Introduction

Tax was introduced for the first time in 1860 by sir James Wilson in order to meet the losses sustained by the Govt on account of Milatry Munity of 1857.

FIVE HEADS-Income Tax Act 1961

Income from Salaries Deductions = Assessable Income Income from House Property Deductions=AI Profit of Business or Profession-Deductions =AI Capital gains Deductions =AI Income from other sources Deductions=AI

Gross Total Income ___________ Less Ded u/s 80c to 80u Total Income ___________ Gross amount of tax payable to be calculated on this income according to rates prescribed.Tax rebate u/s 88e is to be deducted.

Assessment Year Sec2(9)

Period

of 12 months commencing on the first day of April every year & ending 31st march next year. Assesse liable to pay tax on previous income during following assessment year. Previous Year Financial year immediately preceding assessment year.

Assesse Sec2(7)
An

assesse is a person by whom any tax or any sum is payable under this and include: Every person in respect of whom any proceeding under the act has been taken for assessment of his income, Every person who is deemed to be an assesse under any provision of the act. Every person who is deemed to be an assesse in default under any provision of the act.

Person- Sec2(31)
Individual

,HUF, Company, Association of persons ,BOI, Local Authority, Artificial Judicial person not falling within prescribed clauses.

Types of tax
Proportional

tax Flat tax rate system.% of tax remains same . Progressive tax-Higher Income higher tax rate. Regressive tax-Rate of taxation decreases as the base increases. AD-Volerm and specific duty- Lieved on imports.Ad-Volerm as a %of price &specific as amount fixed per unit.

Heads of Income
Salaries

(sec15 to sec17) Income from house property(sec22 to 27) PGBP ( sec28 to 44D) Capital Gain (sec45to55) Income from other sources (sec56 -59)

Salary
Salary include: Wages Annuity or pension Gratuity Perquisite or profit in lieu of salary Any advance of salary but not loan for purchasing a car, cycle or scooter Any payment received by an employee in respect of any period of leave not availed for Employers contribution in excess of 12% of employee salary and int on PF in excess of 9.5% Taxable portion of transferred balance Contribution made by Central govt in previous year to accpunt of employee under pension scheme.

Allowance
Payment

in Cash made by employer other than Salary is called allowance. Taxable Taxable upto specified limit Fully exempted allowance

Taxable Allowance
Dearness Allowance Fixed Medical Allowance Tiffin Allowance Servant Allowance Non Practicing Allowance Govt Doctors Hill Allowance less than 1000 m height

level. Warden Allowance Deputation Allowance Overtime Allowance CCA,Health,Marriage Allowance

from sea

Fully Exempted Allowance

Foreign

Allowance : E.g Overseas Allowance, Car allowance, Education Govt Employees Sumptuary Allowance : Allowance from UNO : Per- Diem Allowance :

Allowance exempt upto specified limit

HRA Rule 2a at least of the following: i) HRA actually received ii) Excess of rent paid by assesse over 10% of salary due to him for relevant period. iii) If accomdation is situated at Mumbai,Kolkatta,Delhi or Chennai 50% of salary due to assesse else 40% iv) Salary include BS+DA include commission based on fix % of turnover v) Relevant period menas occupied period

Entertainment Allowance (Sec15Ded(Included ,Sec16(ii) )

Only

for Govt Employees 1/5 of basic salary 5000 Actual entertainment allowance Whichever is less

Special Allowance (sec10(14) )

CENTRAL

GOVT

Exclusively incurred for performance of official duties

Those which are to meet personal exp

Exempt upto extent actually spent

Exempt upto specified limit

Exp.Exclusively incurred for performance of official duties

Travelling

Allowance Daily allowance Conveyance Allowance Helper allowance Academic allowance Uniform allowance

Special allownce which are to meet personal exp

Special

Compensatory Allowance (Tribal area,Scheduled area ) :Rs 200 p.m in MP,Tamil Nadu,U.P,Karnatak,Tripura,Assam, West Bengal. Any allowance working in Transport system: 70% of such allowance, Rs 10000p.m(whichever is less) Children Education Allowance: Rs 100 p.m maximum of 2 children. Children Hostel allowance: Rs 300 p.c maximum 2 child Transport/ Underground Allowance: Rs 800 p.m

Special allowance
To

the members of armed forces Special hill compensatory allowance High Altitude Allowance CategoryI Uncogenial Climate Allowance Snowbound Area Allowance Avalanche allowance Border Area allownce Remote Allowance Category II Disturbed or difficult area Allowance (TABLE..)

