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Income Tax Short Notes: A summary

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     on  23 November 2013    

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INCOME TAX FOR CS EXAM DEEMBER 2013

 

Heads of Income:

 

Income of a person is classified into 5 categories. Thus, income belonging to a particular category is taxed under a separate head of income pertaining to that category. Section 14 of the Act, has classified five different heads of income for the purpose of computation of total income.

 

All income shall be classified under the following heads for the purpose of computation of taxable amount subject to certain Exemptions’ and deductions.

 

The five heads of income are:

 

1. Income under the head salaries (Section 15 – 17)

2. Income from house property (Section 22 – 27)

3.Profits and gains from business or profession (Section 28 – 44)

4. Capital gains (Section 45 – 55)

5. Income from other sources (Section 56 – 59)

 

FORMAT OF GROSS TOTAL INCOME

 

Assessee: Mr/Mrs. A

Assessment Year: 2013-2014

Previous Year: 2012-2013

Computation of Gross Total Income of Mr./Mrs.…A

 

Income under the head salaries

(As per Working Note :1)

 

Income from house property

(As per Working Note :2)

 

Profits and gains from business or profession

(As per Working Note :3)

 

Capital gains

(As per Working Note :4)

 

Income from other sources

(As per Working Note :5)

 

Gross Total Income

Deduction as per Chapter VI A

(Sec 80 C to 80 U)

(As per Working Note :6)

Net Taxable income

  1.  
  2.  
  3.  
  4.  
  5.  
  6.  

 

 

 

 

 

 

  •  
  •  
  •  

 

 

  1.  
  1.  
  2.  

 

Working Note: 1

Computation of Taxable Salary of Mr…..

 

Basic Salary

  1.  
  2.  

Gross Salary

Less Deduction u/s 16 (ii) E.A

                                     16(iii) P.Tax

Net Taxable Salary

  1.  
  2.  

 

 

  1.  
  2.  

 

 

  1.  

 

 

 

  1.  

 

Working Note :2

Computation of Taxable Income from house Property of Mr…..

 

Gross Annual Value

Less Municipal Tax

     Net Annual Value

Less Deduction u/s 24

30 % of NAV

Interst on Loan

Income from House Propery

  •  
  •  
  •  

 

  1.  
  2.  

 

  1.  

 

 

  1.  
  1.  
  2.  
*** Prepare All Working Notes. INCOME FROM   “SALARY”

Meaning of Salary: Any remuneration paid by an employer to an employee in consideration of his services is called salaries. It includes monetary value of those benefits and facilities, which are provided by the employer and are taxable.

 

Income forming part of salary: They include basic salary, advance salary, fees, commission, bonus, taxable value of cash allowances, perquisites and retirement benefits.  Section 17 of the Act gives an inclusive definition of salary. Broadly, it includes:

 

1. Basic salary

2. Fees, Commission and Bonus

3. Taxable value of cash allowances

4. Taxable value of perquisites

5. Retirement Benefits

 

Allowances:

 

These are of three types:

 

a. Taxable Allowances : Dearness allowance, Medical allowance, Servant allowance, Warden Allowance, Family allowance, City Compensatory allowance etc.

b. Allowances exempt upto specified limit: House rent allowances, Entertainment allowance, Certain Special allowances, etc.

c. Fully exempted allowances: Foreign allowance, sumptuary allowance to High Court / Supreme Court Judges, Allowances from U.NO.

 

Fully taxable allowances

 

- Dearness Allowance and Dearness Pay

- City Compensatory Allowance

- Tiffin / Lunch Allowance

- Warden or Proctor Allowance

- Overtime Allowance

- Fixed Medical Allowance

- Servant Allowance

- Other allowances

 

Partially exempt allowances

This category includes allowances which are exempt up to certain limit.

 

House Rent Allowance (H.R.A.) Sec.10(13A)

 

An allowance granted to a person by his employer to meet expenditure incurred on payment of rent in respect of residential accommodation occupied by him is exempt from tax to the extent of least of the following three amounts:

 

Format for computation of H.R.A

 

1) Rent-10% of Salary

2) House Rent Allowance actually received by the assessee

3)  50% of salary (If accommodation is situated in Mumbai, Kolkata, Delhi, Chennai) Or  40% of salary (if accommodation is situated in any other place).

xxxx

xxxx

xxxx

Least of the Above

XXX

 

If an employee is living in his own house and receiving HRA, it will be fully taxable.

 

Entertainment Allowance Sec.16 (ii)

 

This allowance is first included in gross salary under allowances and then deduction is given to only government employees under Section 16 (ii).

 

Limit

Gross Salary

XXXXXX

  1. 5000
  2. 1/5 of the Salary
  3. Actual Amount

 

Least of the Above

XXX

 

Special Allowances for meeting official expenditure

 

Certain allowances are given to the employees to meet expenses incurred exclusively in performance of official duties and hence are exempt to the extent actually incurred for the purpose for which it is given. These include travelling allowance, daily allowance, conveyance allowance, helper allowance, research allowance and uniform allowance.

 

Children Education Allowance

This allowance is exempt to the extent of Rs.100 per month per child for maximum of 2 children

 

Children Hostel Allowance

 Exempt to the extent of Rs.300 per month per child for maximum of 2 children.

 

Transport Allowance

An amount uptoRs.800 per month paid is exempt. However, in case of blind and orthopedically handicapped persons, it is exempt up to Rs. 1600p.m.

 

Out of station allowance

Exempt up to 70% of such allowance or Rs.6000 per month, whichever is less

 

FULLY EXEMPT ALLOWANCES

 

- Foreign allowance is usually paid by the government to its employees being Indian citizen posted out of India for rendering services abroad. It is fully exempt from tax.

- Allowance to High Court and Supreme Court Judges of whatever nature are exempt from tax.

- Allowances from UNO organisation to its employees are fully exempt from tax.

 

Retirement Benefits

 

Gratuity Sce.10 (10)

 

Employees covered by the payment of Gratuity Act 1972

 

Actual Gratuity

  •  

1) 10,00,000

2)15/26*last drawn salary *completed year of service or Part of the year in excess of 6 months.

