0
Presentation on Direct Taxation
Presented

BY:

Yogita Kandpal
Hemavati Shettigar
Sanat Sen
Roshan Bhusari
Benoy Shetty

R...
Income Tax Act 1961
(As amended by Finance Act 2013)

Section 1 to Section 17
Overview
Section Number
1
2
3
4
5
5A
6
7
8
9
10

Section Heading
Short title, extent and commencement
Definitions
Previous...
Overview
Section Number

Section Heading

10A

Special Provision in respect of newly established undertakings in free trad...
Overview
Section Number
13A

Section Heading
Special provision relating to incomes of political parties

13B

Special prov...
Some Background:
▪ Nationality and Citizenship

▪ Person
1.
2.
3.
4.
5.
6.
7.

An Individual
Hindu Undivided Family
Partne...
Section 6 : Residence in India
Section 6(1) : Residential Status of an Individual
Residential Status of an Individual

Res...
Section 6 : Residence in India
Section 6(1) : Residential Status of an Individual
Satisfied
Basic
Conditions?

Basic Condi...
Section 6 : Residence in India
Section 6(1) : Residential Status of an Individual
ADDITIONAL CRITERIA TO BASIC CONDITION N...
Section 6 : Residence in India
Section 6(2) : Residential Status of HUF (Hindu Undivided Family)
Residential Status of HUF...
Section 6 : Residence in India
Section 6(2) : Residential Status of Hindu Undivided Family (HUF)
Control &
Management of
t...
Section 6 : Residence in India
Section 6(4) : Residential Status of Firm/AOP/LLP/Every Other Person
(Other than An Individ...
Section 6 : Residence in India
Section 6(4) : Residential Status of Firm/AOP/LLP/Every Other Person
(Other than An Individ...
Section 6(3) : Residential Status of A COMPANY.

Section 6 : Residence in India

Residential Status of A Company

Indian C...
Section 9:Income deemed to accrue or arise in India

Section 9 (1)(v):Interest Income
--Interest shall be deemed to accrue...
Section 9:Income deemed to accrue or arise in India

Section 9 (1)(vi):Royalty Income
--Royalty Income shall be deemed to ...
Section 9:Income deemed to accrue or arise in India

Section 9 (1)(vii):Taxability for Fees for Technical Services
-The fe...
Section 10BB – Meaning of computer
programmes in certain cases.
▪ Section 10BB is inserted with retrospective effect from ...
Section 10AA – New Undertakings in
Special Economic Zones
▪ Eligible Assesses
– An entrepreneur who has begun or begins to...
Section 10AA – New Undertakings in
Special Economic Zones
Section 10AA – New Undertakings in
Special Economic Zones
▪ The deduction in respect of profits and gains derived from exp...
Section 10AA – New Undertakings in
Special Economic Zones
▪ Conditions foe utilizing the Special Economic Zone Re-investme...
Section 10AA – New Undertakings in
Special Economic Zones
▪ Withdrawal of exemption
– Incase of violation of the above con...
Section 10AA – New Undertakings in
Special Economic Zones
▪ Conversion of FTZ/EPZ to SEZ
– Where a unit initially located ...
Section 10AA – New Undertakings in
Special Economic Zones
▪ Carry forward of losses
– Any business loss u/s 72(1) or loss ...
Section 10AA – New Undertakings in
Special Economic Zones
▪ Other Points.
– In case of transfer of any asset or goods from...
Section 10AA – New Undertakings in
Special Economic Zones
▪ Amalgamations / Demerger of units.
– Where any unit situated i...
Section 11: Income from property held
for charitable or religious purposes
▪ Section 2(15) defines “ Charitable purpose” t...
Section 12: Income of trust or
institutions from contributions
▪ Conditions for claiming exemption u/s.11
– The income der...
Section 12AA:

Registration of Trust

▪ Registration of Trust
– Every trust or institution shall submit an application for...
Section 12AA(3): Cancellation of
registration
▪ Where a trust or an Institution has been granted registration and
subseque...
Section 13A: Special provision relating
to incomes of political parties
Exempted income

The following categories of incom...
Section 13A: Special provision relating
to incomes of political parties
Conditions

The above exemption is available only ...
Section 14: Heads of Income
Classification of Heads of Income:

All income shall be classified under the following categor...
Section 17: "Salary", "perquisite and "profits in
lieu of salary" defined.
Section 17 (1) – States the term “Salary” inclu...
Item wise applicability of “Salary”:
PARTICULARS

TREATMENT

Salary Received by a Partner
of a Firm

The same would be tre...
Item wise applicability of “Salary”:
Continued…
PARTICULARS

TREATMENT

Pension to Retired Employee

Pension paid in pursu...
Basic Items:
1. Basic Salary / Wages/ Remuneration / Pay
2. Special Pay
3. Bonus
4. Fees
5. Commission
6. Advance Salary
7...
Fully Taxable Components of “Salary”.
Sr. No.

PARTICULARS

Sr. No.

PARTICULARS

1

Basic Salary

10

Fees

2

Dearness A...
Allowances:





Fixed monetary amount paid by employer to employee.
For meeting some particular expenses whether pers...
Fully Taxable Allowances without any
exemptions.
Sr. No.

PARTICULARS

Sr. No.

PARTICULARS

1

City Compensatory Allowanc...
Specific Allowances that are fully exempt in the
hands of Employee.
Sr. No.

ALLOWANCE

CONDITIONS TO CLAIM FULL EXEMPTION...
When Exemption Does Not Depend upon Expenditure:
In this case the amount of exemption does not depend upon expenditure
inc...
When Exemption Does Not Depend upon Expenditure:
Sr. No.

Allowance

Nature of Allowance

Exemption as specified in Rule 2...
When Exemption Does Not Depend upon Expenditure:
Sr. No.

Allowance

Nature of Allowance

Exemption as specified in Rule 2...
When Exemption Does Not Depend upon Expenditure:
Sr. No.

Allowance

Nature of Allowance

Exemption as specified in Rule 2...
Various items of Salary for which exemptions are
available subject to limitations:
1. Leave Travel Assistance (LTA) u/s 10...
Various items of Salary for which exemptions are
available subject to limitations:
IMPORTANT NOTE
Family of an Individual ...
Various items of Salary for which exemptions are
available subject to limitations:
2.

