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MF0003 Taxation Management - 2 Credits Assignment Set- 1 (60 Marks)

Question 1 Make a study of various exemptions available under section 10. Answer Sec. 10 (1): .Agricultural income is exempt from income-tax. In some cases agricultural income is taken into consideration to find out tax on non- agricultural income. Sec.10 (2): any sum received by a member of the Hindu undivided family either out of the income of the H.U.F. or out of the income of the estate belonging to the H.U.F. is fully exempt from income-tax. Such receipts are not taxable in the hands of an individual member, even if they have not been taxed in the hands of the H.U.F. Sec.10 (2A): The share of income of a partner in the total income of the firm, which is separately assessed to tax, is fully exempt from tax. Sec. 10(5 ): Leave travel concessions. Sec. 10 (7): Any allowance paid or allowed outside India by the Govt. to an Indian citizen for rendering service outside India is wholly exempt from tax. Sec. 10 (10): Gratuity: See Unit 3 Sec. 10 (10A), 10 (AA): Pension and leave salary: See Unit 3 Sec. 10 (10B): Retrenchment compensation; See unit 3 Sec. 10 (10C): Compensation received at the time of voluntary retirement: See unit 3 Sec. 10 (10CC): Tax on perquisite paid by the employer: Sec. 10 (10D): Amount paid by life insurance companies: Sec. 10 (11), (12), (13): payment from provident fund, superannuation fund: See unit 3. Sec. 10 (13A): House rent allowance: See unit 3 Sec. 10(14): Special allowance; See unit 3 Sec. 10 (15): Interest on securities. See unit: 7 Sec. 10 (16): Educational scholarships: Sec. 10 (17): Daily allowance to Members of Parliament

Sec. 10 (17A): Scientific and artistic work awards instituted by the Central Government or by any State Government are exempt from Income-tax. Sec. 10 (18), (19): i) Pension received by an individual who has been in the service of the Central or State Government and has been awarded Param Vir Chakra or Maha Vir Chakra or Vir Chakra or such other gallantry award as the Central Government may, by notification in the official gazette, specify in this behalf, and ii) family pension received by any member of the family of such individual, will be exempt from tax . Sec 10 (31): Subsidy received by an assessee engaged in the business of growing and manufacturing rubber, coffee, cardamom or such other plantation crops as may be notified by the Central Government is exempt from tax, provided the subsidy is received from the concerned Board, it (i.e., the subsidy) is used for re plantation or replacement of rubber plants, coffee plants or cardamom plants or for rejuvenation or consolidation of areas, and the assessee furnishes to the assessing officer, along with the return of income, a certificate from the concerned Board stating the amount of subsidy received during the previous year. Sec. 10 (32): Income of minor child included in the income of individual is exempted up to Rs. 1,500 in respect of each such minor child or income of such minor child whichever is lower. Sec.10 (33): Capital gains on the transfer of US64 Sec. 10 (34), (35): Income by way of dividends from domestic company or any income from the units of Unit Trust of India, and the income received from the units of mutual funds specified under Section 10 (23D) of the Income-tax Act are exempt from tax. Sec. 10 (37): Capital gain on compulsory acquisition of urban agricultural land: only to individuals and HUFs., provided such agricultural land was used by the assessee (or by his parents) for agricultural purposes during 2 years immediately prior to transfer. Sec. 10 (38): Long term capital gains on transfer of listed equity shares/ units covered by securities transaction tax. 2.11 Exemptions U/s 10A, 10AAA, 10B Newly established Under takings in Free trade zone: Electronic hardware technology park or software technology park, special economic zone Sec. 10A Subject to the fulfillment of certain conditions the profits and gains calculated as below is allowed to be deducted from his total income for a period of 10 consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software.

Newly established units in Special Economic Zone: Sec. 10AA

Income from export of articles or thing or from services from such unit is deducted to the following extent, subject to the fulfillment of certain conditions.

100% of the profit is deductible for a period of five assessment years, 50% for next five assessment years. Newly established 100% export oriented undertakings: Sec. 10B Undertakings approved by the Board, is eligible for the deduction for a period of 10 consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles. The profit eligible for deduction is calculated as per deduction computed u/s 10A (previous para)

Question 2 - What are the deductions available from gross salary income?
Answer -