3) Actual Amount

Least of the above

  •  
  •  
  •  
  •  
  •  

Taxable Gratuity

  •  

 

Employees not covered by the payment of Gratuity Act 1972

 

Actual Gratuity

  •  

1) 10,00,000

2)1/2 *  Average last 10 months salary * complted year of service

3) Actual Amount

Least of the above

  •  
  •  
  •  
  •  
  •  

Taxable Gratuity

  •  

 

PENSION

 

- Un commuted pension refers to pension periodically received by the employee. It is taxable in the hands of the both Govt. and Non Govt Employees.

- Commuted pension Sec.10 (10A) means lumsum amount taken by commuting the pension or part of the pension. Any commuted pension received by a Govt employee is wholly exempt from tax.

 

Others are following

Received Gratuity

Not Received Gratuity

Actual Amount                                 xxx

  •  

Commuted pension 100/Rate*1/3                                 

                                                            xxxx

                                                         ----------

Taxable Amount                            xxx

Actual Amount                                 xxx

  •  

Commuted pension *100/Rate*1/2                                 

                                                            xxxx

                                                         ----------

Taxable Amount                            xxx

 

LEAVE SALARY. Sec.10 (10AA)

 

Govt employee is wholly exempt from tax.

 

Others are following

Actual Amount

  1.  

1) 300,000

2)10* salary (Average last 10 months salary )

3)cash equivalent leave* Average last 10 months salary

3) Actual Amount

Least of the above

  1.  
  2.  
  3.  
  4.  
  5.  

Taxable Amount

  1.  

 

RETRENCHEMENT COMPENSATION Sec.10(10B)

Actual Amount

  1.  

1) Amount calculated under the Industrial Disputes Act 1947.

2) 500,000

 

  1.  
  2.  
  3.  
  4.  
  •  
  1.  

 

VOLUNTARY RETIREMENT SCHEME  Sec.10(10C)

Employee who has completed 10 years of service or completed 40 years of age

 

Actual Amount

  1.  
  1. last drawn salary *3* complted years service
  2.  

last drawn salary  * remaining months of service

whichever is lower

  1.  

3)actual Amount Received

  1.  
  2.  
  3.  
  4.  
  5.  

Taxable Amount

  1.  

 

PROVIDENT FUND Sec.10(11),Sec.10(12) etc.

  1.  
  1.  
  1.  
  1.  
  1.  

Employer Contribution

Not Included

Excess of 12%

Not taxable

  1.  

Employee Contribution

  1.  
  1.  
  •  
  1.  
  •  
  1.  

Excess of 9.5%

  1.  
  •  

 

RENT FREE ACCOMADATION Sec.17(2)

Govt  Employee : License fee determined by the  Govt

 

Other Than Govt Employee

Accommodation owned by the Employer.

 

 

Less than 10 lakhs

7.5 % of salary

10 lakhs to 25 lakhs

10% of salary

Above  25 lakhs

  1.  
  • Perquisite in respect of education facilities per child does not exceed Rs.1,000/-P.M
  • Reimbursement of actual Medical treatment shall not exceed Rs.15000/-in a year.
  • Interest free or concessional loan will be taxable, if it is below than SBI Rate.

 

DEFINITION OF SALARY.

 

Entertainment Allowance

 

Basic salary

Gratuity covered under the Act

 

Basic Salary + DA

Other Gratuity

  •  

Leave Salary

  1.  
  2.  

Basic Salary

DA terms of employment

Commission as 5 of turnover

  •  

All Pay except D A not forming part

Employer contribution to PF

Allowance which are Exempt.Etc

 

INCOME FROM HOUSE PROPERTY

 

Conditions for Chargeability:

 

Property should consist of any building or land appurtenant thereto.

Assessee must be the owner of the property

The property may be used for any purpose, but it should not be used by the owner for the purpose of any business or profession carried on by him, the profit of which is chargeable to tax.

 

Meaning of composite rent:

 

The owner of a property may sometimes receive rent in respect of building as well as –

 

(1) Other assets like say, furniture, plant and machinery.

(2) For different services provided in the building, for E.g. – Lifts, Security,etc

 

Where composite rent includes rent of building and charges for different services (lifts, security etc.), the composite rent is has to be split up in the following manner -

 

(a) The sum attributable to use of property is to be assessed under section 22 as income from house property;

(b) The sum attributable to use of services is to charged to tax under the head “Profits and gains of business or profession” or under the head “Income from other sources”.

 

Determination of Annual Value [Section 23]

 

This involves three steps:

 

Step 1 - Determination of Gross Annual Value (GAV).

Step 2 – From GAV computed in step 1, deduct municipal tax paid by the owner during the previous year.

Step 3 – The balance will be the Net Annual Value (NAV), which as per the Income-tax Act is the annual value.

 

Deemed to be let out property [Section 23(4)]

 

(a) Where the assessee owns more than one property for self-occupation, then the income from any one such property, at the option of the assessee, shall be computed under the self-occupied property category and its annual value will be nil. The other self-occupied/unoccupied properties shall be treated as “deemed let out properties”.

 

(b) This option can be changed year after year in a manner beneficial to the assessee.

 

***  Notional income instead of real income

 

Thus, under this head of income, there are circumstances where notional income is charged to tax instead of real income. For example –

 

Where the assessee owns more than one house property for the purpose of self-occupation, the annual value of any one of those properties, at the option of the assessee, will be nil and the other properties are deemed to be let-out and income has to computed on a notional basis by taking the ALV as the GAV.

 

In the case of let-out property also, if the ALV exceeds the actual rent, the ALV is taken as the GAV.

 

Property taxes (Municipal taxes)

 

(1) Property taxes are allowable as deduction from the GAV subject to the following two conditions:

 

(a) It should be borne by the assessee (owner); and

(b) It should be actually paid during the previous year.

 

Deductions from Annual Value [Section 24]

 

(i) There are two deductions from annual value. They are –

 

(1) 30% of NAV; and

(2) interest on borrowed capital

 

(a) Interest payable on loans borrowed for the purpose of acquisition, construction, repairs, renewal or reconstruction can be claimed as deduction.