House Rent Allowance (HRA) u/s 10 (...
Various items of Salary for which exemptions are
available subject to limitations:
2.

House Rent Allowance (HRA) u/s 10 (...
DEATH-CUM-RETIREMENT BENEFITS
A. Gratuity u/s 10(10)
Gratuity

Received by Government
Employee
On
Continuation
of Service
...
Computation of Gratuity
For Non-Government Employee – Covered by Payment of Gratuity Act, 1972
PARTICULARS

AMOUNT (Rs)

A...
Computation of Gratuity
For Non-Government Employee : Not - Covered by Payment of Gratuity Act, 1972
PARTICULARS

AMOUNT (...
Gratuity received while in Service
▪ Any gratuity paid to an employee while he continues to remain in
service (whether or ...
Gratuity [Some Important Points]
▪ When an individual receives retirement gratuity from more than one
employer, he can cla...
PENSION

Pension Received

By Retired Employee

Tax Liability determined on the basic of
certain conditions

By Family Mem...
PENSION
B. Pension u/s 10(10A)
Pension

Received a Non-Government
Employee

Received by Government
Employee

Uncommuted va...
Taxability of Uncommuted Pension or
Monthly Pension
a) Pension is received periodically by the retired employee.

b) It my...
Taxability of Commuted Pension.
a) Pension is received in lumpsum as per the terms of the employment on retirement
or supe...
LEAVE ENCASHMENT
C. Leave Encashment
u/s 10(10A)
Received by Government
Employee

On Continuation of Service

On Terminati...
LEAVE ENCASHMENT u/s 10 (10AA)

1. Leave encashment while in service is fully taxable as income of Previous Year
in which ...
Computation of Exemption from
Leave Encashment:
STEP 1: Computation of Salary = 10 months average salary preceding the mon...
Computation of Taxable Leave Salary/
Encashment on Retirement:
PARTICULARS

AMOUNT (Rs)

Amount received on Leave Salary /...
D. RETRENCHMENT COMPENSATION u/s 10 (10B)
Compensation is received by a workman at the time of:
i.

Closing down of the un...
D. RETRENCHMENT COMPENSATION u/s 10 (10B)

Retrenchment Compensation

Received under any Scheme approved
by the Government...
E. Voluntary Retirement Compensation u/s 10(10C)
Voluntary Compensation Received

By a Government Employee

Taxable beyond...
Computation of Exemption of VRS:
STEP 1: Salary = Last drawn salary = Basic Pay + D.A.
STEP 2: Computation of Taxable VRS ...
E. PROFITS IN LIEU OF SALARY [SECTION 17(3)]
a)

Compensation for loss of employment or modification of the employment ter...
DEDUCTIONS AGAINST SALARY
1. Entertainment Allowance: Applicable only for Government
Employees [Sec 16(ii)]
Least of the f...
DEDUCTIONS AGAINST SALARY
3. Deductions u/s 80C
– Section 80C was introduced in AY 2006-07.
– Deductions are available for...
Deductions Under Section 80C
Sr. No

Particulars

1

Employees Contribution to SPF (Statutory Provident Fund)

2

Employee...
Deduction Under Section 80C
Sr. No

Particulars

12

Sum paid as tuition fees at the time of admission or otherwise to any...
PERQUISITES

▪ It means any benefit attached to an office or position in addition to salary or
wages.
▪ It denotes a perso...
Perquisites Chart
Taxable for All
(Specified and Unspecified)

Taxable for Specified Employees
Only

1. Rent free house
a)...
Perquisites Chart
Taxable for All
(Specified and Unspecified)

Taxable for Specified Employees Only

3. Any obligation of ...
Income tax act 1961
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Income tax act 1961

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Sumit Jaiswal, Yogita Kandpal, Sanat Sen

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Transcript of "Income tax act 1961"

