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Income Tax

From
CA Sshailesh L. Prajapati
Sshailesh L. Prajapati CA, MBA ( Finance)

1
Contents of the Course
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Framework & Basic Principles
Heads of Income
Exempt Income ( Section 10 )
Ta...
Section 4 as charging section

Income Tax

Tax on Income

of a person

charged annually

- Income
- Scope of Income
- Sche...
Person & Assessee
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Individual
Hindu Undivided Family
Company
Firm
AOP/BOI
Local Authority
For Income Tax t...
Previous Year
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Generally
◦ 1st April to 31st March

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In case of new business
◦ Start of business to 31st March

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Ass...
Charged annually
Each year an independent year
 Common Financial Year
 Assessment Year
◦ period of twelve months startin...
Person – Individual, HUFs, AOP/BOI
For the Assessment year 2013-2014
 Slab-wise Tax Rates
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First Rs. 2,0...
Person – Individual (Senior Citizen > 60 years)
For the Assessment year 2013-2014
 Slab-wise Tax Rates
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Person – Individual (Senior Citizen > 80 years)
For the Assessment year 2013-2014
 Slab-wise Tax Rates
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Fi...
Person – HUF - Concept
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Mr. A - Mrs. A
◦ Mr B (son) & Mrs. B
 Mr C (grandson) & Mrs. C
 Mr D (greatgrandson) & Mrs D
...
Person – Company
Distinct entity from shareholders/ directors
 Directors’ remuneration deductible
 Dividend liable for d...
Company- MAT
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If book Profit does not exceeds Rs. 1 crore
◦ IT- 18.50% of Book Profit + EC- 2% and SEC- 1%
◦ Effec...
Person – Firm/ LLP
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Distinct entity for taxation but no separate legal status
“Agreement” & “Business” are ...
Income/Revenue Receipts & Capital Receipts
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Revenue Receipts are always considered as Income Chargeable to Tax unles...
Scope of Income
Particulars

R & OR R &
NOR

Income Received or deemed to be
received in India

Taxable Taxable Taxable

I...
Residential Status – Individuals- Section 6
Basic Conditions: To satisfy atleast one condition.
 1. He is in India in the...
Residential Status – Individuals- Section 6
Resident but Not ordinary Resident:
◦ An Individual who satisfies at least one...
Residential Status – HUF : Section 6(2)
Residential Status depends on ;
 The Location of control and Management;
 Reside...
Residential Status - Others
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Companies : Sec 6 (3)
◦ Indian companies
 Always resident in India

◦ Other companies
 Re...
Scope of Income
Income Accrued in India : It is chargeable to tax in all cases
irrespective of the Residential Status of t...
Income Deemed to be received: Sec-7
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Following income shall be deemed to be received in Previous Year;
 Employer’s cont...
Income Deemed to Accrue or Arise in India: Sec- 9
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Certain Income are deemed to accrue or arise in India even
though the...
Income Tax
Income From Salaries

Sshailesh L. Prajapati CA, MBA ( Finance)

23
Salaries: The beginners...
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Test: Employer – Employee Relation
Basis of Charge: Accrual or Receipt whiche...
Salaries: The beginners...
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Year of Chargeability
◦ Either on due basis or on receipt basis whichever is earlier
◦...
Deductions : Section 16
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Entertainment allowance : Sec 16 (ii)
It is not eligible for exemption but it only qu...
Exemptions : Section 10(5) to 10 (14 )
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Leave Travel concession : Section 10 (5)
Gratuity : Section 10 (...
Leave Travel concession : Section 10 (5)
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Value of Travel concessions or assistance ( read with Rule 2B)

Fare
◦ Based o...
Leave Travel concession : Section 10 (5)
Exemption shall not be available to > 2 surviving Children ( born
after 01/10/199...
Gratuity : Section 10 (10)
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Government Employees – Wholly Exempt

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Covered by the Payment of Gratuity Act

◦ Exemption...
Gratuity : Section 10 (10)
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Covered by the Payment of Gratuity Act, cont…
◦ Salary of 15 days is calculated by dividing ...
Gratuity : Section 10 (10)
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Not Covered by the Payment of Gratuity Act
◦ The least of above shall be exempt,

 Rs. 10,0...
Gratuity : Section 10 (10)
Gratuity received during the period of service is always Taxable
 Gratuity received from two o...
Pension : Section 10 (10A)
Uncommuted Pensions
◦ Periodic payment received by the employee
◦ Received by the retired emplo...
Pension : Section 10 (10A)
For Government employees, totally exempt
 For Non-Government employees:
◦ If employee is in re...
Leave Salary : Section 10 (10AA)
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Govt Employees : Exempt

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Non Govt Employees : Least of following is exempt.
◦ Cash ...
Leave Salary : Section 10 (10AA)
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Non Govt Employees :

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Leave salary received during the service is always Taxable to...
Other Retirement Benefits
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Retrenchment Compensation Sec 10 ( 10 B)

◦ Rs. 5,00,000
◦ Amount calculated under Industrial...
Voluntary Retirement compensation..
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Applies to an employee of the company who has completed 10 years
of...
Recognised Provident Fund : Section 10 (12)
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Accumulated balance due and become payable to an employee
shall be exempt i...
Table showing distinction – For Employee
Particulars

Recognised Provident
Fund

Unrecognised
Provident Fund

Employer’s C...
Approved Superannuation Fund: Section 10 (13)
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Any Payment from an ASF is exempt if it is made;
◦ on death of a benefici...
House Rent Allowance : Section 10(13A) (read with Rule 2A)
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HRA is exempt to the extent of the least of the following:
◦...
Special Allowance : Section 10(14)- Rule 2BB
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Following are the Allowances prescribed by CBDT as exempt to the
extent or...
Special Allowance : Section 10(14)- Rule 2BB
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Hill Area Allowance
Border Area Allowance
Tribal Area Allowance
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Valuation of Perquisites: Section 17 (2 ) & Rule 3
◦ Value of rent-free accommodation provided to the employee by
employer...
Valuation of Perquisites: Section 17 (2 ) & Rule 3
◦ The Value of any specified security or sweat equity shares allotted
o...
Specified Employees
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Following are the specified Employees for the purpose of Section 17
(2) (iii);
◦ A Director employe...
Valuation of Perquisites
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Rent Free/ Concessional Accommodation
◦ Central and State Government Employees:
 VOP= License...
Valuation of Perquisites
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Rent Free/ Concessional Accommodation
◦ Private Sector Employees : ( Accommodation taken on Le...
Valuation of Perquisites
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Rent Free/ Concessional Furnished Accommodation
◦ Value of Unfurnished accommodation as above
...
Valuation of Perquisites
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Obligation of an employee paid by the employer
 Payment for Gas, Electric Energy, Water Suppl...
Valuation of Perquisites
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Service of Sweeper, Gardner, watchman or personal
attendant :
◦ Not taxable if the employee is...
Valuation of Perquisites
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Education facility to employees family members
◦ Not taxable if the employee is a non- specifi...
Valuation of Perquisites
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The value of any other fringe benefit or amenity as
may be prescribed by the CBDT

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Interest...
Valuation of Perquisites
Mode of valuation

Perquisites in respect of use of Movable Assets

Computer/
Laptop or
Car

Any ...
Valuation of Perquisites
Mode of valuation

Perquisites in respect of sale of Movable Assets
Electronic Items/
Computers

...
Valuation of Perquisites
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Fixed Medical Allowance is always taxable
Medical Facilities Exempt if
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In a hos...
Valuation of Perquisites
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Free Meals
◦ Actual Cost
◦ Exempt if
 Meals/ Refreshments during office hours at office premi...
Valuation of Perquisites
Club Membership
◦ Actual Payments
◦ Exemption for initial corporate membership fees
◦ Not a perqu...
Valuation of Perquisites
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Valuation of perquisites in respect of
traveling, touring, accommodation
◦ Where such facility...
Valuation of Perquisites
Motor Car used for official purposes is not a perquisite
 Motor Car used for personal purposes –...
Motor Car Perquisite
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Car is owned by the employer
< 1600 c.c.

Expenses by the employer

1800

> 1600
c.c.
2400

Expens...
Computation Taxable Salary- General Format
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Basic Salary (including Advance Salary )
Profit in Lieu of S...
Income Tax

Income from House Property

Sshailesh L. Prajapati CA, MBA ( Finance)

65
Chargeability
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Annual Value of Property
Consisting of any Building or lands appurtenant thereto, of which
Th...
Three Conditions
The property should consist of any building or lands appurtenant
thereto
 The assessee should be the own...
Deemed owner
Property transferred to spouse ( not being a transfer in connection
with an arrangement to live apart or mino...
Certain typical cases
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House Property in a Foreign Country
◦ ROR- Taxable under H.P.
◦ RNOR- Taxable under H.P. but rent...
Certain typical cases
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Property held as stock in trade
◦ It will be charged as House Property Income
Splitting up of ...
Property Income Exempt from tax
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Income from Farm house Sec.10(1)
One place of an ex-ruler. Sec.1...
Computation of Income from a let out property
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Gross Annual Value
Less: Municipal Taxes
Net Annual Value...
Reasonable Expected Rent
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Compute Reasonable Expected Rent
Find out Municipal Valuation

(a)

Find out Fair Rent

(b)
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Actual Rent Received/Receivable
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Find Rent actually Received or receivable
◦ It does not include rent of the period for ...
Steps for determining Annual Value

Sshailesh L. Prajapati CA, MBA ( Finance)

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Gross Annual Value- Different possible cases
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Property let out throughout the year
Let out Property vac...
Unrealised Rent
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Conditions:
◦ The tenancy is bonafide
◦ The defaulting tenant has vacated or steps have been taken to
c...
Municipal Taxes
Deduct Municipal Taxes from GAV
 Deductible only if
◦ These taxes are borne by the owner
◦ And actually p...
Deduction under Section 24
Standard deduction:
◦ 30% of NAV is deductible irrespective of any expenditure incurred
by the ...
Interest borrowed on capital
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Deductible on accrual basis
Even though it is not actually paid during the year...
Income from SOP
Property occupied for own business purpose – no income is
chargeable under IFHP.
 When more than one prop...
Interest on Borrowed capital
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Capital is borrowed after April 1, 1999
The acquisition or construction should b...
Arrears of Rent
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The tax payer is or was the owner of the property
Received amount by way of arrears, not charge...
Income Tax
Income from Business & Profession

Sshailesh L. Prajapati CA, MBA ( Finance)

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Taxability of Business Income
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Tax on Net Income from Business
Net Income = (+) Gross Receipts (-) Expenses
Role...
Computation of Income under Business & Profession
Net Profit as per Profit & Loss Account
 Add:
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◦ Items debited but no...
Depreciation u/s 32
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It is mandatory. Hence allowed even if the assessee has not taken.
Assessee must be the ...
Block of Assets
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Block of Assets means class of assets falling within a class of assets
comprising of:
Tangibl...
Actual Cost : Section 43 (1)
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Cost of Purchase or Construction
Less: Subsidy /grant
Add: Interest on Lo...
Written down value (WDV)
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Opening value of Block at the beginning of P.Y.
Add: Actual Cost assets added du...
Rates of Depreciation
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Residential Building
5%
Building other than above
10%
Temporary structure
100...
Additional Depreciation
It is 20% on additions to Plant and Machinery
 Asset purchased after 180 days additional Deprecia...
Expenses specifically allowed :Amortizations
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Telecom License Fees (over license period)
Preliminary Expenditur...
Expenditure on Scientific Research : Section 35
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Expenditure on Scientific Research
◦ In-house research
 Revenue Exp...
Expenditure on Scientific Research : Section 35
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In-house research ( Allowed 100%)
◦ Revenue Expenditure
 Allowed only ...
Expenditure on Scientific Research : Section 35
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In case companies in Specified business: Sec. 35 (2AB)
◦ Weighted deduc...
Expenditure on Scientific Research : Section 35
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Payment to Outsiders : Contribution to
 An Approved Research Associati...
Other Class of Expenses
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Donations to associations for :
◦ Promoting economic & social welfare
◦ Carrying out rural deve...
Expenses specifically allowed
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Insurance Premiums
◦ for stocks & employees health

Bonus & Commission to employees
 Int...
Expenses specifically allowed
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Bad Debts
◦ There must be a debt
◦ Debt must have been taken into account in computing as...
Amounts not deductible
Income Tax/ Wealth Tax/FBT/Tax on Perquisites
 Payments to members of AOP/BOI
 Provisions made fo...
Remuneration to Partners - Limits
Professional Firm

Maximum Allowable

On First Rs. 3,00,000/- or In
case of Loss
Balance...
Book Profit and its Computation
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Steps :
Find Out the Net Profit of the firm as per Profit and Loss Accou...
Amounts not deductible
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Payments to Relatives : Section 40A
Payments to relatives in excess of fair valu...
Cash Expenditure : Section 40 (A) (3)
Expenditure above Rs. 20000/- to be made by account payee
cheque otherwise a disallo...
Depreciation: Written Down Value
Opening WDV
 Add : Actual Cost of Assets Purchased
◦ Used > 180 days
◦ Used < 180 days
...
Depreciation : WDV (Contd.)
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If Closing WDV is negative

◦ Treat the amount as Short Term Capital Gain
 Adjustable agai...
Depreciation : WDV (Contd.)
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If Closing WDV is positive and there are assets in the block
◦ Do not calculate profit or l...
Depreciation: Power Units
Undertaking engaged in generation and distribution of power
 Can claim depreciation in respect ...
Depreciation: Power Units
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Terminal Depreciation ( Loss on Transfer)
◦ Find out WDV of the depreciable assets on the fir...
Depreciation: Power Units
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Balancing Charge
◦ SC>WDV, then
◦ The amount equal to the depreciation already claimed is
tax...
General Deductions Sec 37 (1)
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It should
Not be in the nature of capital expenditure
Not be personal expend...
General Deductions Sec 37 (1)
Interest on Delayed Payment to Micro Small and Medium
Enterprises not deductible
 Amount sp...
Disallowance in case of all assessees : Sec 40 (a) (ia)
The amount will be disallowed if
 Such Tax has not been deducted;...
Disallowance in case of all assessees : Sec 40 (a) (ia)
In case the tax is deducted in any subsequent year or has been
ded...
Miscelleneous Provisions
Gratuity : Section 40A (7)
◦ No Deduction will be allowed in respect of provision made.
◦ Contrib...
Amounts not deductible : Unpaid Statutory Dues
Items covered

Payment to be made Effect of late
by
pymt.