 

(b) Interest payable on a fresh loan taken to repay the original loan raised earlier for the aforesaid purposes is also admissible as a deduction.

 

(c) Interest relating to the year of completion of construction can be fully claimed in that year irrespective of the date of completion.

 

(d) Interest payable on borrowed capital for the period prior to the previous year in which the property has been acquired or constructed, can be claimed as deduction over a period of 5 years in equal annual installments commencing from the year of acquisition or completion of construction.

 

(ii) Deduction in respect of one self-occupied property where annual value is nil (1) In this case, the assessee will be allowed a deduction on account of interest (including 1/5th of the accumulated interest of pre-construction period) as under –

 

(a)Where the property has been acquired, Actual interest payable subject  constructed, repaired, renewed or reconstructed to maximum of ` 30,000. with borrowed capital before 1.4.99.

 

(b) Where the property is acquired or constructed Actual interest payable subject  with capital borrowed on or after 1.4.99 and such to maximum of ` 1,50,000, if acquisition or construction is completed within 3 certificate mentioned in (2) years from the end of the financial year in which below is obtained. the capital was borrowed.

 

(c) Where the property is repaired, renewed or Actual interest payable subject reconstructed with capital borrowed on or after to a maximum of ` 30,000.1.4.99.

 

(2) For the purpose of claiming deduction of ` 1,50,000 the assessee should furnish a certificate from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property.

 

(3) The ceiling prescribed for one self-occupied property as above in respect of interest on loan borrowed does not apply to a deemed let-out property.

 

(4) Deduction under section 24(b) for interest is available on accrual basis. Therefore interest accrued but not paid during the year can also be claimed as deduction.

 

(5) Interest on unpaid interest is not deductible.

 

Computation of GAV

 

Step 1

Compute ALV

ALV = Higher of MV and FR, but restricted to SR

 

Step 2

Compute Actual rent received/receivable

Actual rent received/receivable less unrealized rent as per Rule 4

 

Step 3

Compare ALV and Actual rent received/receivable

 

Step 4

GAV is the higher of ALV and Actual rent received/receivable

 

Gross Annual Value (GAV) (A)

Less:

Municipal taxes (paid by the owner during the previous year)

B

Net Annual Value (NAV) = (A-B)

C

Less: Deductions  u/s 24

(a) 30% of NAV

D

(b) Interest on borrowed capital

E

(actual without any ceiling limit)

Income from house property (C-D-E)

F

Interest on borrowed capital

 

Interest on loan taken for acquisition or construction of house on or after 1.4.99 and same was completed within 3 years from the end of the financial year in which capital was borrowed, interest paid or payable subject to a maximum of ` 1,50,000 (including apportioned pre-construction interest).

 

In case of loan for acquisition or construction taken prior to 1.4.99 or loan taken for repair, renovation or reconstruction at any point of time, interest paid or payable subject to a maximum of` 30,000.

 

INCOME UNDER THE HEAD

 

“PROFITS AND GAINS FROM  BUSINESS AND PROFESSION 

 

NATURE OF INCOME

 

Business, Vocation and

 

Profession carried on by the assessee of whatsoever nature.

 

METHOD OF ACCOUNTING:

As Regularly Employed can be “Cash” Basis or “Accrual” Basis Subject to Provisions of Section 43B.

RENT, RATES, TAXES, INSURANCE FOR BUILDING ( Sec. 30): -

Any rent, rates, taxes, insurance premium paid by the assessee during the previous year in respect of the place for business purpose would be allowed as a deduction.

 

REPAIRS AND INSURANCE OF PLANT, MACHINARY, FURNITURE (Sec. 31): -

Any amount spent on repairs, insurance or hire charges, etc. On Plant, machinery, furniture by a business organisation is allowed as a deduction.

 

DEPRECIATION (Sec. 32):

 

 Depreciation can be classified into 3 parts to deal in the subject of income tax

 

- Normal Depreciation

- Additional Depreciation

- Depreciation on SLM basis in case of electricity companies

 

Normal depreciation is provided on block of assets method on WDV of the block as on every 31 March

 

Block of assets means group of assets having same rate of depreciation and falling under a specific class of assets. These assets are grouped together and depreciation is provided on the block as illustrated in the coming points.

 

Computation of WDV of the block:

 

WDV at the beginning of year

Add:-

 

Actual cost incurred on assets (Acquired during the year)

Less

 Money Payable during the year( Which is sold)

Depreciation  at the prescribed %

 

XXXX

 

 

XXXXX

xxxxxx

xxxxx

XXXXX

xxxxx

Closing WDV

XXX

 

Depreciation is provided for whole year except when, Asset is Acquired and put to use during the year for less than 180 days during the year , in this case the depreciation is limited to 50% of total depreciation, but if same asset acquired during earlier years but put to use this year and usage period less than 180 days during current year then depreciation for whole year.

 

When all the assets of block are sold, in such a case no depreciation is allowed and short term capital/gain or loss would be attracted as per provisions of section 50 discussed in capital gains.

 

PART OF BLOCK SOLD BUT MONEY PAYABLE EXCEEDS WDV:- In such a case no depreciation is allowed and also short term capital gain provision as per section 50 is attracted.

 

ADDITIONAL DEPRECIATION:

Additional depreciation is only to manufacturing concerns. Additional depreciation on certain assets: 20% or 10% (for <180days). Only factory machinery and equipments .

 

Assets on which additional depreciation is not allowed:

 

Not second hand machinery

Not on ships, aircrafts and road transport vehicles

Not allowed on equipments installed in office

In case an enterprise is engaged in electricity business it has option to charge depreciation on SLM basis but such an option is available once only and can’t be changed

 

UNABSORBED DEPRECIATION:

 

There cannot be loss under business head due to depreciation. If such depreciation could not be set off under business head then it can be set off from any other head except salary in the same year, and if still it could not be set off it can be carried forward indefinitely to succeeding years for set off in the similar manner.

 

License to operate telecommunication services:

 

Deduction in equal installments over Remaining useful life of licence on paid basis.

 

If licence is sold, WDV of licence is reduced by the amount of money recovered and remaining WDV is allowed as deduction in equal instalments over remaining life of asset.