  1. 1. Presentation on Direct Taxation Presented BY: Yogita Kandpal Hemavati Shettigar Sanat Sen Roshan Bhusari Benoy Shetty Roll No: 65 Roll No: 15 Roll No: 48 Roll No: 44 Roll No: 66
  2. 2. Income Tax Act 1961 (As amended by Finance Act 2013) Section 1 to Section 17
  3. 3. Overview Section Number 1 2 3 4 5 5A 6 7 8 9 10 Section Heading Short title, extent and commencement Definitions Previous year defined Charge of Income tax Scope of total Income Apportionment of income between spouses governed by Portuguese Civil Code Residence in India Income deemed to be received Dividend Income Income deemed to accrue or arise in India Incomes not included in total income
  4. 4. Overview Section Number Section Heading 10A Special Provision in respect of newly established undertakings in free trade zone, etc 10AA Special provisions in respect of newly established Units in Special Economic Zones 10B 10BA Special provisions in respect of newly established hundred per cent export-oriented undertakings Special provisions in respect of export of certain articles or things 10BB Meaning of Computer programmes in certain cases 10C Special Provision in respect of certain industrial undertakings in North-Eastern Region 11 Income from property held for Charitable or Religious purposes 12 Income of trust or institutions from contributions 12A Conditions for Applicability of Sections 11 and 12 12AA Procedure for Registration 13 Section 11 not to apply in certain cases
  5. 5. Overview Section Number 13A Section Heading Special provision relating to incomes of political parties 13B Special provisions relating to voluntary contributions received by electoral trust 14 14A Heads of Income Expenditure incurred in relation to income not included in total Income 15 Salaries 16 Deductions from Salaries 17 "Salary", "perquisite” and "profits in lieu of salary" defined NOTE: Section 18 to Section 21 has been Omitted by Finance Act 1988 W.E.F April 1, 1989
  6. 6. Some Background: ▪ Nationality and Citizenship ▪ Person 1. 2. 3. 4. 5. 6. 7. An Individual Hindu Undivided Family Partnership Firm AOP / BOA / LLP Local Authorities Artificial Judicial Entries A Company
  7. 7. Section 6 : Residence in India Section 6(1) : Residential Status of an Individual Residential Status of an Individual Resident Ordinarily Resident Non Resident Not Ordinarily Resident
  8. 8. Section 6 : Residence in India Section 6(1) : Residential Status of an Individual Satisfied Basic Conditions? Basic Condition No: 1 A stay of 182 days or more during the current previous year 2012-13. Basic Condition No: 2 A stay of 60** days or more in the current previous year 2012-13 and a total stay of 365 days or more in the 4 years immediately preceding the current previous year. YES Resident and Ordinary Resident NO Non Resident YES Resident Check Additional Conditions? Satisfied – Additional Condition No: 1 He should be resident in India in at least 2 out of 10 years immediately preceding the current previous year 2012-13. NO AND YES Satisfied – Additional Condition No: 2 A stay of 730 days or more during the 7 years immediately preceding the current previous year 2012-13. NO Resident but Not Ordinary Resident
  9. 9. Section 6 : Residence in India Section 6(1) : Residential Status of an Individual ADDITIONAL CRITERIA TO BASIC CONDITION NO: 2 Basic Condition No: 2 A stay of 60** days or more in the current previous year 2012-13 and a total stay of 365 days or more in the 4 years immediately preceding the current previous year. 1. In case an Indian citizen who goes abroad in the previous year for employment or as a member of the crew of an Indian ship 60 days should be taken as 182 days. 2. In case an Indian citizen who stays abroad comes on a visit to India during the previous year 60 days should be taken as 182 days.
  10. 10. Section 6 : Residence in India Section 6(2) : Residential Status of HUF (Hindu Undivided Family) Residential Status of HUF Resident Ordinarily Resident Non Resident Not Ordinarily Resident
  11. 11. Section 6 : Residence in India Section 6(2) : Residential Status of Hindu Undivided Family (HUF) Control & Management of the affairs of HUF is wholly or partly in India? Basic Condition No: 1 If the control and management of affairs of HUF is Wholly or Partly In India : Resident. Resident and Ordinary Resident Non Resident YES Resident Basic Condition No: 2 If the control and management of affairs of HUF is Wholly outside India : Non Resident. YES NO Check Additional Conditions? Satisfied – Additional Condition No: 1 Karta should be resident in India in at least 2 out of 10 years immediately preceding the current previous year 2012-13. NO AND YES Satisfied – Additional Condition No: 2 Karta should stay for 730 days or more during the 7 years immediately preceding the current previous year 2012-13. NO Resident but Not Ordinary Resident
  12. 12. Section 6 : Residence in India Section 6(4) : Residential Status of Firm/AOP/LLP/Every Other Person (Other than An Individual, HUF & Company) Residential Status of Firm / AOP/ LLP or Every Other Person Resident Non Resident
  13. 13. Section 6 : Residence in India Section 6(4) : Residential Status of Firm/AOP/LLP/Every Other Person (Other than An Individual, HUF & Company) Basic Condition No: 1 If the control and management of affairs of Firm/ AOP/LLP/Every Other Person is Wholly or Partly In India : Resident. Basic Condition No: 2 If the control and management of affairs of Firm/ AOP/ LLP/Every Other Person is Wholly outside India : Non Resident. Control & Management of the affairs of HUF is wholly or partly in India? NO Non Resident YES Resident Control & Management in respect to FIRM/AOP/LLP/EVERY OTHER PERSON: ASSESSEE CONTROL & MANAGEMENT VEST WITH FIRM / LLP PARTNERS AOP PRINCIPAL OFFICER EVERY OTHER PERSON PRINCIPAL OFFICER
  14. 14. Section 6(3) : Residential Status of A COMPANY. Section 6 : Residence in India Residential Status of A Company Indian Company Foreign Company Business is Wholly Controlled and Managed in India Always Resident in India Resident in India Business is Wholly or Partly Controlled from Outside India Non-Resident in India
  15. 15. Section 9:Income deemed to accrue or arise in India Section 9 (1)(v):Interest Income --Interest shall be deemed to accrue or arise in Indian if: CONDITIONS PAYER Indian Government No Condition Resident in India The borrowed amount must not be used for the purpose of business or profession carried on by such person outside India or for the purpose of making of earning an income from any source outside India. Non Resident in India The borrowed amount must be used for the purpose of business or profession carried on by such person in India.
  16. 16. Section 9:Income deemed to accrue or arise in India Section 9 (1)(vi):Royalty Income --Royalty Income shall be deemed to accrue or arise in Indian if: CONDITIONS PAYER Indian Government No Condition Resident in India The Royalty amount must not be paid in respect of any right, property or information used or services utilized for the purpose of business or profession carried on by such person outside India or for the purpose of making or earning an income from any other source outside India. Non Resident in India The Royalty amount must be paid in respect of any right, property or information used or services utilized for the purpose of business or profession carried on by such person in India or for the purpose of making or earning an income from any source in India.
