Tax computation


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Income Tax rules for Salaried Income

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Tax computation

  1. 1. 2 What is Tax ? A fee charged ("levied") by a government on a product, income, or activity. If tax is levied directly on personal or corporate income, then it is a direct tax. If tax is levied on the price of a good or service, then it is called an indirect tax. The purpose of taxation is to finance government expenditure.
  2. 2. 3 What is Previous Year and Assessment Year ? Previous year: The financial year Assessment year: The income from the for which your income is being year preceding it is assessed for income assessed. tax. Income from a particular financial year is assessed for income tax in the following year. The financial year in which this assessment takes place is called the Assessment Year (AY) Now we are in Assessment Year 2012-13 for the previous year 2011-12 Assessee Who is assessee: Income Tax Act 1961 (Act no. 43) defines assessee as a person by whom any tax or any other sum of money is payable under this Act, and includes – Every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or the amount of refund due to him or to such other person;
  3. 3. 4 Computation of Total Income Five heads of income for the purpose computation of tax • Salaries (Sec 15 to 17). • Income from house property (Sec.22 to 27) • Profits and gains of business or profession (Sec 28 to 44 DB) • Capital gains (Sec.45 to 55A) • Income from other sources (Sec. 56 to 59)
  4. 4. 5 What is Salary • Wages • Any gratuity • Any fees, commission, perquisites or profits in lieu of or in additional to any salary or wages • Any advance of salary • Leave encashment • Any annuity or Pension • Provident Fund - a) Employer’s contribution in excess of 12% of salary Etc
  5. 5. 6 Computation of Gross income under Salary Step I Deductions – Sec 16 The income chargeable under the head “Salaries” Shall be computed after making the following deductions from gross salary •Deduction of entertainment allowance (only for Govt. Employees Max. of Rs. 5000) Sec 16(ii) •Deduction of Professional Tax 16 (iii) Salary 75000X 12 9,00,000/- Value of taxable perquisites 25,780/- Gross Salary 9,25,780/- Less Professional Tax Paid. Rs. 200 X 12 = 2400.00 2,400/- Taxable Salary 9,23,380/-
  6. 6. 7 Computation of Salary Income Step II Calculation of LTA ( Leave Travel concession or assistance) Sec.10 (5) Quantum of Exemption The exemption for each trip shall be computed on the following basis Journey performed by Exemption 1. Air Amount in economy class by Shortest route 2. By Rail Amount in I A/C by shortest route 3. If rail service not exist – by recognized public transport Amount equivalent to the air conditioned I class rail fare does not exit 4 .If recognized public transport systems exists An amount not exceeding the first class or deluxe class fare by shortest route 1. L TA eligible to travel to anywhere in India with family (Self, Spouse, Children, dependent parents, brothers and sisters. 2. This is exempted from tax only 2 trips in a block of 4 calendar years starts from 1986, like 1986 to 1989, 1990 to 1993 ….. Now we are in the slab of 2013 to 2016
  7. 7. 8 Calculation of HRA STEP III Calculation of HRA House Rent Allowance Sec 10(13A) HRA granted to an assessee by his employer is exempt to the extent of the least of the following Excess of rent paid over 10% of salary (Basic + DA only*) due for the relevant period; or If the accommodation is in Metro cities -50% (Basic + DA only*) of the salary and in any other place – 40% salary Actual allowance received for the relevant period Exemption is not available to an assessee who lives in his own house or in a house for which he doesn’t pay any rent. Salary for this purpose means basic salary, dearness allowance – if provided in terms of employment and commission as a percentage of turnover achieved by the employee.