Tax, duty or ces...
Books of Accounts and Audit of Accounts
Books of Accounts to be maintained by each category of Person
who are into Busines...
Income Tax
Income from Capital Gain

Sshailesh L. Prajapati CA, MBA ( Finance)

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Meaning of Capital Assets
Property of any kind
 Held by an assessee
 Whether or not connected with his business or profe...
Capital Asset
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Wide definition
Cannot however cover
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Stock in trade
Personal assets & privileges
Agricultur...
Transfer
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Extended Definition of Transfer
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Sale, Exchange,
Extinguishment of Rights
Compulsory Acquisition
Con...
Transfer
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Exclusions from Definition
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Distribution of Assets by HUF
Gift, Will, Irrevocable Trust
Holdin...
Profit/Loss..
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Sales Consideration
Less: Expense on Transfer
Deductions
◦ Cost of Acquisition
◦ Cost of Impro...
Conditions for Capital Gain
There should be a Capital Assets
 It is transferred by Assessee
 Transfer takes place during...
Special Considerations apply:
Depreciable Assets : Section 50
◦ Gains will always be SHORT TERM
 Immoveable Properties
◦ ...
Cost of Acquisition of Bonus shares
If original shares and bonus shares are acquired before April1, 1981 :
 Cost :
 Orig...
Cost Inflation Index
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Financial Year 1981-1982
100
Financial Year 2012-2013
852
Financial Year 2013-2014
...
Cost Inflation Index
A.

Indexed Cost of Acquisition
Cost of Acquisition or FMV as on
01/04/1981 as the case may be
Index ...
Special cases in computation of Period of holding
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Sec.49(1) - Previous owner:

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If the capital asset is acquired by t...
Special cases in computation of Period of holding
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Property acquired by Gift, Will etc
Property acquired on ...
Special cases in computation of cost of acquisition
If the assets acquired in any mode in Section 49 (1) , then cost of
th...
Certain Special Cases
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Capital Gain in the case of conversion of capital Assets
into Stock in Trade (Sec 45 (2))
◦ Event...
Certain Special Cases
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In the year in which such SIT is sold both Capital gains and
business profits will result.
◦ Capi...
Certain Special Cases
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Capital Gain in case of compulsory acquisition of an asset (
Section 45 (5 ))
◦ Event: Transfer o...
Certain Special Cases
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Capital Gain in case of compulsory acquisition of an asset (
Section 45 (5 ))
◦ Enhanced compensa...
Certain Special Cases
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Procedure to be followed at the time of conversion of
debentures / bonds into shares.
◦ Nothing i...
Certain Special Cases
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Procedure to be followed for sale of Right Shares
The cost of acquisition (C.O.A.) of o...
Capital Gain Exempt from Tax
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CG arising from transfer of residential House [Section 54]
CG arising from transf...
Rates of Tax for capital Gain
Long Term Capital Gain : 20%
 Short Term Capital Gain- Add to the normal Income
 Long Term...
Income Tax
Income from Other Sources

Sshailesh L. Prajapati CA, MBA ( Finance)

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Income From Other Sources
Last and residual head of Income
Dividend under section 2 (22) (e)
Winning from Lotteries
Intere...
Winning from Lotteries, crossword puzzles, horse
race, card game etc
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Taxable
Receipt is chargeable @ 30% ( +S...
Interest on Securities
Security of Central Government or State Government
 Taxable on receipt basis if the books are main...
Income from Machines, Plant or Furniture let on hire
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Taxable if the same is not chargeable under business i...
Receipts without consideration (Sec 56 (2))
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The recipient is an individual or HUF

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A sum of money/ Property is recei...
Receipts without consideration (Sec 56 (2))
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“Property” means;
a) Land or Building or both;
b) Share...
Five categories chargeable to Tax
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A receipt of sum of money or property without consideration or
with inadequate consid...
Five categories chargeable to Tax
Categories

Tax Treatment

Ceiling Rs.50K

Any sum of Money ( Gift
in cash or by DD or b...
Five categories chargeable to Tax
Categories

Tax Treatment

Ceiling Rs.50K

Immovable Property for a
consideration which ...
Five categories chargeable to Tax
Categories

Tax Treatment

Ceiling Rs.50K

Movable Property for a
consideration which is...
Exempted Categories
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While Calculating the monetary limit of Rs. 50000, any sum of
money or property received from the f...
Other relevant Points
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The Value of Movable Property shall be the FMV as on the date of
receipt in accordan...
Other relevant Points
The provisions is applicable whether recipient is a resident or nonresident.
 Gift received by Non-...
Relative means:Relatives

If Tax Payers is X,

1. Spouse of the Individual

Mrs. X

2. Brother or sister of the Individual...
Valuation Rules
Different Properties

Valuation of Properties

Immovable Property

Stamp duty value of the property

Jewel...
Valuation Rules

Different Properties

Valuation of Properties

Unquoted Equity Shares (Option 1 )

Net worth/Number of Sh...
Valuation Rules…. Contd…
Where the date of agreement fixing the value of consideration for
the transfer of Immovable prope...
Deductions in case of IFOS
Any other expenses for earning income
◦ Spent wholly and exclusively for earning income
◦ Must ...
Income Tax
Set off and carried forward of Losses

Sshailesh L. Prajapati CA, MBA ( Finance)

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Set off and Carried forward of Losses
Step :1 :Inter – Source adjustment under the same head of Income
 Step :2: Inter he...
Inter – Source Adjustment
Loss of any Source can be adjusted against the income of any other
source for the same A.Y.
 Ex...
Inter – Source Adjustment Sec 70


Other points

◦ Loss from a H.P. can be set off against the income from any other
hous...
Inter – Head Adjustment Sec 71
◦ Net result of computation in respect of any head of income
(excluding CG) is a loss, the ...
Inter – Head Adjustment Sec 71
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Other Points
Section 71 to follow only after Section 70
Except exceptions me...
Carried forward of Loss
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Loss under Head “IFHP”
Loss under Head “ Profit and gains of business or profession
w...
Order of set off
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Order of Set off If profit is insufficient
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Current Scientific research expenditure...
Income Tax
Deductions from Gross Total Income

Sshailesh L. Prajapati CA, MBA ( Finance)

168
Deductions
Generally available only to residents
 Subject to the existence of income
 Broad Categories
◦ For certain pay...
Deductions from GTI


Deduction in respect of insurance premia, contribution to
PF, PPF etc.. ( Section 80 C)
◦
◦
◦
◦

Av...
Medical Insurance Premia (Sec 80D)




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Individual or HUF
Paid by any other mode other than cash
Rental Income of ...
Medical Treatment of dependant being a person with
disability
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




Section 80DD
Tax Payer is resident in India
S...
Medical Treatment ( 80DDB)
Tax payer is resident in India
Individual or HUF
Actually paid any amount of a specified diseas...
Repayment of Loan taken for higher studies Section
80E
The assessee is an Individual
Taken loan from any Financial Institu...
Donations Section 80G
Available to any tax payer
 Find out Gross Qualifying Amount


◦ Aggregate of donations made to an...
Donations – the matrix
No Limit

10% Limit

100%

National Defence Fund
PM National Relief Fund
CM Relief Fund
National Fo...
Deduction in respect of rent paid Section 80 GG










The Taxpayer is an individual
Self employed person. Altern...
Deduction in respect of rent paid Section 80
GG


Amount of Deduction- Least of following
◦
◦
◦
◦
◦
◦
◦
◦
◦

Rs. 2000/- p...
Deduction in respect of donation for scientific
research 80GGA
An Assessee other than whose GTI includes income
from profi...
Other Deductions


Contribution given by companies to Political Parties ( Sec. 80GGB)



Contribution given by any perso...
Other Deductions







In respect of Profits and gains from Industrial Undertakings
other than Infrastructural devel...
Income Tax
Clubbing of Income

Sshailesh L. Prajapati CA, MBA ( Finance)

182
Income of other persons included in assessee's total Income












Transfer of Income without transfer of As...
Transfer of Income without transfer of Assets
Conditions:
◦ The Tax Payer owns an asset. Ownership is not transferred.
◦ T...
Revocable Transfer of Assets



If an asset is transferred under “ Revocable Transfer”, income from such asset is
taxabl...
Remuneration to Spouse
Conditions:
◦ The Tax Payer is an Individual
◦ He/ she has substantial interest in a concern (>20% ...
Assets transferred to Spouse


Conditions:
◦ The Tax Payer is an Individual
◦ He/she has transferred an asset ( other tha...
Assets transferred to Spouse … Contd.
If the above conditions are satisfied:
◦ Any income from such asset shall be deemed ...
Assets transferred to Son’s Wife
Conditions :
◦ The taxpayer is an individual.
◦ He/she has transferred an asset after May...
Assets transferred to a person for the benefit of
Spouse
Conditions :
◦ The taxpayer is an individual.
◦ He/she has transf...
Assets transferred to a person for the benefit of son’s
wife.
Conditions :
◦ The taxpayer is an individual.
◦ He/she has t...
Income of a Minor Child






All income which arises or accrues to the minor shall be clubbed in the
income of his p...
Income of a Minor Child … Contd…
When Clubbing is not attracted:
◦ Income of Minor child suffering from any disability of ...
THANKS

Sshailesh L. Prajapati CA, MBA ( Finance)

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Income Tax A.Y. 2013-2014 _ Five Heads of Income

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Transcript of "Income Tax A.Y. 2013-2014 _ Five Heads of Income"