  17. 17. Section 9:Income deemed to accrue or arise in India Section 9 (1)(vii):Taxability for Fees for Technical Services -The fees for technical services shall be deemed to accrue or arise in India if: CONDITIONS PAYER Indian Government No Condition Resident in India The fees for technical services amount must not be paid in respect of any services utilized for the purpose of business or profession carried on by such person outside India or for the purpose of making or earning an Income from any source outside India. Non Resident in India The fees for technical services amount must be paid in respect of any services utilized for the purpose of business or profession carried on by such person in India or for the purpose of making or earning an Income from any sources in India.
  18. 18. Section 10BB – Meaning of computer programmes in certain cases. ▪ Section 10BB is inserted with retrospective effect from 1-4-94 ▪ To indicate that for the purpose of section 10B the words – ‘computer programmes or – processing or – management of electronic data’ ▪ had been substituted for the words ‘computer programmes’.
  19. 19. Section 10AA – New Undertakings in Special Economic Zones ▪ Eligible Assesses – An entrepreneur who has begun or begins to manufacture or produce articles or things or provides services in SEZ as defined under Special Economic Zones Act, 2005 are eligible for exemption. ▪ Conditions for claiming exemption – In order to claim deduction under this section, the undertaking shall fulfill the following conditions: ▪ Income Which Do Not Form Part of Total Income – It has begun or begins to manufacture or produce articles or provide services in any Special Economic Zone on or after 01.04.2006 – It is not formed by the splitting up, or the reconstruction, of a business already in existence (except as referred to in Sec33B). – It is not formed by transfer to a new business, of machinery or plant previously used for any purpose. However, the value of the machinery or plant so transferred shall not exceed 20% of the total value of machinery or plant.
  20. 20. Section 10AA – New Undertakings in Special Economic Zones
  21. 21. Section 10AA – New Undertakings in Special Economic Zones ▪ The deduction in respect of profits and gains derived from export of articles or things or computer software, providing of services are as follows: Period Deduction First 5 consecutive Assessment years 100% of the profits Next 5 consecutive Assessment years 50% of the profits Next 5 consecutive Assessment years Any amount transferred to “Special Economic Zone Re-investment Reserve Account” or 50% of the profits, whichever is lower
  22. 22. Section 10AA – New Undertakings in Special Economic Zones ▪ Conditions foe utilizing the Special Economic Zone Re-investment Reserve Account – The reserve account shall be utilized only for the following purposes: ▪ For acquiring machinery or plant which is first put to use before the expiry of a period of three years following the previous year in which the reserve was created and ▪ Until the acquisition of the machinery or plant as afore said, for the purposes of the business of the undertaking other than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India. – Assesse shall furnish the particulars of machinery along with the return of income during the assessment year in which it was first put to use. ▪
  23. 23. Section 10AA – New Undertakings in Special Economic Zones ▪ Withdrawal of exemption – Incase of violation of the above conditions, the exemption under this sections shall be withdrawn. The following shall be the consequences: Violation of Condition Tax Implications In case special reserve is utilized for any purpose other than the specified purpose. The amount so utilized shall be chargeable to tax in the year of such utilization. In case the reserve is not utilized before the expiry of 3 years from the end of the previous year in which reserve is created The amount of unutilized reserve shall be deemed to be the profits in the year immediately following the period of 3 years.
  24. 24. Section 10AA – New Undertakings in Special Economic Zones ▪ Conversion of FTZ/EPZ to SEZ – Where a unit initially located in any free trade zone or export processing zone is subsequently located in a Special Economic Zone by reason of conversion of such free trade zone or export processing zone into a Special Economic Zone, the period of ten consecutive assessment years shall be reckoned from the assessment year relevant to the previous year in which the unit began to manufacture, or produce or process such articles or things or services in such free trade zone or export processing zone. – On the other hand, where a unit initially located in any free trade zone or export processing zone and has completed the period of ten consecutive assessment year is subsequently located in a Special Economic Zone by reason of conversion of such free trade zone or export processing zone into a Special Economic Zone, it shall not be eligible for any further deduction under sec 10AA.
  25. 25. Section 10AA – New Undertakings in Special Economic Zones ▪ Carry forward of losses – Any business loss u/s 72(1) or loss under the head ‘Capital Gains’ u/s 74 of the undertaking shall be allowed to be carried forward and set off in subsequent assessment years. ▪ Audit Report – The Assesse shall furnish a report of a Chartered Accountant certifying that the deduction claimed is correct along with the return of income.
  26. 26. Section 10AA – New Undertakings in Special Economic Zones ▪ Other Points. – In case of transfer of any asset or goods from eligible unit to any other business which is carried on by the assesse or by any person closely connected with the assesse, the assessing officer, if he feels necessary, may adopt the fair market value of the goods. – NO deduction shall be allowed u/s.80IA/ 80IB in respect of the profits exempted under this section. – For the purposes of computing depreciation u/s.32 the written down value shall be considered as if the deprecation has been actually allowed during all the previous years. – Deductions and expenses as provided under sections 32 to 36 shall be deemed to have been allowed to the eligible undertaking.
  27. 27. Section 10AA – New Undertakings in Special Economic Zones ▪ Amalgamations / Demerger of units. – Where any unit situated in a SEZ, which is claiming exemption, has been transferred to a new unit by way of Amalgamation or Demerger, then: – In case of amalgamation, the amalgamated unit shall be eligible for exemption. However, the amalgamating unit ceases to claim exemption. – In case of demerger, the resulting unit shall be eligible for exemption. However, the Demerged unit shall not be eligible for exemption.
