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    Tax Tax Document Transcript

    • Acknowledgement IIt gives us heartily pleasure and great satisfaction to presentt gives us heartily pleasure and great satisfaction to present this project. We have endeavored to present this project in mostthis project. We have endeavored to present this project in most suitable and lucid form. We completed this project in every mannersuitable and lucid form. We completed this project in every manner by putting equal efforts & hard work before due date.by putting equal efforts & hard work before due date. At the outset of this project we would like to thank ourAt the outset of this project we would like to thank our Prof.Prof. Nishikant SirNishikant Sir for encouragement and giving us opportunity to dofor encouragement and giving us opportunity to do such an innovative project in the subject ofsuch an innovative project in the subject of Income From OtherIncome From Other SourcesSources.. We have taken special care to make this project perfectWe have taken special care to make this project perfect understanding tools of other sources income, its structure Performa &understanding tools of other sources income, its structure Performa & deep knowledge.deep knowledge. We would like to thank our group members for putting equalWe would like to thank our group members for putting equal efforts & hard works for preparation of this project. And also thanks toefforts & hard works for preparation of this project. And also thanks to our library staff for giving required books whenever demanded.our library staff for giving required books whenever demanded. We hope that this project gives you a great satisfaction &We hope that this project gives you a great satisfaction & pleasure. Finally we welcome the comments & suggestion from youpleasure. Finally we welcome the comments & suggestion from you & students, which will helps us to improve the next project.& students, which will helps us to improve the next project.
    • . About tax The Indian Taxation Enquiry Commission has defined Taxation, as "Taxes are compulsory contribution towards common expenditure without any guarantee of definite measured service in return." Tax is compulsory payment levied on the person or companies to meet the expenditure incurred on conferring common benefit upon the people of a country. A fund raised through various taxes is referred as tax revenue. On the other hand public income received through administration, commercial enterprises, gifts, grants etc. are sources of non tax revenue of the government. According to the Dalton" A tax is compulsory charge imposed by public authority." There are two important aspects of taxes 1) Tax is compulsory payment and no one can to refuse to pay it. 2) Proceeds from taxes are used for the common benefit or general purpose of the state. Taxes v/s fees Fesses are compulsory payment made by the people who receive a particular benefit or service in return from the government. The government for providing certain services to the people charges fees. for e.g. court fees, pass port fees, License fees for issuing the driving license, import license etc. The amount of the fees is always less than the cost of services rendered by the government in return. The government pays fees in return. Those who receive some special advantages pay fees. There exists quid pro quo so fees are differs from taxes A good tax system must fulfill certain principle if it is raised adequate revenue and fulfill certain social objectives. According to cannon of equality every person should pay to the government according to his ability to pay that is in proportion of the income or revenue he gets. In other words we can say that the burden of taxation must be distributed equally in relation to ability of taxpayer. Equity demands that rich people should bear a heavier burden of tax and poor people bear a less burden.
    • INCOME FROM OTHER SOURCES. Introduction: Income from other sources is the last head of the income under which the total income is computed and assessed. Income of every kind, which is not exempted from tax, must be charged to tax by classifying under a proper head of the income. Any such income if it cannot be classified or cannot be included under the head of salaries, income from house property, profit or gain of business or profession and capital gains, shall be included under the head 'income from other sources' as a matter of last resort. Thus, this is a residual head of the income. DEDUCTION ALLOWABLE WHILE COMPUTING 'INCOME FROM OTHER SOURCES [U/S. (57)] 1) In case of income by way of the dividend and interest on securities. a) Collection charges: Any reasonable sum paid for the collection or realization of dividend or interest e.g. bank charges or bank commission or where person holds a number of investments, salary paid to a person in charge of collecting or banking dividend or interest. It should be noted that the expenses so claimed, as deduction should be reasonable. b) Interest on borrowed capital. Interest on loans borrowed for purchasing shares and securities is allowed as a deduction. 2) In case of income from hire: Where the assesses gives on hire machinery, plant or furniture belonging to him, where is not his regular business, such hire income is taxable under this head. Similarly, where an assesses lets on hire these things along with building, and the entire rent income is inseparable, such hire income is also taxed under this head. If the thing activity is a regularly, the income would be dealt with, not under this head, but under the head 'profit and Gains of business.' If it is assessed as 'income from other sources' the following deduction are allowable. Rent, Rates and taxes in respect of building. Current repairs to building and plant, machinery or furniture. Premium for insurance of building, plant, machinery or furniture. Depreciation.