  1. 1. Income Tax From CA Sshailesh L. Prajapati Sshailesh L. Prajapati CA, MBA ( Finance) 1
  2. 2. Contents of the Course           Framework & Basic Principles Heads of Income Exempt Income ( Section 10 ) Taxability of Income from Salaries ( Sec 15 to 17 ) Taxability of Income from House Property(Sec 22 to 27 ) Taxability of Income from Business & Profession(Sec 28to44 ) Taxability of Income from Capital Gain ( Sec 45 to 55A ) Taxability of Income From Other Sources ( Section 56 ) Set off and Carried forward of Losses ( Section 72 ) Deductions & Exemptions ( Sec 80, Sec 10 ) Sshailesh L. Prajapati CA, MBA ( Finance) 2
  3. 3. Section 4 as charging section Income Tax Tax on Income of a person charged annually - Income - Scope of Income - Scheme of the Act -Person -Assessee -Assessment Year -Previous Year Sshailesh L. Prajapati CA, MBA ( Finance) 3
  4. 4. Person & Assessee        Individual Hindu Undivided Family Company Firm AOP/BOI Local Authority For Income Tax these all are – An Assessee Sshailesh L. Prajapati CA, MBA ( Finance) 4
  5. 5. Previous Year  Generally ◦ 1st April to 31st March  In case of new business ◦ Start of business to 31st March  Assessment Year vs. Previous Year ◦ AY 2013-2014 PY 01-04-2012 to 31.03.2013 ◦ TDS and Advance Tax to pay in Previous Year ◦ Assessment, filing of Return and S.A. Tax in the Assessment Year. Sshailesh L. Prajapati CA, MBA ( Finance) 5
  6. 6. Charged annually Each year an independent year  Common Financial Year  Assessment Year ◦ period of twelve months starting from the 1st April of every year and ending on 31st March of the next year ◦ Denoted as 2013-2014, etc ◦ For our Syllabus the A.Y. is 2013-2014  Sshailesh L. Prajapati CA, MBA ( Finance) 6
  7. 7. Person – Individual, HUFs, AOP/BOI For the Assessment year 2013-2014  Slab-wise Tax Rates  ◦ ◦ ◦ ◦ ◦ ◦ ◦ First Rs. 2,00,000/> Rs. 200,000/but < Rs. 5,00,000/> Rs. 500,000/but < Rs. 10,00,000/> Rs. 10,00,000/No Surcharge Education cess- 2% of Income Tax SHEC – 1% of Income Tax Nil 10% 20% 30% Sshailesh L. Prajapati CA, MBA ( Finance) 7
  8. 8. Person – Individual (Senior Citizen > 60 years) For the Assessment year 2013-2014  Slab-wise Tax Rates  ◦ ◦ ◦ ◦ ◦ ◦ ◦ First Rs. 2,50,000/> Rs. 2,50,000/but < Rs. 5,00,000/> Rs. 5,00,000/but < Rs. 10,00,000/> Rs. 10,00,000/No Surcharge Education cess- 2% of Income Tax SHEC – 1% of Income Tax Nil 10% 20% 30% Sshailesh L. Prajapati CA, MBA ( Finance) 8
  9. 9. Person – Individual (Senior Citizen > 80 years) For the Assessment year 2013-2014  Slab-wise Tax Rates  ◦ ◦ ◦ ◦ ◦ ◦ First Rs. 500,000/> Rs. 500,000/- but < Rs. 10,00,000/> Rs. 10,00,000/No Surcharge Education cess- 2% of Income Tax SHEC – 1% of Income Tax Nil 20% 30% Sshailesh L. Prajapati CA, MBA ( Finance) 9
  10. 10. Person – HUF - Concept  Mr. A - Mrs. A ◦ Mr B (son) & Mrs. B  Mr C (grandson) & Mrs. C  Mr D (greatgrandson) & Mrs D  Mr E (greatgreatgrandson) & Mrs E  Ms. F (unmarried grand-daughter) Karta – Mr. A (manages the property & business)  Co-parceners – B, C & D  Sshailesh L. Prajapati CA, MBA ( Finance) 10
  11. 11. Person – Company Distinct entity from shareholders/ directors  Directors’ remuneration deductible  Dividend liable for double taxation (DDT)  Flat rate of tax  ◦ Domestic companies ◦ Foreign companies   30% 50% on specified royalties & fees for technical services 40% on Other Income Surcharge : Applicable if the Net Income is more than Rs. 1 Crore. In Case of Domestic Company 5% and Foreign Companies it is @ 2% EC =2% on Tax and Surcharge and SHEC will be 1% on Tax and Surcharge. Sshailesh L. Prajapati CA, MBA ( Finance) 11
  12. 12. Company- MAT    If book Profit does not exceeds Rs. 1 crore ◦ IT- 18.50% of Book Profit + EC- 2% and SEC- 1% ◦ Effectively it is 19.055% If book Profit exceeds Rs. 1 crore ◦ IT- 18.50% of Book Profit ◦ Surcharge 5% on MAT Tax ◦ EC- 2% on MAT and Surcharge and SEC- 1% on MAT and Surcharge. Book Profit is as per the calculation under section 115JA. Sshailesh L. Prajapati CA, MBA ( Finance) 12
  13. 13. Person – Firm/ LLP        Distinct entity for taxation but no separate legal status “Agreement” & “Business” are necessary conditions Payments to partners deductible subject to conditions Flat Firm Tax Rate 30% Share of profits exempt in hands of the partner [Sec. 10(2A)] No Surcharge is leviable for assessees other than companies EC and SEC will be 2% as well as 1%. Sshailesh L. Prajapati CA, MBA ( Finance) 13
  14. 14. Income/Revenue Receipts & Capital Receipts    Revenue Receipts are always considered as Income Chargeable to Tax unless specified exempted. ( Eg. Salary, Interest, Rent etc) Capital Receipts are not chargeable to Tax except when specifically provided in Law. (eg. Compensation etc) Illustrative list of “Income” under Section 2(24) ◦ Profit and Gains, Dividend, Exports Incentives, Any Capital Gain; ◦ Profits of Insurance Business, Banking Business, Winning from lotteries ◦ Crossword Puzzles, Races, Income from gambling or betting, ◦ Any sum received under a keyman insurance policy ◦ Any sum of money, movable or immovable property received as gifts; Sshailesh L. Prajapati CA, MBA ( Finance) 14
  15. 15. Scope of Income Particulars R & OR R & NOR Income Received or deemed to be received in India Taxable Taxable Taxable Income accruing or arising or deemed to accrue or arise in India Taxable Taxable Taxable Income accruing or arising outside India from : a) Business controlled in India or Profession set up in India b) Any other Source NonResident Not Taxable Taxable Taxable Not Not Taxable Taxable Taxable Sshailesh L. Prajapati CA, MBA ( Finance) 15
  16. 16. Residential Status – Individuals- Section 6 Basic Conditions: To satisfy atleast one condition.  1. He is in India in the P.Y for 182 day or more OR  2. He is in India for 60 day or more in the P.Y. and 365 days in 4 years immediately preceding the P.Y.  Exceptions:- extended period from 60 to 182 days  ◦ Indian citizens taking employment abroad or as a crew of an Indian Ship ◦ Indian citizens/PIO visiting India during the P.Y.  Resident but Ordinary Resident ◦ He has been in India for a period of 730 days or more in 7 years AND ◦ He has been resident in India in at least 2 out of 10 years immediately preceding the relevant previous year. Sshailesh L. Prajapati CA, MBA ( Finance) 16
  17. 17. Residential Status – Individuals- Section 6 Resident but Not ordinary Resident: ◦ An Individual who satisfies at least one of the basic conditions but does not satisfy the two additional conditions is treated as RNOR. ◦ An Individual who satisfies at least one of the basic conditions but does satisfy the only one or none of the two additional conditions is treated as RNOR.  Non- Resident: ◦ An Individual is NR if he satisfy none of the basic conditions. Additional Conditions are not relevant.  Sshailesh L. Prajapati CA, MBA ( Finance) 17
  18. 18. Residential Status – HUF : Section 6(2) Residential Status depends on ;  The Location of control and Management;  Residential Status of Karta of the HUF  Resident : If control and Management of its affairs is wholly or partly situated in India  Non- Resident : If control and Management of its affairs is wholly situated outside India  Resident and Ordinarily Resident: This depends on the Residential status of Karta.  Sshailesh L. Prajapati CA, MBA ( Finance) 18
  19. 19. Residential Status - Others  Companies : Sec 6 (3) ◦ Indian companies  Always resident in India ◦ Other companies  Resident in India if control & management wholly in India  Firm, AOP and other Assessees ◦ Resident in India if control & management is wholly or partly in India  Control & Management: ◦ Head and Brain, which directs the policy, finance, disposal of profits, and vital things concerning the Mgt of a Co. Sshailesh L. Prajapati CA, MBA ( Finance) 19
  20. 20. Scope of Income Income Accrued in India : It is chargeable to tax in all cases irrespective of the Residential Status of the Assessee.  Income Received in India  Income Deemed to accrue or arise in India (Section 9)  Sshailesh L. Prajapati CA, MBA ( Finance) 20
  21. 21. Income Deemed to be received: Sec-7  Following income shall be deemed to be received in Previous Year;  Employer’s contribution to recognised Provident Fund in excess of 12% of Salary  Interest credited to the RPF balance in excess of 9.5% p.a.  The transferred balance from URPF to RPF ( Employer’s contribution and Interest thereon)  The contribution made by any employer in the previous year to the account of an employee under a pension scheme (sec 80CCD) Sshailesh L. Prajapati CA, MBA ( Finance) 21
  22. 22. Income Deemed to Accrue or Arise in India: Sec- 9  Certain Income are deemed to accrue or arise in India even though they may actually accrue or arise outside India ◦ ◦ ◦ ◦ ◦ ◦ ◦ ◦ Income from Business Connection in India Property, Asset, Source in India Salaries earned in India Salary paid by Government to Indian citizen Dividend by Indian company Interest Royalties Fees for Technical Services Sshailesh L. Prajapati CA, MBA ( Finance) 22
  23. 23. Income Tax Income From Salaries Sshailesh L. Prajapati CA, MBA ( Finance) 23
  24. 24. Salaries: The beginners...        Test: Employer – Employee Relation Basis of Charge: Accrual or Receipt whichever is earlier Contract of Service and Contract for service Person Acting as an Agent, no relation of Master and Servant, Director of a Company, E-E relationship can not be assumed by should be ascertained based on the AOA. Salaries to MP and MLAs ? Income from Salary or IFOS Commission paid to Managing Director? Income from Salary? Sshailesh L. Prajapati CA, MBA ( Finance) 24
  25. 25. Salaries: The beginners...    Year of Chargeability ◦ Either on due basis or on receipt basis whichever is earlier ◦ Salary received in Advance is taxable even if it is not due ◦ Arrears of Salary received during the P.Y is taxable ◦ Advance against Salary is not taxable ◦ Loan taken from employer is not taxable Place of Accrual ◦ Is where the services are rendered; ◦ Salary paid to NR outside India in respect of Services rendered in India is Taxable in India by virtue of Section 9 Surrender of Salary and profit in lieu of Salary is Taxable Sshailesh L. Prajapati CA, MBA ( Finance) 25
  26. 26. Deductions : Section 16      Entertainment allowance : Sec 16 (ii) It is not eligible for exemption but it only qualifies for deduction It is first included in gross salary and then deduction is allowed. Exemption only to Government employees and to the extent of following: ◦ 1/5th of salary (Basic Salary and excludes allowances, benefits or other perquisites. Even dearness allowance should not be included though it may be provided in the terms of employment) ◦ Rs. 5,000/◦ Actual Receipt Profession Tax paid by the employee (Section 16 (iii) Sshailesh L. Prajapati CA, MBA ( Finance) 26
  27. 27. Exemptions : Section 10(5) to 10 (14 )         Leave Travel concession : Section 10 (5) Gratuity : Section 10 (10) Pension : Section 10 (10A) Leave Salary : Section 10 (10AA) Retrenchment compensation : Section 10 (10B) Voluntary Retirement Scheme : Section 10 (10C) Recognized Provident Fund : Section 10 (12) Approved Superannuation Fund : Section 10 (13) Sshailesh L. Prajapati CA, MBA ( Finance) 27
  28. 28. Leave Travel concession : Section 10 (5)  Value of Travel concessions or assistance ( read with Rule 2B) Fare ◦ Based on the mode of travel  for self or family ◦ Spouse, children*, Parents, brothers, sisters of the individual wholly or mainly dependant on the individual.  For travel to any place in India  For 2 journeys in a block of 4 calender years ◦ From 1998-2001 ( Jan- Dec ) ◦ From 2002-2005 ◦ From 2006-2009 ◦ From 2010- 2013  Sshailesh L. Prajapati CA, MBA ( Finance) 28
  29. 29. Leave Travel concession : Section 10 (5) Exemption shall not be available to > 2 surviving Children ( born after 01/10/1998). Not applicable for multiple births after one child.  Quantum of Exemption; Restricted to Actual Amount Spent ◦ Air : Economy fare of the national carrier ( IA or AI) by shortest route ◦ Rail : Not exceeding the AC FC rail fare by shortest route ◦ Rail service not available and no recognized transport available, an amt. equivalent to Rail fare ACFC with Shortest Route. ◦ Rail service not available and recognized transport available, an amount not exceeding the FC or DC on such transport with Shortest Route to the Place of destination.  Sshailesh L. Prajapati CA, MBA ( Finance) 29
  30. 30. Gratuity : Section 10 (10)  Government Employees – Wholly Exempt  Covered by the Payment of Gratuity Act ◦ Exemption is to the extent of least of the following ◦ Rs. 10,00,000/◦ 15 days * last drawn salary for each completed year of service or part of the year in excess of 6 months ◦ Actual Receipt ◦ Salary= Basic +DA Sshailesh L. Prajapati CA, MBA ( Finance) 30
  31. 31. Gratuity : Section 10 (10) ◦ Covered by the Payment of Gratuity Act, cont… ◦ Salary of 15 days is calculated by dividing salary last drawn by 26 i.e maximum number of working days ◦ Length of Service- If period of service is 6 months or less than 6 months, it shall be ignored for this purpose. ◦ Conversely if period is more than 6 months it shall be taken as a one full year. Sshailesh L. Prajapati CA, MBA ( Finance) 31
  32. 32. Gratuity : Section 10 (10)  Not Covered by the Payment of Gratuity Act ◦ The least of above shall be exempt,  Rs. 10,00,000/ ½ months ‘average salary’ for each completed year of service  Actual Receipt ◦ Salary= Basic + DA if terms of employment provides, Commission if fixed % of Turnover ◦ Average monthly salary= Average salary of 10 months immediately preceding the month in which an employee is retired. ◦ Only fully completed year of service is to be considered. Sshailesh L. Prajapati CA, MBA ( Finance) 32
  33. 33. Gratuity : Section 10 (10) Gratuity received during the period of service is always Taxable  Gratuity received from two or more employers:   Gratuity received from two or more employers in the same Year then, aggregate amount of gratuity exempt from tax cannot exceed the limits prescribed.  Gratuity received in any earlier years from his former employer and receives gratuity from another employer in a later year, the Limit of Rs. 10 Lacs will be reduced by the amount of gratuity exempt from tax in any earlier year Sshailesh L. Prajapati CA, MBA ( Finance) 33
  34. 34. Pension : Section 10 (10A) Uncommuted Pensions ◦ Periodic payment received by the employee ◦ Received by the retired employee Taxable as Salaries for both Govt and Non Govt employees ◦ Received by the legal heir Taxable as Income from other Sources  Commuted Pensions on retirement ◦ Lumpsum amount taken by commuting full or part of Pension ◦ Remaining portion will be periodically received.  Sshailesh L. Prajapati CA, MBA ( Finance) 34