  28. 28. Section 11: Income from property held for charitable or religious purposes ▪ Section 2(15) defines “ Charitable purpose” to include relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility. ▪ However, the expression ‘advancement of any other object of general public utility’ shall not be a charitable purpose, if it involves the carrying on of– Any activity in the nature of trade, commerce or business: or – Any activity of rendering any service in relation to any trade, commerce or business. ▪ For a CESS or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity – Provision to sec 2 (15)
  29. 29. Section 12: Income of trust or institutions from contributions ▪ Conditions for claiming exemption u/s.11 – The income derived from property held under trust wholly for charitable or religious purposes is exempt from tax u/s.11 subject to fulfillment of certain conditions. According to sec.12, any voluntary contributions received by a trust or an institution (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall be deemed as income for the purposes of Sec.11. – The conditions to be fulfilled are as follows: ▪ The trust should be registered with the plus commissioner of Income-tax u/s.12A. ▪ The accounts of the trust for the previous year should be audited if the total income exceeds Rs 160000. ▪ At least 85% of the income is required to be applied for the approved purposes. ▪ The unapplied income and the money accumulated or set apart should be invested or deposited in the specified form or modes.
  30. 30. Section 12AA: Registration of Trust ▪ Registration of Trust – Every trust or institution shall submit an application for registration in the prescribed form (Form 10 A) as required u/s.12A to the commissioner of incometax before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later. – On receipt of the application, according to the provisions of Sec.12AA, which prescribe the procedure for registration, the Commissioner shall call for such documents or information as considered necessary in order to satisfy about the genuineness of activities of the trust or institution. Inquiries can also be made as deemed necessary.
  31. 31. Section 12AA(3): Cancellation of registration ▪ Where a trust or an Institution has been granted registration and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or in contravention of the objects, then the Commissioner has the power to pass an order in writing canceling the registration after giving a reasonable opportunity of being heard.
  32. 32. Section 13A: Special provision relating to incomes of political parties Exempted income The following categories of income derived by a political party are exempt: – Income from house property. – Income from other sources. – Income by way of voluntary contributions and – Capital gains.
  33. 33. Section 13A: Special provision relating to incomes of political parties Conditions The above exemption is available only if the following conditions are fulfilled: – The political party is registered u/s.29A of the Representation of the People Act, 1951 – Political party keeps and maintains such books of account and other documents AS WOULLD ENABLE THE Assessing Officer to properly deduce its income there form. – The accounts of the political party should be audited. Under the provision of sec.139(4B) of the income- tax Act, a political party is required to file a return of income if, before claiming exemption u/s.13A, the party has taxable income.
  34. 34. Section 14: Heads of Income Classification of Heads of Income: All income shall be classified under the following categories: A. Salaries B. Interest on Securities – omitted with effect from 1-4-89 C. Income from House property. D. Profits and gains of business operation. E. Capital gains F. Income from other sources.
  35. 35. Section 17: "Salary", "perquisite and "profits in lieu of salary" defined. Section 17 (1) – States the term “Salary” includes: Wages Any Annuity or Pension Any Gratuity Any Fees, Commission, Perquisite or profits in lieu of or in addition to any salary or wages Any Advance Salary Encashment of leave-not-availed Interest earned in excess of 9.5% on Recognized Provident Fund (RPF) Amount transferred in excess of 12% of Salary to RPF Contribution made by Central Government or any other employer (w.e.f. A.Y. 2008-09) in the Previous Year to the Account of an employee under Pension Scheme u/s 80CCD Money embezzled by an employee constitutes his income.
  36. 36. Item wise applicability of “Salary”: PARTICULARS TREATMENT Salary Received by a Partner of a Firm The same would be treated as “Salary” and would be taxable accordingly. There arises no difference between wages and salary. Such Remuneration would be treated as “Business Income” since the partner is not an employee of the entity. Salary Received by a Proprietor Proprietor is not an employee and hence any amount received by him would not be treated as Salary. Director Fees Sitting fees paid to Directors for attending Board Meeting is not a salary but taxable as “Other Income”. Director Remuneration Any amount payable to any whole time Directors who are also an employee of the company would be treated as Salary. In any other case, the same would be treated as “Other Income” Wages for Workers
  37. 37. Item wise applicability of “Salary”: Continued… PARTICULARS TREATMENT Pension to Retired Employee Pension paid in pursuance to the term od employment. Hence any amount received as pension would be considered as “Salary” in the hand of the recipient. Pension to legal heir of the deceased employee Amount received by legal heir of the deceased employee, who is not an employee of the organization, would be considered as “Income from other sources” and not as “Income from Salary”. Remuneration paid to teacher of any University / College Any Such remuneration would be treated as “Salary” if the terms of employment provide a condition for checking such any paper. However, in any other case, such income shall be considered as “Other Income”. Voluntary Retirement payment by employer to employee Since the employment would get the amount in accordance with the terms of employment obligation, the same would be considered as “Salary” Remuneration to the MP/MLA Such income shall be considered as “Income from Other Sources” as there exist no employer / employee relationship.
  38. 38. Basic Items: 1. Basic Salary / Wages/ Remuneration / Pay 2. Special Pay 3. Bonus 4. Fees 5. Commission 6. Advance Salary 7. Arrear Salary Allowances 1. Fully Taxable Allowance 2. Partly Taxable /Partly Exempted Allowance 3. Fully Exempted Allowance Simple Format to Compute Salary Income: xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx Perquisites 1. Taxable for all [Specified and Unspecified] 2. Taxable for specified employees only 3. Exempted for all [Specified and Unspecified] xxx xxx xxx Special Items 1. Gratuity 2. Pension 3. Leave Encashment 4. Provident Fund xxx xxx xxx xxx GROSS SALARY Deduction u/s 16 1. Standard deduction – [Not Applicable from A.Y. 2006-07] 2. Entertainment Allowance 3. Professional / Employment Tax XXXX xxx xxx INCOEM FROM SALARY XXXX
  39. 39. Fully Taxable Components of “Salary”. Sr. No. PARTICULARS Sr. No. PARTICULARS 1 Basic Salary 10 Fees 2 Dearness Allowance 11 Lunch / Tiffin Allowance 3 Advance Salary 12 Overtime Allowance 4 Arrears of Salary 13 Servant Allowance 5 City Compensatory Allowance 14 Warden Allowance 6 Bonus 15 Non-Practicing Allowance 7 Commission as a Percentage of Turnover 16 Family Allowance 8 Fixed Medical Allowance 17 Leave Encashment during service 9 Project Allowance 18 Holiday Allowance
