of the duty free
replenishment certificate;7. Export incentive available to exporters;8. Any interest, salary, bonus, commission or
remuneration received by a partner from firm; Any sum received for not carrying out any activity in relation to any business or not to share any know-how, patent, copyright, trademark, etc.
04/10/202384
Contd…9. Any sum received under a Keyman insurance
policy including bonus;10. Profits and gains of managing agency; and11. Income from speculative transaction. Income from the aforesaid activities is computed in accordance with the provisions laid down in section 29 to 44D.
04/10/202385
Expenses Expressly Allowed 1. Rent, rates, taxes, repairs and insurance for building
[Sec. 30]2. Repairs and insurance of machinery, plant and
furniture [Sec. 31]3. Depreciation allowance [Sec. 32] 4. Tea/coffee/rubber development account [Sec. 33AB] 5. Expenditure on acquisition of patent rights and
copyrights [Sec. 35A] 6. Insurance premium [Sec. 36 (1)
(i)]7. Premier for insurance on health of
employees [Sec. 36(1) (ib)]
04/10/202386
Contd…8. Bonus or commission to employees [Sec. 36(1)(ii)] 9. Interest on borrowed capital [Sec. 36(1)(iii)] 10. Employer’s contribution to recognized provident
fund and approved superannuation fund [Sec. 36(1)(iv)]
11. Contribution towards approved gratuity fund [Sec. 36(1)(v)]
12. Employee’s contribution towards staff welfare schemes
13. Bad debts [Sec. 36(1)(vii)]14. Family planning expenditure
[Sec. 36(1) (ix)]
04/10/202387
Contd…
15. Banking cash transaction tax, securities transaction tax and commodities transaction tax.
16. Advertisement expenses [Sec. 37(2B)].17. General Deduction [Sec. 37(1)].
04/10/202388
EXPENSES NOT DEDUCTIBLE [Section 37(1)]
1. Damages and penalty paid for transgressing the terms of agreement with the State.
2. Penalty and damages paid in connection with infringement of law.
3. Litigation expenditure incurred for curing any defect in the title of assets or completing that title.
4. Litigation expenses for registration of shares.5. Fees paid for increase of authorized capital.
04/10/202389
Contd…6. Expenditure on raising equity share capital and
preference share capital. However, expenditure on issue of bonus shares id deductible.
7. Amount paid for acquiring technical know-how which is to be utilized for the purpose of manufacturing any new article and such know-how is to become the property of the assessee at the end of the stipulated period.
8. Amount expended for acquiring a business or a right of permanent character or an asset
which generates income or for avoiding compensation in business.
04/10/202390
Contd…9. Payments made for acquisition of good will.10. Expenditure incurred for acquiring right over
or in land to win minerals.11. Fees paid to obtain license to investigate and
search minerals.12. Payment made in consideration of acquiring
a monopoly right to manufacturer a producer (royalty payable on the basis of goods produced under the same arrangement is, however, deductible).
04/10/202391
Contd…13. Tax paid by the assessee (who is defaulter by not
deducting tax at source under section 195) on behalf of non-resident.
14. Compensation paid to contracting party with the object of avoiding an unnecessary investment in capital assets.
15. Expenditure on shifting of registered office.16. Insurance premia paid by a firm on life insurance
policies of its partners. 17. Amount paid by liquor contractor to
police staff and other officer to enable it to make unauthorized purchases and sales of liquor.
04/10/202392
Contd…
18. Amount paid by a company to the Registrar of Companies as filing fee for enhancement of capital base of the company.
19. Payment made by assessee company which was partner in a firm, to outgoing partners of firm on account of their agreeing to restrain from carrying on similar business for a period of 15 years.
04/10/202393
Specific Disallowances1. Interest, Royalty, fees for Technical Services payable
outside India,if on such amount tax is deductible but tax has not been deducted or deposited with Government. [Sec. 40(a)(i)]
2. Fringe Benefit Tax [Sec. 40(a)(ic)] 3. Income-Tax [Sec. 40(a)(ii)]4. Salary Payable Outside India without Tax Deduction
[sec. 40(a)(iii)]5. Provident Fund Payment without tax
Deduction at Source [Sec. 40(a)(iv)] 6. Certain specified expenses in case
of Partnership Firm
04/10/202394
Contd…7. Interest paid by an AOP/ BOI to its members is
not allowed as deduction by virtue of sec. 40(ba)8. Payment to relatives in excess of fair value – not
deductible [Section 40A(2)]9. Expenditure in excess of Rs. 20,000 in aggregate
in a day paid otherwise than by account payee cheque drawn on a bank or account payee bank draft – Not allowable [Section 40A(3))]
10. Amount not deductible in respect of certain unpaid liabilities [Sec.43B]
04/10/202395
Books of Accounts to be maintained [Section 44AA]
The persons carrying on specified professions are required to maintain specified books of account only if the gross receipts of their profession have exceeded Rs. 1,50,000Every other person carrying on business or profession shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act.
a) If his income from business or profession exceeds Rs. 1,20,000;
b) Total sales/turnover/gross receipts thereof exceeds Rs.10,00,000
c) the assessee has claimed his income lower than deemed profits
04/10/202396
Tax Audit u/s 44ABThis section applies to following :-
The assessee is required to get his accounts of such previous year audited by a Chartered
Accountant before 30th September of the assessment year.