  35. 35. Pension : Section 10 (10A) For Government employees, totally exempt  For Non-Government employees: ◦ If employee is in receipt of gratuity:  1/3rd of the amount of commuted pension which he would have received had he commuted whole (100%) of the pension. ◦ If employee is not in receipt of gratuity:  1/2 of the amount of commuted pension which he would have received had he commuted whole (100%) of the pension.  Sshailesh L. Prajapati CA, MBA ( Finance) 35
  36. 36. Leave Salary : Section 10 (10AA) ◦ Govt Employees : Exempt ◦ Non Govt Employees : Least of following is exempt. ◦ Cash equivalent of Leave ( on the basis of 10 months salary) to the credit of the employee at the time of retirement ( calculated at 30 days credit for each completed year of service); or ◦ Amount specified by the Government Rs. 300000/-; or ◦ 10 months’ salary ( on the basis of last 10 months salary); or ◦ Leave encashment actually received. Sshailesh L. Prajapati CA, MBA ( Finance) 36
  37. 37. Leave Salary : Section 10 (10AA) ◦ Non Govt Employees : ◦ Leave salary received during the service is always Taxable to both Govt and Non-Govt Employees; ◦ Leave Salary received from more than 2 employers (Refer treatment shown in gratuity); ◦ Salary= Basic + DA if terms of employment provides, Commission if fixed % of Turnover. Sshailesh L. Prajapati CA, MBA ( Finance) 37
  38. 38. Other Retirement Benefits  Retrenchment Compensation Sec 10 ( 10 B) ◦ Rs. 5,00,000 ◦ Amount calculated under Industrial Disputes Act  15/26 X Ave Salary of Last 3 Months X Completed year of Service*  * Part of the year in excess of 6 Months will be considered as full year. ◦ The amount received ◦ Lower of the above is exempt from tax  Voluntary Retirement Compensation Sec 10 ( 10 C) ◦ Least of following is exempt: ◦ Last drawn salary X 3 X completed years of service or Last drawn salary X remaining months of service, whichever is higher; or ◦ Rs. 5,00,000; or ◦ Actual compensation received. Sshailesh L. Prajapati CA, MBA ( Finance) 38
  39. 39. Voluntary Retirement compensation..        Applies to an employee of the company who has completed 10 years of service or completed 40 years of age ( not applied to Public sector company); Applies to all employees whatever name called except directors; Scheme should be drawn to reduce the overall strength of Team; Vacancy should not be filled up; Retiring employee shall not be employed in any of the concern belonging to the same management; If question does not provide he information of Last drawn salary or the year of service completed etc, one can take other two factors into consideration. Salary= Basic + DA if terms of employment provides, Commission if fixed % of Turnover Sshailesh L. Prajapati CA, MBA ( Finance) 39
  40. 40. Recognised Provident Fund : Section 10 (12)  Accumulated balance due and become payable to an employee shall be exempt in following Cases ◦ Rendered continuous service for a period 5 years or more; ◦ Termination of services due to ill-health, or discontinuation of the employer’s business or cause beyond control of the employee; ◦ Transfer of RPF account from one company to another company on account of Transfer of Job ◦ Unrecognised PF is the PF which is not recognised by Income Tax Department. Sshailesh L. Prajapati CA, MBA ( Finance) 40
  41. 41. Table showing distinction – For Employee Particulars Recognised Provident Fund Unrecognised Provident Fund Employer’s Contribution > 12% is Taxable Not Taxable at the time of contribution Employee’s Contribution Eligible for deduction under section 80C Not eligible for any deduction Interest Credited In excess of 9.5% p.a. Taxable On own contribution is Taxable under IFOS Amount received on Retirement Fully exempt u/s 10 (12) Employer’s Contribution and interest on same is taxable as Salary. Sshailesh L. Prajapati CA, MBA ( Finance) 41
  42. 42. Approved Superannuation Fund: Section 10 (13)  Any Payment from an ASF is exempt if it is made; ◦ on death of a beneficiary; or ◦ to an employee on retirement or becoming incapacitated ◦ by way of refund of contribution on death of a beneficiary; ◦ by way of refund of contribution on his leaving the service otherwise than by retirement or becoming incapacitated. Sshailesh L. Prajapati CA, MBA ( Finance) 42
  43. 43. House Rent Allowance : Section 10(13A) (read with Rule 2A)  HRA is exempt to the extent of the least of the following: ◦ Excess of Rent Paid over 10% of Salary for relevant period ◦ 50% of salary for metro cities, 40% for other cities due for relevant period ◦ Actual allowance received for the relevant period.  Salary means ◦ Basic, DA(if it forms a part of retirement benefits) & Commission as a % of Turnover achieved by the employee for relevant period. ◦ Relevant period means the period during which the said accommodation was occupied by the assessee during P.Y. Sshailesh L. Prajapati CA, MBA ( Finance) 43
  44. 44. Special Allowance : Section 10(14)- Rule 2BB  Following are the Allowances prescribed by CBDT as exempt to the extent or specified as below: ◦ Expenditure to perform duties ( travelling, conveyance, helper etc;) ◦ Allowance granted to an employee working in transport company to meet his personal expenses –Least of 70% of allowance or Rs.10000/◦ Transport Allowance – Rs. 800/- per month ◦ Children Education Allowance- Rs. 100/- per month per child up maximum of two children. ◦ Any allowance granted to an employee to meet the Hostel Expenditure of his child is exempt up to Rs. 300 per month per child upto maximum of two children Sshailesh L. Prajapati CA, MBA ( Finance) 44
  45. 45. Special Allowance : Section 10(14)- Rule 2BB       Hill Area Allowance Border Area Allowance Tribal Area Allowance Allowance for Transport Employees Compensatory Field Area Allowance Compensatory Modified Area Allowance Underground Allowance  High Altitude Allowance  Active Field Allowance  Island Duty Allowance   The above allowance has different limits on which the exemptions will be allowed. Sshailesh L. Prajapati CA, MBA ( Finance) 45
  46. 46. Valuation of Perquisites: Section 17 (2 ) & Rule 3 ◦ Value of rent-free accommodation provided to the employee by employer; ◦ Value of any concession, in case of accommodation provided at confessional rate; ◦ Value of any benefit or amenity granted or provided free of cost or at concessional rate to a specified employee ◦ Any sum paid by the employer in respect of any obligation of the employee which otherwise would have been payable by the employee. Sshailesh L. Prajapati CA, MBA ( Finance) 46
  47. 47. Valuation of Perquisites: Section 17 (2 ) & Rule 3 ◦ The Value of any specified security or sweat equity shares allotted or transferred to employees by an employer free of cost or any concessional rate. section 17 (2) (vi) ◦ Any contribution to an approved superannuation fund by the employer in respect of the employee, to the extent it exceeds Rs. 1 Lacs- section 17 (2) (vii) ◦ The value of any other fringe benefit or amenity as may be prescribed by the CBDT- section 17 (2) (viii). ◦ Sum payable by the employer to effect an assurance on life of the assessee or to effect a contract for an annuity- section 17 (2) (v) Sshailesh L. Prajapati CA, MBA ( Finance) 47
  48. 48. Specified Employees  Following are the specified Employees for the purpose of Section 17 (2) (iii); ◦ A Director employee of the company; or ◦ An Employee who has substantial interest ( 20% voting rights) in the company;or ◦ An Employee whose income under the head “Salaries” excluding the value of all non-monetory benefits, exceeds Rs. 50,000/- Sshailesh L. Prajapati CA, MBA ( Finance) 48
  49. 49. Valuation of Perquisites  Rent Free/ Concessional Accommodation ◦ Central and State Government Employees:  VOP= License Fees determined by SG minus Rent actually paid by Employee ◦ Private Sector Employees : ( Accommodation owned by Employer )      7.5% of salary ( Population <= 10 Lakhs ) 10% of Salary ( Population >10 Lakhs upto 25 Lacs ) 15% of Salary ( Population > 25 Laks ) If employee is paying some rent, deduct from the value In respect of the period during which the said accommodation was occupied by the employee during the previous year. Sshailesh L. Prajapati CA, MBA ( Finance) 49
  50. 50. Valuation of Perquisites  Rent Free/ Concessional Accommodation ◦ Private Sector Employees : ( Accommodation taken on Lease or Rent by Employer and provided to Employee) ◦ Value of Perquisites would be the Lower of the following: ◦ Actual Amount of lease rental paid or payable by the employer or ◦ 15% of Salary ◦ This would be reduced by the rent, if any, actually paid by the employee ◦ SALARY= Basic+ DA which forms part of salary, taxable allowances, bonus, commission payable monthly or any monetary benefits by whatever name called. Sshailesh L. Prajapati CA, MBA ( Finance) 50
  51. 51. Valuation of Perquisites  Rent Free/ Concessional Furnished Accommodation ◦ Value of Unfurnished accommodation as above ◦ Add : Value of Furniture  If owned by employer : 10% p.a. of Original Cost  If hired from third party : Actual hire charges borne by the employer ◦ Less: Any charges paid or payable by employees ◦ Note – furniture includes T.V., radio set, refrigerators, other household appliances, A.C. etc. Sshailesh L. Prajapati CA, MBA ( Finance) 51
  52. 52. Valuation of Perquisites  Obligation of an employee paid by the employer  Payment for Gas, Electric Energy, Water Supply for house hold consumption;  Payment to Domestic Servant, Sweeper, Gardner;  Member of Household shall include: Spouse  Children and their Spouses:  Parents  Servants and dependants Sshailesh L. Prajapati CA, MBA ( Finance) 52
  53. 53. Valuation of Perquisites  Service of Sweeper, Gardner, watchman or personal attendant : ◦ Not taxable if the employee is a non- specified employee ◦ VOP= Actual Cost to the employer as reduced by any amount recovered /paid by the employees  Supply of Gas, electricity or water for household purposes ◦ Not taxable if the employee is a non- specified employee ◦ VOP= Actual Cost to the employer as reduced by any amount recovered /paid by the employees Sshailesh L. Prajapati CA, MBA ( Finance) 53
  54. 54. Valuation of Perquisites  Education facility to employees family members ◦ Not taxable if the employee is a non- specified employee ◦ Providing free education facility to and training of the employee is not taxable ◦ Payment of School fees or reimbursement of school fees is taxable. ◦ There would be no perquisites if the cost of education does not exceeds Rs. 1000/- p.m. ◦ Fixed Education Allowance and Hostel Expenses is exempt to the extent of Rs.100/- and Rs. 300/- per child per month ( maximum upto two children) respectively Sshailesh L. Prajapati CA, MBA ( Finance) 54
  55. 55. Valuation of Perquisites  The value of any other fringe benefit or amenity as may be prescribed by the CBDT  Interest Free/ Concessional Loans ◦ Simple Interest (as charged by SBI as on the first day of the relevant previous year ) on maximum outstanding monthly balance except in following cases: ◦ Medical Loan for specified diseases ◦ Petty Loans upto Rs. 20000/- Nil Nil Sshailesh L. Prajapati CA, MBA ( Finance) 55
  56. 56. Valuation of Perquisites Mode of valuation Perquisites in respect of use of Movable Assets Computer/ Laptop or Car Any other Assets Owned by Employer Step :1- Find out cost to the employer Step: 2- Less: Amount recovered from the employee Taxable value of the perquisites ( Step 1Step 2 Taken on hire by Employer Nil 10% p.a. of AC Amount of Rent paid or Payable Nil Recovery from Employee Recovery from Employee Nil Balancing positve amount Balancing positive amount Sshailesh L. Prajapati CA, MBA ( Finance) 56
  57. 57. Valuation of Perquisites Mode of valuation Perquisites in respect of sale of Movable Assets Electronic Items/ Computers Motor Car Any other Asset Step :1- Find out cost of the Asset to the employer Actual Cost to the employer Actual Cost to the employer Actual Cost to the employer Step: 2- Less: Normal Wear and tear for completed years 50% for each completed year by Reducing balance Method 20% for each completed year by Reducing balance Method 10% for each completed year by SLM Step 3 - Less: Amount recovered from the employee Consideration received from the employee Consideration received from the employee Consideration received from the employee Taxable value of the perquisites ( Step 1- Step 2Step 3 ) Balancing positive amount Balancing positive amount Balancing positive amount Sshailesh L. Prajapati CA, MBA ( Finance) 57
  58. 58. Valuation of Perquisites   Fixed Medical Allowance is always taxable Medical Facilities Exempt if ◦ ◦ ◦ ◦ ◦ ◦ In a hospital maintained by the employer In a Government hospital In an approved hospital for prescribed diseases Mediclaim Premium 80D , Other Medical Treatment upto Rs. 15000/Overseas Medical Treatment     Treatment Cost ( to the extent approved by RBI ) Cost of Travel & Stay for self & family Cost of Travel & Stay for one attendant Cost of Travel exempt only if gross income < 2 lakhs Sshailesh L. Prajapati CA, MBA ( Finance) 58
  59. 59. Valuation of Perquisites  Free Meals ◦ Actual Cost ◦ Exempt if  Meals/ Refreshments during office hours at office premises  Non Transferable Meal Vouchers  Cost not exceeding Rs. 50 per meal  Gifts ◦ At Cost ◦ Exempt if in kind and amount is below Rs. 5000/- per annum Sshailesh L. Prajapati CA, MBA ( Finance) 59
  60. 60. Valuation of Perquisites Club Membership ◦ Actual Payments ◦ Exemption for initial corporate membership fees ◦ Not a perquisite if for official purposes  Credit Cards ◦ Actual Payments ◦ Not a perquisite if for official purposes  Sshailesh L. Prajapati CA, MBA ( Finance) 60
  61. 61. Valuation of Perquisites  Valuation of perquisites in respect of traveling, touring, accommodation ◦ Where such facility is available uniformly to all employees  Expenditure incurred by employer less recovery from employees ◦ Where such facility is not available uniformly to all employees  Value at which such facilities are offered by other agencies to the public Less recovery from the employee Sshailesh L. Prajapati CA, MBA ( Finance) 61
  62. 62. Valuation of Perquisites Motor Car used for official purposes is not a perquisite  Motor Car used for personal purposes – actual cost to employer including driver’s salary and normal wear and tear @ 10% of the actual cost  Motor Car used for both the purposes  ◦ Proportionate based on log book or presumptive amounts ◦ More than one car, only one for mixed use, others for private use Sshailesh L. Prajapati CA, MBA ( Finance) 62
  63. 63. Motor Car Perquisite  Car is owned by the employer < 1600 c.c. Expenses by the employer 1800 > 1600 c.c. 2400 Expenses by the employee 600 900  Driver 900 900 Car is owned by the employee ◦ Actual expenditure (-) amounts specified above Sshailesh L. Prajapati CA, MBA ( Finance) 63
