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T.VENKATARAMANAN.FCMA.FCS
Define tax
Tax is a payment made to the government of a country with out quid pro quoi.e. nothing in return.
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6
92 A,B,C
f 97
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(2)INDIRECT
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Direct tax
Income tax
INDEX
1. 2. 3. 4. 5. 6. 7. 8. 9.
Introduction Residential Status Tax Rates Income from Salary Income from House Property Income from Business & Profession Capital Gains Income from Other Sources Clubbing of Income
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Contd
10. Set-off Carry Forward 11. Deductions from Gross Total Income 12. Agricultural Income
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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.
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Important Definitions
1. 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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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.
14
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 assessees hands
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
15
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.
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Contd
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.
4.
Index
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Non-Resident (NR)
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Basic Condition
Additional Condition
Resident
He must satisfy at one of the basic Not required. conditions. He must satisfy either one or both He must satisfy at least one of the the additional conditions given u/s basic conditions. 6(6).
Non-Resident
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Contd
Basic Conditions u/s 6(1):
i. He must be in India for a period of 182 days
previous year; or ii. 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.
previous years preceding that year; or ii. He must be in India during 7 preceding previous years for aggregate period of 729 days or less.
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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 Status
According 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 Mr,A a British citizen, comes to India for the first time during 2004-5 .his stay in India 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
24
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.
25
Ans:1)yes may be legal or illegal(2)yes 3)no (4)yes (5) no. (6) no.
26
State with reasons whether the following receipts are income u/s 2(24) of the IT.ACT 1)INCOME EARNED BY SMUGGLING GOLD INTO INDIA 2)Gift received by a doctor from a patient 3)Gift received by son from father on his marriage 4)Award received by a sports person 5)Award received by a nonprofessional sport person 6)Reimbursement of travelling expenses by a sales person
1)Chaitali coop H.S.ltd (6)XYZ & CO unregd firm 2)Mr.janakinandan (7)Jt.family of Rajesh,his wife &children 3)Mukund Iron Ltd. (8)Shramik sena 4)Mr.Badri prasad (9)mumbai municipal corporation 5)Union Bank of Allahabad (10)mumbai university
Ans :1)AOP (2)An Individual (3) co. (5) Co (6) AOP/BOI (7)HUF (8)boi (10)Artificial judicial person
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Incidence of Tax
Tax Incidence Particulars R NOR NR
Income received in India by or on behalf of assessee Income deemed to received in India by or on behalf of assessee
Yes Yes
Yes Yes
Yes Yes
Yes Yes
Yes Yes
Yes Yes
Yes
No
No
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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 1 2 3 4 5 6
Details of income Income from property remitted from lanka to the assessee in india Profit from business in india Loss from business in lanka ,managed from india Dividend from foreign cos recd. o/s India Total
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Total income of Mr. S for the financial year 2012 -13 (a) as resident (b) not ordinarily resident ( c ) non resident N o 1 Details of income Income from property remitted from lanka to the assessee in india Profit from business in india R NoR Non R
(80000)
(80000) Not taxable
NT
60,000
Not taxable
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6
30
31
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1.
Up to 200,000
NIL
200,010-500000
10%
500010-1000000
20%
Above1000000
30%
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Contd
2.
S.No
INCOME
TAX RATE
Up to 200000
NIL
2 3 4
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Contd
3.
S.No
TAX RATE
NIL
250010-500000
10%
500010-1000000
20%
Above 1000000
30%
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Contd
PERSONS TAX RATE
FIRMS
DOMESTIC COMPANY FOREIGN COMPANY LOCAL AUTHORITIES CO-OPERATIVE SOCIETIES Up to 10000 10000-20000 Above 20000
30%
30% 40% 30%
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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
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 RESIDENT 5)Interest from govt sec to NRI 6)LTC (7)Remuneration of foreign diplomat (8)Foreign allowance (9)Income consultant u/s10(8A) (10)gratuity
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Meaning
Salary includes [section17(1)] :i. Wages ii. Any annuity on pension iii. Any gratuity iv. 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 leave vii.Employers contribution (taxable) towards recognized provident fund.