Ques
Compute

taxable allowance: Climate Allowance : Rs 700 p.m Snow bound Allowance : Rs 300 p.m Disturbed Area Allowance : Rs 800 p.m Border Area Allowance : Rs 600 p.m Hostel allowance for 2 children : Rs 800 p.m Education Allowance for 3 children : Rs 300 p.m

Perquisite
Any benefit attached to an office or position in addition to wages or salary. It may be in cash and in kind.
Perquisite taxable in case of specified employees

Perquisite taxable in all cases

Tax Free Perquisite

Perquisites taxable in case of all employees

Rent free accommodation [Sec 17(2)(i)] Concessional Rent [Sec 17(2)(ii)] Any sum paid by employer on part of employee e.g [Sec 17(2)(iv)] Any sum payable by the employer other than RPF, Deposit Linkedetc to effect insurance. [Sec 17(2)(v)] Sweat Equity[Sec 17(2)(vi)] Superannuation fund exceeding Rs 100000. [Sec 17(2)(vii)] Other fringe benefit as described [sec17(2)(viii)]

Other fringe benefit as descibed [sec17(2)(viii)]

Interest Free loan Holiday Enjoyment Free Food Gift Expenses charged to credit card Club Expenses Use of a moveable asset Transfer of a moveable asset

Perquisites Taxable in case of Specified Employee

Employee having substantial interest A Director Employee Any other Employee- Rs 50000

SpecificTaxable Perquisites

Sweeper,Watchman,Gardener and Personal Attended. Gas ,Electric Enenrgy and water Education facility to the members of employee household Transport facility Facility of car

Tax free Perquisite

Medical benefits Tea or snacks provided in the factory Residential accommodation provided at site Exp on telephone Employees contribution to staff Group insurance scheme Scholarship to employees to employees or their children paid by employer Conveyance Refresher course Tax paid by the employer on fringe benefit Perquisite to Govt. employee posted abroad Rent free house and conveyance facility provided to Supreme court and high court judge,Parliament leader. Laptop for personal use Int free loan upto 20000 Transfer of a moveable asset after using 10 yrs Periodicals and Journals Leave travel concession

Sweeper,Watchman,Garde ner and Personal Attended Rule 3(3)

Salary paid less paid by employee

Gas ,Electric Enenrgy and water (Rule 3 (4)

Amount paid to agency or supply of employer Less: Amount recovered from employee

Education facility to the members of employee household(Rule 3(5)

a) Education facility provided to the children of the employee: i) If cost per child <1000p.m=Nil ii) If >1000p.m- In similar institution less mount recovered b) Education facility provided to other members of householdexp incurred in similar institution less amount recovered

Valuation of Motor Car

car owned & hired by employer: Included in specified employee. If car owned by employee: Both Per month means not a part
If

Car owned or hired by employer

For private purpose For official purpose-NIL

Actual amount in running and maintence ADD: Remunaration to chauffer ADD:Dep @10% p.a of actual cost Less: Amount charged

Car taken on Lease

Amount spent on maintaining car ADD: Remuneration to chauffer Less: Amount charged from employee

Car owned or hired by employer

Car is used partly in the performance of duties and partly for personal purpose a) If entire expenses employer: Small car (cc<1.6lt) Rs 1800pm Large Car (cc>1.6lt) Rs 2400 pm If chaffuler add Rs.900 pm

b) If entire expenses employee

Small

car (cc<1.6lt) Rs 600pm Large Car (cc>1.6lt) Rs 900 pm If chaffler add Rs.900 pm

Employee uses more than one car for private purpose

In respect of one car : Small car : Rs 1800 p.m Large car : Rs 24oo p.m If Chaffuler Rs 900 p.m b) For another car assume as it is for private purpose.
a)

Car owned by employee

Reimbursed by employer official purpose- NiL Where reimbursement for personal purpose-value=amount reimbursed Where reimbursement is partially for personal Small car Actual amount incurred less Rs1800 p.m+900 for chaffuler Large car- Actual amount incurred less Rs2400 p.m+900 for chaffuler

Valuation of Residential Accommodation [Rule 3(1)]

Govt.Employee : Unfurnished: Amount determined as per Govt Rules. Furnished :Amount determined under a) Add: 10%p.a cost of furniture Less: Amount paid by employee -----1)