  64. 64. Computation Taxable Salary- General Format         Basic Salary (including Advance Salary ) Profit in Lieu of Salary Fees, Commission etc, Taxable Allowances Perquisites (as valued) Retirement Benefits (to the extent not exempt) YYYY ◦ Gross Salary Less : Profession Tax Less: Entertainment Allowance ◦ Taxable Salary YYYY YYYY YYYY YYYY YYYY YYYY YY YY YYYY Sshailesh L. Prajapati CA, MBA ( Finance) 64
  65. 65. Income Tax Income from House Property Sshailesh L. Prajapati CA, MBA ( Finance) 65
  66. 66. Chargeability       Annual Value of Property Consisting of any Building or lands appurtenant thereto, of which The assessee is owner, Is chargeable to tax under the head Income from House property Section 22. Sshailesh L. Prajapati CA, MBA ( Finance) 66
  67. 67. Three Conditions The property should consist of any building or lands appurtenant thereto  The assessee should be the owner of the property  The property should not be used by the owner for the purpose of any business or profession carried on by him, the profits of which are chargeable to tax.  Sshailesh L. Prajapati CA, MBA ( Finance) 67
  68. 68. Deemed owner Property transferred to spouse ( not being a transfer in connection with an arrangement to live apart or minor child ( not being a married daughter ) without adequate consideration.  Holder of impartible estate  Property held by a member of co-op Society/company/AOP  Property acquired under a POA transaction.  Sshailesh L. Prajapati CA, MBA ( Finance) 68
  69. 69. Certain typical cases  House Property in a Foreign Country ◦ ROR- Taxable under H.P. ◦ RNOR- Taxable under H.P. but rent must be received in India ◦ NR- Taxable under H.P. but rent must be received in India  Disputed Ownership ◦ The Income shall be taxable in the hands of recipients. But Department has a power to decide whether the assessee is the owner and is chargeable to tax under section 22 Sshailesh L. Prajapati CA, MBA ( Finance) 69
  70. 70. Certain typical cases   Property held as stock in trade ◦ It will be charged as House Property Income Splitting up of a composite Rent ◦ If it is separable than rent will be covered in H.P. Head and other Facilities income covers in Other Sources Head. ◦ If it is not separable:-Than all receipt will be cover in other sources head. Sshailesh L. Prajapati CA, MBA ( Finance) 70
  71. 71. Property Income Exempt from tax            Income from Farm house Sec.10(1) One place of an ex-ruler. Sec.10(19)A Property income of a local authority Sec.10(20) Property income of an approved Scientific research association Sec.10(21) Property income of an Education Institution and Hospital Sec.10(23)C Property income of a Trade Union. Sec.10(24) Property income of a Political party Sec.13A Property held for Charitable purpose Sec.11 Property Income of a Political Party Property used for own business or profession One Self Occupied Property Sshailesh L. Prajapati CA, MBA ( Finance) 71
  72. 72. Computation of Income from a let out property          Gross Annual Value Less: Municipal Taxes Net Annual Value Less: Deduction under Sec.24 Standard Deduction Interest on borrowed capital ………… ………… ………… ………… ………… ………… ======= Income from house property ======= Sshailesh L. Prajapati CA, MBA ( Finance) 72
  73. 73. Reasonable Expected Rent   Compute Reasonable Expected Rent Find out Municipal Valuation (a) Find out Fair Rent (b) ◦ Periodical Survey of Municipal Authority  ◦ It can be determined on the basis of a rent fetched by a similar property in the same locality  Standard Rent under Rent Control Acts (c) ◦ SR is the maximum rent which a person can legally recover from his tenant under a Rent Control Act.  The higher of (a) and (b), subject to maximum of (c) is Reasonable expected rent. Sshailesh L. Prajapati CA, MBA ( Finance) 73
  74. 74. Actual Rent Received/Receivable  Find Rent actually Received or receivable ◦ It does not include rent of the period for which the property remains vacant ◦ Rent of a previous year ( or Part of the year) for which the property is available for letting out to work out ◦ Less: Unrealised Rent ( if few conditions are satisfied ) ◦ Less: Rent of Vacant period ◦ The resultant figure is Rent recd/receivable Sshailesh L. Prajapati CA, MBA ( Finance) 74
  75. 75. Steps for determining Annual Value Sshailesh L. Prajapati CA, MBA ( Finance) 75
  76. 76. Gross Annual Value- Different possible cases 1. 2. 3. 4. 5. 6. Property let out throughout the year Let out Property vacant for part of the year Self Occupied Property House property let –out for part of the year and self occupied for part of the year Deemed to be Let out Property House Property, a portion let out and a portion self occupied Sshailesh L. Prajapati CA, MBA ( Finance) 76
  77. 77. Unrealised Rent  Conditions: ◦ The tenancy is bonafide ◦ The defaulting tenant has vacated or steps have been taken to compel him to vacate the property ◦ The defaulting tenant is not occupation of any other property of the assessee ◦ Taken all reasonable steps to institute legal proceedings for recovery of the unpaid rent or satisfies A.O. that the same is use less. Sshailesh L. Prajapati CA, MBA ( Finance) 77
  78. 78. Municipal Taxes Deduct Municipal Taxes from GAV  Deductible only if ◦ These taxes are borne by the owner ◦ And actually paid by him during the previous year  The remaining amount left after deduction is NET ANNUAL VALUE  Sshailesh L. Prajapati CA, MBA ( Finance) 78
  79. 79. Deduction under Section 24 Standard deduction: ◦ 30% of NAV is deductible irrespective of any expenditure incurred by the tax payer.  Interest on borrowed capital ◦ It is allowed only if capital borrowed for purchase, construction, repair, renewal or reconstruction of the property.  Sshailesh L. Prajapati CA, MBA ( Finance) 79
  80. 80. Interest borrowed on capital       Deductible on accrual basis Even though it is not actually paid during the year Interest on unpaid interest is not deductible No deduction for brokerage on Loan No ceiling limit ( in case of let out ) Interest of pre-construction period is deductible in 5 equal installment commencing from the previous year in which the house is constructed. Sshailesh L. Prajapati CA, MBA ( Finance) 80
  81. 81. Income from SOP Property occupied for own business purpose – no income is chargeable under IFHP.  When more than one property is occupied for own residential purposes, one house of his choice shall be considered as deemed to be let out.  No Standard deduction, No Municipal taxes. Interest on borrowed capital is allowed.  Sshailesh L. Prajapati CA, MBA ( Finance) 81
  82. 82. Interest on Borrowed capital       Capital is borrowed after April 1, 1999 The acquisition or construction should be completed with in three years The maximum limit is Rs. 1.50 Lacs If amount used for repairs, reconstruction, then the limit is Rs. 30,000/Loan taken prior to April 1, 1999, will carry deduction of Rs. 30000/Interest on Unpaid interest is not deductible. Sshailesh L. Prajapati CA, MBA ( Finance) 82
  83. 83. Arrears of Rent      The tax payer is or was the owner of the property Received amount by way of arrears, not charged to income tax for any prev. year Amount received (after deducting 30% shall be deemed to be the income chargeable under IFHP Taxable in the year in which it is received Taxable even if the assessee is not the owner of that property in the year in which he has received arrears of rent Sshailesh L. Prajapati CA, MBA ( Finance) 83
  84. 84. Income Tax Income from Business & Profession Sshailesh L. Prajapati CA, MBA ( Finance) 84
  85. 85. Taxability of Business Income      Tax on Net Income from Business Net Income = (+) Gross Receipts (-) Expenses Role of Accounting for both (+) & (-) Net Income is therefore as determined by the books of accounts & method of accounting followed Expenses related to non-taxable businesses cannot be adjusted against incomes of taxable businesses Sshailesh L. Prajapati CA, MBA ( Finance) 85
  86. 86. Computation of Income under Business & Profession Net Profit as per Profit & Loss Account  Add:  ◦ Items debited but not allowed ◦ Items not credited but taxable  Less: ◦ Items credited but exempt/ taxable elsewhere ◦ Items not debited but allowed  Taxable Income Sshailesh L. Prajapati CA, MBA ( Finance) 86
  87. 87. Depreciation u/s 32      It is mandatory. Hence allowed even if the assessee has not taken. Assessee must be the owner of the asset ◦ Exception: Tenant can capitalise the Major repairs as Building Asset must be used for the purpose of carrying on the business. Asset must be used during the relevant previous year. Asset must be used under the eligible class of assets viz: ◦ Building, Machinery, Plant & Machinery etc. ◦ Know-how, patent, copyrights, trademark & license etc Sshailesh L. Prajapati CA, MBA ( Finance) 87
  88. 88. Block of Assets       Block of Assets means class of assets falling within a class of assets comprising of: Tangible Assets like Building, Machinery, Plant , Vehicle or furniture of a particular percentage. Intangible Assets like Know how, patents , copyrights, trademarks etc of a particular percentage. Depreciation is to be calculated based on Block of Assets. Addition and Sale of Assets to be taken as per the Block. Profit or Loss on Sale of Assets to be calculated based on BOA. Sshailesh L. Prajapati CA, MBA ( Finance) 88
  89. 89. Actual Cost : Section 43 (1)         Cost of Purchase or Construction Less: Subsidy /grant Add: Interest on Loan payable till the date of Acquisition of Assets Add: Expenses incurred for Acquiring Assets Add: Expenses incurred for installation and Commissioning of the Assets Actual Cost XXXX XXXX XXXX XXXX XXXX XXXX Sshailesh L. Prajapati CA, MBA ( Finance) 89
  90. 90. Written down value (WDV)        Opening value of Block at the beginning of P.Y. Add: Actual Cost assets added during P.Y. Less: Moneys payable in respect of any asset is sold/ destroyed/discarded, demolished WDV for the purpose of Calculation of Depreciation Depreciation @ % prescribed Closing Value of Block XXXX XXXX XXXX XXXX XXX XXXX Sshailesh L. Prajapati CA, MBA ( Finance) 90
  91. 91. Rates of Depreciation           Residential Building 5% Building other than above 10% Temporary structure 100% Furniture 10% Motor car 15% Motor Buses/Lorries/Taxis used in Business 30% Computers & Softwares 60% Energy saving devices 100% Intangible Assets 25% If Asset purchased after 180 days the above rates will be 50% Sshailesh L. Prajapati CA, MBA ( Finance) 91
  92. 92. Additional Depreciation It is 20% on additions to Plant and Machinery  Asset purchased after 180 days additional Depreciation will be 10%  Not applicable for ◦ Used Machines ( Domestic or Imported) ◦ Any Equipment installed in office or Guest House ◦ Road Transport vehicles ◦ Any Machinery or Plant where the whole of the amount is allowed as deduction in any other section.  Sshailesh L. Prajapati CA, MBA ( Finance) 92
  93. 93. Expenses specifically allowed :Amortizations     Telecom License Fees (over license period) Preliminary Expenditure : Section 35D ◦ Ceiling Prescribed  Non Company assessee: 5% of cost of Project  Company Assessee : 5% of Cost of Project or 5% of Capital Employed at the option of the Company. ◦ Qualifying amount deduction over a period of 5 years Merger Expenditure (over 5 year period) VRS Payments : Section 35DDA (over 5 year period) Sshailesh L. Prajapati CA, MBA ( Finance) 93
  94. 94. Expenditure on Scientific Research : Section 35   Expenditure on Scientific Research ◦ In-house research  Revenue Expenditure  Capital Expenditure ◦ In case of companies in Specified business- Section 35 (2AB) Payment to Outsiders  An Approved Research Association undertaking of Scientific Research related or unrelated to business of Assessee  An Approved University or College or Institution for the use of Scientific Research related or unrelated to business of Assessee.  An approved University or College or Institution for the use of research in Social Science or statistical research related or unrelated to business of Assessee  Contribution to an approved national laboratory {35(2AA)} Sshailesh L. Prajapati CA, MBA ( Finance) 94
  95. 95. Expenditure on Scientific Research : Section 35  In-house research ( Allowed 100%) ◦ Revenue Expenditure  Allowed only if expenses relates to the business  Pre commencement period expenses incurred but within 3 years immediately before commencement of business, allowed as an expense in the year in which business commenced ◦ Capital Expenditure  Whole of expenses incurred is allowed ( Except cost of acquisition of Land)  Pre commencement period expenses - as above. Sshailesh L. Prajapati CA, MBA ( Finance) 95
  96. 96. Expenditure on Scientific Research : Section 35  In case companies in Specified business: Sec. 35 (2AB) ◦ Weighted deduction (200% )  The Tax payer is a company  It is engaged in the business of bio-technology or in a business of mfg or production of any drugs, pharmaceuticals, electronic equipments, computers, telecommunication equipments as notified by board  Cost can be Revenue or Capital ( Not being on Land and building)  The deduction shall not be allowed w.e.f. A.Y. 2013-1014  The above expenses is incurred on R &D facility upto 31/03/2012 Sshailesh L. Prajapati CA, MBA ( Finance) 96
  97. 97. Expenditure on Scientific Research : Section 35  Payment to Outsiders : Contribution to  An Approved Research Association undertaking of Scientific Research related or unrelated to business of Assessee.  Deduction of 175%  An approved University or College or Institution for the use of Scientific research related or unrelated to business of Assessee.  Deduction of 175%  An approved University or College or Institution for the use of research in Social Science or statistical research related or unrelated to business of Assessee.  Deduction of 125%  Contribution to an approved national laboratory {35(2AA)}  Deduction of 200% Sshailesh L. Prajapati CA, MBA ( Finance) 97
  98. 98. Other Class of Expenses  Donations to associations for : ◦ Promoting economic & social welfare ◦ Carrying out rural development programmes ◦ Conservation of natural resources  Family Planning Expenditure ◦ Allowable as deduction ◦ Capital Expenditure is allowed 1/5th for the previous year, balance in next four years  Expenditure on Advertisement published by a political party not allowed. Sshailesh L. Prajapati CA, MBA ( Finance) 98
  99. 99. Expenses specifically allowed  Insurance Premiums ◦ for stocks & employees health Bonus & Commission to employees  Interest on Borrowed Capital  ◦ Used for the purposes of business Contributions to Recognized Provident Fund, Superannuation Fund, Gratuity Fund, Staff Welfare Scheme  Rent, rates, taxes, repairs and insurance of building  Sshailesh L. Prajapati CA, MBA ( Finance) 99