 

If sold for price exceeding WDV, no deduction is allowed in remaining years instead capital gain is charged as per capital gain provisions.

 

AMORTIZATION OF CERTAIN PRELIMINARY EXPENSES SEC 35D

 

Company assessee: 5% of cost of project or 5% of cost of capital whichever is beneficial to the assessee.

Others: 5% of cost of project

Before commencement of business: For setting up any Business

After setting up of business:  Extension or setting up of new undertaking.

 

List of specified expenditure including documents like feasibility report, project report, market survey, engineering services, legal charges , Drafting and printing of MOA and AOA, registration fees, issue of shares and debentures, underwriting commission, expenditure on prospectus have to be submitted.

 

Deduction for amalgamation/ demerger and VRS

 

Quantum: -1/5 of expenditure in each successive year but it is to be noted that VRS is allowed only when amount is actually paid which is not a case Amalgamation demerger.

 

OTHER DEDUCTIONS (section 36)

 

- Insurance premium on stocks

- Bonus or commission to employees: deduction subject to section 43B

- Insurance on health of employees by any mode other than cash

- Interest on borrowed capital, if for use of business

- Discount on issue of zero coupon bonds to be allowed as deduction on pro-rata basis.

- Employer’s contribution to recognized provident fund or approved superannuation fund subject to section 43B

- Employer’s contribution to approved gratuity fund subject to section 43B

 

Bad debts subject to conditions:

 

Income from sale recognized. If any amount has been subsequently recovered in respect of above then it shall be taxable under business head even if business is discontinued.

Provision for bad and doubtful debts: NO deduction in general but deduction available to  Scheduled or non-scheduled cooperative banks  Foreign banks or State Finance Corporation

STT paid: Deduction if income earned included in PGBP

 

GENERAL DEDUCTIONS UNDER SECTION 37(1) BASIC CONDITIONS FOR DEDUCTION:

 

- Not of personal nature

- Not of capital nature

- Incurred during PY .

 

Wholly or exclusively for business or profession:  

 

Remuneration to Employees

Payment of penalty/ damages of compensatory nature. Penalties paid to custom, sales tax authorities, excise authorities, Income tax authorities not allowed.

 

EXPENSES NOT DEDUCTIBLE

Section 40A (2):  AO may disallow payment made to relative if in his opinion it is excess of the market value.

 

Section 40A (3):

 

Any payment exceeding Rs. 20000 or Rs.35000 (in case of payment to a transporter engaged in plying, hiring, transporting etc.) in a day by a assessee will be allowed as a deduction only when payment is made by a account payee cheque.

 

EXCEPTIONS: - This section is not applicable when

 

- Payment is made to bank or financial institution, Govt.

- Under required law

- Payment on a Banking Holiday

- Payment to employees not exceeding Rs.50,000 - Payment in a village not served by a bank

- Book Adjustment

- Payment for purchase of agriculture produce, Poultry farm produce, Dairy items, cottage industry(working without aid of power

 

SALARY AND INTEREST ON CAPITAL TO PARTNERS (SECTION 40(b):

 

Interest, salary: Deduction as per provisions in partnership deed.

Interest on capital:  Rate specified in partnership deed or 12% whichever is lower.

Salary: Allowed only to working partners.

It should be lower of amount specified in partnership deed or following amount:-

 

On First Rs.300,000 Of Book

90% of book profits or Rs.150,000

Profits

whichever is more

 

 

On Balance Of Book Profits

60% of book profits

 

DEDUCTION UNDER SECTION 43B:-

 

Section 43 B mentions some cases where deduction will be allowed only when amount is actually paid by the assessee before due date of filing return.In all these cases deduction of the expense is allowed on “paid” basis.

 

However when expenditure is disallowed in one year, it will be allowed as a deduction in the previous year in which such expenses are actually paid.

 

- Any sum payable by way of tax, cess, duty or fee under any law and by whatever name called.

- Any sum payable by employer by way of contribution to provident fund or superannuation fund or any other employee benefit fund.

- Any sum payable as bonus, commission to employees for services rendered.

- Any sum payable as interest on loan borrowed from public financial institution or state financial institution.

- Any sum payable as interest on loan taken from scheduled bank including co-operative societies.

- Any sum payable by employer in lieu of leave salary to employee.

 

MAINTENANCE OF BOOKS OF ACCOUNTS BY PERSONS  CARRYING   ON BUSINESS OR PROFESSION (SECTION 44AA AND  RULE 6F): -

 

Assessee carrying on Business or profession other than the profession notified under the rule 6F

Income Exceeds Rs. 120000 In Any Of 3 Preceding Previous Years or Likely to exceed Limit In Case Of Newly Set Up Business Or Profession Or

If the turnover or sales or Gross Exceeds Rs.10 Lakhs  .In Any Of 3 Preceding Previous Years Or Likely To Exceed Limit In Case Of Newly Set Up Business Or Profession

 

RULE 6F

 

In the case of Assessee carrying on profession of law, Company Secretary, Accountancy, medicine, architecture etc

Gross Recipts Exceeds Rs.150,000 In All 3 Preceding Previous Years Or Likely To Exceed Limit In Case Of Newly Set Up Business

 

Specified Books: Cash Book, Journal (If Accounts On Accrual Basis), Ledger Carbon Copy Of Receipts  Exceeding Rs. 25 And Original Copy Of Expenditure Exceeding Rs.50

 

If The Assessee Falling Under Section 44ad, 44ae, 44bb, 44bbb Or Any Other Section Of Presumptive Income, Declares His Income Lower Than Specified In These Sections, He Is Required To Maintain Such Books As May Enable A.O. To Compute His Income.

 

Sec.271A

Failing to keep, maintain or retain books of accounts u/s 44AA read with rule 6F,will be levied a penalty of Rs.250,000/-

 

COMPULSARY AUDIT OF ACCOUNTS UNDER SECTION 44AB

 

Business: In Case Gross Turnover Or Total Sales Exceeds Rs.1core

Profession: In Case Gross Receipts Exceeds Rs. 25 Lakhs.