Other Employees
A) Accommodation owned by employer Unfurnished House i) Cities having population exceeding 25 lac -15% of salary for the period during which accommodation occupied by the employee ii) Cities having population exceeding 10lac but not more than 25 lac-10% of salary for the period during which accommodation occupied by the employee Iii) other places: 7.5%of salary for the period during which accommodation occupied by the employee

Accommodation taken on lease/rent by the employer

Actual

lease rental or 15% of salary for the period during which accommodation occupied by the employee whichever is less Furnished house Value of unfurnished house Add: 10% cost of furniture

Accommodation provided in a hotel

Provided

on his transfer & aggregate does not exceed 15 days- NIL In any other case 24 % of salary or actual charges payable whichever is less

Accommodation provided at site

Sites

being of temporary nature having plinth area not exceeding 800square feet located not less than 8km away from the local limits of any municipality or cantonment board Located in a remote area value taken as Nil Remote area: located at least 40 km away from a town having popn not exceeding 20000

Accommodation at the time of transfer

Transfer having two houses valuation of house would be taken as which has less value and for 90 days else it is charged for both the houses. Salary include pay/DA/Bonus/Commission does not include Employer contribution to PF Conveyance allowance Travellling allowance for tour Lumpsum payment for VRS,gratuityetc. Value of perquisite specified u/s 17(2)

Ques
Fair

rental value 70000, salary600000 A) House is situated in a city whose population more than 25 lac B) House is situated in a city whose population more than 10 lac

Ques
House

on Rent Rent 60000 Salary 500000 Cost of furniture60000 Rent charged from employee per month1000

Ques
X

apponted in Kolkatta ,stayed in a hotel for 25 days Room rent 1000 per day Salary Rs365000 Employer recovered rs 100per day

Interest free or concessional loan(Rule 3(7)(i)

Aggregate if less than 20000 NIL Loans for other Purpose: Interest compounded at rate charged per annum by SBI and on maximum outstanding balance as reduced by the int if actually paid Maximum outstanding monthly balance means aggregate outstanding balance for each loan as on last day of each month. Loans for cancer, Tuberculosis- Nil. However no exemption medical scheme

Ques
Ram

borrowed Rs 100000 on 1/5/2010 from his employer to purchase a car. He started repayment of loan w.e.f 1/6/2010 Rs 1000 p.m. In the following circumstances Determine taxable amount of int for A.Y 2011-12 assuming rate of int on car loan charged by SBI is 10% p.ab i) Employer does not charge any int on loan ii) Employer charges int @5% on max outstanding monthly balance.

Holiday Enjoyment (Rule3(7)(ii)

reimbursed by employer less recovered by employee If employer maintain and uniform Nil else as other agencies
Amount

FREE FOOD(Rule 3(7)(iii)

Tea

and snacks during working hrs NIL Free Food and non alcoholic beverage at offshore area NIL Free Food and non alcoholic beverage: At working hrs or through vouchers non transferable- Amount incurred reduced by recovered from empolyee and Rs 50 per meal.

GIFT(Rule 3(7)(iv)
If

gift on ceremonial occasionsum equal to such gift. If gifts on religious occasion 5000 exempt. However, Gift Cheque shall not be exempt

Expenses charged to Credit card ( Rule 3(7) (v)

Amount

incurred (membership fee,annual fee less employee recovered. If wholly for official purpose NIL

Club Expenses(Rule 3(7)(vi)

Amount from employer less employee, if corporate membership-not include initial membership fee. Exceptions:Expenditure wholly for business purpose and uniformally.NIl

Use of Movable Asset(Rule 3(7)(vii)

belonging to the employer10%per annum of actual cost of such asset.For more than 10 yrs Nil Asset taken on rent- Rent paid less by employee.
Asset

Transfer of Movable asset(Rule 3(7)(viii)

Computer and electronic items: Actual Cost less dep @ 50% of such cost for each completed year on the basis of WDV during which asset is put to use. (No White goods) Motor Car: 20%
Any

other asset : 10% on fixed Method Less: Amount recovered from employee.