04/10/202397
Person carrying on - Accounts are to be audited for previous year in which -
Business Total sales, turnover or gross receipts exceed Rs. 40,00,000
Profession Gross receipts exceed Rs. 10,00,000
Business covered u/s 44AB, 44AE, 44AF, 4BB and 44BBB
He has claimed his income to be lower than the profits or gains so deemed under the respective section.
Special Provisions for Computing Income on Estimated Basis 44AD, 44AE
& 44AFNot withstanding anything contained in Sections 28 to 43C, the following provisions will apply.
98
Sec. 44 AD Sec. 44 AE Sec. 44AF
Business of Assessee
Civil construction or supply of labour for it.
Plying, hiring or leasing goods carriages owned by him.
Retail trade in any goods or merchandise.
This Section applies if
Gross receipts of such business during the previous year do not exceed Rs. 40 lacs.
Goods carriages owned by assessee at any time during previous year doesn’t exceed 10 lacs
Total business turnover in that previous year doesn’t exceed Rs. 40 lacs.
Deemed Profits
8% of Gross receipts (No. of heavy goodsvehicle x Rs. 3500 x NM) + (No. of other vehicles x Rs. 3150 x NM)NM = No. of months
5% of Gross receipts or such higher sum as declared by him in his Return of Income.
DEPRICIATION [Sec. 32]Depreciation allowance [Sec. 32] - Depreciation shall be determined according to the provisions of section 32.Conditions for claiming Depreciation - In order to avail depreciation, one should satisfy the following conditions:› Asset must be owned by the assessee.› It must be used for the purpose of business or
profession.› It should be used during the relevant previous year.› Depreciation is available on tangible as well as
intangible assets.
04/10/202399
Contd…Block of Assets [Sec. 2(11)] - The term “block of assets” means a group of assets falling within a class of assets comprising –› tangible assets, being buildings, machinery,
plant or furniture;› intangible assets, being know-how, patents,
copyrights, trade marks, licenses, franchises or any other business or commercial rights of similar nature.
› In respect of which the same percentage of depreciation is prescribed.
04/10/2023100
04/10/2023
101
Kamal started business with the following assets you are required to form block of assets & compute depreciation for the ay 2011-12
SL.NO
PARTICULARS RATE OF DEP%
RS
1 OFFICE building 10 23,00,000
2 Factory building 10 18,00,000
3 Residential for workers 5 900,000
4 officefurniture 15 200,000
5 Residential furniture 15 100,000
6 Copy rights trade marks 25 600,000
7 Plant & m/c normal 20 900,000
8 Do- computer 60 100,000
9 Do- delivery van 20 100,000
Contd…
Written Down Value [Sec. 43(6)] - Written down value for the assessment year 2009-10 will be determined as under:
04/10/2023102
Step 1Find out the depreciated value of the block on the April 1, 2008.
Step 2
To this value, add “actual cost” of the asset (falling in the block) acquired during the previous year 2008-09.
Step 3
From the resultant figure, deduct money received/receivable (together with scrap value) in respect of that asset (falling within the block of assets) which is sold, discarded demolished or destroyed during the previous year 2008-09.
Contd…Meaning of “Actual Cost” [Sec. 43(1)] - It means the actual cost to the assessee as reduced by the proportion of the cost thereof, if any, as has been met, directly or indirectly, by any other person or authority.If written down value of the block of asset is reduced to zero, though the block is not empty - No depreciation is admissible.If the block of assets is empty or ceases to exist on the last day of the previous year though the written down value is not zero - No depreciation is admissible.
04/10/2023103
Contd…Additional depreciation @ 20% is available on new plant or machinery acquired & installed after 31.03.05, if used in production or manufacturing.If asset is used for less than 180 days during the previous year, in which its purchased, then deprecation & additional depreciation is restricted to 50% of actual depreciation. However in subsequent year full depreciation is allowed irrespective of use.When a depreciable asset(on which depreciation is claimed on straight line basis) of a power generating unit is disposed in a previous year, then terminal depreciation (loss) is deductible or balancing charge (gain) is taxable.
04/10/2023104
Partnership
Deductibility of interest paid to partners by firm depends upon following :-› Payment of interest should be authorized by the
partnership deed› Payment of interest should pertain to the period after the
partnership deed.› Rate of interest should not exceed 12 percent
Deduction of Remuneration to Partners can be claimed if paid :-
› to a Working Partner› According to the Partnership Deed› Does not exceed the Permissible Limits.
04/10/2023105
Contd…The maximum amount of salary paid to all the partners during the previous year should not exceed the limits given below :-
106
In case of a firm carrying of a profession referred to in section 44AA
On the first Rs. 1,00,000 of the book profit or in case of a loss
Rs. 50,000 or at the rate of 90 percent of the book profit, whichever is more
On the next Rs. 1,00,000 of the book profit At the rate of 60 percent
On the balance of the book profit At the rate of 40 percent
In the case of any other firm
On the first Rs. 75,000 of the book profit or in case of a loss
Rs. 50,000 or at the rate of 90 percent of the book profit, whichever is more
On the next Rs. 75,000 of the book profit At the rate of 60 percent
On the balance of the book profit At the rate of 40 percent
Minimum Alternate Tax (MAT)Applicability of Minimum alternate tax (MAT) sec. 115JB
:- Minimum alternate tax (MAT) sec. 115 JB MAT is
applicable in case of companies only. If tax liability of a company under normal provision
is lower than 10% of book profit. In such case, book profit shall be deemed as total
income & 10% of book profits should be deemed as tax liability.