A Person Falling Under Section 44 AD Declaring a Lower Income

 

Filing of Report of Audit:

An audit report duly verified by a CA on or before 30.09.yyyy of the relevant year has to be submitted.

 

Sec.271B

Failing to get accounts audited or furnish audit report required u/s44ABF, will be levied a penalty of Rs.150, 000/- or Equal to half of total sales which ever is less

 

PRESUMPTIVE INCOME UNDER SECTION 44AD

 

(Business other than that of goods carriage):

 

This scheme is applicable to residents Individuals, HUF, Firm other than LLP.

 

Carrying on any business whose gross receipt from such business does not exceed Rs.1 Crore A sum equal to 8% of gross receipt paid or payable to the assessee or such higher sum as declared by the assessee in the return of income shall be deemed to be the income from such business.

 

However for sum lower than this income, accounts have to be maintained and get audited.

 

All deductions under section 30 to 38 along with unabsorbed depreciation would be deemed to have been allowed.

 

However salary and interest to partners to the limit specified in section 40(b) have to be allowed

 

PRESUMPTIVE INCOME UNDER SECTION 44AE (Business of goods carriage): -

 

Scheme is applicable to only those assesses who do not own more than 10 goods carriage at any time during the previous year.

 

Profits and gains from such business would be deemed to be as under:-

 

For heavy goods vehicle:  Rs. 5000 For every month or part of month for which such vehicle is owned by assessee

 

For other vehicles: Rs. 4500 For every month or part of month for which such vehicle is owned by assessee

 

Assessee can declare income higher than this specified limit

 

However for sum lower than this income, accounts have to be maintained and get audited.

 

All deductions under section 30 to 38 along with unabsorbed depreciation would be deemed to have been allowed.

 

However salary and interest to partners to the limit specified in section 40(b) have to be allowed.

 

PRESUMPTIVE INCOME UNDER SECTION 44BBA

 

(Non-resident’s Business of operating aircraft):

 

In this presume income to be 5% of the Fare and freight:

 

Whether paid or payable in India or outside India for transportation of goods, passenger, livestock, mail, etc. from any place in India AND

Amount received or deemed to be received in India for transportation of goods, passenger, livestock, mail, etc. from any place outside India.

Maintain books of accounts as necessary for A.O. to compute his income.  Get his Accounts audited under section 44AB

 

INCOME UNDER THE HEAD CAPITAL GAINS

 

Capital Asset .Sec.2(14) means property of any kind held by an assessee whether or not connected with his business or profession ,but does not include the following:

 

i. Stock in trade, Raw materials and consumables stores held for the purpose of business or profession.

ii. Personal effects of movable nature, such as furniture, utensils and vehicles held for personal use by the assessee or any dependent member of his family.

iii. Agricultural land in India which is not situated in any specified area.

iv. Gold Bonds issued by the government of India including gold deposit bond issued under the gold deposit scheme notified by the cent.Govt.

 

CAPITAL ASSETS ARE TWO TYPES LONG TERN & SHORTERM

 

Capital gain arises from the transfer of any capital asset.

 

- Short-term capital gain is a gain arising from the transfer of an asset which is held by the assessee for not more than: 12 months from the date of its acquisition in case of shares, units and any other listed securities and for not more than 36 months in the case of other assets .

 

- otherwise it is long term capital gain

 

Distribution of assets by a company at the time of liquidation shall be regarded as a transfer and subject to capital gain in the hands of the shareholders

 

Transfer by holding company to its subsidiary company or by a subsidiary company to its holding company shall not be regarded as transfer if the holding company owns: 100 % shares of the subsidiary company

 

Amalgamation of company as per the scheme of amalgamation shall not be regarded as transfer provided the amalgamated company is: an Indian company

 

Transfer of capital asset in the scheme of demerger shall not be regarded as transfer for the purpose of capital gain if the resulting company is an Indian company

 

The assessee is allowed to opt for market value as on 1.4.1981 in case of: all capital assets other than depreciable assets, goodwill of a business, right to manufacture,etc.

 

Where the capital asset became the property of the assessee in any mode given under section 49(1), the cost of acquisition of such assets shall be: cost for which the previous owner of the property acquired it .

 

Period of holding would be considered from the date of which property was held by the previous owner but index would be available the year in which the property is acquired by the assessee

 

FORMAT OF COMPUTATION OF LONG TERM CAPITAL GAIN

Sale consideration

Less

Expenses on Transfer(Like Brokerage etc)

Net Consideration

Less Indexed cost of acquisition

Less Indexed cost of Improvement

Long term Capital Gain

 

 

xxx

 

xxx

Xxx

-------

 

xxx

 

 

____

xxx

xxx

____

Xxx

===

 

FORMAT OF COMPUTATION OF SHOT REM TERM CAPITAL GAIN

Sale consideration

Less

Expenses on Transfer(Like Brokerage etc)

Net Consideration

Less acquisition

Less Improvement

Less short term Capital Gain

 

 

xxx

 

xxx

Xxx

-------

 

xxx

 

 

____

xxx

xxx

____

Xxx

===

 

In computing capital gain arising from transfer of a long term capital asset deduction can be claimed for the cost of acquisition and cost of improvement after indexing the same.

 

Indexed cost of acquisition means an amount which bears to the cost of acquisition the same proportion as cost inflation index for the year in which the assets is transferred bears to the cost on inflation index for the first year in which the asset was held by the assessee or for the year beginning on the 1St day of April 1981, which is later.

 

The benefit of indexation can be availed either from the year of acquisition of the asset by the assessee or from the base year 1981-82, which ever is later. if an asset is acquired prior to 01-04-1981 and if the cost is higher than market value as on 01-04-01981 then the assessee can adopt the cost and be entitled indexation with effect from 1981-82. In the alternative, if the market value as on 01-04-1981 is higher than the cost the assessee may be choose to adopt the market value as on 01-04-1981and entitled to indexation of such value of the asset from 1981-82

 

 

Indexed cost of acquisition

 

Cost of acquisition or fair market value

 as on 01-04-1981 as case may be

_________________________________                  * Index factor for the year of

Index factor for the year 191-82 or                                      Transfer

For the first year in which the asset

was held by the assesseeWhich ever is later

 

****** Cost of Improvement same as cost of acquisition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Indexation Benefit is not available in the following cases:

 

I. Short term Capital Assets

II. Bonds and debentures

III. Where option of 10% tax rate is availed u/112

IV. Slump sale u/s50B

V. Sale of shares by non resident

 

Tax on Short Capital Gain Sec.111A

 

a. Any short term capital gain arising from the transfer of an equity share in a company or a unit of an equity oriented fund shall be liable to tax @15% if the following conditions are satisfied:

 

i. The Transaction of sale should take place through a recognized stock exchange.

ii. Such transaction is chargeable to Securities Transaction Tax.

