Taxation

1. NAGINDAS
KHANDWALA COLLGE.

2. INCOME EXEMPTED
FROM TAX.

3. GROUP MEMBERS.
NAME ROLL NO.
SAMEER JADHAV 311
PRIYANKA LIMBACHIYA 313
KRISHNA MEHTA 314
MUDRA MEHTA 315
YASH MEHTA 316
RICHA MODI 317
GAURAV NAIR 319
DEVANSHI PARIKH 320
RAJ SATRA 327

4. EXEMPTION.
 The circumstances of a taxpayer, as age or number of dependents,
that allow him or her to make certain deductions from taxable
income.
 Exemption, immunity, impunity imply special privilege or freedom
from imposed requirements. Exemption implies release or privileged
freedom from some duty, tax, etc.: exemption from military service.
Immunity implies freedom from a penalty or from some liability,
especially one that is disagreeable or threatening: immunity from
disease. Impunity (limited mainly to the fixed expression with
impunity ) primarily suggests freedom from punishment: The police
force was so inadequate that crimes could be committed with
impunity.

5. EXAMPLES
 1. to free from an obligation or liability to which
others are subject; release: to exempt a student from
an examination.
 2. released from, or not subject to, an obligation,
liability, etc.: organizations exempt from taxes.
 3. a person who is exempt from an obligation, duty,
etc.

6. AGRICULTURAL INCOME.

10. STEPS.
 Step 1: Add agricultural with non-agricultural
income and calculate the tax on the aggregate as
if it is the total income
 Step 2: Compute the tax on [Exemption limit +
Agricultural income] as if it is the total income
From the total amount again Exemption shall be
given.
 Step 3: Step 1 – Step 2 will be the tax payable
 Step 4: Add Education Cess @ 3%

11. Proportion distribution of business and agriculture
income
 If tea/rubber/coffee is grown and
manufactured in India
 Income shall be apportioned between agricultural
& business income:
 40%/35%/25% - taxed as business income
 60%/65%/75% (remaining) – agricultural income ,
hence exempt.
 if the coffee is also grounded and roasted along
with above – 40% shall be taxed as PGBP income.

12.  Partial integration method is applicable only when:
 Agriculture income exceeds `5,000
+
 Non-agricultural income exceeds
exemption limit
(2,00,000/2,50,000/5,00,000).

13. HINDU UNDIVIDED FAMILY
 Formation of HUF for tax benefit:-
A Hindu Undivided Family (HUF) offers specific advantages as far as taxation is concerned.
The Income Tax Act and Wealth Tax Act recognise the HUF as an independent assessable or
taxable entity. Hence, HUFs enjoy all deductions and exemptions under the IT Act
independent of the income and tax liabilities of its members. The Hindu Law defines the HUF
as a family, which consists of males lineally descended from a common ancestor and includes
their wives and unmarried daughters.
 Receipts by members from H.U.F:-
 Any sum received by an assessee in his capacity as a member of a H.U.F is exempt from tax
to avoid double taxation as H.U.F is also assessable separately on its income in its own
capacity. The sum should be received in the capacity as a member of an H.U.F. I the recipient
is not a member of the H.U.F., he cannot claim the exemption. The sum should be received
either out of the income of the H.U.F or out of the income of imputable estate owned by the
H.U.F under section 10(2).
 The ownership of impartible estate through belongs to the joint family but the income
therefrom belongs solely and absolutely to the holder of the estate. The holder of the
estate is assessable as an individual in respect of the estate income. The senior most male
member succeeds to the impartible estate by law of primogeniture but the junior male
members may have the right to maintenance out of the income from the impartible estate.
Hence the exemption has been provided if any sum is received by the member of HUF out of
the income from impartible estate.

14. CONTD..
 Members: An HUF is automatically constituted after marriage. It can also be
formed by partition of an existing HUF into multiple units. A suitable name needs
to be given to the HUF, taking into consideration the prevalent laws and the
business that it intends to undertake.
 Corpus: An important requisite for the constitution of an HUF is its corpus or
capital. This capital is separate from the assets owned by its members. The
property received by way of a will in favour of the HUF can become the corpus.
 Deed: Though it is not mandatory to have a deed for the formation of an HUF, it
is advisable to execute one from a legal and taxation perspective. It should
include details of the karta, members of the HUF consisting of coparceners, and
other family members, the corpus as well as the business of the HUF.
 PAN: An HUF has a separate PAN and the karta must apply for one. The PAN
needs to be quoted while making investments and carrying out financial
transactions of the HUF.

15. PARTNERS IN PROFIT ONLY.
 Section 10(2A) in The Income- Tax Act, 1995
 (2A) - in the case of a person being a partner of a
firm which is separately assessed as such, his share in
the total income of the firm. Explanation.- For the
purposes of this clause, the share of a partner in the
total income of a firm separately assessed as such
shall, notwithstanding anything contained in any other
law, be an amount which bears to the total income of
the firm the same proportion as the amount of his
share in the profits of the firm in accordance with
the partnership deed bears to such profits.