Up to assessment year 2001-02 these provisions were covered by sec. 115 JA.
04/10/2023107
Contd…
A company is allowed credit of tax paid u/s 115-JB for the assessment year 2006-07 and onwards in accordance with the provisions of section 115-JAA.
MAT credit can be carried forward for a period of seven years.
04/10/2023108
Index
04/10/2023109
Income from Capital Gains
Basis of Charge
Capital Gain’s tax liability arises only when the following conditions are satisfied:1.There should be a capital asset.2.The capital asset is transferred by the assessee3.Such transfer takes place during the previous year.4.Any profit or gains arises as a result of transfer.5.Such profit or gains is not exempt from tax under section 54, 54B, 54D, 54EC, 54F, 54G, and 54GA04/10/2023
110
Capital Assets“Capital asset” is defined to include property of any kind, whether fixed or circulating, movable or immovable, tangible or intangible. However, following are excluded from the definition of “capital assets”:1.Any stock-in-trade, consumable stores or raw material held for the purposes of business or profession.2.Personal effects of the assessee, that is to say, movable property including wearing apparel and furniture held for his personal use or for the use of any member of his family dependent upon him. However, Jewellery, Archaeological Collections, Drawings, Paintings, Sculptures, or Art Work will not be considered as “personal effects”.
04/10/2023111
Contd…3. Agricultural land in India provided it is not situated
–› in any area within the territorial jurisdiction of a
municipality or cantonment board, having a population of 10,000 or more; or
› in any notified area.
4. 6½ percent Gold Bonds, 1977 or 7 percent Gold Bonds, 1980 or National Defense Gold Bonds, 1980 issued by the Central Government.
5. Special Bearer Bonds, 1991.6. Gold Deposit Bonds issued under
Gold Deposit Scheme, 1999.
04/10/2023112
Short-term / Long-term Capital Assets
“Short term capital asset” means a capital asset held by an assessee for not more than 36 months, immediately prior to its date of transfer. In other words, if a capital asset is held by an assessee for more than 36 months, then it is known as “long term capital asset.”However in following cases 36 months will be replaced by 12 months :- Equity or preference shares in a company
Listed Securities Units of UTI Units of a mutual fund specified
under section 10(23D) Zero coupon bonds
04/10/2023113
04/10/2023
Illustration
114
1)Discuss the liability to taxation of capital gains ,in the following cases.give reasons for your answer.a)Mr.kantilal ,a manager of a public ltd co , Receiving remuneration had a personal car,which he had bought For Rs 70,000/=in 1992.He sold it for the previous year95-96 for Rs 65,000/=&claimed the difference as an allowable loss.b)Mrs. Asha purchased a diamond necklace , in 1990,for Rs 1.lakh. She sold it for Rs 450,000 in the year 94-95
a) u/s 2(14) personal car owned by Mr.Kanthilal falls within personnel effect.Therefore car is not a capital asset.b)In this case jewellery is specifically excluded from personal effects therefore Sale of diamond necklace is chargeable to tax as capital gain
04/10/2023
115Determine whether short term or long term? 1)Mr.R had purchased a house property on 31/01/2009 & sold it to sham in 23/01/2012.2)Mr Vinit purchased shares of m/s Bongaigaon refinery on 10/01/2010.&sold the same on 09/07/2011.
1)For nonfinancial assets ,holding period is not more than 36, months it is short term, in this case it is only 35 months &24 days.Therefore this is STCG.2) FOR FINANCIAL ASSETS it is one year .therefore this is LTCG.
Important Terms1. Transfer of Capital Asset :- Transfer, in relation to
capital asset, includes sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law [sec. 2(47)].
2. Full Value of Consideration :- The expression “full value” means the whole price without any deduction whatsoever.
3. Expenditure on Transfer :- The expression “expenditure on transfer” means expenditure incurred which is necessary to effect the transfer.
04/10/2023116
Contd…4. Cost of Acquisition :- Cost of acquisition of an
asset is the value for which it was acquired by the assessee. In case of Depreciable Asset COA is the WDV of asset in the beginning of the year. In case of Slump Sale COA is the Net Worth of the undertaking.
5. Cost of improvement :- Cost of improvement is capital expenditure incurred by an assessee in making any additions/ improvement to the capital asset.
04/10/2023117
Contd…6. Indexed Cost of Acquisition :- the amount which
bears to the COA, the same proportion as CII for the year in which the asset is transferred bears to the CII for the first year in which the asset was held by the assessee or on 01.04.1981, whichever is later.
7. Indexed Cost of Improvement :- an amount which bears to the COI, the same proportion as CII for the year in which the asset is transferred bears to the CII for the year of improvement.
04/10/2023118
Capital Gain Exemption1. Profit on sale of property used for residence [S.
54]:- Available to Individual & HUF on transfer of Long-term Residential Property and new residential House property is purchased or constructed.