 

b. If the total income of an assessee includes such short term capital Gain and other income ,the tax payable by the assessee in such a case shall be the aggregate of-

 

i. The amount of income Tax calculated on such short term capital gain (15%)

ii.The amount of income tax payable on the balance amount of the total income as if such balance amount were the total income of the assessee.

 

c. In the case of an individual or HUF, being a resident, where the total income as reduced by such short term capital gain is below the basic exemption limit then the short term capital gain shall be reduced by the amount of basic exemption limit not exhausted by any other income and only the balance short term capital gain shall be chargeable @15%. For a non resident assessee adjusting of basic exemption limit against short term capital gain shall not be applicable .Hence the entire amount of STCH shall be subject to tax @15%.

 

d. Assessee is not entitled to claim any deductions provided under Chapter VI-A in respect of such Short Term Capital Gain.

 

Tax on Long Term Capital Gain Sec.112.

 

a. Where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head Capital gains, such long term capital gain shall be charged to tax at 20% rate.

 

b. Any L.T.C.G arising from transfer of equity share of a company or a unit of equity oriented fund which are listed in a recognized stock exchange is exempt from tax u/s 10(38).

 

c. Where the transferred L.T.C.A is in the nature of listed securities or Units of UTI or Mutual fund or Zero coupon bond ,the gain arising from transfer of such securities or units shall be liable to tax at the rate of 10% on such LTCG computed   without the benefit of indexation or at the rate of 20% on such LTCG computed availing the benefit of indexation whichever is more beneficial to the assessee.

 

The possibility of Applying 10% or 20% tax rate shall arise only in case where the listed shares are not traded through a recognized stock Exchange and not chargeable Securities Transaction Tax.

 

Exception from Capital Gain

 

SECTION

ASSESSEE

CONDITION

EXCEMPTION

Sec .54

Individual/

 H.U.F

Long term Residential House to be Transferred.

 

With in the period of 1Year before or 2 year after the date of transfer, a residential house is purchased or with in a period of 3 year a residential house is constructed.

 

Cost of new house

 or 

up to C.G

Sec.54 B

Individual/

 H.U.F

Agricultural land to be transferred( same must be used in 2 year immediately preceding the date of transfer for Agr.Purpose by individual or Parents.

 

With in the period2 years the date of transfer another Agr.Land is purchased.

 

Cost of new Agr.Land or

 up to C.G

Sec .54 D

Any Assessee

Land ,Building or any right in land forming part of Industrial undertaking must be compulsory acquired.

Cost of new Assets

Or

Up to C.G

Sec .54 EC

Any Assessee

Transfer a Long Term Capital Asset

With in a period of 6 months from the date of transfer amount of C.G shoul have been invested in specified bond issued by REC.or NHAI.

The above bond shall not transfer or covert or avail loan within a period of 3 year.

 

Maximum amount of Investment shall not exceed 50lakhs  during the year.

 

Amount of Investment in the specified bonds or capital gains whichever is lower.

Sec .54 F

Individual/

 H.U.F

The Asset is LTCA  not being residential home. The Assessee does not own more than 1 Residential House other than new asset on the date of transfer.

 

With in the period of 1Year before or 2 year after the date of transfer, a residential house is purchased or with in a period of 3 year a residential house is constructed.

 

(Investment in new asset/Net consideration) * Capital Gain

Sec .54 G

Any Assessee

Machinery or plant or building or any rights in building or land used for business of  an industrial undertaking situated in an urban area is transferred.

Transfer is due to shifting to any area other than an urban area.

 

Cost of new Asset

 or 

up to C.G

Sec.54 GA

Any Assessee

Machinery or plant or building or any rights in building or land used for business of  an industrial undertaking situated in an urban area is transferred.

Transfer is due to shifting to any  Special Economic Zone.

Cost of new Asset

 or 

up to C.G

Sec.54 GB

Individual/

 H.U.F

Long term Residential property or land is to be transferred.

The assessee before due date of furnishing  return has unlisted the net consideration for subscribing to the equity shares of an eligible company

Up to the capital Gain or

(Cost of new house/net consideration)*capital gain

 

INCOME FROM OTHER SOURCES

 

Income from Other Sources is a residuary head of income. Any item of income chargeable to tax but does not fall within the ambit of the other four specific heads of income shall be included under this head of income.

 

Chargeability – Section 56

 

The following income shall be charged to tax only under the head “Income from Other Sources”:

 

a. Dividend income covered by sub-clause (a) to (e) of clause (22) of Section 2.

 

b. Income by way of winnings from lotteries, cross word puzzles, races including horse race, card games and other games of any sort, gambling, betting, etc. It requires mention here that such winnings are chargeable to tax u/s 115BB at a flat rate of 30%.

 

c. Any sum of money, the aggregate value of which exceeds Rs.50, 000 received from any person without consideration by an individual or Hindu Undivided Family .

 

However, exemption is granted in respect of any sum of money received –

 

- from any relative; or

- on the occasion of marriage of individual; or

- under a Will or by way of inheritance; or

- in contemplation of death of the payer or

- from a local authority; or

- from any fund, foundation, university, other educational institution, hospital, medical institution, any trust or institution referred to in Section 10(23C); or

- From charitable institutions registered u/s 12AA.

 

In respect of above gifts, there is no ceiling limit and therefore, entire amount is exempt from chargeability.