  40. 40. Allowances:     Fixed monetary amount paid by employer to employee. For meeting some particular expenses whether personal or to perform his duties. These allowances are generally taxable and are to be included in Gross salary. Unless Specified exemptions has been provided in respect of any such allowances. Allowances Fully Taxable without any exemptions Specific allowances that are fully exempted in the hands of Employees Taxable in excess of amount exempted
  41. 41. Fully Taxable Allowances without any exemptions. Sr. No. PARTICULARS Sr. No. PARTICULARS 1 City Compensatory Allowances 10 2 Dearness Allowance / Pay 11 Leave encashment during service Lunch / Tiffin Allowance 3 Fixed Medical Allowance 12 Overtime Allowance 4 City Compensatory Allowance 13 Servant Allowance 5 Deputation Allowance 14 Warden Allowance 6 Family Allowance 15 Non-Practicing Allowance 7 Project Allowance 16 Holiday Allowance
  42. 42. Specific Allowances that are fully exempt in the hands of Employee. Sr. No. ALLOWANCE CONDITIONS TO CLAIM FULL EXEMPTION 1 Travelling Allowance Should be provided by the employer and spent by the employee to meet the cost of official tour OR transfer expenses. Cost of travel OR transfer includes payments for transfer, packing and transportation of personal effects. 2 Daily Allowance Should be spent by the employee for meeting the daily charges incurred on a tour OR transfer. 3 Conveyance Allowance Should be used by the employee to meet the expenditure on conveyance in performance of official duties. 4 Helper Allowance Should be used by the employee to meet the expenditure on a helper who assists him in the performance of official duties. 5 Academic Allowance Should be used by the employee for his academic research and training pursuits. 6 Uniform Allowance Should be spent by the employee for purchasing / maintaining office uniform for official duties. 7 Allowance and perks paid by Government of India to an Indian Citizen outside India Fully exempted.
  43. 43. When Exemption Does Not Depend upon Expenditure: In this case the amount of exemption does not depend upon expenditure incurred by the employee. The allowance given below are exempt to the extent of: a) The amount of Allowance. OR b) The amount specified in rule 2BB, Whichever is lower. NOTE: The amount of actual expenditure is not taken into consideration.
  44. 44. When Exemption Does Not Depend upon Expenditure: Sr. No. Allowance Nature of Allowance Exemption as specified in Rule 2BB 1 Special Compensatory (Hill Areas) Allowance It includes any special compensatory Amount exempt from tax varies from allowance in the nature of special Rs. 300 per month to Rs. 7000 per compensatory allowance OR high month. altitude allowance. 2 Border Area Allowance It includes any special compensatory The amount of exemption varies from allowance in the nature of border Rs. 200 per month to Rs. 1300 per area allowance OR remote locality month. allowance OR difficult area allowance. 3 Tribal Areas / Scheduled Areas Allowance Tribal areas allowance is given in 1) Madhya Pradesh 2) Tamil Nadu 3) Uttar Pradesh 4) Karnataka 5) Tripura 6) Assam 7) West Bengal 8) Bihar 9) Odisha. Rs. 200 per month. 4 Allowance for Transport Employees It is an allowance granted to an employee working in any transport system to meet his personal expenditure. The amount of exemption is: 1. 70% of such allowance; OR 2. Rs. 10000 per month. Whichever is lower.
  45. 45. When Exemption Does Not Depend upon Expenditure: Sr. No. Allowance Nature of Allowance Exemption as specified in Rule 2BB 5 Children Education Allowance This allowance is given for Children education. The amount exempt is limited to Rs. 100 per month per child up to a maximum of two children. 6 Hostel Expenditure Allowance This amount is granted to an employee to meet the hostel expenditure on is child. It is exempt from the tax to the extent of Rs. 300 per month per child up to a maximum of two child. 7 Compensatory Field Area Allowance If this exemption is taken, the employee can not claim any exemption in respect of border area allowance mentioned above. Expemtion is limited to Rs. 2600 per month. 8 Transport Allowance It is granted to an employee to meet his expenditure for the purpose of commuting between the place of his residence and the place of his city. It is exempt up to Rs. 800 per month.
  46. 46. When Exemption Does Not Depend upon Expenditure: Sr. No. Allowance Nature of Allowance Exemption as specified in Rule 2BB 9 Underground Allowance Underground allowance is granted to an employee who is working in uncongenial, unnatural climate in underground mines. Exemption is limited to Rs. 800 per Month. 10 High Altitude Allowance It is granted to the member of armed forces operating in high altitude areas. It is exempt from tax up to Rs. 1060 per month (for altitude of 9000 to 15000 feet) or Rs. 1600 per month.
  47. 47. Various items of Salary for which exemptions are available subject to limitations: 1. Leave Travel Assistance (LTA) u/s 10 (5) 10(5) Rule 2B Conditions for Claiming the Benefit: a) An Individual can avail the benefit of LTA offered by his employer, twice in a block of 4 years b) The present block of 4 years applicable for A.Y 2013-14 is calendar years 2011-14. c) LTA may be provided by the employer to the employee and his family: (i) In connection with his proceeding on leave on leave to any place in India, while in service; (ii) Proceeding to any place in India after retirement or termination from service. When Taxable : LTA encashed without performing journey is fully taxable. Expenses reimbursed other than the fare like boarding or loading is fully taxable. Amount received from employer in excess of the cost of traveling on the shortest route.
  48. 48. Various items of Salary for which exemptions are available subject to limitations: IMPORTANT NOTE Family of an Individual means: Spouse and children of the individual, and Parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the Individual. SALARY for HRA : Basic Pay + DA (Considered for retirement benefits) + Commission (if received as a fixed percentage on turnover as per terms of employment)
  49. 49. Various items of Salary for which exemptions are available subject to limitations: 2. House Rent Allowance (HRA) u/s 10 (13A) Rule 2A Conditions for Claiming Exemption: 1. Assesse is in Receipt of HRA 2. Pays Rent 3. Rent paid is more than 10% of salary. Very Important: The exemption shall be calculated on the basis of where the accommodation is situated. If the place of employment is the same for the whole year, then exemption shall be calculated for the whole year. If there is a change in place during the Previous Year, then it will be calculated on a monthly basis. Exemption should be calculated in respect of the period during which rental accommodation is occupied by the employee during the Previous Year. Salary for the period during which rental accommodation is not occupied shall not be considered.