2. Capital gains on transfer of agricultural land [S.54B]:- Available to Individual on transfer of Agricultural land used by individual or his parent for agricultural purposes during 2 year preceding date of transfer and Agricultural land (urban or rural) is purchased.
04/10/2023119
Contd…
3. Investment in certain bonds [S.54EC] :- Available to all assesses on transfer of any long-term capital asset for purchase of Bonds, redeemable after 3 years issued by
(a) National Highway authority of India; or(b) Rural Electrification Corporation,
04/10/2023120
Contd…
4. Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house [S. 54F]:- Available to Individual & HUF on transfer of Long-term Asset other than Residential house Property and residential House property is purchased or constructed.
04/10/2023121
Contd…
5. Compulsory acquisition of land & building [S.54D]:- Available to all assesses on Compulsory acquisition of land or building which was used in the business of industrial undertaking during 2 years prior to date of transfer, if New land or building for the industrial undertaking is purchased or constructed.
04/10/2023122
Contd…
6. Shifting of undertaking to rural area [Sec.54G]:- Available to all assesses on Transfer of plant, machinery or land or building for shifting industrial undertaking from under area to rural area, if (a) Purchase/ Construction of plant, machinery, land or building in such rural area or, (b) Shifting original assets to that area or, (c) Incurring notified expenses.
04/10/2023123
Contd…7. Shifting of undertaking to SEZ
[Sec.54GA]:- Available to all assesses on Transfer of plant, machinery or land or building for shifting industrial undertaking from urban area to special Economic Zone, if (a) Purchase/ Construction of plant, machinery, land or building in such SEZ or (b) Shifting the original asset to SEZ or, (c) Incurring notified expenses.
04/10/2023124
Computation of Short-term Capital Gains
Particulars Amount
Full Value of Consideration XXX
Less: Expenses incurred wholly and exclusively for such transfer
xxx
Net Consideration XXX
Less: Cost of Acquisition xxx
Less: Cost of Improvement xxx
Less: Exemption u/s 54B, 54D, 54G, 54GA xxx
Taxable Short -term Capital gains XXX
04/10/2023125
Computation of Long-term Capital Gains
04/10/2023126
Particulars Amount
Full Value of Consideration XXX
Less: Expenses incurred wholly and exclusively for such transfer
xxx
Net Consideration XXX
Less: Indexed Cost of Acquisition xxx
Less: Indexed Cost of Improvement xxx
Less: Exemption u/s 54, 54B, 54D, 54EC, 54F, 54G, 54GA xxx
Taxable Long- term Capital gains XXX
Indexed Cost
04/10/2023127
Indexed Cost of
Acquisition /
Improvement
Cost of acquisition / improvemen
t x Cost inflation
Index of the year of transfer
Cost Inflation Index (CII) for the first
year in which the asset was held by the assessee or for the year beginning
on 1.4.1981, whichever is later /
the year of improvement
Index
04/10/2023
128
Mr.Rohan purchased a residential house in july 1989 for Rs 400,000.sold it on 1st may 2011for Rs 25 lakhs .He paid brokerage 2% .Determine CG in the following cases:
1)Purchased residential house for Rs 470,000/=constructs I floor by jan 2012 @ cost of Rs 100,000/=deposits Rs 253488/=under CG scheme.by 30/09/2012 being the due date for filing the return.2) None of the above 3)He constructs a house for Rs 15lakhs by the end of sep due date for filing the return.m
04/10/2023 129
Solution
No Details I II III
1 SALE PRICE Rs 25,00,000
25,00,000
25,00,000
2 Brokerage 50,000
50,000 50,000
3 Indexed cost 18,25,581
18,25,581
18,25,581
4 Long tern CG 624 ,419 624,419 624,4191)In this case no tax will be payable gets exemptions u/s 54 2)In this case he has not availed any .Therefore full amount is taxed .3)Tax -nil
04/10/2023
130
Mr. Kasad purchases one bangalow for Rs 51,000/= in the year 63-4.constructed 2 additional roomsin 72-3.by spending 1 lakhHe dies on 1/10/79.& as per his will the house is transferredto his son Firdosh, who sells it for Rs 25 lakhs in the AY 2012-13.COMPUTE CG( the fair mkt value on 81 Rs 2 lakhs). .
SALE Rs 25,00,000Cost 15,70,000+236 ,090+ 11,001 = 18,17,091= 682, 909.
04/10/2023131
Income from Other Sources
General [Section 56(1)]
Income of every kind, which is not to be excluded from the total income and not chargeable to tax under any other head, shall be chargeable under the head “Income from Other Sources”.
04/10/2023132
Specific Income [Section 56(2)]1. Dividends.
2. Lottery winnings etc.: Winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.
3. Any sum received by an employer-assessee from his employees as contributions to any welfare fund, if the same is not chargeable under the head ‘Profits and Gains of Business or Profession.’
4. Income by way of interest on securities if not chargeable as Profits and Gains of Business or Profession
04/10/2023133
Contd…5. Income from letting on hire of Plant, machinery
or furniture belonging to the assessee, if not chargeable to under the head ‘Profits and Gains of Business or Profession’.
6. Income from letting on hire of machinery, plant or furniture and also buildings, and the letting of buildings is inseparable from letting of such machinery, plant or furniture, if the same is not chargeable to income tax under the head ‘Profits and Gains of Business or Profession.’