    • 3) Deduction in respect of employee contribution towards staff welfare schemes. The employee 'contribution to provident fund, superannualation fund, employee state insurance scheme etc.is to be included in the income of the employer as seen above. The employee is in turn allowed deduction only in respect of such sums actually credited to employees account, before the due date. thus the employers failing to deposits within the due date such contribution collected from the employees is taxed on such amounts. 4) Standard Deduction in the case of Family pension. Family pension mean a regular monthly amount paid by the employer to a family members of an employee in the events of the employees death. In the case of the income in the nature of family pension, a deduction 1/3rd of such income of Rs. 15,000 whichever is less. 5) Any other Expenses for Earning Income Any other expenditure which is not in the nature of capital expenditure, is paid out or expended whollaly and exclusively for the purpose of making or earning such income for example- Expenses incurred by an author for preparation of manuscript of the book. Rent paid in respect of a building or premises sub let. Salary paid to clerk etc. For maintaining accounts in respect of income taxable under this head. Amount Not Deductible [Section 58] This section state the following amounts which shall not be deductible in computing the income chargeable under the head, Income from other sources' In case of any assessee- 1. Personal expenses of the assessee. 2. Any interest paid outside India which tax has not been deducted at sources in such cases, interest paid or payable will not allowed as deduction. 3. Any amount of taxable salary, paid outside India without deduction of tax art sources or no tax has been paid thereon, will not allowed as deduction. 4. Any expenditure at allowance in connection with income by way of winning from lotteries, crosswords puzzles, race including horse races, card game play win or another game of any sorts or from gambling or betting of any from or nature will not be allowed as deduction. However, incase of income from horse races, the expenditure incurred to maintain the horses shall be allowed as deduction to the assessee being the owner of the horses maintained by him for running in horses races.
    • EXEMPT INCOME 1) Amount received under a Life Insurance Policy section 10(10D) Any sum received under the life insurance policy including Bonus is exempt from tax. However amount received under a policy covered by section 80DDA or under Key man insurance policy is not exempt. 2) Daily allowance of M.P./M.L.A./M.I.C. Section 10 (17) This exempted is in respect of-  Daily allowance received by a member of parliament (M.P) or of a Legislative Assembly (M.L.A.)  Any allowance received by M.P. under the member of Parliaments (constituency allowance) rules 1986  Any notified allowance received by M.L.A. up to Rs. 2000 3) Awards in public interest section 10 (17A) The exemption is in respect of - a) Any payment made whether in cash or kind. b) As an award, institute in public interest by the Central/State Governments or any other body and approved by the central Governments. c) Or as a reward by the central, State Governments for such purpose as may be approved by the central Governments. 4) Payment from provident fund [u/s 10 (11)] Any payment from a provident fund to which the provided fund act 1925 applies or from any other provident fund set up by the central Governments and notified in the official Gazette (e.g. Provident Fund) is totally exempted from the tax. Important points relating to income from other sources. 1) Winnings from lotteries, crosswords puzzles, card game and other games, gambling or betting, races including horse races. The gross winning from lottery, crosswords puzzle, card game, gambling or betting of any nature, races including horse races (without deducting any expenses or allowances) shall be include in the income. 2) Fund of Employees Sums received by the assesses from the employees or deducted from their salaries as contribution to any provident fund or superannuating fund or any fund under Employees State Insurance Act, 1948 or any other fund for the welfare of such employee, but if the employer deposits the amount within the prescribe time in the employees fund account, it will not be taxes in the employer's hands. It will be included in his income and then it will be deducted.