  50. 50. Various items of Salary for which exemptions are available subject to limitations: 2. House Rent Allowance (HRA) u/s 10 (13A) Rule 2A Computation of Taxable House Rent Allowance (HRA) PARTICULARS AMOUNT (Rs) Amount received during the financial year for HRA LESS: Exemption u/s 10(13A0 Rule 2A Least of the following: a) Actual Amount received. b) 50% (for Metro cities) / 40% (for non-metro cities) of Salary c) Rent Paid less 10% of Salary Taxable HRA AMOUNT (Rs) xxx xxx xxx xxx xxx xxx
  51. 51. DEATH-CUM-RETIREMENT BENEFITS A. Gratuity u/s 10(10) Gratuity Received by Government Employee On Continuation of Service Fully Taxable Received a Non-Government Employee On Termination of Service / After Death On Continuation of Service Fully Exempted Fully Taxable On Termination of Service / After Death Covered by Payment of Gratuity Act, 1972 Not Covered by Payment of Gratuity Act, 1972 Taxable u/s 10(10)(ii) Taxable u/s 10(10)(iii)
  52. 52. Computation of Gratuity For Non-Government Employee – Covered by Payment of Gratuity Act, 1972 PARTICULARS AMOUNT (Rs) Amount received as Gratuity LESS: Exemption u/s 10(10)(ii) Least of the followings: (i) Actual amount received (ii) 15/26 x Last drawn salary x Number of years of completed service or part thereof in excess of 6 months (iii) Maximum limit TAXABLE GRATUITY AMOUNT (Rs) xxxx xxx xxx 10,00,000 xxxx XXXX NOTE: Salary – Basic Pay + Dearness Allowance In case of seasonal employment, instead of 15 days, 7 days shall be considered.
  53. 53. Computation of Gratuity For Non-Government Employee : Not - Covered by Payment of Gratuity Act, 1972 PARTICULARS AMOUNT (Rs) Amount received as Gratuity LESS: Exemption u/s 10(10)(iii) Least of the followings: (i) Actual amount received (ii) ½ x Average salary x Number of fully completed years of Service (iii) Maximum limit TAXABLE GRATUITY AMOUNT (Rs) xxxx xxx xxx 10,00,000 xxxx XXXX NOTE: Salary = 10 months average salary preceding the month of retirement. = Basic Pay + Dearness Allowance considered for Retirement Benefits + Commission (If received as a fixed percentage on turnover)
  54. 54. Gratuity received while in Service ▪ Any gratuity paid to an employee while he continues to remain in service (whether or not after he has put in minimum specified period of service) is not exempted from tax. ▪ Tax exemption will be available only if gratuity is paid on: 1. 2. 3. 4. 5. Retirement Becoming incapacitated prior to such retirement. Termination of employment. Resignation Death. Gratuity received under other circumstances would not be exempt from tax, though the assesse can claim relief under section 89.
  55. 55. Gratuity [Some Important Points] ▪ When an individual receives retirement gratuity from more than one employer, he can claim exemption in respect of both of them. ▪ However, the maximum amount of exemption should not exceed Rs. 10,00,000. ▪ When gratuity is received from more than one employer during different periods of time, the maximum exemption claimed by an assesse during his entire life should not exceed Rs. 10,00,0000.
  56. 56. PENSION Pension Received By Retired Employee Tax Liability determined on the basic of certain conditions By Family Members of Deceased Employee Taxable as a “Family Pession”
  57. 57. PENSION B. Pension u/s 10(10A) Pension Received a Non-Government Employee Received by Government Employee Uncommuted value of Pension or Monthly Pension Fully Taxable Commuted Value of Pension / Received in Lumpsum Fully Exempted u/s 10(10A)(i) Uncommuted value of Pension Commuted value of Pension Fully Taxable When Gratuity Received 1/3rd of Full Value of Commuted Pension exempted, Balance Taxable u/s 10(10A)(ii) When Gratuity not Received ½ of Full value of Commuted Pension exempted, Balance Taxable u/s 10(10A)(iii)
  58. 58. Taxability of Uncommuted Pension or Monthly Pension a) Pension is received periodically by the retired employee. b) It my be received by Government or Non-Government employees. c) Amount received shall be fully taxable under the head “Salaries”
  59. 59. Taxability of Commuted Pension. a) Pension is received in lumpsum as per the terms of the employment on retirement or superannuation. b) Full Value of Commuted Pension = Amount received on commutation/percentage of commutation. c) Taxability. Recipient Amount Taxable Government employee (Central / State / Local Authority or Statutory Corporation ) Fully exempted u/s 10(10A)(i) Non-Govt. employee who has also received Gratuity u/s 10(10A)(ii) Amount Received LESS: 1/3 of Full Value of Commuted Pension. Non-Govt. employee who has not received Gratuity u/s 10(10A)(iii) Amount Received LESS: ½ of Full Value of Commuted Pension
  60. 60. LEAVE ENCASHMENT C. Leave Encashment u/s 10(10A) Received by Government Employee On Continuation of Service On Termination of Service / after Death Fully Taxable Fully Exempted Leave Encashment Received a Non-Government Employee On Continuation of Service On Termination of Service / After Death Fully Taxable Taxable beyond exemption limit
  61. 61. LEAVE ENCASHMENT u/s 10 (10AA) 1. Leave encashment while in service is fully taxable as income of Previous Year in which it is enchased. 2. Leave encashment on retirement: a) If an individual receives leave encashment on his retirement, then the amount received will be eligible for exemption. b) The amount of exemption is based on his employment: i. Government employee: fully exempted from tax ii. Non-Govt. employee: An individual who is not a Government employee is also entitled for exemption in respect of leave encashment compensation received by him.
  62. 62. Computation of Exemption from Leave Encashment: STEP 1: Computation of Salary = 10 months average salary preceding the month of retirement. STEP 2: Salary = Basic Pay + Dearness Allowance + Commission STEP 3: This calculation is only applicable where the employer has sanctioned leave to the employee in excess of 30 days for every completed year of service. PARTICULARS No. of Days (i) Leave credit available on the date of retirement. xxx LESS: Excess leave sanctioned by the employer (xxx) (Leave sanctioned by the employer per year – leave @ 30 days per year) X Number of completed years of service. Leave credit on the basis of 30 days credit for completed years of service xxx (ii) Leave salary on the basis of 30 days credit = Step 3(i) X Step 1 (Amount in Rs.) Rs. xxxx NOTE: In case the employer sanctioned leave of 30 days or less for completed year of service then the salary for actual leave balance shall be considered and step 3(i) shall not apply..
  63. 63. Computation of Taxable Leave Salary/ Encashment on Retirement: PARTICULARS AMOUNT (Rs) Amount received on Leave Salary / Encashment LESS: Exemption u/s 10(10AA) Least of the followings: (i) Actual amount of Leave encashment received (ii) Average salary of the individual x 10 months (iii) Maximum limit TAXABLE Value of Leave Salary / Encashment AMOUNT (Rs) xxxx xxx xxx 3,00,000 xxxx XXXX NOTE: (a) If the individual receives leave encashment from more than one employer, will be computed independently in respect of each employer. (b) The total amount of exemption should not exceed Rs. 3,00,000 during his life time.
