The contents of the file would provide a glimpse of Income Tax and few concepts prescribed as a chapter in Accounting for Management under VTU MBA course.

1. Accounting for Management
Subj. Code 12MBA14
Module VIII- Income Tax

2. Contents
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Income Tax (only theory)
Heads of Income
Salary
Profit in lieu of salary
Perquisites
Deductions u/s 80C
Income Tax Rates (individuals only)-

3. Questions to ponder…
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Why study Taxation in accounting?
What is Tax?
What are its types?
What are the various heads of income of an
individual?
• What are the tax rates applicable to an
Individual for AY 2013-14?

4. Taxation and Accounting
• Rules and treatment of various items in
Accounting and Taxation are slightly different
from each other
• Accountant- basic knowledge- to present
his/firm’s business position before tax
authorities in proper perspective
• Accountingbasis/reference
for
tax
computations

5. Tax
• A compulsory contribution (not voluntary)
• Made by a person
• To the state’s treasury

6. Types of Taxes
• Direct- incidence and impact- same person
Ex: Income Tax, Wealth Tax etc
• Indirect – incidence and impact- different
persons
Ex: Sales tax, Excise duty, Customs duty, VAT
etc

7. Income of an Individual- various heads
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Income from Salary
Income from House property
Income from Capital gains
Income from Business/ profession
Income from Other sources
Concept of GTI (Gross Total Income) and
Taxable Income

8. AY and PY
• Period of 12 months starting from 1st April and
ending on 31st March every year is called the
Assessment year.
• The financial year immediately preceeding the
AY is the Previous year.
• The income of the PY is assessed to tax in the
AY.
• For AY 2013-14 i.e. 01/04/2013 to
31/03/2014, PY is 01/04/2012 to 31/03/2013.

9. Exercise- What is the PY for the AY
2013-14 in the following cases…
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Mr Kutty runs a Honda showroom since 2010
Ans.: 01/04/2012 to 31/03/2013
Mrs Laxmi joins a company on 23rd Jan 2013
Ans.: 23/01/2013 to 31/03/2013
Mr Lal starts a new business on 5th July 2012
Ans.: 05/07/2012 to 31/03/2013
Mr Neel starts a cloth business on 3rd March’13
Ans.: 03/03/2013 to 31/03/2013

10. Deductions u/s 80C
• Insurance premium on own life/ spouse’s life/
children life (dep / indep / minor / major / married
/ unmarried) – subject to a max of 20% on Sum
assured (SA).
• Contribution towards RPF, PPf, SPF, EPF etc
• Purchase of NSC VIII issue cert
• Purchase of ULIP of UTI, LIC- Mutual fund etc
• Payment of notified annuity plan of LIC or other
insurers
• Subscription towards notified units of MFs
• Subscription to any notified bonds of NABARD

11. 80C deductions (contd..)
• Any sum paid (incl. interest accrued) as subscription to
Home Loan account scheme of National housing bank
• Any public deposit scheme of HUDCO
• Any sum paid as tuition fees for full time education of
any 2 children (Indian insti)
• Principal
amt
paid
towards
cost
of
purchase/construction of residential property
• Amount deposited as term deposits (5 years or more) in
accordance with a scheme framed by the Govt
• 5 years Term deposits scheme of post office
Gross qualifying amount or Rs.100000- whichever is lower.

12. Exercise- compute the amount
qualified to be deducted u/s 80C
Sl
No
Particulars
Rs.
1.
Insurance premium paid on own life (SA Rs.22500)
6500
2.
Insurance prem paid on life of mother
3800
3.
Insurance prem on life of father (SA 10000)
2000
4.
Insu prem on life of his wife (SA 100000)
4000
5.
Insu prem on life of married daughter
2000
6.
Contribution towards EPF
50000
7.
Contri towards PPF
15000
8.
Repayment of loan taken from LIC for housing
22000
9.
Tuition fee of his son
12500
10.
Investments in tax shield mutual fund scheme of ICICI
10000
11
Investment in 12 month RD scheme of corporation bank
Solutions for the exercise discussed….
5000

13. Income from Salary
• There must be an employer employee
relationship for an income to be charged
under the head Salaries
Ex: lecturer- college: salary
MP- Govt: Other source
Partner- Firm: Business income

14. Salaries
Salaries include:
• Wages
• Any annuity or pension
• Any advance of salary
• Any gratuity
• Any fees, commission, perquisites or profits in lieu of
salary or wages
• Any leave encashment recd
Certain payments are fully taxed, partially taxed or fully
exempted according to the rules mentioned in the
Income Tax Act.