16. LEAVE TRAVEL
CONCESSION.

17. LEAVE TRAVEL CONCESSION.
 Section 10(5) of the Income Tax Act states,
 In the case of an individual, the exemption is the
value of any travel concession or assistance
received by or due to him,—
 (a) from his employer for himself and his family,
in connection with his proceeding on leave to any
place in India.
 (b) from his employer or former employer for
himself and his family, in connection with his
proceeding to any place in India after retirement
from service or after the termination of his
service.

18. …CONTD
 2 Journeys in a block of 4 calendar years are
exempt.
 Amount Exempt : Leave Travel Concession
Or
Amount of Expenditure
 Journey in India : Exempt.
Journey outside India : Fully Taxable.

20. GRATUITY

21. Government
employee
Fully exempt
POGA
Employees
covered under
payment of
gratuity act,1972
Others
Least of ½
month average
salary completed
years of service
10,00,000
Amount received

22. SUMS ON GRATUITY.

23. 1ST SUM
1. Mr. Suhas is a non government employee and is also
not covered by POGA 1972, and retired on 30th June
2012 and received RS 12,00,000 as a gratuity after
service of 38 years 8 months the average monthly
salary during last 10years immediately preceding the
month in which he retires works out Rs.50,00,00 per
month. Determine the amount of gratuity taxable
and for the A.Y 13-14?

24. Soln:-NO-1
MR.SUHAS A.Y 13-14
1. GRATUITY 10(10) Exemption least of
= ½x AVG SALARY x COMPLETED YEARS OF
SERVICE
= ½x 50,000 x 38
= 9,50,000
2. MAX AMOUNT BY GOVERNMENT = RS10,00,000
3. ACTUAL GRATUITY RECEIVED =RS12,00,000
EXEMPTION AMOUNT =1,50,000
TAXABLE AMOUNT=12,00,000-9,50,000
= 2,50,000

25. 2nd SUM
MR. ABBAS WAS THE GENERAL MANGER OF
P LTD AND HE RETIRED ON 31-12-12 AFTER
30 YEARS AND 6 MONTHS OF SERVICES
AND AVERAGE SALARY IS RS 5000 P.M. HE
RECEIVED RS 75,000 AS GRATUITY.HE IS
NOT COVERED UNDER POGA
1972.CALCULATE AMOUNT AND TAXABLE
AMOUNT?

26. SOLN:- NO-2
2. MR ABBAS A.Y=13-14
GRATUITY 10(10)
EXEMPTION LEAST OF
= ½x AVG SALARY x COMPLETED YEARS OF
SERVICE
= ½x 5000 X 30
= 75,000
EXEMPTION AMOUNT =75,000
TAXABLE AMOUNT = NIL

27. 3RD SUM
3. IT IS SAME AS QUESTION 2 BUT
COVERED IN POGA,1972 EXEMPTION
AMOUNT IS
RS 55000.CALCULATE TAXABLE AMOUNT?

28. SOLN:- NO-3
 MR ABBAS A.Y=13-14
 GRATUITY 10(10)
1) EXEMPTION LEAST OF
= ½ x AVG SALARY x COMPLETED YEARS OF
SERVICE
= ½ x 5000 X 30
= 75,000
2. EXEMPTION AMOUNT =75,000
3. TAXABLE AMOUNT =75,000-55,000
=20,000.

29. Pension
A pension is a contract for a fixed sum to be paid
regularly to a person, typically following
retirement from service. there are many
different types of pensions, including defined
benefit plans, defined contribution plans, as well
as several others.
The terms retirement plan and superannuation
refer to a pension granted upon retirement of
the individual. retirement plans may be set up by
employers, insurance companies, the government
or other institutions such as employer
associations or trade unions. Called retirement
plans in the united states, they are commonly
known as pension schemes in the united kingdom
and Ireland and superannuation plans in Australia
and New Zealand. Retirement pensions are
typically in the form of a guaranteed life annuity,
thus insuring against the risk of longevity.

30. There are two types of pension:
Uncommuted pension:
It refers to pension received periodically. Any
amount received as uncommuted pension is fully
taxable in the hands of both government & non –
government employees.
Commuted Pension
Commuted means interchange. Many employers
allow the employees to forgo a portion of the
pension and receive a lump-sum amount by
surrendering a portion of the pension. Such
amount received is known as commuted pension.
The pension may be fully or partly commuted.

32.  Uncommuted pension - Fully taxable
 Commuted pension
a) Govt employee - Fully exempted
b) Non - Govt employee ( received gratuity also )
- 1/3 of Full value of pension
c) Non - Govt employee ( not received gratuity )
- 1/2 of Full value of pension

33. NEW PENSION SCHEME.
The National Pension System (NPS) is a defined contribution
based pension system launched by Government of India with effect
from 1 January 2004. As a first step towards instituting pension
reforms, Government of India moved from a defined benefit
pension to a defined contribution based pension system. Apart from
offering wide investment options to employees, this scheme would
help government of India to reduce its pension liabilities. Unlike
existing pension fund of Government of India that offered assured
benefits, NPS has defined contribution and individuals can decide
where to invest their money. The scheme is structured into two
tiers:
 Tier-I account: This NPS account does not allow premature
withdrawal and is available to all citizens from 1 May 2009.
 Tier-II account: This NPS account permits withdrawal for
exceptional reasons only, prior to the retirement age.