  64. 64. D. RETRENCHMENT COMPENSATION u/s 10 (10B) Compensation is received by a workman at the time of: i. Closing down of the undertaking. ii. Transfer (irrespective of by agreement/compulsory acquisition) if the following conditions are satisfied: i. Service of workmen interrupted by transfer. ii. Terms and conditions of employment after transfer are less favorable. iii. New employer is not under a legal obligation whether under the terms of transfer or otherwise to pay compensation on the basis that the employee’s service has been continuous and has not been interrupted by transfer.
  65. 65. D. RETRENCHMENT COMPENSATION u/s 10 (10B) Retrenchment Compensation Received under any Scheme approved by the Government Fully Exempted Received under any other Scheme Taxable subject to exemption u/s 10(10B) NOTE: (a) Retrenchment compensation received in accordance with any scheme, which is approved by the Central Government, is fully exempt from tax. (b) An individual who receives retrenchment compensation is entitled for exemption u/s 10(0B).
  66. 66. E. Voluntary Retirement Compensation u/s 10(10C) Voluntary Compensation Received By a Government Employee Taxable beyond Specified Exemption limit By a Non Government Employee Taxable beyond specified exemption limit Conditions for claiming exemption: i. An individual, who has retired under the Voluntary Scheme, should not be employed in another company of the same management. ii. He should not have received any other Voluntary retirement Compensation before from any other employer and claimed exemption. iii. Exemption u/s 10(10C) in respect of Compensation under VRS can be availed by an Individual only once in his lifetime.
  67. 67. Computation of Exemption of VRS: STEP 1: Salary = Last drawn salary = Basic Pay + D.A. STEP 2: Computation of Taxable VRS compensation PARTICULARS AMOUNT (Rs) Amount Received as VES Compensation LESS: Exemption u/s 10(10C) Least of the followings: (i) Actual amount received (ii) Maximum limit (iii) The Highest of the Following: (a) Last drawn salary X 3 X Number of fully completed ears of Service xxxx (b) Last drawn salary X Balance number of months of Service left xxxx TAXABLE Value of Leave Salary / Encashment AMOUNT (Rs) xxxx xxxx xxxx 5,00,000 xxxx xxxx XXXX
  68. 68. E. PROFITS IN LIEU OF SALARY [SECTION 17(3)] a) Compensation for loss of employment or modification of the employment terms. a) b) It is generally treated as a capital receipt. But by virtue of Sec 17(3)(i) it is taxable as a profit in lieu of Salary. b) Payment from unrecognized provident or superannuation fund. a) b) c) Employer Contribution Interest on employer contribution is taxable under the following condition a) It is an unapproved fund. b) These are taxable at the time of payment to the assesse. Payment from Keyman insurance Policy. d) Profits in lieu of salary will include amount received in lump sum or otherwise, prior to employment or after cessation of employment for the purpose of taxation. e) Any other payments due to or received by an assesse from his employer or former employer is treated as “Profit in Lieu in salary”.
  69. 69. DEDUCTIONS AGAINST SALARY 1. Entertainment Allowance: Applicable only for Government Employees [Sec 16(ii)] Least of the following will be allowed as a deduction: i. ii. iii. Actual amount of entertainment allowance received. 20% of basic salary of the individual. Rs. 5,000. 1. Professional Tax [Sec 16(iii)] i. Professional tax or tax on employment paid by an employee, levied under a State Act shall be allowed as deduction, ii. Such deduction is available only on actual payment, iii. If an employer pays professional tax on behalf of his employee, then it will first be included in the salary as a perquisite and then, allowed as a deduction.
  70. 70. DEDUCTIONS AGAINST SALARY 3. Deductions u/s 80C – Section 80C was introduced in AY 2006-07. – Deductions are available for Tax Payer for his Investment. – To the maximum limit of Rs. 1,00,000 from his gross total Income. When and whom: 1. 2. 3. Individual and HUF (Hindu Undivided Family) It is available only from Gross total Income and not from Salary Income. Rs. 1,00,000 ceiling is inclusive of 80C, 80CCC and 80CCD.
  71. 71. Deductions Under Section 80C Sr. No Particulars 1 Employees Contribution to SPF (Statutory Provident Fund) 2 Employees contribution to RPF (Recognized Provident Fund) 3 Employees Contribution to PPF [15 year PPF] 4 Life Insurance Premium paid on own life, spouse or any children 5 Contribution towards non-commutable deferred annuity 6 Premium in respect to Unit Linked Insurance Plan 7 Purchase of National Saving Certificate 8 Deposit in National Housing Bank 9 Payment of Premium in any notified annuity plan of the LIC 10 Payment made towards the cost of purchase or construction of a new residential house property 11 Contribution to any units of mutual fund of UTI
  72. 72. Deduction Under Section 80C Sr. No Particulars 12 Sum paid as tuition fees at the time of admission or otherwise to any university, college, educational institution in India for Full Time Education. 13 Subscription to equity shares or debentures of a company engaged in infrastructure including power sector or units of mutual fund proceeds of which are utilized for developing maintaining etc., of a new infrastructure facility 14 Money deposited as term deposit for a period of 5 years or more in accordance with Government Scheme. 15 Subscription towards notified bonds of NABARD. 16 Deposits in Senior citizens savings scheme 17 Five year Post Office Time Deposit Account.
  73. 73. PERQUISITES ▪ It means any benefit attached to an office or position in addition to salary or wages. ▪ It denotes a personal advantage. ▪ Perquisites may be in cash or in kind. ▪ Any perquisite given in kind should be in a position to be measured in terms of money. Specified Employee: – A Director – Employee (full time or part time) – Employees who’s monetary salary exceeds Rs. 50,000 per annum. – Employees who is having a substantial interest in the company. ▪ 20% of paid up capital ▪ 20% voting power or more.
  74. 74. Perquisites Chart Taxable for All (Specified and Unspecified) Taxable for Specified Employees Only 1. Rent free house a) Furnished House b) Unfurnished House 1. Motor Car 2. House at concessional rent 2. Domestic Servants Watchman Gardner Sweeper Any Personal Attendant Cook Exempted for all (with certain limits) 1. Medical Facilities a) Free Medical Facility – Full Exemption b) Reimbursement i. Approved Government Employers Hospital – Full Exemption ii. Private Hospital – upto Rs 15000 c) Medical Facility outside India – as permitted by RBI. 2. Interest free concessional loan -Loan amount not exceeding Rs 20,000.
  75. 75. Perquisites Chart Taxable for All (Specified and Unspecified) Taxable for Specified Employees Only 3. Any obligation of employee paid by employer 3. Supply of Gas 4. Any amount paid by employer to effect an assurance on the life of employee 4. Education Facility 5. Free Meal 5. Transport Facilities (other than railways and airlines) 6. Gift 7. Club Facility 8. Credit Card and add on Card 9. Use of movable assets except computers and laptops 10. Interest Free Loan Exempted for all (with certain limits) 3. Interest Free loan for medical treatment of the nature given in rule 3A – full amount id exempted.
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