REVISIONARY NOTES ON INCOME TAX

REVISIONARY NOTES ON INCOME TAX.

Revisionary Class notes on

INCOME TAX

By : CA Anupam Parashar

CHAPTER - 1

BASIC CONCEPT

What is Tax — Tax is a fee charged by a government There are two types of taxes

(1) Direct taxes

(2) Indirect taxes.

IMPORTANT DEFINITIONS

ASSESSEE

Sec. 2(7)

PERSON

Sec. 2 (31)

INCOME

INDIA

]

TAXATION OF PREVIOUS YEAR'S INCOME DURING THE SAME YEAR

(1) Shipping business of non-resident [Section 172]

(2) Person leaving India [Section 174]

(3) AOP or BOI or artificial juridical person formed for a particular event or purpose (Section 174A]

(4) Persons likely to transfer property to avoid tax [Section 175]

(5) Discontinued business [ Section 176]

DEEMED INCOME

(1) Unexplained Cash Credits (Section 68)

(2) Unexplained Investments (Section 69)

(3) Unexplained Money, bullion or jewel or Valuable article (Section 69A)

(4) Investment not fully disclosed (Section 69B)

(5) Unexplained Expenditure (Section 69C)

TAX. RATES FOR ASSESSMENT YEAR 2009-10

SURCHARGE ON INCOME TAX

MARGINAL RELIEF

CHAPTER 2

SCOPE OF TOTAL INCOME & RESIDENTIAL STATUS

Basic condition

(1) 182 days or more in the relevant previous year; or

(2) 60 days or more during the relevant previous year 365 days or more during 4 previous years immediately preceding the relevant previous year.

Exceptions: There are two exceptions to the above rule:

(1) employment outside India,.

(2) Indian origin,comes on a visit to India in any previous year

ADDITIONAL CONDITIONS

a) 2 out of 10 And

730 days or more, during 7

SECTION 9

CHAPTER 3

INCOME FROM SALARY

Important concept

Employer and employee relationship

Type of Allowances

House Rent allowance

Section 10(13A)

Specified allowances

DUCHAT

100, 300, 800, 800/1600,200

70% of such allowance or Rs, 6,000 p.m. whichever is less.

Treatment of Entertainment Allowance

Allowances which are exempt in case of certain persons

Perquisites

↓	↓	↓	↓
Taxable	Tax Free	Taxable in hands of	Other benefit under
For All	for all	specified employees	(Chapter XII H)
			↓
→ (1) Rent Free Accommodation	→(6) Leave Travel concession	→ (8) Water, gas	Tax paid by Employer
			Exempt for all employees
→(2) Loan	→(7) Medical	→(9) Education

→(3) Use of movable assets		→(10) Attendance

→(4) Transfer of assets

→(5) Reimbursement for all meeting personal Expenditure except car and telephone (FBT)

Who is a specified employee

Profits in lieu of salary

Retirement Benefits

Pension

Gratuity

Leave Salary

Compensation on voluntary retirement

(i) (a) Three months salary for each completed years of service or

(b) Salary of the balance months of service left before his normal retirement Which is less

Retrenchment compensation

*Salary includes all but does not include bonus and employer's PF contribution.

Average salary for preceding 3 months preceding the date of retirement is taken.

Treatment of Provident Fund for Income-tax Purposes

Deductions from Salaries

(i) Entertainment allowance (Section I6(ii)]

(ii) Tax on employment [Section I6(ii)l

CHAPTER 4

INCOME FROM HOUSE PROPERTY

Chargeability

Section 22

Deemed owner

Section 27

When income from house property is not charged to tax

DETERMINATION OF ANNUAL VALUE

Treatment of unrealized rent

Section 23(1)

Deductions

Section 24

No Deduction

Section 25

Recovery of unrealized rent

Section 25AA

Special provisions for arrears of rent received

Section 25B

Co-ownership

Section 26

Can Annual Value (Net Annual Value) be negative?

CHAPTER 5

INCOME FROM BUSINESS OR PROFESSION

Depreciation

Section 32

Proportionate Depreciation

Set off and carry forward of unabsorbed depreciation

Additional Depreciation

Written down value for purpose of charging depreciation if during the previous " year there is a slump sale:

How to claim depreciation when the asset is not exclusively used for the purpose of business or profession

Tea/Coffee/Rubber Development Account

Section 33AB

40%

Site Restoration Fund

Section (33ABA)

20%

Scientific Research Expenditure

Section 35

Sale of scientific research asset

Section 41(3)

Expenditure for obtaining licence to operate telecommunication services

Section 35ABB

Sale of licence

Expenditure on eligible projects or schemes

Section 35AC

Expenditure by way of payments to associations and institutions for carrying out Rural Development Programmes Section 35CCA