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BASIS OF CHARGE
Income is taxable under head Salaries, only if there exists Employer Employee Relationship between the payer and the payee. The following
incomes
Salaries:1.Salary Due 2.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.
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Allowances
Allowance 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.
An 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.
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.
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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:
Status of Employee
Non- Government
Government
Nothing is deductible
Least of the Following is deductible : 1. Rs. 5000 2. 20 % of basic salary 3. Amount of entertainment allowance grated during the previous year
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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 :
The amount of the allowance ; or ii. The amount utilized for the specific purpose for which allowance is given. Whichever is lower.
i.
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Contd
Exemption is available on the aforesaid basis in the case of following allowances
:-
NATURE OF 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.
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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 ; or ii. the amount specified in rule 2BB,
Whichever is lower.
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Contd
Name of allowance Special Compensatory (Hill Areas) Allowance Border area allowance Tribal areas/ scheduled areas allowance Allowance for transport employees Children education allowance Exemption as specifiedin rule 2BB Amount exempt from tax varies from Rs. 300 per mount to Rs. 7,000 per month The amount of exemption varies from Rs. 200 Per month to Rs. 1,300 per month Rs. 200 Per Month The amount of exemption isa.70 per cent of such allowance; or b.Rs. 6,000 per month, whichever is lower. The amount exempt is limited to Rs. 100 per month per child up to a maximum of two children. It is exempt from tax to the extent of Rs. 300 per month per child up to a maximum of two children.
47
Contd
Name of Allowance Compensatory modified area allowance Exemption as Specified in Rule 2BB Exemption is limited to Rs.1,000 per month in some cases.
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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.
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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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PERQUISITES
Perquisite 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.
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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
52
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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. ii. iii.
By a company to an employee who is a director thereof ; By a company to an employee, being a person who has substantial interest in the company ; 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
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Contd
4. 5.
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. 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
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TERMINAL BENEFITS
1.
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:
Status of Employee
Government Employee
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55
Contd
2.
Government Employee
Non-Government Employee
If Gratuity Received If Gratuity not Received
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56
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.
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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.
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SL.N O
RPF
8.5%
60
LEAVE SALARY
Encashment of leave by surrendering leave standing to ones credit is known as leave salary.
LEAVE ENCASHMENT
During Employment
Chargeable to Tax
Government Employee
Non-Government Employee
Fully Exempt
Least of following is exempt :1) Earned Leave on the basis of Average Salary 2) 10 x Average monthly salary 3) Rs. 500000 4) Leave Salary Received 61
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Computation of income from salaries Salary basic fees commission Pension Allowance DA HRA Conveyance CCA Perks Rent free accommodation Concession in rent Amenities free of cost Obligation of employee paid by employer LIP EMPLOYEE/ann uity Fringe benefit Profit in lieu of salary EPF & INTEREST Puja bonus & incentives Key man insurance policy
gratuity
Lunch allce
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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.
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Index
Compute the income of Sri Avinash working in central railway from the following particulars for the PY 2012-3:
1) Monthly basic salary Rs 58,000p.m 2) DA rs 5000.pm. 3)Spl allce Rs 3000/ pm 4) Bonus Rs 25,000 5) Car perk value Rs 13,500 6) 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
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Basis of Charge
The 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.
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Conditions to be Satisfied
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.
1.
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XXX
69
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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
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Meaning
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.
1.
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73
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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.
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(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 preacquisition or pre-construction period.