  8. 8. 9 Calculation of HRA Illustration Mr. Zakaria, staying at Chennai receives Rs. 12,500 Month as basic in terms of employment. He is paid an house rent allowance of Rs. 1,800 PM . House Rent paid by him Rs. 2500 Per Month. He received advanced salary of Rs. 50,000/- in March 2011 relating to the period of April to July 2011. Determine the taxable quantum of house rent allowance. Computation of taxable house rent allowance – Mr. Zakaria Particulars Rs. Rs. Actual House Rent Allowance received Rs. 1,800 X 12 Months 21,600 Less exempt u/s 10 (13A) to the extent of least of the following: 1. Excess of rent paid over 10% of the Salary 15,000 15,000 ( 12500 X 12 ) 1,50,000/- Rent Paid 2500X12 = 30000 – 15,000/- 1. 50% of Salary 75,000 2. Actual HRA received 21,600 3. Actual Rent Paid 30,000 Taxable HRA 6,600
  9. 9. 10 Special Allowance Special Allowance – Sec 10(14) The following allowances are prescribed by Central Board of Direct Taxes under Rule 2 BB of the Income Tax rules as exempt to the extent spent or specified here below: Any allowance granted and spent to meet the cost of 1. Travel on tour or on transfer 2. Ordinary daily charges incurred on account of absence from normal place of duty; 3. Conveyance allowance granted to meet the expenditure incurred on conveyance in the performance of the duties. 4. Expenditure incurred on a helper in the performance of duties 5. Purchase or maintenance of uniforms for wear during the performance of duties 6. Transport allowance granted to an employee to meet hi expenditure for the purpose of commuting between the place to his residence and the place of his duty to the extent of Rs. 800/PM, for employee is who is blind or orthopedically handicapped with disability of lower
  10. 10. 11 Fringe benefit tax The taxation of perquisites -- or fringe benefits -- provided by an employer to his employees, in addition to the cash salary or wages paid is fringe benefit tax.
  11. 11. 12 Valuation of Perquisites According to Section 17(2) perquisites include •Rent free accommodation provided to the assesses by his employer or concessional with this matter •Provision of transport facility (free or concessional) •Interest free or concessional Loan : The value of benefit or amenity is taxable as rate charged by SBI •Transfer of movable asset - If the employer transfers any moveable asset to the employee perquisites calculated as, for Motor Cars 20% rate of depreciation (Reducing balance Method,(WDV)) Computers and electronics gadgets 50% rate of depreciation (WDV)any other assets is 10% at straight line method .
  12. 12. 13 Non Taxable perquisites According to Section 17(2) Non Taxable perquisites includes 1. Any amount of premium paid in relations to group medical insurance taken by the employer for his employees or reimbursement medical insurance premium 2. Reimbursement by employer of actual medical expenditure incurred by an employee and his family not exceeding Rs. 15,000/- 3. When Employee owns car and employer bears expenses (when it is used for official and Personal use) Up to 1.6 ltr CC Engine – 1800/- PM and Above 1.6 ltr. C.C Engine-Rs. 2400/- PM. Driver Salary for Rs. 900/- PM. 4. If free meals provided by the employer during the office hours at office premises up to Rs.50/- or through voucher usable only at eating joints if the value thereof is up to Rs.50/- Per meal; 5. Tea and snacks provided during the office hours 6. Gift - The value of any gift/(voucher/token) by employer to employee up to Rs.5000/- is exempted and if the value exceeds Rs. 5000/- the entire amount is taxable. 7. Employer pay or reimburses telephone/mobile bills is exempted from taxable perquisite
  13. 13. 14 Income from House Property 1 Let-out Property Any Amount of Income or Loss 2 Self Occupied or Un Occupied Either nil or loss subject to max of Rs. 1.5 Lakh Property 3 Deemed let-out property Any Amount of Income or Loss House Property – Let out for a period What is annual value of the property Generally fair rent is adopted as the gross actual value to this general rule there are only two exceptions as follows If the property is let out and the actual rent received or receivable is excess of fair rent, the amount so received shall be deemed to be the annual value. If the property is let out was vacant during the whole/part of the previous year a during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable shall be considered as the annual value Fair rent means rent which similar property in the same locality would fetch. But if the municipal valuation is also available, then municipal valuation or the rent which similar property in the same locality would fetch.