 

The definition of the term ‘relative’ for this purpose is as under :

 

a. husband or wife of individual;

b. brother or sister of the individual;

c. brother of husband of the individual;

d. brother of wife of the individual;

e. sister of husband of the individual;

f. sister of wife of the individual;

g. brother of father of the individual;

h. brother of mother of the individual;

i. sister of father of the individual;

j. sister of mother of the individual;

k. lineal ascendant of the individual (say, grandfather)

l. lineal descendant of the individual (say, son, grandson, daughter)

m. lineal ascendant of the husband of the individual

n. lineal descendant of the husband of the individual

o. lineal ascendant of the wife of the individual (say, wife’s father)

p. lineal descendant of the wife of the individual;

q. wife or husband of the relatives listed at serial numbers (b) to (p)

 

INCOME CHARGEABLE UNDER THIS HEAD, ONLY IF NOT CHARGEABLE

 

UNDER THE HEAD ‘PROFITS AND GAINS OF BUSINESS OR PROFESSION.

 

The following income shall be chargeable to tax under this head of income only if it is not taxable under the head “Profits and Gains of Business or Profession”:

 

- Interest on securities (State and Central Government securities and debentures);

- Any sum collected from employees towards their share of contribution to any Welfare Fund Account :

- Income from letting of machinery, plant and furniture; and

- Income from letting of machinery, plant and Furniture together with building, if the letting of the building is inseparable to the letting of other assets.

 

INCOME CHARGEABLE UNDER THIS HEAD ONLY IF NOT CHARGEABLE UNDER THE HEAD “PROFITS AND GAINS OF BUSINESS OR PROFESSION” OR UNDER THE HEAD “SALARIES”

 

Any sum received under a Keyman insurance policy including bonus is chargeable under this head when it is received by any person other than the employer who took the policy and the employee in whose name the policy was taken.

 

DIVIDEND

 

Section 2(22) defines ‘Dividend’ to include –

 

Any distribution by a company to its shareholders to the extent of accumulated profits whether capitalized or not resulting in the release of all or any part of the assets of the company,

 

b)any distribution to its shareholders by a company –

 

i. Of debentures, debenture-stock or deposit-certificates with or without interest;

ii. Distribution of bonus shares to the preference shareholders by the company, to the extent of accumulated profits, whether capitalized or not,

 

any distribution made to the shareholders by a company on its liquidation to the extent to which the distribution is attributable to the accumulated profits of the company, whether capitalized or not,

 

Any distribution by a company to its shareholders on account of reduction of share capital to the extent of which the company possesses accumulated profits, whether capitalized or not.

 

Any payment to the extent of accumulated profits by a company, not being a company in which public are substantially interested, of any sum by way of: Sec.2(22)(e)

 

- Loan or advance to a shareholder who holds the beneficial ownership of equity shares carrying not less than 10% voting power,

- loan or advance to any concern (HUF, firm, AOP, Body of Individuals or a company) in which such shareholder is a member or partner holding substantial interest (20% or more beneficial interest at any time during the previous year),

- Any payment on behalf of or for the individual benefit of any such shareholder made to any person.

 

Exceptions:

 

- Any advance or loan to a shareholder or the concern in which the shareholder has substantial interest by a company will not be deemed as dividend, if the loan or advance is given during the normal course of its business provided the lending of money is a substantial part of the business of the company.

 

- Any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of Section 77A of the Companies Act, 1956, shall not be regarded as dividend. Such buyback of shares attracts capital gains tax liability in the hands of the shareholder u/s 46A.

 

- Any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company) shall not be treated as dividend.

 

8.5 WINNINGS FROM LOTTERY, ETC. – SECTION 115BB

 

Where the total income of an assessee includes any income by way of winnings from any lottery or crossword puzzle or race including horse race or card game and other game of any sort or from gabling or betting of any form, tax shall be calculated at the rate of 30% of such income plus surcharge.

 

SECTION 80C TO 80U

 

Deduction in respect of LIC, PF etc. Sec.80C.

 

Eligible Assessee: Individual/Huf

 

Investments/contributions to LIC Premium, Deferred Annuity, Unit Linked Insurance plan, PPF, RPF, Superannuation fund .

Subscription to notified security or deposit schemne, N.S.C, Units of Mutual fund or fund setup by UTI, Bond issued by NABARD,5 year post office deposit scheme, Senior citizen savings deposit scheme.

Repayment of Housing loan, Tuition fees for full time education of any 2 children

 

Deduction in respect of contribution to certain pension funds. Sec.80CCC.

 

Deduction  in  respect  of  contribution  to  pension  scheme  of  Central Government. Sec.80CCD

 

Eligible Assessee: Individual

Contribution made to annuity plan Lic, Maximum Rs.100,000/-

For 80CCD an individual has contributed any amount under a pension scheme notified by Cen Govt. Subject to the following limit

If individual deriving salary income: 10% of salary

If individual deriving other income: 10% of Gross total income

 

Limit on deduction u/s.80C,80CCC,80CCD, ( Sec.80CCE)

 

Restricted to Maximum of Rs.100,000/-

 

Deduction in respect of Investment in Equity Savings Scheme.Sec.80CCG

 

Eligible Assessee: Resident Individual.

Amount of deduction is to be extent of 50% of the amount invested in listed equity shares accordance with Rajiv Gandhi Equity Savings Scheme 2012 Subject to maximum Rs.25000/- (Investment can go up to 50,000).

 

Such deduction can be allowed subject to the following conditions:

 

- GTI of assessee shall not exceed 10Laks

- The assessee is a new retail investor Locking period is 3 Year

 

Medical Insurance Premium Sec.80D

 

Eligible Assessee: Individual/Huf

Eligibility

Amount paid in respect of

Total Deduction U/S 80D

Self, Spouse & dependent children

Parents, dependent or not

No one attained the age of 60Years

Rs.15000

Rs.15000

Rs.30,000

Assessee his family less than 60 years of age and parent is a Senior citizen

Rs.15000

Rs.20,000

Rs..35000

Assessee and the Parent attained the age of 60Years

Rs.20000

Rs.20000

Rs.40,000

 

Medical Treatment of a dependent with disability Sec.80DD

 

Eligible Assessee: Resident Individual/Huf

Normal deduction at a flat amount of Rs.50, 000/- and if the severe disability deduction shall be Rs.100, 000/-

 

Medical Treatment for certain disease or ailment Sec.80DDB

 

Eligible Assessee: Resident Individual/Huf

Deduction shall be the amount of actually paid or Rs.40,000/- whichever is less In case of senior citizen who is aged 60 years or more the deduction shall be the amount of actually paid or 60,000/- whichever is less

 

Deduction for interest on loan taken for higher education Sec.80E

Eligible Assessee: Individual

 

Any amount of paid towards interest on loan borrowed from higher education .This deduction is allowed for the initial year and immediately succeeding 7 assessment years or until the interest is paid by the assessee in full, which ever is earlier.