7. Interest on bank deposits and loans
04/10/2023134
Contd…8. Any sum received under a Keyman insurance
policy including the sum allocated by way of bonus on such policy, if the same is not chargeable to income-tax under the head ‘Profits and Gains of Business or Profession’ or under the head “Salaries.”
9. Cash Gifts exceeding Rs. 50,00010. Interest on foreign government securities11. Agricultural income received from outside India
12. Income from sub-letting13. Director’s fee14. Income of race establishment
04/10/2023135
Index
04/10/2023136
Clubbing of Income
Cases where Clubbing Applies
1. Transfer of income without transfer of asset [Sec. 60] :– The income from the asset would be taxable in the hands of the transferor.
2. Revocable transfer of assets :- Income from such asset is taxable in the hands of the transferor.
3. An individual is assessable in respect of remuneration of spouse [Sec. 64(1)(ii)] :- When Spouse is employed in the concern without any technical or professional knowledge or experience or when he/ she has substantial interest in that
concern.
04/10/2023137
Contd…4. An individual is assessable in respect of
income from assets transferred to spouse:- When the asset is transferred otherwise than (a) for adequate consideration, or (b) in connection with an agreement to live apart.
5. An individual is assessable in respect of income from assets transferred to son’s wife [Sec. 64(1)(vi)]:- When the asset is transferred otherwise than (a) for adequate consideration
04/10/2023138
Contd…6. An individual is assessable in respect of income
from assets transferred to a person for the benefit of spouse [Sec. 64(1)(vii)] :- It is transferred for the immediate or deferred benefit of his/her spouse. The transfer is without adequate consideration.
7. An individual is assessable in respect of income from assets transferred to a person for the benefit of son’s wife [Sec. 64(1)(viii)] :- It is transferred for the immediate or deferred benefit of his/her son’s wife. The transfer is without adequate consideration.
04/10/2023139
Contd…
8. An individual is assessable in respect of income of his minor child [Sec. 64(1A)] :- The income of minor will be included in the income of that parent whose total income [excluding the income includible under section 64(1A)] is greater.
9. Clubbing in case of transfer of property to HUF [Section 64(2)] :- When Income from asset transferred to HUF for inadequate consideration.
04/10/2023140
Undisclosed Income / Investments
1. Cash credit [Sec. 68] - Where any sum is found credited in the books of an assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.
04/10/2023141
Contd…2. Unexplained investments [Sec.69] –
Where in the financial year immediately preceding the assessment year, the assessee has made investments which are not recorded in the books of account maintained by him and the assessee offers no explanation about the nature and source of the investments, the value of the investments may be deemed to be the income of the assessee of such financial year.
04/10/2023142
Contd…3. Unexplained money, etc [sec. 69A] -
Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery, or other valuable article which are not recorded in the books of account maintained by him and the assessee offers no explanation about the nature and source of acquisition then value of such things may be deemed to the income of the assessee for such financial year.
04/10/2023143
Contd…4. Amount of investments, etc., not fully disclosed
in books of account [Sec.69B] – Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the A.O. finds that the amount expended on making such investments or in acquiring such things exceeds the amount recorded in the books of account maintained by the assessee, and he offers no explanation about such excess amount, the excess amount may be deemed to be the income of the assessee, for such
financial year.04/10/2023
144
Contd…5.Unexplained expenditure, etc. [Sec. 69C] – Where in
any financial year an assessee has incurred any expenditure & he offers no explanation about the source of such expenditure, the amount covered by such expenditure, may deemed to be the income of the assessee for such financial year.
6.Amount borrowed or repaid on hundi [Sec. 69D] – Where any amount is borrowed on a hundi, or any amount due thereon is repaid otherwise than through an account payee cheque, the amount so borrowed or repaid shall be deemed to be the income of the person borrowing or
repaying for the previous year in which the amount was borrowed or repaid.04/10/2023
145
Index
04/10/2023146
Set-off & Carry Forward
Process of Set-off & Carry ForwardThe process of setting off of losses and their carry forward may
be covered in the following steps:
04/10/2023147
Step 1 Inter-source adjustment under the same head of income
Step 2Inter-head adjustment in the same assessment year. Step 2 is applied only if a loss cannot be set off under Step 1.
Step 3Carry forward of loss. Step 3 is applied only if a loss cannot be set off under Steps 1 and 2.
Unabsorbed DepreciationWhile dealing with unabsorbed depreciation one should keep in
mind the following points:
04/10/2023 148
Step 1
Depreciation allowance of the previous year is first deductible from the income chargeable under the head “Profits and gains of business or profession”.
Step 2
If depreciation allowance is not fully deductible under the head “Profits and gains of business or profession” because of absence or inadequacy of profits, it is deductible from income chargeable under other heads of income [except income under the head “Salaries”] for the same assessment year.
Step 3
If depreciation allowance is still unabsorbed, it can be carried forward to the subsequent assessment year(s) by the same assessee.
Inter-Source Set Off [Section 70]
Loss arising from one source of income under a head can be set off against income arising from any other source under the same head, except in the following cases –
04/10/2023149
Loss Set-off allowed against
Long-term capital Loss Long-term Capital Gain
Speculation business loss Speculation business gain
Loss from business of owning and maintaining race horse
Income from business of owning and maintaining race horse
Loss from lottery, card games, gambling betting etc.