Preliminary Expenses

Section 35 D

Amortisation of expenditure in case of amalgamation or demerger

Section 35DD

Amortisation of expenditure incurred under voluntary retirement scheme

Section 35DDA

Expenditure on prospecting of minerals

Section 35 E

Expenses Allowed Deductions

u/s 36(1)

General Deductions

Section 37(1)

Expenses not deductible

Section 40 (a)

Deduction for partnership firm

Section 40(b)

Payment lo specified persons

Section 40 A(2)

Payment in cash

Section 40 A(3)

Provision for gratuity

Section 40 A(7)

Deduction on payment basis

Section 43 B

Maintenance of accounts

Section 44AA

→ exceed Rs. 1,50,000

→ in all the 3 years preceding the P/Y or

non specified profession or any business:

If total income exceeds Rs. 1,20,000 or total sales/receipts exceeds Rs. 10,00,000 in any one of three years preceding the P/Y or

Compulsory audit of accounts

Section 44AB

1. In case of business : If total sales or gross receipts of business exceed Rs. 40,00,000.

2. In case of profession If gross receipts are more than Rs. 10,00,000.

3. U/s 44AD/AE/AF:

Computation of income on estimation basis

Sec. 44AD/AE/AF

3500/3150

CHAPTER 6

INCOME UNDER THE HEAD CAPITAL GAIN

Capital asset

Section 2(14)

Type of capital gains

Transfer

Section 2(47)

Transactions not regarded as transfer

Sections 46 and 47

Advance Money Forfeited

Section 51

Cost of improvement

Section 55(1)(b)

Indexed cost of acquisition

Indexation of cost not allowed in certain cases

Indexed cost of improvement [Explanation (iv) to section 48]

Computation of capital gain in certain cases

Taxation of zero coupon bonds

Section 2(48)

Insurance Claim on destruction

Section 45(1A)

Conversion of capital asset- into stock in trade

Section 45(2)

Transfer of a capital asset by a partner to firm

Section 45(3)

Dissolution of firm

Section 45(4)

Compulsorily acquisition

Section 45(5)

Exemption on compulsory acquisition of agricultural land

Section 10(37)

Capital gain on conversion of debentures into shares:

Liquidation of a company

Section 46

Conversion of preference shares into equity shares

Capital gain on sale of goodwill of a business/trademark or brand name/ tenancy rights/route permits or loom hours, right to manufacture or right to carry on any business:

Special provision for full value of consideration in certain cases

Section 50C

Reference to valuation officer

Section 55A

Long-term capital gain on eligible equity shares exempt if the shares are acquired within a certain period Section 10(36)

Exemption of capital gains on compensation received on compulsory acquisition of agricultural land situated within specified urban limits Section 10(37)

Tax on snort-term capital gains in case of equity snares and units or equity oriented fund

(Section 111A)

Tax on long-term capital gains from listed securities

1. Tax @ 20% on long-term capital gains computed after indexation

2. Tax @ 10% on long-term capital gains computed without indexation of its cost.

CHAPTER 7

INCOME UNDER THE HEAD ‘INCOME FROM OTHER SOURCES’

Method of Accounting

Taxability of Dividend

Section 56(2)(i)

Exemption of income from units

Section 10(35):

Dividend

Deemed Dividend

Section 2(22)

Winnings from Lotteries, Crossword Puzzles, Horse Races and Card Games

Section 56(2)(ib)

Special rate of Income-tax in case of winnings from lotteries, crossword puzzles, races, etc. Section 115BB

Grossing up of lottery income, etc.

Rate of TDS for interest

Interest exempt from tax

Section 10(15)

No deduction

Section 14A

	Govt.		Non-govt.
	Tax-free	Others	Tax-free	Others
Included in total Income	X	√	√	√
Grossing up	X	X	√	√ Or X

Avoidance of tax by certain transaction in securities

Section 94

Bona Washing Transaction

(2) Loss arising from purchase and sale of securities not allowed in certain cases (Section 94(7))

(3) Bonus stripping in case of units (Section 94(8)]

Income from letting out of machinery, plant or furniture

Section 56(2)(ii)

Income to include gift of money from unrelated persons

Section 56(2)(vi)

Contribution of the employee towards his welfare fund, deducted/received by the employer [Section 56(2)(ic)]

Amounts not deductible in computing the income under the head 'Income from Other Sources' [Section 58]

CHAPTER 13

INCOME OF CHARITABLE TRUST AND POLITICAL PARTY

CHAPTER 12

AGRICULTURAL INCOME

Agricultural income means

Sec. 2 (1A)

Partly Agricultural and partly non-agricultural income

Disintegration of income in specific composite business

75%,65%,60%.