 

Deduction to certain fund, Charitable Institutions .Sec.80G

Eligible Assessee: Any Assessee.

 

50% deduction  with out any limit

Jawaharlal Nehru Memorial Fund, P.M Draught Relief Fund, National  Children Fund , Indira Gandhi Memorial Trust, Rajiv Gandhi Foundation.

 

(a)  100% deduction Restricted***

 

- Contribution by a company as donation to The Indian Olympic Association or any Association established for Sports and games

- Govt or Local Authority or approved Institution/Association for promotion of family planning

 

(b)  50% deduction Restricted***

 

- Renovation of Temple, Mosque, Church etc.

- Any approved public trust

- Any corporation established for by govt for promoting Interest of schedule caste or Tribe

- Any authority set up for providing  for Housing accommodation or town planning

- Any govt or local authority set up for promoting family planning.

 

Step 1:  Computed adjusted total Income, which is GTI as reduced by:-

Deduction under chapter VI-A

Long Term Capital gain Sec.112

Short Term capital gain Sec.111A

 

Step 2: 10% of Total Income

Step 3: donation is 100% or 50%

 

100% deduction with out any limit.

Other all Donation in the list like P.M national, P.M.Armenia Earthquake relief fund, National Defense fund, National foundation for communal Harmony

 

Rent paid Sec.80GG

 

Eligible Assessee: individual

The assessee should not be in receipt of house rent allowance.

Least of the following:

 

1. Rent -10% of Total Income

2. 25% of Total income.

3. Rs.2000/-P.M

 

Donation for Scientific research ,rural development etc. Sec.80GGA 

 

Eligible Assessee: All assessee not having any income chargeable under the head “profit and Gains of Business or Profession”

100% of Donation.

 

Contribution by companies to political Parties Sec.80GGB

Deduction shall be allowed in respect of contribution as referred in Sec.293A of the companies’ act 1956.

 

FILING RETURN OF INCOME

Due Dates Sec.139(1):

 

Assessee

Due Date

Any assessee who is required to furnish transfer pricing report U/S .92E

30th Novener of relevant A.Y

Any other Company other than above

Other person whose accounts are required to be audited under the Act or under any other law

30th September of relevant A.Y

In case of any other Assessee

30thJuly of relevant A.Y

 

Return in Electronic Form Sec.139 (1B)

 

All company Assessee

Assessee who are subjected to audit u/s 44AB

Total income Exceed Rs.10 lakhs

 

Belated Return Sec.139 (4)

 

Any person who has not furnished a return:

On or before the time allowed u/s 139(1)

Within the time allowed by the notice issued u/s.142 (1)

 

Revised Return Sec.139 (5).

 

Any person who has furnished a return u/s.139 (1) or pursuance of notice issued u/s.142(1) can file revised return if the assessee discovers any omission or any wrong statement in the return filed earlier. Such revised return can be furnished at any time before the expiry of one year from the end of relevant assessment year or before completion of assessment which ever is earlier.

 

ADVANCE TAX

Advance tax shall be payable in every case where amount of such tax payable by the assessee during the year is .Rs.10,000/- or more Sec.208.

 

Due Dates for payment of advance tax

Installment date

Corporate Assessesee

Non Corporate Assessee

15th june

Not less than 15%

Not Applicable

15th September

Not less than 45%

Not less than 30%

15th December

Not less than 75%

Not less than 60%

15th March

Not less than 100%

Not less than 100 %

 

INTEREST

Sec.234A

Sec.234B

Sec.234C

For default in furnishing return of income

For default in payment of Advance Tax

Deferment of advance Tax

Interest @1%

Interest @1%

Interest @1%

Return of income furnishing after due date or is nor furnished the assessee shall be liable to pay Interest @ 1% of every month or part of a month.

Where in any financial year ,an assessee who  is liable to pay advance tax u/s208 has failed to pay such tax or the advance tax paid by such assessee is less than 90% of the assessed tax, the assessee shall be liable to pay interest @1% of every month or part of month

Where  in any financial year the assessee who is liable to pay advance tax u/s208 has failed to pay such tax or advance tax paid by the assessee on the current income on or or before July/Sep/Dec on its short fall

 

CLUBBING OF INCOME.

As per Sec.60 when income alone is transferred without transfer of the asset giving rise to such income, it is deemed to be the income of the transferor. It does not matter whether such transfer is revocable or irrevocable.

 

Income of Minor Child

 

In computing the total income of any individual there shall be included all such income as arises or accrues to his minor child

 

In the case of an assessee to an individual in whose total income the minor child income is to be included u/s 64(1A)exemption is given up to Rs.1500/- in respect of each minor child.

 

However income of minor child shall not be clubbed if:-

 

i. Manual work done by him: or

ii. Activity involving of his skill, talent or specialized knowledge and experience.

iii. If the minor child is suffering from any disability of nature specified in Sec.80U .

 

CARRY FORWARD OF LOSSES

Sec.

Nature of Loss

Number

of years

To be set-off Against

71B

Loss from House Property

8

Income from house property

32(2)

Unabsorbed Depreciation

Indefinite Period

Any head of income other than salaries

72

Unabsorbed business loss.

8

Profit and gains of Business or Profession

73

Speculation business loss.

4

Income from speculation Business

73A

Losses of specified business u/s35AD

Indefinite Period

Income from any specified business

74

Loss under the head “capital Gain”

1)STCL

2)LTCL

8

STCG/LTCG

 

LTCG

74A

Loss from the activity of owning and maintaining race horses.

4

Income from same activity

 

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