  14. 14. 15 Income from House Property Interest on Loans – Sec.24(b) • Interest Payable on loans borrowed for the purpose of acquisition, construction. Renovation, repairing or reconstruction can be claimed as deduction • Loan borrowed to repay original loan would also be admissible as deduction • Deduction U/s 24 (b) is allowed up to Rs. 1,50,000/- (acquired/Construction after 1-4-99)
  15. 15. 16 Deductions to be made in computing total income Deductions to be made in computing total income. U/s 80C • Life insurance • Employee welfare funds – PF, PPF • Central Government /Post Office savings / other notified schemes – like PPF, pension fund, RD (5yrs) etc • Housing – Repayment of any housing loan, stamp duty, registration charges • Tuition Fees – payment made as tuition fees to any university, college or school or other educational intuition The aggregate of the eligible contributions mentioned above shall be allowed as deductions to the extent of Rs. 1,00,000/-
  16. 16. 17 Deductions to be made in computing total income Deductions to be made in computing total income. U/s 80CCC- Pension Fund 1. Contribution made to annuity plan issued by LIC or any other insurer approved by IRDA 2. If this insurance is surrenders before maturity, the surrender value or pension received by this annuity is taxable 3. Deduction in respect of contribution to pension schemes of central government Sec 80.CCD 4. Where an individual has contributed any amount under a pension scheme notified by the central Government, he shall be allowed a deduction in the computation of his total income, the limit as follows; 5. In the case of an individual deriving Salary income - 10% of the Salary (Limit) 6. In the case of individual deriving other income – 10% of the gross total income (Limit)
  17. 17. 18 Deductions to be made in computing total income – Example• Mr. Sharma aged 70 years furnishes the following particulars for the year ending• Life insurance premium paid – Rs. 50,000/- capital sum of the policy assured for Rs. 2 Lakhs• Contribution to Public provident Fund – Rs. 30,000/- in the name of mother• Tuition fee payment – Rs. 10,000/- each for 3 daughters pursuing full time graduation courses in Mumbai; Tuition fee for son pursing MBA in Harvard Business School – Rs. 1 Lakh• Housing Loan principal repayment - Rs. 24,000/- to HDFC bank this property is under construction at Mumbai as on 31st March 2011• Principal repayment of Housing loan taken from friend – Rs. 50,000/- property is self occupied situated at Chennai• Deposit under Sr. Citizen Scheme Rs. 25,000/-• Deposit under Post office time deposit scheme – Rs. 30,000/-• Investment in National savings Certificate – 50,000/-• Subscription to bond issued by NABARD - Rs. 25,000/-• Term deposit of Rs. 25000/- with schedule bank for a period of 5 years. This deposit was pledged to avail education loan for son• Compute the deduction eligible under section 80C AY-2011-12
  18. 18. 19 Deductions to be made in computing total income Particulars Note Amount eligible Rs. A Life Insurance Premium 1 40,000/- B Contribution to Public Provident Fund 2 NIL C Tuition fee for daughter pursuing full time education in Mumbai 3 20,000/- D Housing Loan principal repayment 4&5 NiL E Post Office Term Deposit Scheme 30,000/- F Contribution to NSC 50,000/- G Subscription to Bonds issued by NABARD 25,000/- H Sr. Citizen Scheme deposit 25,000/- I Term deposit 6 NiL Gross amount eligible 1,90,000/- Deduction under section 80C restricted to 1,00,000/-
  19. 19. 20 Deductions to be made in computing total income Notes 1. Any amount of Life insurance premium paid in excess of 20% of capital sum assured shall be ignored for deduction u/s 80C. 2. In the case of Individual contribution to PPF shall be made in his name, spouse or children to qualify for deduction. 3. Tuition fee paid is eligible for deduction u/s 80C for maximum of two children. Tuition fee paid for educational institution situated outside India is not eligible for deduction 4. In order to claim the principal repayment on loan borrowed for house property as deduction, the construction of such property should have been completed 5. Repayment of Principal on housing loan is not allowed as deduction in
  20. 20. 21 Deductions to be made in computing total income The Rajiv Gandhi Equity Savings Scheme will allow 50 per cent tax deduction for those whose annual income is below Rs 10 lakhs and who invest up to Rs 50,000 in stocks. The scheme will have a lock-in period of three years, This scheme for new investors can be availed only once, meaning people who have already invested in equity market cannot avail this tax benefit. This is once in a lifetime This scheme is over and above the deduction provided on investments up to Rs 1 lakh.