  100. 100. Expenses specifically allowed  Bad Debts ◦ There must be a debt ◦ Debt must have been taken into account in computing assessable income ◦ If income already considered/ loan in ordinary course of moneylending business ◦ Written off in books of accounts ◦ Subsequent Recovery taxable Sshailesh L. Prajapati CA, MBA ( Finance) 100
  101. 101. Amounts not deductible Income Tax/ Wealth Tax/FBT/Tax on Perquisites  Payments to members of AOP/BOI  Provisions made for non statutory employee welfare funds  Payments to partners by a partnership firm ◦ Remuneration in excess of limits ◦ Interest on capital in excess of 12% p.a.  Sshailesh L. Prajapati CA, MBA ( Finance) 101
  102. 102. Remuneration to Partners - Limits Professional Firm Maximum Allowable On First Rs. 3,00,000/- or In case of Loss Balance 90% or Rs. 1.50 Lacs whichever is higher 60% Minimum Allowable Remuneration in case of loss or no profits is Rs. 1,50,000/Sshailesh L. Prajapati CA, MBA ( Finance) 102
  103. 103. Book Profit and its Computation         Steps : Find Out the Net Profit of the firm as per Profit and Loss Account Add: Remuneration to Partners if debited to Profit and Loss Account. Add: Interest paid to Partner and debited to P/L account ( Add only Excess paid more than 12%) Make an adjustments ( Add/Less) as provided u/s. 28 to 44DB. Resultant figure is “Book Profit” Income Chargeable to any other head will not be part of Book Profit Deduction u/s. 80 C to 80 U to be ignored while calculating Book Profit. Sshailesh L. Prajapati CA, MBA ( Finance) 103
  104. 104. Amounts not deductible         Payments to Relatives : Section 40A Payments to relatives in excess of fair value Relatives defined to include: spouse, brother, sister, lineal ascendant and descendant Receipts not covered Overseas Payments : Section 40 (a) (i) Overseas Payments are deductible only if the applicable taxes are deducted at source and paid If the payments are disallowed in the current year because the taxes are not deducted or paid, they shall be allowed in the year of payment Sshailesh L. Prajapati CA, MBA ( Finance) 104
  105. 105. Cash Expenditure : Section 40 (A) (3) Expenditure above Rs. 20000/- to be made by account payee cheque otherwise a disallowance of 100% is attracted  A Payment ( or aggregate of payments made to a person in a day) exceeds Rs. 20000/ Exceptions carved out in genuine cases like ◦ Payments to Government Agencies, payments on a bank holiday, payments in a village not serviced by a bank, etc.  Sshailesh L. Prajapati CA, MBA ( Finance) 105
  106. 106. Depreciation: Written Down Value Opening WDV  Add : Actual Cost of Assets Purchased ◦ Used > 180 days ◦ Used < 180 days  Less : Sale Price of Assets Sold  Closing WDV (e) = ( a + b + c - d)  (a) xx (b) (c) (d) xx xx xx xx Sshailesh L. Prajapati CA, MBA ( Finance) 106
  107. 107. Depreciation : WDV (Contd.)  If Closing WDV is negative ◦ Treat the amount as Short Term Capital Gain  Adjustable against business losses to the extent of depreciation written off ◦ No Depreciation will be available even if there are other assets in the block  If Closing WDV is positive but there are no assets in the block ◦ Treat the amount as Short Term Capital Loss ◦ No Depreciation will be available even though the WDV is positive Sshailesh L. Prajapati CA, MBA ( Finance) 107
  108. 108. Depreciation : WDV (Contd.)  If Closing WDV is positive and there are assets in the block ◦ Do not calculate profit or loss but provide depreciation on (e) ◦ If e > c  Depreciation = full * (a+b-d) + half * c ◦ If e < c  Depreciation = half * e Sshailesh L. Prajapati CA, MBA ( Finance) 108
  109. 109. Depreciation: Power Units Undertaking engaged in generation and distribution of power  Can claim depreciation in respect of assets acquired after 31.03.1997  Two Methods ◦ SLM ◦ WDV  Once the option is exercised, it shall be final and shall apply to all the subsequent years  Sshailesh L. Prajapati CA, MBA ( Finance) 109
  110. 110. Depreciation: Power Units  Terminal Depreciation ( Loss on Transfer) ◦ Find out WDV of the depreciable assets on the first day of P.Y. in which asset is sold, discarded, demolished or destroyed ◦ Find out SC ( Receipts + Scrap Value if any ) ◦ If SC<WDV, then deficiency is deductible as TD. If the asset is sold in the P.Y in which it is put to use, any loss there from is not to be allowed as TD but as Capital Loss.  TD is allowed only if it is actually written off in the books of the assessee.  Sshailesh L. Prajapati CA, MBA ( Finance) 110
  111. 111. Depreciation: Power Units  Balancing Charge ◦ SC>WDV, then ◦ The amount equal to the depreciation already claimed is taxable as balancing charge u/s 41 (2) as Business Income ◦ The remaining surplus if any is taxable according to the provision of section 45 as capital gain. ◦ If the asset is sold in the P.Y in which it is put to use, any profit there from will not be chargeable as balancing charge but will be treated as capital gain. Sshailesh L. Prajapati CA, MBA ( Finance) 111
  112. 112. General Deductions Sec 37 (1)        It should Not be in the nature of capital expenditure Not be personal expenditure of assessee have been incurred in the previous year Be in respect of business carried out Have been expended wholly and exclusive for business Not have been incurred for any purpose which is prohibited by Law. Sshailesh L. Prajapati CA, MBA ( Finance) 112
  113. 113. General Deductions Sec 37 (1) Interest on Delayed Payment to Micro Small and Medium Enterprises not deductible  Amount spent by Assessee in connection with the inaugural function of its new project can not be in the nature of capital expenses  Amount spent for exhibition can be allowed as a deduction in the year in which it is done irrespective of its benefits.  Sshailesh L. Prajapati CA, MBA ( Finance) 113
  114. 114. Disallowance in case of all assessees : Sec 40 (a) (ia) The amount will be disallowed if  Such Tax has not been deducted; or  Such Tax, after deduction, has not been paid◦ On or before the due date specified in section 139 (1), in a case where the tax was deductible and was so deducted during the last month (i.e. March) of the previous year; ◦ On or before the last day of the previous year, in any other case  Sshailesh L. Prajapati CA, MBA ( Finance) 114
  115. 115. Disallowance in case of all assessees : Sec 40 (a) (ia) In case the tax is deducted in any subsequent year or has been deducted  During the last month (i.e march) of the previous year but paid after the due date specified u/s. 139 (1); or  During any other month ( i.e April to February of the previous year but paid after the end of the previous year,  Such sum shall be allowed as deduction in computing the income of the previous year in which such tax has been paid.  Sshailesh L. Prajapati CA, MBA ( Finance) 115
  116. 116. Miscelleneous Provisions Gratuity : Section 40A (7) ◦ No Deduction will be allowed in respect of provision made. ◦ Contribution to any Gratuity fund will be allowed.  Recovery of Bad debts: Section 41(4) ◦ Taxable in the year of Receipt  Sshailesh L. Prajapati CA, MBA ( Finance) 116
  117. 117. Amounts not deductible : Unpaid Statutory Dues Items covered Payment to be made Effect of late by pymt. Tax, duty or cess Bonus/Commission to employees Interest on Loan of financial institutions Int. on term loan of scheduled bank Leave Salary to employee Due date of filing the return of income Deduction allowable in the year of payment Contribution to PF/ESIC/PT Due Date under the respective Act Deduction never allowed Sshailesh L. Prajapati CA, MBA ( Finance) 117
  118. 118. Books of Accounts and Audit of Accounts Books of Accounts to be maintained by each category of Person who are into Business or Profession.  The above is not mandatory for those who are following presumptive Taxation.  Audit of Accounts is compulsory ◦ if total Sales, turnover/Gross Receipts exceeds Rs. 60 Lacs for those who carrying on business; ◦ If gross receipts exceeds Rs. 15 Lacs for those who carrying on profession,.  Sshailesh L. Prajapati CA, MBA ( Finance) 118
  119. 119. Income Tax Income from Capital Gain Sshailesh L. Prajapati CA, MBA ( Finance) 119
  120. 120. Meaning of Capital Assets Property of any kind  Held by an assessee  Whether or not connected with his business or profession.  Certain exclusions  Sshailesh L. Prajapati CA, MBA ( Finance) 120
  121. 121. Capital Asset   Wide definition Cannot however cover ◦ ◦ ◦ ◦  Stock in trade Personal assets & privileges Agricultural Rural Land (Population < 10000) Certain Bonds Classification as short term & long term ◦ Equity/Preference Shares, Other listed securities & units – 12 months ◦ Other Assets – 36 months Sshailesh L. Prajapati CA, MBA ( Finance) 121
  122. 122. Transfer  Extended Definition of Transfer ◦ ◦ ◦ ◦ ◦ Sale, Exchange, Extinguishment of Rights Compulsory Acquisition Conversion into Stock in trade Giving Possession under Part Performance Sshailesh L. Prajapati CA, MBA ( Finance) 122
  123. 123. Transfer  Exclusions from Definition ◦ ◦ ◦ ◦ ◦ ◦ ◦ ◦ Distribution of Assets by HUF Gift, Will, Irrevocable Trust Holding/Subsidiary Transactions Mergers/De-mergers – company/holders Conversion of debentures / bonds in to shares Conversion of Firm into company Conversion of Proprietary concern into a company Distribution of Assets in kind by a company to its shareholders at the time of liquidation Sshailesh L. Prajapati CA, MBA ( Finance) 123
  124. 124. Profit/Loss..      Sales Consideration Less: Expense on Transfer Deductions ◦ Cost of Acquisition ◦ Cost of Improvement ( Expenses incurred after 1.4.1981 ) ◦ Deduct the exemptions ( Section 54 Series ) Balancing amount is CG Indexation to be done for Long Term Capital gain Sshailesh L. Prajapati CA, MBA ( Finance) 124
  125. 125. Conditions for Capital Gain There should be a Capital Assets  It is transferred by Assessee  Transfer takes place during the previous year  Profit or Gain arises as a result of transfer  Exemptions are available under sections: ◦ 54,54B,54D,54EC, 54F, 54G, 54GA.  Sshailesh L. Prajapati CA, MBA ( Finance) 125
  126. 126. Special Considerations apply: Depreciable Assets : Section 50 ◦ Gains will always be SHORT TERM  Immoveable Properties ◦ Reference to Stamp Duty Valuation under Section 50C  Self Generated Asset  Goodwill of a Business (excluding Profession, CIT Vs B.C. Shrinivasa setty);  Right to manufacture, produce, or process any article or thing or right to carry on any business.  Treatment ◦ Full Value of Consideration will be taken on Actual basis. ◦ Cost of Acquisition &/ or Improvement will be taken as Nil. ◦ Expenses on transfer will be deductible on Actual basis.  Sshailesh L. Prajapati CA, MBA ( Finance) 126
  127. 127. Cost of Acquisition of Bonus shares If original shares and bonus shares are acquired before April1, 1981 :  Cost :  Original shares : Actual cost or fair market value on April 1, 1981 whichever is more  Bonus Shares : Fair Market Value on April 1, 1981  If Original Shares acquired before April 1, 1981 but bonus shares are allotted after April 1, 1981 :  Cost :  Original shares : Actual cost or fair market value on April 1, 1981 whichever is more  Bonus Shares : Nil  If Original shares and Bonus Shares are acquired after April 1, 1981  Cost :  Original shares : Actual cost  Bonus Shares : Nil  Sshailesh L. Prajapati CA, MBA ( Finance) 127
  128. 128. Cost Inflation Index         Financial Year 1981-1982 100 Financial Year 2012-2013 852 Financial Year 2013-2014 939 It may be computed as under: Assets acquired before April 1,1981 Assets acquired on or after April 1 1981 Assets acquired on or after April 1, 1981 in one of the circumstances specified in sec 49(1) and originally acquired by the previous owner before April 1, 1981 Assets acquired on or after April 1, 1981 in one of the circumstances specified in sec 49(1) and originally acquired by the previous owner on or after April 1, 1981 Sshailesh L. Prajapati CA, MBA ( Finance) 128
  129. 129. Cost Inflation Index A. Indexed Cost of Acquisition Cost of Acquisition or FMV as on 01/04/1981 as the case may be Index Factor for the base year 1981-82 or for the first year in which the Asset was held by assessee, whichever is later B. X Index Factor for the year of Transfer X Index Factor for the year of Transfer Indexed Cost of Improvement Cost of Improvement ( Incurred only after 01/04/1981 ) Index Factor for the year in which Improvement was made to the asset Sshailesh L. Prajapati CA, MBA ( Finance) 129
  130. 130. Special cases in computation of Period of holding  Sec.49(1) - Previous owner:  If the capital asset is acquired by the assessee through any of the ways/modes specified U/S.49(1), then the period for which the previous owner held the asset should also be included for computing the period of holding of the assessee/person who sold it. i.e. the word “held by assessee” means “held by the assessee and by the previous owner”  Sshailesh L. Prajapati CA, MBA ( Finance) 130
  131. 131. Special cases in computation of Period of holding       Property acquired by Gift, Will etc Property acquired on Partition of HUF Amalgamation, Demerger, Business Re organisation Right Renouncement ( Period to be taken from Date of offer to Right Renouncement) Sshailesh L. Prajapati CA, MBA ( Finance) 131
  132. 132. Special cases in computation of cost of acquisition If the assets acquired in any mode in Section 49 (1) , then cost of the Acquisition shall be taken as the cost to the Previous owner.  If the assessee or previous owner whose cost has to be adopted, as the case may be, acquired the assets before 01/04/1981, then FMV as on 01/04/1981 or the cost paid whichever is higher  Cost of Improvement in any property done before 1.4.1981 is to be taken as Nil.  Cost of Improvement in any property done after 1.4.1981 is to be taken with Cost of Indexation.  Sshailesh L. Prajapati CA, MBA ( Finance) 132
  133. 133. Certain Special Cases  Capital Gain in the case of conversion of capital Assets into Stock in Trade (Sec 45 (2)) ◦ Event: Conversion of a capital asset into stock in trade. ◦ Year of Chargeability: The year in which such stockin-trade was sold. ◦ Consideration: FMV as on the date of conversion. ◦ Indexation Facility is available only up to the year of conversion. Sshailesh L. Prajapati CA, MBA ( Finance) 133
  134. 134. Certain Special Cases  In the year in which such SIT is sold both Capital gains and business profits will result. ◦ Capital Gain = FMV- Indexed Cost of Acquisition ◦ Business Income= Sales Consideration- FMV  Capital Gain in the case of Land and Building (Section 50 (C) ) ◦ For Sales Consideration, MV or the Agreement value whichever is higher is to be taken. Sshailesh L. Prajapati CA, MBA ( Finance) 134