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1,50,000 30,000
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77
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XXX
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Index
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Paramveer is the owner of a residential house occupied by tenants X.Y.&Z the particulars of the houses are given below
Partic ulars GROSS RATEABLE VALUE FAIR RENT ACTUAL RENT Ist unit 12,000 Ii unit 14,000 III UNIT 15,000
9,000 11,400
80
4/7/2014 Municipal taxes for I unit borne by owner II & III are borne by tenants
9,000 11,400
Annual value 12,000 Municipal tax 3240 Net AV DEDUCTIO NS U/S 24 30 % OF AV 8760 2628
81
INCOME 6132 10,500 12,600 FROM hp 4/7/2014 Municipal taxes for I unit borne by owner II & III are borne by tenants
SECTION 28 -44
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83
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Contd
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 knowhow, patent, copyright, trademark, etc.
5.
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Contd
Any sum received under a Keyman insurance policy including bonus; 10. Profits and gains of managing agency; and 11. Income from speculative transaction.
9.
Income from the aforesaid activities is computed in accordance with the provisions laid down in section 29 to 44D.
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2.
3. 4. 5.
30] Repairs and insurance of machinery, plant and furniture [Sec. 31] Depreciation allowance [Sec. 32] Tea/coffee/rubber development account [Sec. 33AB] 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)]
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86
Contd
8. 9.
10.
11.
12.
Bonus or commission to employees [Sec. 36(1)(ii)] Interest on borrowed capital [Sec. 36(1)(iii)] Employers contribution to recognized provident fund and approved superannuation fund [Sec. 36(1)(iv)] Contribution towards approved gratuity fund [Sec. 36(1)(v)] Employees contribution towards staff welfare schemes 13. Bad debts [Sec. 36(1)(vii)] 14. Family planning expenditure [Sec. 36(1) (ix)]
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Contd
15. Banking cash transaction tax,
transaction tax and transaction tax. 16. Advertisement expenses [Sec. 37(2B)]. 17. General Deduction [Sec. 37(1)].
securities commodities
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1.
2.
3. 4. 5.
Damages and penalty paid for transgressing the terms of agreement with the State. Penalty and damages paid in connection with infringement of law. Litigation expenditure incurred for curing any defect in the title of assets or completing that title. Litigation expenses for registration of shares. Fees paid for increase of authorized capital.
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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.
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Contd
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).
9.
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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.
92
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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.
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Specific Disallowances
1. 2. 3. 4.
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)] Fringe Benefit Tax [Sec. 40(a)(ic)] Income-Tax [Sec. 40(a)(ii)] 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
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Contd
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]
7.
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c)
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Business covered u/s 44AB, He has claimed his income to be lower than the profits or gains 44AE, 44AF, 4BB and 44BBB so deemed under the respective section.
The assessee is required to get his accounts of such previous year audited by a Chartered Accountant before 30th September of the assessment year.
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Special Provisions for Computing Income on Estimated Basis 44AD, 44AE & 44AF
Not withstanding anything contained in Sections 28 to 43C, the following provisions will apply.
Sec. 44 AD Business of Assessee This Section applies if Civil construction or supply of labour for it. Gross receipts of such business during the previous year do not exceed Rs. 40 lacs. Sec. 44 AE Plying, hiring or leasing goods carriages owned by him. Goods carriages owned by assessee at any time during previous year doesnt exceed 10 lacs Sec. 44AF Retail trade in any goods or merchandise. Total business turnover in that previous year doesnt exceed Rs. 40 lacs. 5% of Gross receipts or such higher sum as declared by him in his Return of Income.
Deemed Profits
8% of Gross receipts
(No. of heavy goods vehicle x Rs. 3500 x NM) + (No. of other vehicles x Rs. 3150 x NM) NM = No. of months
98
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.
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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.