CHAPTER 8

CLUBBING OF INCOME

Transfer of income where there is no transfer of assets

Section 60

Revocable transfer of assets

Section 61

When a transfer is revocable [Section 63]:

Section 61 not applicable, if the transfer is irrevocable for a specified period Section 62

Income of an individual to include income of spouse, minor child, etc.

Section 64

Remuneration of spouse from a concern in which the other spouse has substantial interest [Section 64(1)(ii)]:

Income from assets transferred to the spouse

Section 64(1)(/V)

Income from assets transferred to son's wife

Section 64(l)(vi)

Income from assets transferred to any person for the benefit of the spouse of the transferor Section 64(I)(vii)

Income from assets transferred to any person for the benefit of son's wife

Section 64(I)(viii):

Income of minor child

Section 64(1A)

Rs. 1,500 in respect of each minor child.

Income from self-acquired property converted to joint family property

Section 64(2)

CHAPTER 9

SET OFF AND CARRYFORWARD OF LOSSES

Losses of firms

Carry forward and set off of losses in case of certain companies

Section 79

Set off and Carry forward of Losses

Nature of Income		Set - Off			Carry Forward	Set - Off
Nature of Income		Same Source under same head	Inter-source under same head	Inter- Head	For Assessment Year	From
Salary		N.A	N.A	N.A	N.A	N.A.
House Property		√	√	√	8 years	Same Head
PGBP	Non-Speculation	√	√	√ Except from the salary	8 years	Same Head
PGBP	Speculation	√	X	X	4 years	Same Source
Capital Gains	Short Term	√	√	X	8 years	Same Head
Capital Gains	Long Term	√	X	X	8 years	Same Head
Other Sources	Winning from Lottery etc.	X	X	X
Other Sources	Interests etc.	√	√	X
	Owning & Maintenance race horses	√	X	X	4 years	Same Source

CHAPTER 10

DEDUCTIONS

Deduction for Life Insurance Premium, PF contribution etc.

Section 80C

Available to: only Individual and HUF,

Investment in Pension Fund

80CCC

Deduction in respect of contribution to pension scheme of Central Government

Section 80CCD

Section 80CCE:

Total deduction under section 80C, 80CCC and 80CCDcan not exceed Rs. 1,00,000.

Medical Insurance Premium

Section 80D

15000/20000

Medical treatment of Dependent handicapped

Section 80DD

50000/75000

Expenditure on specified diseases

Section 80DDB

40000/60000

Relative in relation to an individual means spouse, children, brother, sister or parents of the individual.

Payment of interest on loan for higher education

Section 80E

8year

Deductions for donations

Section 80G

Adjusted Gross total income means

Gross Total Income

less Long Term Capital Gains

less Short Term Capital Gains u/s 111A

less Deductions under other sections of chapter VI-A [but without deducting deduction under A, B]

Note:- GTI includes lottery income also. But for calculating Adjusted GTI lottery has not been excluded. Therefore while calculating Adjusted GTI lottery shall not be deducted.

Deductions for payment of rent

Section 80GG

Deduction in respect of certain donations for scientific research or rural development

Section 80GGA

Deduction in respect of contributions given by companies to political parties

Section 80GGB

Deduction in respect of contribution given by any person to political parties

Section 80GGC

Development of infrastructure

Section 80- IA

100% of profits from such business for any 10 years out of 15 years

Development of SEZ

Section 80-IAB

100% of profits from such business for any 10 year-; out of 15 years

Manufacturing in specified areas

Section 80-IC

Amount of Deduction:-

In Sikkim or North East Region

100% of profits for 10 years starting from the year in which starts operations

In Himachal Pradesh or Uttaranchal

100% of profits for 5 years starting from the year

in which starts operations

25% of profits for next 5 years (30% for company)

Operating Hotels and Convention Centre

Section 80-ID

Amount of deduction:-

100% of profits from such business for 5 consecutive AIY beginning front the year in which such hotel starts functioning or convention centre starts operating on commercial basis.

Manufacturing of Specified Articles Eligible Business in Specified Areas

Section 80-IE.

Amount of deduction:

100% of profits shall be allowed as deduction for 10 consecutive A/Y commencing from the year in which it begins to manufacture or produce articles or things, or completes substantial expansion.

Bio-degradable waste for generating power

Section 80JJA

100% profits shall be allowed as deduction for the 5 consecutive Assessment Years beginning with the year in which such business is commenced.

Employment of New Workmen

Section 80JJAA

Assignment of copyright of any book

Section 80 QQB

Income from Inventions

Section 80RRB

Deduction for handicapped

Section 80U