  135. 135. Certain Special Cases  Capital Gain in case of compulsory acquisition of an asset ( Section 45 (5 )) ◦ Event: Transfer of a Capital Asset by way of Compulsory Acquisition, under any law. ◦ Year of Chargeability: In the previous year in which compensation is received (Full/Part). ◦ Consideration: Compensation. ◦ Indexation is available only up to the year of transfer. ◦ If the Compensation is received by the legal representative of the deceased person from whom the Asset was acquired, the recipient shall be chargeable to tax. Sshailesh L. Prajapati CA, MBA ( Finance) 135
  136. 136. Certain Special Cases  Capital Gain in case of compulsory acquisition of an asset ( Section 45 (5 )) ◦ Enhanced compensation/consideration: Fully Taxable as a Capital Gain in the year in which it is received. ◦ The cost of acquisition and Improvement thereto will be taken as “Nil” since it is already has been deducted at the time of computation of Capital Gain of Initial compensation. ◦ Interest on enhanced compensation is chargeable under Income from other sources. ◦ Expenses incurred for getting the enhanced compensation is allowable as expenditure. Sshailesh L. Prajapati CA, MBA ( Finance) 136
  137. 137. Certain Special Cases  Procedure to be followed at the time of conversion of debentures / bonds into shares. ◦ Nothing is taxable at the time of Conversion. ◦ COA of Bonds/debentures will become the COA of Shares ◦ To find out Gain is Short Term or Long Term, Period of holding shall be counted from date of allotment of Shares. ◦ The benefit of indexation is available from date of allotment of shares. ◦ If Shares are LTCA and STT is paid on sales, CG is exempt u/s.10 (38). Sshailesh L. Prajapati CA, MBA ( Finance) 137
  138. 138. Certain Special Cases      Procedure to be followed for sale of Right Shares The cost of acquisition (C.O.A.) of original shares – ◦ Amount actually paid. The C.O.A. of the right shares – ◦ Amount actually paid. Right Renouncements – ◦ While computing capital gains C.O.A. to be taken as N I L. Cost to the purchaser of right shares: ◦ Amount paid to the company for acquiring the shares + the amount paid to the owner towards rights renouncement. Sshailesh L. Prajapati CA, MBA ( Finance) 138
  139. 139. Capital Gain Exempt from Tax      CG arising from transfer of residential House [Section 54] CG arising from transfer of land used for agricultural purpose. [Section 54B] CG arising from compulsory acquisition of Land and Buildings forming part of Industrial undertaking. [Sec 54D] CG not to be charged on Investment in certain Bonds. [Section 54EC] CG on transfer of long term capital asset other than a house property [Section 54EF] Sshailesh L. Prajapati CA, MBA ( Finance) 139
  140. 140. Rates of Tax for capital Gain Long Term Capital Gain : 20%  Short Term Capital Gain- Add to the normal Income  Long Term Capital Gain : ◦ Listed equity shares and subject to STT : Nil u/s. 10 (38) ◦ Non Listed Equity Shares 20%  Short Term Capital Gain on sale of : ◦ Equity shares or Units of Mutual Fund, ◦ Transaction of Sales is on or after 01.04.2004 ◦ Such Transaction is subject to STT ◦ It will be taxable @ 15%  Sshailesh L. Prajapati CA, MBA ( Finance) 140
  141. 141. Income Tax Income from Other Sources Sshailesh L. Prajapati CA, MBA ( Finance) 141
  142. 142. Income From Other Sources Last and residual head of Income Dividend under section 2 (22) (e) Winning from Lotteries Interest on securities Rental Income of Machinery, Plant or furniture Rental Income of Machinery, Plant or furniture and building and the same is not separable  Sum received under Key Man Insurance Policy  Gift       Sshailesh L. Prajapati CA, MBA ( Finance) 142
  143. 143. Winning from Lotteries, crossword puzzles, horse race, card game etc      Taxable Receipt is chargeable @ 30% ( +SC +EC +SHEC) Taxable in the year of receipt Gross up if net winning is given after TDS TDS is applicable if winning is more than Rs. 10000 except in the case of horse race where it is Rs. 5000/- Sshailesh L. Prajapati CA, MBA ( Finance) 143
  144. 144. Interest on Securities Security of Central Government or State Government  Taxable on receipt basis if the books are maintained on cash basis otherwise on accrual basis  Interest exempt from tax u/s. 10 (15) to exclude  Grossing up of Interest if TDS is deducted.  Sshailesh L. Prajapati CA, MBA ( Finance) 144
  145. 145. Income from Machines, Plant or Furniture let on hire       Taxable if the same is not chargeable under business income Composite Letting is taxable under this head This rule is applicable even if the sum receivable for the two lettings is fixed separately. If the Letting out of Building and Machinery and two lettings are separable then, letting out of Machinery will be taxed here. If the Letting out of Building and other amenities like AC etc , then generally Letting out of Building is taxable under IFHP and amenities under IFOS. If building is let out but other assets like machine, furniture are not given on rent, then it is not chargeable under this section. Sshailesh L. Prajapati CA, MBA ( Finance) 145
  146. 146. Receipts without consideration (Sec 56 (2))  The recipient is an individual or HUF  A sum of money/ Property is received without consideration on or after 01/10/2009; ◦ A Sum of Money / Property is received without consideration or with inadequate consideration. ◦ Chargeable to Tax in the hands of Recipients under the Head Income From Other Sources. Entire amount is chargeable to tax in the hands of recipient. Sshailesh L. Prajapati CA, MBA ( Finance) 146
  147. 147. Receipts without consideration (Sec 56 (2))           “Property” means; a) Land or Building or both; b) Shares and Securities; c) Jewellery; d) archaeological collection; e) drawings; f) Paintings; g)sculptures; h) any work of art; i) Bullion w.e.f 01/06/2010. Sshailesh L. Prajapati CA, MBA ( Finance) 147
  148. 148. Five categories chargeable to Tax  A receipt of sum of money or property without consideration or with inadequate consideration is chargeable to tax if it satisfies the following conditions: ◦ It is received by an Individual or HUF. ◦ It is received on or after 01/10/2009. ◦ Sum of money or Property falls any of the Five Categories ( given in next slide) ◦ It does not fall in the exempted category. Sshailesh L. Prajapati CA, MBA ( Finance) 148
  149. 149. Five categories chargeable to Tax Categories Tax Treatment Ceiling Rs.50K Any sum of Money ( Gift in cash or by DD or by cheque) If aggregate amount of sum of Money received by Individual or HUF without any consideration from one or more persons exceeds Rs. 50000/-. Whole of such amount Chargeable to Tax. All Transactions Immovable Property without Consideration If any IP (without consideration) is received and the stamp duty value of Property Transferred is more than Rs. 50000, Stamp duty value will be chargeable to tax. Single Transaction Sshailesh L. Prajapati CA, MBA ( Finance) 149
  150. 150. Five categories chargeable to Tax Categories Tax Treatment Ceiling Rs.50K Immovable Property for a consideration which is < the Stamp duty value (from A.Y. 2014-2015) If IP received for a consideration which is < the stamp duty value of the property by an amount exceeding Rs. 50000., then difference between stamp duty value and consideration is chargeable to tax Single Transaction Movable Property without consideration If aggregate value of MP received without consideration exceeds Rs. 50000, the whole of aggregate FMV of MP will chargeable to Tax All Transactions Sshailesh L. Prajapati CA, MBA ( Finance) 150
  151. 151. Five categories chargeable to Tax Categories Tax Treatment Ceiling Rs.50K Movable Property for a consideration which is less than Fair Market Value. If MP is received for a consideration which is < the aggregate MV of the Property/ies by an amount exceeding Rs. 50000, then the difference between aggregate FMV and consideration is chargeable to Tax. All Transactions Sshailesh L. Prajapati CA, MBA ( Finance) 151
  152. 152. Exempted Categories  While Calculating the monetary limit of Rs. 50000, any sum of money or property received from the following shall not be considered: ◦ Received from a relative ◦ Received on the occasion of the marriage of individual ◦ Received by way of will/inheritance ◦ Received in contemplation of death of the payer ◦ Received from local authority ◦ From university or education institution as mentioned in section 10 ( 23C) ◦ From charitable institute registered under section 12AA. Sshailesh L. Prajapati CA, MBA ( Finance) 152
  153. 153. Other relevant Points        The Value of Movable Property shall be the FMV as on the date of receipt in accordance with the method prescribed. In case of Immovable Property, the value of the property shall be the stamp duty value of the property. Relative means ( as defined in the next slide ) The Provision covers only a receipt by an individual or HUF Gift on occasion of marriage is not chargeable to tax Gifts on other occasion ( Birthday etc.) will be chargeable to tax. Marriage gift may be received from relatives, friends or any other person. Sshailesh L. Prajapati CA, MBA ( Finance) 153
  154. 154. Other relevant Points The provisions is applicable whether recipient is a resident or nonresident.  Gift received by Non-resident in India is chargeable to tax.  The provisions is applicable whether the donor is resident or nonresident.  If Individual/HUF gets a gift of agricultural land situated in a rural area in India, it is not chargeable to tax in the hands of recipient, as rural agricultural land is not treated as “capital asset” under section 2 (14).  Sshailesh L. Prajapati CA, MBA ( Finance) 154
  155. 155. Relative means:Relatives If Tax Payers is X, 1. Spouse of the Individual Mrs. X 2. Brother or sister of the Individual Brothers/sisters of X 3. Brother or sister of spouse the Individual Brothers/sisters of Mrs. X 4. Brother or sister of either of the parents of the Individual Brothers/sisters of father or mother of Mr. X 5. Any lineal ascendants or descendants of the Individual. Lineal ascendants or descendant of X 6. Any lineal ascendants or descendants of spouse of the Individual. Lineal ascendants or descendant of X 7. Spouse of the person referred to in ( 2) to ( 6 ) Spouse of aforesaid persons Sshailesh L. Prajapati CA, MBA ( Finance) 155
  156. 156. Valuation Rules Different Properties Valuation of Properties Immovable Property Stamp duty value of the property Jewellery, archaeological collections, drawings, paintings, sculptures or any work of art If purchased from Registered Dealer: Invoice value = Market Value In any other case : The price which would fetch if sold in the open market. ( FMV or certified value from registered dealer.) Quoted Shares and securities (received by any recognized Stock exchange in India) The transaction value as recorded in such stock exchange Quoted Shares and securities (not being received by any recognized Stock exchange in India) Lowest price of such shares quoted on any recognised stock exchange in India on Valuation date or immediately preceding date Prajapati CA, MBA ( Finance) Sshailesh L. in case not traded on 156
  157. 157. Valuation Rules Different Properties Valuation of Properties Unquoted Equity Shares (Option 1 ) Net worth/Number of Shares= Per Share value Unquoted Equity Shares (Option 1 ) Under section 56 (2 ) (vii) FMV shall be determined by a Merchant banker or by accountant as per DCF method. Other Unquoted Shares and securities FMV shall be estimated to be the price it would fetch if sold in Open market on valuation date Sshailesh L. Prajapati CA, MBA ( Finance) 157
  158. 158. Valuation Rules…. Contd… Where the date of agreement fixing the value of consideration for the transfer of Immovable property and date of registration are not same, Stamp duty value may be taken as on the date of agreement for transfer and not as on the date of registration for such transfer.  Exception in case of Money received before the date of agreement other than cash.  Sshailesh L. Prajapati CA, MBA ( Finance) 158
  159. 159. Deductions in case of IFOS Any other expenses for earning income ◦ Spent wholly and exclusively for earning income ◦ Must not be in a capital nature ◦ Must not be in a personal nature ◦ Spent in related previous year and not in any prior year  Commission for realizing dividend or interest on security  Repairs, depreciation, insurance premium in the case of letting out of plant, machines, furniture, building  Standard deduction in the case of family pension - Rs. 15000/- or 33-1/3 of such income whichever is less ( paid to a person by the employer in event of death.)  Sshailesh L. Prajapati CA, MBA ( Finance) 159
  160. 160. Income Tax Set off and carried forward of Losses Sshailesh L. Prajapati CA, MBA ( Finance) 160
  161. 161. Set off and Carried forward of Losses Step :1 :Inter – Source adjustment under the same head of Income  Step :2: Inter head adjustment in the same assessment year. This is applied only if a loss can not be set off under step 1.  Step : 3: Carry forward of loss. This is applied only if a loss cannot be setoff under step 1 and step 2  Sshailesh L. Prajapati CA, MBA ( Finance) 161
  162. 162. Inter – Source Adjustment Loss of any Source can be adjusted against the income of any other source for the same A.Y.  Exceptions: ◦ Loss from speculation business- Same Income ◦ Loss from the activity of owning and maintaining race horsesSame Income ◦ Loss can not be set off against winning from lotteries, crossword puzzles, horse races etc ◦ Loss from an exempt income cannot be set off against Profit from Taxable source of Income.  Sshailesh L. Prajapati CA, MBA ( Finance) 162
  163. 163. Inter – Source Adjustment Sec 70  Other points ◦ Loss from a H.P. can be set off against the income from any other house property ◦ Loss from Non- speculation business can be set off against income from speculation or non-speculation business ◦ STCL can be set off against any capital gain ( whether short term or long term) ◦ LFOS except exceptions, can be setoff against any income other than winning from lotteries etc.. ◦ Loss of any source can not be adjusted against exempt income. ◦ LTCL against LTCG ◦ STCL against LTCG/STCG Sshailesh L. Prajapati CA, MBA ( Finance) 163
  164. 164. Inter – Head Adjustment Sec 71 ◦ Net result of computation in respect of any head of income (excluding CG) is a loss, the same can be set off against the income from other heads ( including CG)  Exceptions ◦ ◦ ◦ ◦ ◦ Loss in speculation business Loss from activity of owning and maintaining race horses Loss can not be set off against winnings from lotteries etc. Loss under capital Gain can not be set off against any other head Business loss ( including unabsorbed depreciation )can not be set off against Salary. Sshailesh L. Prajapati CA, MBA ( Finance) 164