Income from lottery, card games, gambling betting etc.
Inter-Head Set-off [Section 71]
Loss arising under one head of income can be set off against income under any other head, except in the following cases –1.Loss arising under the head capital gain cannot be setoff from income under any other head2.Losses under the head “Profits and gains of business or profession” cannot be set off against income under the head “Salaries”.
Note: Unabsorbed depreciation of past year(s) is carried forward u/s 32(2); therefore, the same can be set-off against income under the head ‘Salaries’.
04/10/2023150
Provisions relating to carry forward and setoff of losses
Sec. Loss to be carried forwardIncome against which the loss can be setoff
No. of years for which it can be carried forward
71B Loss from house property Income from house property
8 years from the end of the relevant A.Y.
72 Losses under ‘Profits & Gains of Business or Profession’, except speculation business loss.
Profits of any Business/Profession (including speculation business profits also)
8 years from the end of the relevant A.Y.
73 Losses in speculation business.
Income from speculation business
4 years from the end of the relevant A.Y.
74 Losses under the head Capital gains.
Capital Gains 8 years from the end of the relevant A.Y.
74A Loss incurred in activity of owning and maintaining race horses.
Income from owning and maintaining race horses
4 years from the end of the relevant A.Y.
04/10/2023
151Index
152
Revision questions
1)For the assessment year 2013-14 ,dividend distribution tax is payable at __% plus surcharge of __ %by a domestic co if it distributes dividend after ___2)A person residing in Ahmedabad has salary of Rs 30,000/= pm gets HRA of Rs 6000/= Rent paid by him Rs 7,000/=calculate exempted HRA3)State whether the following perks are taxable in the PY 2012 -13 a)Gift of wrist watch costing Rs 51,000/=(b) free meal costing Rs 80/=C )School fees directly paid by employer Rs 4000/=D )reimbursement of medical expenses Rs 22,000/= during the year
Ans (1) 15% 5% ,1/04/2003 (2)Rs 48,000/=(3) yes.; 80- 50= 30 taxable, (4) fully taxable(5) Medical expenses in excess of Rs 15,000/=
04/10/2023153
Agricultural Income
Meaning“Agricultural Income” means:1. Any rent or revenue derived from land which is
situated in India and used for agricultural purposes [sec. 2(1A) (a)].
2. Any income derived from such land by agricultural operations including processing of the agricultural produce, raised or received as rent-in-kind so as to render it fit for the market or sale of such produce [sec. 2(1A)(b)].
3. Income attributable to a farm house subject to certain conditions.
4. With effect from the assessment year 2009-10, any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income.
04/10/2023154
Partially Agricultural & Partially Business Income [Rules 7, 7a, 7b And 8]
INCOMEBUSINESS INCOME
AGRICULTURAL INCOME
Growing and manufacturing tea in India 40% 60%
Sale of centrifuged latex or cenex or latex based creps (such as pale latex crepe) or brown crepes (such as estate brown crepe, remilled crepe, smoked blanket crepe or flat bark crepe) or technically specified block rubbers manufactured or processed from field latex or coagulum obtained from rubber plants grown by the seller in India
35% 65%
Sale of coffee grow and cured by seller 25% 75%
Sale of coffee grown, cured, roasted and grounded by seller in India with or without mixing chicory or other flavoring ingredients
40% 60%
04/10/2023 155
The Scheme of Partial Integration of Non-Agricultural Income with Agricultural Income
The scheme of partial integration of non-agricultural income with agricultural income is applicable if the following conditions are satisfied –
04/10/2023156
Condition 1
The taxpayer is an individual, a Hindu undivided family, a body of individual, an association of persons or an artificial juridical person.
Condition 2
The taxpayer has non-agricultural income exceeding the amount of exemption limit [i.e., Rs. 1,80,000(in case a resident woman below 65 years), Rs. 2,25,000 (in case of a resident senior citizen 65 years or more) and Rs. 1,50,000 (in case of any other individual or every HUF for the assessment year 2009-10]
Condition 3
The agricultural income of the taxpayer exceeds Rs. 5,000.
Contd…Income-tax will be computed for the assessment year 2009-10 in the following manner:
04/10/2023157
Step 1 Net agricultural income is to be computed as if it were income chargeable to income-tax.
Step 2 Agricultural & non-agricultural income of the assessee will then be aggregated & income-tax is calculated on the aggregate income.
Step 3 The net agricultural income will then be increased by the amount of exemption limit and income-tax is calculated on net agricultural income, so increased, as if such income was the total income of the assessee.
Step 4 The amount of income-tax determined at Step two will be reduced by the amount of income-tax determined under Step three.
Step 5 Find out the balance. Add surcharge; education cess & SHEC.
Step 6 The amount so arrived will be the total income-tax payable by the assessee.
Index
04/10/2023158
Deductions under Chapter VI - A
Introduction
Deductions to be made [Section 80A] : The total income of an assessee is to be computed after making deductions permissible u/s 80C to 80U. However, the aggregate amount of deductions cannot exceed the Gross Total Income.No deduction from certain (following) Incomes :
Long term Capital Gains referred u/s 112, and Short Term Capital gains referred u/s 111A.