Provident Fund
Fund

is credited by the amount deducted from salary of employee every month at certain rate & employer also make contribution to this fund. Four Kinds: Statutory PF Recognised PF Unrecognised PF Public Providend Fund

 Statutory

PF - Indian PF Act 1925 applies. . Recognized PF PF Act 1952 applies. Recognized by Chief Commissioner or Commissioner of Income Tax Unrecognized PF PF Commissioner Public Provident Fund Subscribe between 500 -70000. Sec 80 C deduction Full withdrawl after 15 yrs Amount exempted from Income Tax

Amount which is included in income

Statutory PF Employee own contribution included. RPF Unrecognized PF Employee own contribution included. Employer contribution and Int not taxable. His own contribution to the fund Employer contribution in Employer contribution and excess of 12% of Int not taxable. employee salary. Int in excess of 9.5%

SPF

RPF

UPF

100000 Employee Cont 100000 Employee Cont Employee own con not included

LUMPSUM PAYMENT
SPF Neither included in employee income nor taxable RPF Neither included in employee income nor taxable U.RPF Employer share and int thereon included in salaries Amount of employee subscription exempt

Int on employee subscription included under Income from other sources.

 Employer

contributes for retirement purpose 15 % contribution 25% at the age retirement 75% annuity Int like PF taxable Retirement benefit tax free. Exemption at the death, commutation of annuity Aggregate 1lac tax free for employees Taxable at the rate on an average for last

Superannuation fund

Income from salaries

Gratuity (Sec10(10) Pension and Commuted value of pension (Sec10(10a) Earned Leave salary (Sec 10(10AA) Compensation on retrenchment (Sec10(10B) Compensation on VRS ( Sec10(10c) Amount from PF (Sec10(11)(12)

Govt or Local Authority employee Exempt from Tax

Gratuity
Non Govt Employee Gratuity Act 1972 Least of the following is exempt: i) 15 days salary for every completed year of service ( 7 in establishment)

Not covered by Act

Least of the following is exempt: i) One half months salary for each year of completed service ii) Rs 350000 iii) Gratuity actually received

Gratuity from more than one employer

The

aggregate amount of exemption shall not exceed the maximum absolute limit :350000.If gratuity received in any earlier year and then from another in later year the maximum limit is to be reduced by the amount of gratuity which has been exempted earlier,

PENSION
under head Salaries whether Govt or Non Govt, whether accrued outside INDIA. Commuted Pension : Lumpsum payment forgoing pension.
Chargeble

Commutation of Pension i) Public sector undertaking-NIL

Any other employee: a) Any payment of commutation of pension is exempted to the extent that it does not exceed commuted value of 1/3 or normal pension if gratuity is their else iii) Any payment received by an individual in commutation of
ii)

Ques
Mr.

X got a pension of Rs 2000 per month from a company .During his previous year he got 2/3 pension commuted and received Rs 123000. Compute exempted amountif gratuity is their and if not

Earned Salary Sec10(10AA) :Encashment during Service

taxable in full Encashment after Retirement:- Exempt to the following:i) Govt Employee: Exempt ii) Non Govt employee: Any payment of EL received is exempt to least of the following:-

Sh. Amarnath was employed in a company. He took VRs after completing 25 yrs of service. On 1st Jan 2007 his salary was Rs.6000 p.m.. In this company two months leave accrued every year. Compute exempted.Total leave availed during service: A-10 , Actual Recevd- Rs240000 B-NIL, Actual Recevd- Rs300000 C-30 months, Actual Recevd-

Ques

Retrenchment Compensation (Sec10 (10B)

Least

of the following is exempted: A) An amount calculated in accordance with Sec25F (b) of Industrial Dispute act 1947 B) Rs 500000 C) Actual Compensation Received - Compensation will be calculated at 15 days average pay for each year of completed service and any part in excess of 6 months.

If workman is getting monthly salary then on the basis of salary of last three months. b) Daily wages on the basis of wages of last 12 working days c) Weekly wages on the basis of wages of last 4 weeks BS include DA .Allowances, House accommodation or amenity, any travel concession but exclude any bonus,gratuity
a)

Average Pay

Ques
Mr. X .getting Rs 3000 pm as salary and Rs 600 as DA since 1st Jan 2004. His service terminated on 1st July 2007and was paid Rs 48000 as compensation. Compute exempted amount

Compensation on VRS (Sec 10(10c)

In case of public sector company, a scheme of VRS shall be exempt to least of the following:-

Amount equal to three months salary for each completed year. Of service. ii) Salary at the time of Retirement multiplied by the balance months of service left before , the date of his retirement on superannuation. iii) Amount received iv) Rs. 500000. v) Salary means Basic salary+ DA + Commission on fix % of turnover.
i)