Deductions from Gross income from salary: Sec. 16 Taxable income from salary is calculated after making following deductions: i) Entertainment allowance: only to govt. employee: disused in allowances ii) Professional tax or tax on employment levied by a state and paid during the year Sec. 16 (iii) 3.10 Provident Fund The word Provident means to provide for the future, hence this fund is to provide for the future. This fund is created by an amount deducted from the salary of the employee every month at a certain rate. The employer also makes his own contribution to this fund. These contributions are invested to earn interest, which is also credited to the employees provident fund account. When an employee retires from his service, he receives this amount in lump-sum along with interest on it and is a great help to him at that time. If unfortunately, the employee dies during the tenure of his service, the amount of this fund is received by his wife and children or legal heirs, which is of great help to them. Provident funds are of four kinds: i) Statutory Provident Fund, ii) Recognised Provident Fund iii) Unrecognized Provident Fund, iv) Public Provident Fund Statutory Provident Fund. It is that Provident fund to which the Indian Provident Fund Act, 1925 applies. Generally, this Provident Fund is maintained by Government or SemiGovernment offices, like local authorities, universities, other recognised educational institutions, statutory corporations and nationalized banks, etc., Recognized Provident Fund. It is a fund to which the Provident Fund Act, 1952, applies. Under this scheme, any person who employs 20 or more employees is under an obligation to register his firm or organisation under the provident Fund Act, 1952, and start a provident fund scheme for the employees in his organization. It is after 3 years of its establishment, that the registration should be done under this Act. There is one more alternative also. The funds which are not established under E.P.F. Act of 1952 have to be expressly recognised by the Chief Commissioner or Commissioner of Income Tax. The Chief Commissioner or Commissioner recognises this fund only when he is satisfied that this fund fulfils certain conditions set-out in the Income Tax Act of 1961. Generally this fund is maintained by scheduled banks, factories and several business houses. Thus, thius fund is maintained by private sector organizations. Unrecognized Provident Fund: It is that provident fund which is neither statutory nor recognised. Any institution or organization can maintain this fund. It is approved by the P.F. commissioner but not by the commissioner of income tax.

Public Provident Fund: The Public Provident Fund Scheme was started from Ist July, 1968, under the provision of PPF Act, 1968. Every individual (including a salaried employee) can subscribe to this fund any amount being not les than Rs. 500 and not more than Rs.70, 000 in year. He can also deposit money in installments which cannot exceed 12 in a year. An individual can open a public provident fund account either on his own behalf or on behalf of a minor of whom he is the guardian. However, an individual can open only one account in his own name. An account under this scheme can be opened at a branch of the State Bank of India or its subsidiaries or at a branch of any of the nationalized banks authorized for this purpose by the Central Government. A withdrawal is permissible every year from the seventh financial year of the date of opening the account, of an amount not exceeding 50% of the balance at the end of the 4th preceding year or year immediately preceding the year of the withdrawal, whichever is lower, less the amount of loan if any.PF scheme allows the assessee to withdraw the entire amount at his credit, after adjustment of the dues if any to government, on completion of 15 years after the end of the year in which the account is opened. The first loan can be taken in the third financial year, up to 25% of the amount at the credit at the end of the first financial year. This facility can be availed only before the expiry of 5 years from the end of the year in which the initial subscription was made. The loan is repayable either in lump sum or in convenient installments. The account can be transferred to any other accounts office. The interest credited to the fund and amount standing to the credit of subscribers are exempted from income tax and wealth tax respectively. Nomination facility is available. NRI are not permitted to open account under this scheme. Amount which is included in the salary income: Statutory Provident Fund Recognised Provident Fund Unrecognised Provident Fund When a person is a When a person is a member of When a person is member member of this provident this fund: (i) his own of this fund his own fund: (i) his own contribution to this fund, contributions to this fund contributions to this fund are included in his total are included in his total (ii) employers contribution in income but the employers income, contribution and interest on excess of 12% of the provident fund is not employees salary, and (iii) (ii) employers contribution interest on provident fund in included in his total income and interest on provident excess of 9.5% are included in from year to year. fund is neither included in employees total income i.e., the employees total employers contribution to the income nor it is taxable. extent of 12% of the salary and interest on provident fund upto the prescribed rate; is neither included in the total income of the employee nor it is taxable.

Maximum amount qualifying for deduction Contribution to S.P.F. or R.P.F by the employee qualifies up to Rs. 1,00,000. Employees contribution to U.R.P.F. never qualifies. Tax Planning: PPF is an ideal scheme of saving. The amount of deposit attracts 80 C deduction. The interest is also tax free. The asessee can open an account for 15 years and see that account is in life. During 13th, 14th, 15th year he can deposit and claim maximum deduction, and withdraw entire balance on completion of 15 years of account opening. Even during the 15 years, he can avail loan and deposit the same in PPF account. By this, he can reduce the tax liability substantially. Those with their income of more than Rs. 2,50,000 get tax benefit of 30%, while they are paying marginal interest on loan.

Question 3 - Find out GAV from the following details

Muncipal Value Fair Rent Srandard Rent Rent Per Month Vacancy Period
Solution

A 8,000 10,000 12,000 1,500 1

B 16,000 18,000 20,000 1,800 2

C 19,000 14,000 15,000 1,200 4

Muncipal Valuation Fair rent Valuation Whichever is Higher Standard Rent Whichever is Lower Actual Rent Whichever is Higher Vacancy Period Rent GAV

A 8,000 10,000 10,000 12,000 10,000 18,000 18,000 1,500 16,500

B 16,000 18,000 18,000 20,000 18,000 21,600 21,600 3,600 18,000

C 19,000 14,000 19,000 15,000 15,000 14,400 15,000 3,750 11,250

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