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Kamal started business with the following assets you are required to form block of assets & compute depreciation for the ay 2011-12
SL. NO 1 2 3 4 5 6 PARTICULARS OFFICE building Factory building Residential for workers officefurniture Residential furniture Copy rights trade marks RATE OF DEP% 10 10 5 15 15 25 RS 23,00,000 18,00,000 900,000 200,000 100,000 600,000
7 8
101
20 60
20
900,000 100,000
100,000
4/7/2014
Contd
Written Down Value [Sec. 43(6)] - Written down value for the assessment year 2009-10 will be determined as under:
Find out the depreciated value of the block on the April 1, 2008. Step 1 To this value, add actual cost of the asset (falling in the block) acquired during the previous year 2008-09.
Step 2
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 200809.
102
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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.
103
4/7/2014
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.
104
4/7/2014
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
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.
105
4/7/2014
Contd
The maximum amount of salary paid to all the partners during the previous year should not exceed the limits given below :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 On the next Rs. 1,00,000 of the book profit On the balance of the book profit In the case of any other firm On the first Rs. 75,000 of the book profit or in case of a loss On the next Rs. 75,000 of the book profit On the balance of the book profit 106 Rs. 50,000 or at the rate of 90 percent of the book profit, whichever is more At the rate of 60 percent At the rate of 40 percent Rs. 50,000 or at the rate of 90 percent of the book profit, whichever is more At the rate of 60 percent At the rate of 40 percent
107
4/7/2014
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.
Index
108 4/7/2014
109
4/7/2014
Basis of Charge
Capital Gains 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 assessee 3.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 54GA
110 4/7/2014
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.
111
4/7/2014
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.
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.
112 4/7/2014
Illustration
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
114
4/7/2014
115
4/7/2014
Important Terms
1.
2.
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)]. 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.
116
4/7/2014
Contd
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.
4.
117
4/7/2014
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.
118
4/7/2014
119
4/7/2014
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,
120
4/7/2014
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.
121
4/7/2014
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.
122
4/7/2014
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.
123
4/7/2014
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.
124
4/7/2014
125
4/7/2014
XXX
126
4/7/2014
Indexed Cost
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
127
4/7/2014
Index
Mr.Rohan purchased a residential house in july 1989 for Rs 400,000.sold it on 1st may 2011 for 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
128
4/7/2014
Solution No 1 2 3 4 Details Brokerage Indexed cost Long tern CG I 50,000 18,25,581 624 ,419 II 25,00,000 50,000 18,25,581 624,419 III 25,00,000 50,000 18,25,581 624,419
1)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
129
4/7/2014
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). .
131
4/7/2014
132
4/7/2014
Contd
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
5.
134
4/7/2014
Contd
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. 50,000 10. Interest on foreign government securities 11. Agricultural income received from outside India 12. Income from sub-letting 13. Directors fee 14. Income of race establishment
8.
135
4/7/2014
Index
136
4/7/2014
137
4/7/2014
Contd
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 sons wife [Sec. 64(1)(vi)]:- When the asset is transferred otherwise than (a) for adequate consideration
4.
138
4/7/2014
Contd
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 sons wife [Sec. 64(1)(viii)] :- It is transferred for the immediate or deferred benefit of his/her sons wife. The transfer is without adequate consideration.
6.
139 4/7/2014
Contd
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.
8.
140
4/7/2014
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.
141
4/7/2014
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.
142 4/7/2014
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.
143 4/7/2014
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.
4/7/2014
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.
145 4/7/2014
Index
146
4/7/2014
Step 1
Step 2
Inter-head adjustment in the same assessment year. Step 2 is applied only if a loss cannot be set off under Step 1.
Step 3
Carry forward of loss. Step 3 is applied only if a loss cannot be set off under Steps 1 and 2.
147
4/7/2014
Unabsorbed Depreciation
While dealing with unabsorbed depreciation one should keep in mind the following points:
Depreciation allowance of the previous year is first deductible from the income chargeable under the head Profits and gains of business or profession.
Step 1
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.