  165. 165. Inter – Head Adjustment Sec 71       Other Points Section 71 to follow only after Section 70 Except exceptions mentioned, any loss can be setoff against income under other heads for the same year. Eg. Hp Loss against specu. Profits No order of priority is given. One should set off those loss for which there is no carried fwd. No option is available to not to set off the loss. Loss of any head can not be adjusted against exempt income Sshailesh L. Prajapati CA, MBA ( Finance) 165
  166. 166. Carried forward of Loss      Loss under Head “IFHP” Loss under Head “ Profit and gains of business or profession whether speculative or non Speculative Loss under Head Capital Gain (ST and LT) Loss from the activity of owning and maintaining race horses. Return of Loss should be filed before due date Sshailesh L. Prajapati CA, MBA ( Finance) 166
  167. 167. Order of set off  Order of Set off If profit is insufficient ◦ ◦ ◦ ◦ ◦ ◦ ◦ ◦  Current Scientific research expenditure Current Depreciation Brought forward Business Losses Unabsorbed Family Planning promo expenses Unabsorbed depreciation Unabsorbed Scientific Research Capital Expenditure Unabsorbed development allowance Unabsorbed Investment allowance Loss from exempt Income can not be carried forward Sshailesh L. Prajapati CA, MBA ( Finance) 167
  168. 168. Income Tax Deductions from Gross Total Income Sshailesh L. Prajapati CA, MBA ( Finance) 168
  169. 169. Deductions Generally available only to residents  Subject to the existence of income  Broad Categories ◦ For certain payments ◦ For certain incomes ◦ In certain situations  Sshailesh L. Prajapati CA, MBA ( Finance) 169
  170. 170. Deductions from GTI  Deduction in respect of insurance premia, contribution to PF, PPF etc.. ( Section 80 C) ◦ ◦ ◦ ◦ Available from GTI Only to an Individual or HUF Only on qualified Investments Maximum amount should not exceed > Rs. 100000/- together with 80C, 80CCC, 80CCD Deduction in respect of Pension Fund(80CCC)  Contribution to Pension scheme of Central Government or notified by Central Govt. (80CCD)  Contribution to Infrastructure Fund Rs. 20000/- u/s. 80CCF  Sshailesh L. Prajapati CA, MBA ( Finance) 170
  171. 171. Medical Insurance Premia (Sec 80D)       Individual or HUF Paid by any other mode other than cash Rental Income of Machinery, Plant or furniture Paid out of the income chargeable to tax On the health of Taxpayer, spouse, dependant parents and dependant children or member of HUF. Deduction : Rs. 15000/- for self and family ( Rs. 5000/for senior citizen ), Additional Rs. 15000/- for parents and Rs. 5000/- if paid for senior citizen parent. Sshailesh L. Prajapati CA, MBA ( Finance) 171
  172. 172. Medical Treatment of dependant being a person with disability        Section 80DD Tax Payer is resident in India Spent amount for medical treatment or deposited under any scheme framed Dependant means the spouse, children, brothers, sisters, of the individual Such person has not claimed any deduction u/s 80U Form 10IA is required from the Medical Practitioner Rs. 50000/-. If having severe disability, Rs. 100000/Sshailesh L. Prajapati CA, MBA ( Finance) 172
  173. 173. Medical Treatment ( 80DDB) Tax payer is resident in India Individual or HUF Actually paid any amount of a specified disease Dependant means the spouse, children, brothers, sisters, of the individual  Certificate in form 10I from such specialist working in a Govt. Hospital  Deduction : Rs. 40000/- or actual expenses whichever is lower. For Senior Citizen Rs. 60000 or actual expenses which ever is lower     Sshailesh L. Prajapati CA, MBA ( Finance) 173
  174. 174. Repayment of Loan taken for higher studies Section 80E The assessee is an Individual Taken loan from any Financial Institutions Taken for pursuing higher education for own or for his relatives i.e spouse or child. Any courses after Class XII (from A.Y. 2010-11) or its equivalent, including vocational Studies  Amt. is paid out of Income chargeable to tax  Interest is deductible from the year in which assessee starts paying the Interest and seven assessment years or till the Interest paid in full whichever is earlier.    Sshailesh L. Prajapati CA, MBA ( Finance) 174
  175. 175. Donations Section 80G Available to any tax payer  Find out Gross Qualifying Amount  ◦ Aggregate of donations made to any of the institutions ◦ Donation in Kind is not be included  Find out Net Qualifying Amount ◦ Limited to 10% of adjusted GTI ◦ Adjusted GTI= GTI –[80C to 80U-Exempt Income-LTCG-STCG) ◦ This ceiling is not applicable for certain donations.  Proper proof of Payment must be submitted Sshailesh L. Prajapati CA, MBA ( Finance) 175
  176. 176. Donations – the matrix No Limit 10% Limit 100% National Defence Fund PM National Relief Fund CM Relief Fund National Foundation for Communal Harmony Prescribed Universities National Sports fund Disaster Relief Funds – earthquakes, cyclones, etc. Sports Associations Family Planning Associations Planning & Devpt of Town Interest of minority communit 50% Jawaharlal Nehru Relief Fund PM Drought Relief Fund National Children’s Fund Indira Gandhi Memorial Fund Rajiv Gandhi Foundation Approved Charitable Organizations Any Notified Tample . Sshailesh L. Prajapati CA, MBA ( Finance) 176
  177. 177. Deduction in respect of rent paid Section 80 GG       The Taxpayer is an individual Self employed person. Alternatively, Employee who does not get HRA at any time during previous year He or his relatives, i.e spouse, minor child or HUF of which he is a member does not own any residential accommodation where he resides or perform duties. If the tax payer owns a residential house at any other place other than the place noted above, then the exemption of SOP is not claimed by him. Declaration in form 10BA is submitted for rent paid. Sshailesh L. Prajapati CA, MBA ( Finance) 177
  178. 178. Deduction in respect of rent paid Section 80 GG  Amount of Deduction- Least of following ◦ ◦ ◦ ◦ ◦ ◦ ◦ ◦ ◦ Rs. 2000/- per month 25% of total income* (* as given below) Excess of rent paid over 10% of total income *Gross Total Income XXX Less: LTCG XXX Less: STCG u/s111A @15% XX Less: Income u/s115A XX Less: Deduction u/s80C-80U XX Total Income for the purpose of 80GG XXX Sshailesh L. Prajapati CA, MBA ( Finance) 178
  179. 179. Deduction in respect of donation for scientific research 80GGA An Assessee other than whose GTI includes income from profits and gains of business or profession  Following payment are allowed  ◦ Scientific research association ◦ University, college to be used for research ◦ Approved association or Institutions, public sector company for carrying out the eligible projects ◦ Sum paid to national fund as notified by CG ◦ Paid to National Urban Poverty Eradication Fund Sshailesh L. Prajapati CA, MBA ( Finance) 179
  180. 180. Other Deductions  Contribution given by companies to Political Parties ( Sec. 80GGB)  Contribution given by any person to Political Parties ( Sec. 80GGC)  Deduction in respect of Profits and gains from Industrial Undertakings engaged in Infrastructure development ( Sec 80- IA )  Deduction in respect of Profits and gains from Industrial Undertakings engaged in SEZ development ( Sec 80- IAB ) Sshailesh L. Prajapati CA, MBA ( Finance) 180
  181. 181. Other Deductions      In respect of Profits and gains from Industrial Undertakings other than Infrastructural development undertakings ( Sec 80- IB ) In respect of profits and gains of certain undertakings in certain special category of states ( Sec 80IC) Hotels & convention centre in NCR(Sec80 ID) Undertaking in North Eastern States(Sec80 IE) Person with a disability Sec 80 U- Fixed deduction of Rs. 50000/-. Severe disability- Rs. 100000/-. Sshailesh L. Prajapati CA, MBA ( Finance) 181
  182. 182. Income Tax Clubbing of Income Sshailesh L. Prajapati CA, MBA ( Finance) 182
  183. 183. Income of other persons included in assessee's total Income          Transfer of Income without transfer of Assets ( Section 60 ) Revocable Transfer of Assets ( Section 61 ) Remuneration to Spouse [ Section 64 (1 ) (ii) ] Assets transferred to Spouse [ Section 64 (1 ) (iv) ] Assets transferred to Son’s Wife * Section 64 ( 1 ) (vi) + Assets transferred to a person for the benefit of Spouse [64(1)(vii)] Assets trfd. to a person for the benefit of son’s wife *64(1)(viii)+ Income of a Minor Child [Section 64 (1A) ] Conversion of Self acquired Property into JFP and subsequent partition. Sshailesh L. Prajapati CA, MBA ( Finance) 183
  184. 184. Transfer of Income without transfer of Assets Conditions: ◦ The Tax Payer owns an asset. Ownership is not transferred. ◦ The income from the asset is transferred to any person under a settlement, trust, covenant, agreement or arrangement. ◦ The above transfer may be revocable or many not be revocable ◦ The above transfer may be effected at any time.  The income from the asset would be taxable in the hands of transferor.  There are no exception to this section.  Sshailesh L. Prajapati CA, MBA ( Finance) 184
  185. 185. Revocable Transfer of Assets   If an asset is transferred under “ Revocable Transfer”, income from such asset is taxable in the hands of the transferor. Revocable : Meaning:- ◦ Assets transferred under a trust and it is revocable during the lifetime of the beneficiary. ◦ Assets transferred under a trust and it is revocable during the lifetime of the transferee. ◦ Assets transferred before April 1, 1961 and it is revocable within 6 years. ◦ If the transfer contains any provision of re-transfer the asset (or income there from) to the transferor directly or indirectly, wholly or partly ◦ If the transferor has any right to reassume power over the asset (or income there from) directly or indirectly wholly or partly. Sshailesh L. Prajapati CA, MBA ( Finance) 185
  186. 186. Remuneration to Spouse Conditions: ◦ The Tax Payer is an Individual ◦ He/ she has substantial interest in a concern (>20% Shares) ◦ Spouse of tax payer ( i.e husband or wife of the taxpayer ) is employed in the abovementioned concern. ◦ Spouse is employed in the concern without any technical or professional knowledge or experience.  If the above conditions are satisfied, then salary income of the spouse will be taxable in the hands of the taxpayer.  If both H/W have substantial interest and both does not have technical knowledge and getting remuneration ?  Sshailesh L. Prajapati CA, MBA ( Finance) 186
  187. 187. Assets transferred to Spouse  Conditions: ◦ The Tax Payer is an Individual ◦ He/she has transferred an asset ( other than House Property) ◦ The asset is transferred to his/her spouse ◦ Transfer may be direct or indirect ◦ The asset is transferred otherwise than (a) for adequate consideration or (b) in connection with an agreement to live apart. ◦ The asset may be held by the transferee-spouse in the same form or in a different form. Sshailesh L. Prajapati CA, MBA ( Finance) 187
  188. 188. Assets transferred to Spouse … Contd. If the above conditions are satisfied: ◦ Any income from such asset shall be deemed to be the income of the tax payer who has transferred the asset.  Asset other than house property should be transferred: If a house property is transferred and the above noted conditions are satisfied, then the transferor is “ deemed” as owner of the Property under section 27.  Natural love and affection may be good consideration but that would not be adequate consideration for the purpose of this section.  Sshailesh L. Prajapati CA, MBA ( Finance) 188
  189. 189. Assets transferred to Son’s Wife Conditions : ◦ The taxpayer is an individual. ◦ He/she has transferred an asset after May 31, 1973. ◦ The asset is transferred to his/her son’s wife. ◦ Transfer may be direct or indirect. ◦ The asset is transferred otherwise than for adequate consideration. ◦ The asset may be held by the transferee in the same form or in different form.  The Income from the asset is included in the income of the taxpayer who has transferred the asset.  Sshailesh L. Prajapati CA, MBA ( Finance) 189
  190. 190. Assets transferred to a person for the benefit of Spouse Conditions : ◦ The taxpayer is an individual. ◦ He/she has transferred an asset. ◦ Transfer may be direct or indirect. ◦ The asset is transferred to a person or an associate of persons. ◦ It is transferred for the immediate or deferred benefit of his /her spouse. ◦ The transfer is without adequate consideration.  The Income from the asset is included in the income of the taxpayer who has transferred the asset.  Sshailesh L. Prajapati CA, MBA ( Finance) 190
  191. 191. Assets transferred to a person for the benefit of son’s wife. Conditions : ◦ The taxpayer is an individual. ◦ He/she has transferred an asset after May 31, 1973. ◦ Transfer may be direct or indirect. ◦ The asset is transferred to a person or an associate of persons. ◦ It is transferred for the immediate or deferred benefit of his /her son’s wife. ◦ The transfer is without adequate consideration.  The Income from the asset is included in the income of the taxpayer who has transferred the asset.  Sshailesh L. Prajapati CA, MBA ( Finance) 191
  192. 192. Income of a Minor Child      All income which arises or accrues to the minor shall be clubbed in the income of his parent. Clubbing in the hands of Father or mother whose total income ( excluding the income of Minor is greater. Where the marriage of parent does not subsists, it will be includible in the hands of that parent who maintains child in that P.Y. In case of parents are not alive, the minors income is not assessed. ( R.P. Sarathy v CIT (2006) 5 SOT 732 Chennai. Once clubbing of minor’s income is done with that of one parent, it will continue to be clubbed with that parent only in subsequent years. However, if it is to be clubbed with other parent, an opportunity will be given to the other parent. Sshailesh L. Prajapati CA, MBA ( Finance) 192
  193. 193. Income of a Minor Child … Contd… When Clubbing is not attracted: ◦ Income of Minor child suffering from any disability of nature specified in section 80U. ◦ Income of Minor child on account of any manual work ◦ Income of Minor child on account of any activity involving application of his skills, talent or specialized knowledge or experience.  Exemption: ◦ Exemption is Rs. 1500/- per child per year will be given to a parent in whose income, the income of Minor is clubbed.  Sshailesh L. Prajapati CA, MBA ( Finance) 193
  194. 194. THANKS Sshailesh L. Prajapati CA, MBA ( Finance) 194
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