  21. 21. 22 Deductions to be made in computing total income Medical Insurance Premium – Sec 80D Summaries of the deduction allowable u/s80D Mediclaim Premium Paid in respect of Self, Spouse & Parents, Total deduction u/s Description dependent dependent or not 80D Children No one attained the Rs. 15,000/- Rs. 15,000/- Rs.30,000/- age of 65 years Assessee his family less than 65 years of Rs. 15,000/- Rs. 20,000/- Rs. 35,000/- age and parent is a senior citizen Assessee and the parent attained the age Rs. 20,000/- Rs. 20,000/- Rs. 40,000/- of 65 Years Latest Amendment for 2012-13 – Age of Senior Citizen reduced from 65 years to 60 Expenditure on preventive health checkup up to Rs. 5000 will be qualified for deduction on u/s 80D (within the specified amount)
  22. 22. 23 Deductions to be made in computing total income Maintenance including medical treatment of a dependant with disability – Sec 80DD • Deduction is allowable in respect of – Any expenditure incurred for the medical treatment, training and rehabilitation of a dependant with disability • An amount paid or deposited by assessee under any scheme of LIC or any other insurer for the above. • Deduction- Deduction of a flat amount of Rs.50,000/- shall be allowed irrespective of the quantum of expenditure incurred or deposit made, If the person with severe disability, the deduction shall be Rs. 1,00,000/-. The deduction is subject to the following conditions: • The scheme of LIC or any other insurer or the administrator provides for the payment of annuity or lumpsum amount for the benefits of a dependant with disability. Medical treatment for certain specified disease or ailment – Sec 80DDB • Deduction under this section can be claimed by the asessee and their dependant towards medical treatments of specified diseases or ailments • Deduction shall be up to Rs. 40,000/- or actual expenses whichever is less. • For the purpose of Sec 80DDB the specified diseases and ailment shall be as under (Rule 11 DD)
  23. 23. 24 Deductions to be made in computing total income Deduction for the interest on loan taken for higher education – Sec 80E • Any amount paid towards interest on loan borrowed from any financial institution or any approved charitable institutions for the purpose of pursuing higher education is deductible. • The higher education shall be pursued by the assesse himself or by spouse or children • This deduction is allowed for the initial year (year of commencement of payment of the interest) and immediately succeeding 7 assessment years or until the interest is paid by the assessee in full whichever is earlier. • “Higher education” means any course of study pursued after passing the Sr. Secondary examination or its equivalent from any school, board or university recognized by the Central Government, Sate Government, Local authority or any other authorized authorities.
  24. 24. 25 Deductions to be made in computing total income Donations to Certain Funds, charitable institution etc 80G Category No. Eligibility of Donation Made I 100% deduction without any limit II 50% deduction without any limit III a) Donations eligible for 100% of the restricted amount b) Donations eligible for 50% of the restricted amount Category I PM National relief fund, PM earthquake relief found, The national foundation for communal Harmony and many more. Category II Jawaharlal Nehru Memorial Fund, PM’s Drought Relief fund, The Nationals Children’s fund, Indira Gandhi Memorial Trust; Rajiv Gandhi Foundation Category III •Donations eligible for 100% of the restricted amount •Contribution by a company as donations to the Indian Olympic association or any other associations or institutions established in India for the development of infrastructure for sports and games or for the sponsorship of sports and games in India notified by Central Government •Government or local authority or approved institution/association for promotion of family planning •Donations eligible for 50% of the restricted amount •Renovations of notified temple, mosque, Church or gurudwara or any other notified place of national importance; •The government or any local authority, to be utilized for any charitable purpose other than the purpose of promoting family planning; •Any other corporation established by government for promoting interest of scheduled caste/Scheduled tribe/backward class; •Any authority set up for the providing housing accommodations or town planning;
  25. 25. 26 Deductions to be made in computing total income Net qualifying Amount • Here qualifying amount would be 10% of adjusted total Income (i.e Gross Total Income - Deductions a) Deductions under Chapter VI-A (80C to 80U), b) long term capital gains, c) Short term capital gains on listed securities , d) income of non-residents chargeable to tax) lowest of the amount. • Donations in kind are not deductible. • New amendment for FY-2012-13 Deduction u/s 80G and 80GGA not granted in case of cash donations in excess of Rs. 10,000/-