    • 3) Hire of Machinery, Plant etc. Income from machinery, plant and furniture belonging to the assesses and let on hire. If his income is not chargeable tax under the head 'profit and Gain of Business or Profession', it will be taxed as income from other sources. If the business as a whole is let out, the income (rent) would be assessable as income from other sources. If only the commercial assets are leased out, the income would be income from business. 4) Hire of Machinery, Plant and Building not separately. If an assesses lets on hire machinery, plant or furniture belonging to him and also building and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income tax under the head 'Profit and Gains of Business or Profession', it will be taxed under the head "other sources' 5) Interest on Kisan Vikas Patra Interest on such Kisan Vikas Patra is taxable under the head of 'other sources' Interest accrued every year is calculated on the basis of the table. NO deduction under the section 80L is allowable on this interest. 6) Interest on National saving Certificates VIII issues Interest on NSC is a taxable under the head 'other sources' It is calculated on the basis of a table. Such interest is eligible for deduction u/s 80L. Besides the above, there are some other incomes, which are also chargeable under the heads “income from other sources”. For example: (1) Any fees or commission received by an employee from a person other than his employer. (2) Any annuity received under a will. It does not include an annuity received by an employee from his employer. (3) All interest other than interest on securities, e.g., interest on bank deposits, interest on loan, ect. (4) Income of a tenant from sub-letting the whole or a part of the house property. (5) Remuneration received by a teacher or a lawyer for doing examination work. (6) Income of royalty. (7) Director’s fees. (8) Rent of land not appurtenant to any building. (9) Agriculture income from land situated outside India. (10) Income from markets, ferries and fisheries, ect. (11) Income from leasehold property. (12) Remuneration received for writing articles in journals. (13) Income from undisclosed sources: (i) Cash credits, which are unexplained (sec. 68). (ii) Unexplained investments (sec. 69).
    • (iii) Unexplained money (sec. 69a). (iv) Unexplained expenditure (sec. 69c). (v) Amount borrowed or repaid on hundi otherwise than through an account payee cheque drawn on a bank. (14) Interest received by an employee on his own contributions to an unrecognized provident fund. (15) Casual income. (16) Salary of a member of parliament, member of legislative assembly or council. (17) Interest received on securities of co-operative society. (18) Family pension received by the window and heirs of deceased employees. However, pension received by the window of an employee of the u.n.o.is exempt. Similarly the family pension of gallantry awardees is exempt u/s 10(18). (19) Amount withdrawn from deposit in national saving scheme, 1987 on which deduction u/s 80cca has been allowed including interest there on. (20) Director’s commission for giving guarantee to bank. (21) Director’s commission for underwriting shares of a new company. (22) Insurance commission not chargeable under the head ‘business or profession’. (23) Gratuity received by a director who is not an employee of the company. (24) Tips received by a waiter or taxi-driver, not being given by his employer. (25) Tax paid by an Indian company on behalf of a foreigner who was sent to india by a foreign company with whom the collaborating company had entered into an agreement, was income of the foreigner taxable under the head ‘income from other sources’ because the assesses was not an employee of Indian company. (26) Receipts by cricketers selected to play for India (a) Test matches in India. Amount actually received by the player from the cricket council board is taxable after allowing a deduction of an amount equal to 75% of such receipt in respect of reasonable expenses incurred to earn such income. (b) Other matches in India. Generally. the entire receipts by the player (from the board) will be deemed to have been spent for earning such income and hence not taxable. (c) Matches outside India. A player will be allowed a deduction of 50% of the amount received for playing in foreign countries and the balances will be taxable.