34. SUMS.
1. Mr. Prashant retires from Indian Economic Service on
31.10.12 and receives rs.30250/- per month as pension
on the last date of each month.Determine the amount
of pension taxable
Solution:-
 Mr. Prashant is not a government employee.
 He receives uncommuted pension which is fully
taxable.
 He retires on 31.10.12
 Taxable amount=30250 *5monthns(november-march)
=151250/-

35.  2.Mr Rakesh retires from private company on
30/6/12 he gets pension rs.28000/- per month
upto 31/1/13 with effect from 1/2/13 he gets
75% of pension commuted for 1260000/- pension
becomes due on last day of each month.Determine
taxable amount under two circumstance:-
i. If he receives gratuity.
ii. If he does not receives gratuity.

36.  Solution:-
 If he receives gratuity
28000 pm(July to Jan)= 7 monthns =196000
7000 pm (Feb to march)=2monthns=14000
(28000*25%=7000)
210000

37.  Commuted pension 1260000
 (-)exempt u/s 10(10(A)) (560000)
 1/3 of commuted value of 700000
full pension
1260000 75%
? 100%
=1680000*1/3=560000

38.  Taxable amount=210000+700000
=910000
 If gratuity not received
Uncommuted pension
28000 pm(July to Jan)= 7 monthns =196000
7000 pm (Feb to march)=2monthns=14000
(28000*25%=7000)
210000

39.  Commuted pension 1260000
 (-)exempt u/s 10(10(A)) (840000)
 1/2 of commuted value of 420000 full
pension
1260000 75%
? 100%
=1680000*1/2=840000
 Taxable amount = 420000 + 210000
= 630000

40. Provident Fund
 It is a fund built up by contributions made by the
employees during his working life and an equal
contribution by his employer @12% of his salary
at present and is payable back to him together
with interest on exit from employment.

41. TYPES.
Statutory Provident Fund-U/S 11 (SPF)
Recognized Provident Fund-U/S 12 (RPF)
Unrecognized Provident Fund-U/S 13 (URPF)

42. SUM ON RPF.
Q:Mr.A is a sales manager in B Ltd. During the
previous year 2012-13 he gets the following
from B Ltd. Basic salary=rs.50,000/-, DA=10%
of salary, commission=5% of turnover which is
rs.5,00,000/-, employees contribution towards
RPF @18% of basic salary rs.10,800/-, credit of
interest in the PF a/c of A @11.5% i.e.
rs.23,000/-

43. Ans. Computation of RPF taxable amount
Particulars Amount Amount
Basic salary 50,000
(+) DA (10% of 50,000) 5000
(+)Commission
(5% of 5,00,000)
25,000
80,000
RPF @ 18% 10,800
(-)Exempt @12%
(12% of 50,000) 9,600 1200
Interest on RPF (11.5%) 23000
(-)Exempt @9.5%
[23,000 11.5%
? 9.5%]
19000 4,000

44. AMOUNT RECEIVED UNDER INSURANCE POLICY.
 Any sum received under a life insurance policy
including the sum allocated by way of bonus on such
policy shall be to tally exempt from tax however this
exemption shall not be available in respect of:
 1) Any sum received under 80DDA(3) as per
section 80DD the assesses claims the deduction in
respect of maintenance including medical treatment
or deposit made for maintenance of handicapped
dependent under any scheme framed by LIC or UTI ,
in such case if the handicapped dependent
predeceases the assesses the amount of u/s 80 DD ,
as an shall not be exempted from tax u/s 10(10).

45. 2) Under a Key man insurance policy
Key man insurance policy means life
insurance policy taken by a life insurance policy taken by
a person on the life of another person who is connected
to the business as an employee or in any other capacity .
Either in the present or in the past.
3) Any sum received under a insurance policy on or after
1.4.03 and up to 31.03.12 in respect of each premium
payable for any of the year during the term of policy
exceeds 20% of actual capital sum assured . However
if any sum received under an insurance policy 1.4.12 in
respect of which premium payable during the term of
the policy exceeds 10% of actual capital sum assured .
Actual capital sum assured = minimum of the
sum assured in any of the years of the policy.

46. SUM.
Q.1 ) Mr.charu a C.A. took a life insurance policy of 12,00,000/- and paid a
premium of 500000/- , 200000/-, 200000/- , 200000/-, 100000/-, on
maturity of the policy during the previous year , he received 13,0000/-
from the insurance company 1.5.12 whether the amount the amount
received is taxable or not?
Solution:
Any sum received under a life insurance policy including the sum
allocated by way of bonus on such policy shall be totally exempt from tax .
However premium Payable for any of the year during the term of policy
exceed 10% of actual capital sum assured the entire proceeds are taxable
In the above mentioned tax exemption u/s 10(10d) is not allowed as the
premium paid in the 1st year exceed 10% of the life insurance S.A ( i.e .
12,00,000 x 10% = 1,20,000/- and premium paid 500000/- ) Therefore
the entire sum of 13,00,000 is taxable.