Winnings from lotteries, races, etc. as referred to in section 115BB.Incomes referred to in section 115A (1) (a), 115AC, 115ACA, 115AD, 115BBA and 115D.
04/10/2023159
Deduction for Payment of Life Insurance Premia, etc., [Section 80C]
Deduction under this section is allowed as follows – Deduction is available only in respect of
‘specified sums’ actually paid or deposited during the previous year (sum not actually paid and outstanding is not allowed)
Specified sums must have been paid/deposited by an Individual or HUF; and
The total amount of deduction under this section is subject to a maximum limit of Rs.1,00,000.
04/10/2023160
Contribution To Certain Pension Funds [Section 80CCC]
Amount paid or deposited by individual in the previous year –› out of his income chargeable to tax› to effect or keep in force a contract for any annuity
plan of LIC or any other insurer› for receiving pension from the fund referred to in
section 10(23AAB). Quantum of Deduction: Deduction shall be
allowed to the extent of lower of the following –› Amount so paid or deposited; or› Rs. 1,00,000
04/10/2023161
Contribution to Pension Scheme of Central Government or any Other Employer [Sec. 80CCD]
Deduction in respect of: Deduction is available in respect of both of the following –› Sum deposited by assessee in his account in notified
pension scheme; and› Contribution made by Central Govt. or any other
employer to assesse’s A/c. Quantum of Deduction: Deduction shall be
allowed to the extent of aggregate of the following -
04/10/2023162
Sum paid/deposited by assessee to the credit of his a/c or 10% of salary, whichever is lower
Sum contributed by the employer in assesse’s A/c or 10% of salary, whichever is lower
Aggregate Limit u/s 80C, 80CCC & 80CCD
The aggregate amount of deductions under section 80C, section 80CCC and section 80CCD shall not, in any case, exceed Rs.1,00,000.
04/10/2023163
Deduction In Respect Of Health Insurance Premia [Sec. 80D]
Deduction is available in respect of the amount paid to effect or to keep in force health insurance under a scheme –› made by General Insurance Corporation of India (GIC)
and approved by Central Government; or› made by any other insurer and approved by Insurance
Regulatory and Development Authority. Deduction shall be to the extent of lower of –
› Health insurance premia paid in respect of health of any member of that HUF; or
› Rs. 15,000 (Rs. 20,000 in case the insured is a senior citizen).
04/10/2023164
Maintenance of A Dependant Being Person With Disability [Section 80DD]
Deduction is available in respect of –› expenditure incurred for medical / treatment / nursing /
training/ rehabilitation, or› amount paid under scheme LIC / UTI other insurer
approved by CBDT for maintenance, of a “dependant”, being a person with disability.
Deduction shall be allowed to the extent of –› Rs. 50,000 (Rs. 75,000 in case of dependant suffering
with severe disability), irrespective of expenditure incurred or sum paid.
04/10/2023165
Deduction in respect of Medical Treatment, etc. [Sec. 80DDB]
Deduction is available in respect of sum actually paid during previous year for medical treatment of prescribed disease or ailment for the following –› In case of individual: himself or his spouse, children,
parents, brothers and sisters,› In case of HUF: its member(s),› dependant mainly on such individual or HUF for his
support and maintenance. Deduction shall be available to the extent of lower
of the following –› sum actually paid; or› Rs. 40,000 (Rs. 60,000 in case of a
senior citizen).
04/10/2023166
Deduction in respect of Interest on Loan taken for Higher Education [Sec.80E]
Deduction in available in respect of sum paid by the assessee in the previous year, out of his income chargeable to tax, by way of interest on loan taken –› for his higher education, or› for the higher education of his
relative. 100% of the amount of interest on such
loan Deduction will be admissible.04/10/2023167
Deduction in respect of Donations [Section 80G]
Deduction is allowed under this section to all assesses in respect of donations of sum of money in the following manner –› 100% deduction will be allowed if donations are given
to any of the 19 specified funds.› 50% deduction will be allowed if donations made to
any of the 5 specified funds.› 100% deduction shall be allowed subject to the
qualifying amount if donations are made for promoting family planning.
› 50% deduction shall be allowed subject to the qualifying amount if donations are made towards any of the 5 specified purposes.
04/10/2023168
Deductions in respect of Rents Paid [Sec.80GG]
Rent actually paid for any furnished or unfurnished residential accommodation occupied by the Individual, who is not in receipt of any House Rent Allowance (HRA).
The deduction shall be allowed to the extent of least of the following –› Rs. 2,000 per month;› 25% of adjusted total income;› Rent paid less 10% of adjusted Total
Income.04/10/2023
169
Deduction in respect of person with Disability [Section 80U]
Eligible Assessee: Individual resident in India, who, at any time during the previous year, is certified by the medical authority to be a person with disability
Deduction: Rs. 50,000 (Rs. 75,000 for severe disability). Severe disability means 80% or more of disability.