    • Illustration 1: Mr. William is a Non-resident. He was earned following Amount during the previous year ended 31st March 2003 (a) Income from agriculture land in sri lanka Rs. 1,50,000 received in sri lanks. (b) Dividend from foreign companies received Rs. 5,000 (c) Dividend from Indian companies Indian companies received 1) Final dividend from Sagar construction Ltd. Rs. 15,000 2) Interim dividend from Reliance Ltd. Rs.12,400 was actually paid up by the company on 30th June 2003. d) Winning from the lotteries Rs.1, 00,000 (t.d.s. Rs.35, 000) e) As on 1st April 2001 his investment was as following:-  10% Mumbai Municipal Debenture Rs. 50,000/-  15% Debenture in Telco Ltd. of Rs. 1,00,000/-  8% ports trust Bonds of Rs. 30,000  9% Maharashtra Government loan of Rs. 40000/- Compute the Gross total Income of Mr. William for the assessment year 2003-04 Name of Assessee-Mr.William Legal Status-Individual Residential Status-Non-Resident P/y-2001/02 Computation of Income A/y 2002-03 Particular Rs. Rs. Dividend from Foreign Companies Winning From Lotteries Mumbai Municipal Debenture Debenture in Telco Ltd. Port Trust Bond Maharashtra Government Loan 5,000 1,00,000 5,000 15,000 2,400 3,600 Net Taxable Income From Other Sources 1,31,000 Note:- 1) Income From Agriculture from Sri Lanka it is an Income Accrued arises received out of India. Hence it is exempted because he is Non-resident 2) Income from Indian Companies not taxable even to the Nonresident.
    • Illustration:2 Mrs. "Tina Waz" submits the following particulars for computations of his Income chargeable under the head of Income from other sources. a) Dividend from Pallavi Ltd. a Foreign Company: - Net Rs. 10,000 Tax Deducted at sources: Rs.4, 000, Interest paid on loan taken for the purpose of investment in share of Pallavi Ltd. Rs. 1,500. Collection charge Debited by bank for realization of the Dividend Cheque Rs 100/- B) Rent for letting plant & Machinery on hire's Rs. 60,000. Collection charge in respect of rent Rs. 3000 Fire Insurance Premium Rs4000. Repairs and Maintenance Rs 2,500. Depreciation as per Income Tax rules Rs. 10,000 d) Winning From Horse Races Solution: Name of Assessee-Mrs "Tina Vaz" Legal Status-Individual Residential Status- 'R' & 'OR' P/y-2001/02 Computation of Income A/y 2002-03 Particular Rs. Rs. I Dividend from Foreign Company Gross Dividend (10,000 + 2,000) (-) Deduction (Interest on loan) (-) Collection Charges 12,000 1,500 100 10,400 II Hire charges of Machinery (-) Deduction 1. Collection Charges 2. Fire Insurance Premium 3. Repairs & Maintainans 4. Depreciation as per Income Tax rule 60,000 (3,000) (4,000) (2,500) (10,000) 40,500 III Winning from Horse Race 5,000 Taxable Income from other sources. 55,000
    • Illustration:2 Mrs. "Tina Waz" submits the following particulars for computations of his Income chargeable under the head of Income from other sources. a) Dividend from Pallavi Ltd. a Foreign Company: - Net Rs. 10,000 Tax Deducted at sources: Rs.4, 000, Interest paid on loan taken for the purpose of investment in share of Pallavi Ltd. Rs. 1,500. Collection charge Debited by bank for realization of the Dividend Cheque Rs 100/- B) Rent for letting plant & Machinery on hire's Rs. 60,000. Collection charge in respect of rent Rs. 3000 Fire Insurance Premium Rs4000. Repairs and Maintenance Rs 2,500. Depreciation as per Income Tax rules Rs. 10,000 d) Winning From Horse Races Solution: Name of Assessee-Mrs "Tina Vaz" Legal Status-Individual Residential Status- 'R' & 'OR' P/y-2001/02 Computation of Income A/y 2002-03 Particular Rs. Rs. I Dividend from Foreign Company Gross Dividend (10,000 + 2,000) (-) Deduction (Interest on loan) (-) Collection Charges 12,000 1,500 100 10,400 II Hire charges of Machinery (-) Deduction 1. Collection Charges 2. Fire Insurance Premium 3. Repairs & Maintainans 4. Depreciation as per Income Tax rule 60,000 (3,000) (4,000) (2,500) (10,000) 40,500 III Winning from Horse Race 5,000 Taxable Income from other sources. 55,000