  26. 26. 27 Tax Rate – Assessment Year 2013-14 Tax rate- Proposed for assessment year 2013-14 Where the total income does not exceed Rs. 2 Nil Lakhs Where the total income exceeds Lakhs but 10% of the amount by which the total income not exceed 5 Lakhs exceeds, 2 Lakhs Where the total income exceeds Rs. 5 Lakhs Rs. 30,000 + 20% of the amount by which the doesnot not exceed 10 Lakhs total income exceeds Rs. 5 Lakhs Whrere the total income exeeds Rs. 10 Lakhs Rs. 1.30. Lakhs + 30% to the amount by which the total income exceeds Rs. 10 Lakhs + 2% education and secondary and higher education cess at the rate of 1% will apply There is tax exception up to 2.5 Lakhs for every individual who is of the age of 60 and less then 80 yrs There is tax exception up to 5.00 Lakhs for who is of the age of 80 years after 5.00 Lakhs it is 20% and 10 Lakhs and above is 30%
  27. 27. 28 FAQ’S 1. What are the benefits of obtaining a Permanent Account Number [PAN] and PAN Card? A PAN number has been made compulsory for every transaction with the Income Tax department. It is also mandatory for numerous other financial transactions such as opening of bank accounts, availing institutional financial credits, purchase of high-end consumer item, foreign travel, transaction of immovable properties, dealing in securities etc. A PAN card is a valuable means of photo identification accepted by all government and non-government institutions in the country 2. What can I do to reduce my tax? The tax can be reduced by making investment in approved schemes and also by making donations to approved charitable institutions. 3. If I have paid excess tax how and when will it be refunded? The excess tax can be claimed as refund by filing your income tax return. It will be refunded by issue of cheque or by crediting to your bank account. The department has been making efforts to settle refund claims within four months from the month of filing return. 4. If I have committed any mistake in my original return, am I permitted to file a corrected return? Yes, provided the original return has been filed before the due date and provided the department has not completed assessment. However it is expected that the mistake in the original return is of a genuine and bona fide nature.
  28. 28. 29 FAQ’S 6. Are arrears of salary taxable? Yes. However certain benefit of spread over of income to the years to which it relates can be availed for lower incidence of tax. This is called relief u/s 89(1) of Income-tax Act 7. Life insurance amount received on maturity along with bonus - is it taxable? No. 8. My spouse and I jointly own a house for construction of which both of us have invested equally out of independent sources. Can the rental income received be split between us and taxed in the individual hands? Yes. 9. have 5 separate let out properties. Should I calculate the house property income separately for each individual property or by clubbing all the rental receipts in one calculation? The calculation will have to be made separately for the various properties. 10.What is TDS? TDS means Tax Deducted at Source. It is the amount withheld from payments of various kinds such as salary, contract payment, commission etc. This withheld amount can be adjusted against your tax due. 10. What can I do if I am unable to get the TDS certificate [form-16 or 16A]? It is the duty of every person deducting tax to issue TDS certificate. In spite of your asking if you are denied the certificate then there is a chance that the tax deducted has not been deposited by the deductor to the government account. Please inform the department [PRO or TDS section] which will then do the needful.
  29. 29. 30 FAQ’S 14. What tax benefits can one get on a home loan? Tax benefits can be claimed on both the principal and interest components of the home loan as per the Income Tax Act. These deductions are available to assesses, who have taken a loan to either buy or build a house. (A) Interest on borrowed capital is deductible as follows: If the following conditions are satisfied, interest on borrowed capital is deductible up to Rs 150,000, Capital is borrowed on or after April 1, 1999 for acquiring or constructing a property. The acquisition/construction should be completed within 3 years from the end of the financial year in which capital was borrowed. The person extending the loan, certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house or as refinance of the principal amount outstanding under an earlier loan taken for such acquisition or construction. If the conditions stated above are not satisfied, then the interest on borrowed capital is deductible up to Rs 30,000. (B) In addition to the above, the principal repayment of the loan/capital borrowed is eligible for rebate under Section 88 up to Rs 20,000
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