If depreciation allowance is still unabsorbed, it can be carried forward to the subsequent assessment year(s) by the same assessee. Step 3
4/7/2014
148
149
4/7/2014
150
4/7/2014
72
Losses under Profits & Gains of Profits of any Business or Profession, except Business/Profession (including speculation business profits speculation business loss. also) Losses in speculation business. Income business from
73
speculation 4 years from the end of the relevant A.Y. 8 years from the end of the relevant A.Y. and 4 years from the end of the relevant A.Y.
74
Capital Gains
74A
Loss incurred in activity of owning Income from owning maintaining race horses and maintaining race horses.
4/7/2014
Index 151
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 HRA 3)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/=
152
153
4/7/2014
Meaning
Agricultural Income means:
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. 154 4/7/2014
1.
35%
65%
Sale of coffee grow and cured by seller Sale of coffee grown, cured, roasted and grounded by seller in India with or without mixing chicory or other flavoring ingredients
25%
40%
75%
60%
4/7/2014
155
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]
The agricultural income of the taxpayer exceeds Rs. 5,000. Condition 3 156
4/7/2014
Contd
Income-tax will be computed for the assessment year 2009-10 in the following manner:
Step 1 Step 2 Net agricultural income is to be computed as if it were income chargeable to income-tax. Agricultural & non-agricultural income of the assessee will then be aggregated & income-tax is calculated on the aggregate income. The net agricultural income will then be increased by the amount of exemption limit and incometax is calculated on net agricultural income, so increased, as if such income was the total income of the assessee. The amount of income-tax determined at Step two will be reduced by the amount of income-tax determined under Step three. Find out the balance. Add surcharge; education cess & SHEC. The amount so arrived will be the total income-tax payable by the assessee.
Step 3
Step 4
Step 5 Step 6
157
4/7/2014
Index
158
4/7/2014
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.
159 4/7/2014
160
4/7/2014
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).
161
4/7/2014
Contribution to Pension Scheme of Central Government or any Other Employer [Sec. 80CCD]
Deduction in respect of: Deduction is available in
scheme; and Contribution made by Central Govt. or any other employer to assesses A/c.
extent of aggregate of the following 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 assesses A/c or 10% of salary, whichever is lower
162 4/7/2014
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.
163
4/7/2014
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).
164
4/7/2014
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.
165
4/7/2014
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.
following
sum actually paid; or Rs. 40,000 (Rs. 60,000 in case of a senior
citizen).
166 4/7/2014
assessee in the previous year, out of his income chargeable to tax, by way of interest on loan taken
for the higher education of his relative. 100% of the amount of interest on such loan Deduction will be admissible.
167
4/7/2014
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.
168 4/7/2014
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.
169
4/7/2014
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.
170
4/7/2014
Other Deductions
Deduction 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]
171 4/7/2014
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]
172 4/7/2014
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]
Index
173 4/7/2014
174
4/7/2014
175
4/7/2014
Due Dates
Due Date Amount payble by Corporate Assessee Amount payble by NonCorporate Assessee
On or before September 15 of Up to 45 percent of advance Up to 30 percent of advance the previous year tax payable tax payable
On or before December 15 of Up to 75 percent of advance Up to 60 percent of advance the previous year tax payable tax payable
On or before March 15 of the Up to 100 percent of advance Up to 100 percent of advance previous year tax payable tax payable
176
4/7/2014
An assessee who is Interest is Simple interest @ 1 From April 1 of the assessment year liable to pay payable on percent for every to the date of determination of advance tax, has accessed tax month or part of income under section 143(1) or failed to pay such month where regular assessment is made tax to the date of regular assessment
An assessee who Assessed tax has paid advance minus advance tax but the amount tax of advance tax paid by him is less than 90 percent of assessed tax.
Simple interest @ 1 From April 1 of the assessment year percent for every to the date of determination of month or part of income under section 143(1) or month where regular assessment is made to the date of regular assessment
4/7/2014
177
Index
178 4/7/2014
179
4/7/2014
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 law b)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
180
4/7/2014
182
4/7/2014
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.
183
4/7/2014
Index
184 4/7/2014