15. Fully taxable items- some examples
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Basic pay
Dearness Pay
Bonus
Commission
Tiffin allowance
Medical allowance
Servant allowance
Overtime allowance
Warden allowance etc

16. Fully exempted allowances
• Foreign allowance to government employee
• Allowances from UNO
• Allowances paid to high court judges

17. Partially taxable/exempted allowances
• Special allowances (to the extent used for
official purpose)- Conveyance, uniform
allowance, helper allowance etc
• Allowances to meet personal expensesChildren Education allowance- Rs.100pm per
child upto 2 children is exempt.
• Partially taxed/exempted under certain
conditions: HRA, Gratuity, Encashment of
leave etc

18. Taxable HRA – an example
• House rent allowance received by an employee is partially taxable.
• It is fully taxed if he lives in his own house or lives in a house for which he
doesn’t pay rent.
Particulars
Rs.
Rs
HRA actually recd
XXX
Less: Exempt- least of the following
1. Actual HRA
XXX
2. Rent paid in excess of 10% of salary
XXX
3. 40% of salary (50% in case of D,M,K,C)
XXX
Net Taxable HRA
Salary= Basic + DA if considered for retirement benefits)
XXX
XXX

19. Case
• Mr Monty earns a basic salary of Rs.10000pm
in a co in Bangalore. Further he receives a DA
of Rs.2000pm(100% enter into retirement
benefit). HRA Rs.1000pm. Rent paid by him
Rs.18000pa. Compute his taxable HRA

20. Perquisites
• Benefits given to employee in addition to salary
(given in kind)
Ex
Club
facility,
RFArent
free
accomodation, interest free loan, free lunch and
gifts, obligation of the employee met by
employers.
• Some are exempted while some are taxed.
• Ex for exempted/tax free perquisites: medical
insurance
premium
paid
by
employer,
scholarships
to
employee’s
children, laptops given for official/ personal use
etc

21. RFA- case- house rented by e/r
• Computation of taxable value of RFA
Particulars
Rs.
Lease rent or 15% of salary- whichever is less
Rent 1000pm / salary Rs.100000pa
12000
(+) 10% of original cost of asset (100000x10%
10000
(+) Hire charges paid by employer
1200
(-) Rent paid by employee- 500pm
(6000)
17200

22. Profits in lieu of salary
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Includes:
Voluntary retirement compensation recd
Retrenchment compensation recd
Compensation recd for modification of terms
and conditions of employment
- Refund from unrecognised provident fund
- Share of keyman insurance policy recd by
employee

23. Choice between HRA and RFA-case
• Mr Gupta is offered an employment at basic
salary of Rs.5000pm and DA of Rs.1000pm
(forming part of salary).
The company gives him an option to take RFA in
Blore for which the company would pay rent of
Rs.1500pm (hire charges Rs.2000 additional paid
by co) or to accept HRA of Rs.1500 and find an
accommodation of his own.
He chose to received HRA and live in a house at
Rs.1200 rent pm. Has he made a wise choice
from tax viewpoint?

24. Computation of taxable HRA and RFA
HRA
Particulars
RFA
Rs
HRA recd (1500x12)
Less:
1. HRA actual
2. Rent paid minus
10% of salary
(1200x12)(72000*10%)
3. 40% of salary
(72000x40%)
Taxable HRA (1)
Salary= Basic +DA
Rs
Particulars
18000 House rent(1500x12)
15% of salary
(72000x15%) (WIL)
(+) Hire charges
Rs
Rs
18000
10800
10800
2000
18000
(there’s no rent paid
by e/e and no assets
furnished)
7200
7200 Taxable RFA (2)
12800
28800
10800
Taxable HRA< Taxable RFA- wise choice
made by Mr Gupta.

25. Taxable income and Tax liability
Taxable Income:
Rs.
1. Income from salaries
XXX
2. Income from House property
XXX
3. Income from Capital Gains (excl. LTCG and STCG liable for STT)
XXX
4. Income from Business/ Profession
XXX
5. Income from other sources (Excl Casual income)
XXX
GTI
XXX
-Deductions u/s 80 C to 80 U
XXX
Total income
XXX
+ Casual income xxx
LTCG
xxx
STCG
xxx
XXX
Taxable income
XXX

26. Tax liability
Particulars
Rs.
Tax on casual income at 30%
XXX
Tax on LTCG at 20%
XXX
Tax on STCG at 15%
XXX
Tax on other incomes at slab rates applicable for Ays
XXX
Total Tax (1)
XXX
+ Education cess at 2% on (1)
Secondary and higher education cess at 1% on (1)
Total tax payable (2)
+ interest or penalty (if any)
XX
XX
XXX
XX
XXX
-Tax paid on self assessment X
-Advance income tax
X
-TDS
X
XXX
Tax payable/ refundable
XXX

27. Tax rates for AY 2013-14
Individuals (Males and
Females)
Senior citizen (aged 60yrs
am and above, less than
80 yrs)
Super senior citizen (aged
80 yrs and above)
Upto Rs.2lac
Nil
Upto 2.5lac
Nil
2lac-5lac
10%
2.5lac-5lac
10%
Upto 5 lac
Nil
5lac-10lac
20%
5lac-10lac
20%
5 lac – 10lac
20%
>10lac
30%
>10 lac
30%
>10 lac
30%
Education cess at 2% and Sec and higher edu cess at 1% in all cases to be added