04/10/2023170
Other DeductionsDeduction in respect of certain Donations for Scientific Research or Rural Development [Sec.80GGA]Deduction in respect of Contribution to Political Parties [Sec. 80GGB & 80GGC]Profits & Gains from Industrial Undertaking engaged in Infrastructure Development [Sec. 80 IA]Profits & Gains from Undertaking engaged in Development of SEZs [Sec. 80IAB]
Profits & Gains from Industrial Undertaking engaged in other than in Infrastructure Development [Sec.80IB]
04/10/2023171
Contd…Deduction available to certain Undertakings in certain Special category States [Sec.80IC]Profits & Gains from business of Hotels & Convention Centre in Specified Areas [Sec. 80ID]Special provisions in respect of certain Undertakings in North-Eastern States [Sec. 80IE]Deduction available to assessee in the business of Collecting & Processing Bio-Degradable Waste [Sec.80JJA]
Deduction in respect of Employment of New Workmen [Sec. 80JJAA]
04/10/2023172
Contd…Deduction from incomes of Off-shore Banking Units & International Financial Services Centre [Sec.80LA]Deduction in respect of income of Co-operative Society [Sec. 80P]Deduction in respect of Royalty Income, etc. of Author of certain Books other than Text Books [Sec.80QQB]Deduction in respect of Royalty Income of Patents [Sec. 80 RRB]
04/10/2023173
Index
04/10/2023174
Advance Tax
Liability to pay Advance TaxEvery person is liable to pay tax on income in advance i.e. from completion of the previous year (advance tax) if tax payable is Rs. 5,000 or more. All items of income are liable for payment of advance tax.However, from Assessment 2010-2011 liability to pay advance tax arises, if the tax payable is Rs. 10,000 or more
04/10/2023175
Due Dates
Due DateAmount payble by
Corporate AssesseeAmount payble by Non-
Corporate Assessee
On or before June 15 of the previous year
Up to 15 percent of advance tax payable
-
On or before September 15 of the previous year
Up to 45 percent of advance tax payable
Up to 30 percent of advance tax payable
On or before December 15 of the previous year
Up to 75 percent of advance tax payable
Up to 60 percent of advance tax payable
On or before March 15 of the previous year
Up to 100 percent of advance tax payable
Up to 100 percent of advance tax payable
04/10/2023176
Default in payment of Advance Tax [Sec. 234B]
Under section 234B(1), interest is payable as follows:
04/10/2023 177
When interest is payable
Interest is payable on
Rate of interest Period for which interest is payable
An assessee who is liable to pay advance tax, has failed to pay such tax
Interest is payable on accessed tax
Simple interest @ 1 percent for every month or part of month
From April 1 of the assessment year to the date of determination of income under section 143(1) or where regular assessment is made to the date of regular assessment
An assessee who has paid advance tax but the amount of advance tax paid by him is less than 90 percent of assessed tax.
Assessed tax minus advance tax
Simple interest @ 1 percent for every month or part of month
From April 1 of the assessment year to the date of determination of income under section 143(1) or where regular assessment is made to the date of regular assessment
Deferment of Advance Tax[Sec. 234C]
Interest is payable under section 234C if an assessee has not paid advance tax or underestimated installments of advance tax. Simple Interest at the rate of 1% per month is payable for period 3 months for each installment due.
04/10/2023178
Index
04/10/2023179
Assessment Procedures
Time for filing Return of Income [Sec. 139(1)]
Different Situations Due Date for filing Return
1. Where the assessee is a company September 30
2. Where the assessee is person other than a company –a)In case where accounts of the assessee are required to be audited under any lawb)Where the assessee is “working partner” in a firm whose accounts are required to be audited under any law
c)In any other case
September 30
September 30
July 31
04/10/2023180
Filing of Return in Electronic Form [Sec. 139D]
Section 139D has been inserted from June 1, 2006. It provides that the Board may make rules providing for the class or classes of persons who shall be required to furnish the return of income in electronic form; the form and the manner in which the return of income in electronic form may be furnished; the documents, statements, receipts, certificates or audited reports which may not be furnished along with the return of income in electronic form but shall be produced before the Assessing Officer on demand; the
computer resource or the electronic record to which the return of
income in electronic form may be transmitted.04/10/2023
181
Filing of Return after Due Date [Sec. 139(4)]
If the return is not furnished within the time allowed under section 139(1) or within the time allowed under section 142(1), the person may (before the assessment is made), furnish the return of any previous year at any time before the end of one year from the end of relevant assessment year.
04/10/2023182
Consequences of Late Submission If return is submitted after the due date of
submission of return of income, the following consequences will be applicable. These rules are applicable even if a belated return is submitted within the time-limit given above –
› The assessee will be liable for penal interest u/s 234A.› A penalty of Rs. 5,000 may be imposed u/s 271F if
belated return is submitted after the end of assessment year.
› If return of loss is submitted after the due date, a few losses cannot be carried forward.
› If return is submitted belated, deduction under section 10A, 10B, 80-IA, 80-IB, 80IC, 80-ID and 80-IE will not be available.04/10/2023
183
Interest for defaults in furnishing Return of Income [Section 234A]
If any person fails to furnish his return of income u/s 139 for any assessment year or furnishes such return after due date specified in section 139(1), then, he will liable to pay interest at the rate of 1% per month for the period beginning from the date immediately following the due date of furnishing return of income and ending on the Date of furnishing the return or completion of assessment, whichever is earlier, calculated on the
amount of self-assessment tax payable.
04/10/2023184
Index