ANNUITIES, PRESENT VALUE & FUTURE VALUE by : DR. T.K. JAIN AFTERSCHO ☺ OL centre for social entrepreneurship sivakamu veterinary hospital road bikaner 334001 rajasthan, india FOR – PGPSE / CSE PARTICIPANTS mobile : 91+9414430763
My words.... here we present an overview of annuities, present value & future value i wish that more people should become entrepreneurs. an ordinary indian entrepreneur wishes to remain an honest entrepreneur and contribute to the development of nation, but our systems and processes ...
I buy a machine @ Rs. 200,000. The life of machine is 10 years. I expect scrap value of Rs. 20000 after 10 years. I want to charge depreciation at written down value method. What should be the rate of interest ? Formula = (1 – (s/c)^(1/n))*100 n = number of years (life of the machine) s=scrap value c=cost of the machine
I buy a machine @ Rs. 20,000. The life of machine is 5 years. I expect scrap value of Rs.500 after 5 years. I want to charge depreciation at written down value method. What should be the rate of interest ? = 1 – (500/20000)^ (1/5) =1-.48 =.52 or 52% answer
I buy a machine @ Rs. 530,000. The life of machine is 9 years. I expect scrap value of Rs.1000 after 9 years. I want to charge depreciation at written down value method. What should be the rate of interest ? =1 – (1000/530000)^(1/9) =1- .5 =50% answer
I buy a machine @ Rs. 530,000. The life of machine is 9 years. I expect scrap value of Rs.1000 after 9 years. How much should I transfer to depreciation fund every year to replace machine after 9 years. Rate of interest 10% We assume that the new machine (to replace this) will cost Rs. 530000 after 9 years. We will need Rs. 529000 after 9 years (we will get 1000 from scrap) we know that : p = A ((1+r)^n -1) /r) A = annuity, r=rate , n = number of years
I buy a machine @ Rs.30,000. The life of machine is 10 years. I expect scrap value of Rs.10000 after 10 years. How much should I transfer to depreciation fund every year to replace machine after 10 years. Rate of interest 10% We assume that the new machine (to replace this) will cost Rs. 30000 after 10 years. We will need Rs. 20000 after 10 years (we will get 10000 from scrap) we know that : p = A ((1+r)^n -1) /r) A = annuity, r=rate , n = number of years
contd.... p = A ((1+r)^n -1) /r) 20000 = A ((1+.1)^10 -1) / .1) 20000 = 15.94A A = 1254.91 answer
I buy a machine @ Rs.3,00,000. The life of machine is 10 years. I expect scrap value of Rs500 after 10 years. How much should I transfer to depreciation fund every year to replace machine after 10 years. Rate of interest 20% We assume that the new machine (to replace this) will cost Rs. 300000 after 10 years. We will need Rs. 299500 after 10 years (we will get 10000 from scrap) we know that : p = A ((1+r)^n -1) /r) A = annuity, r=rate , n = number of years
p = A ((1+r)^n -1) /r) 299500 = 25.95A A = 11554.78
What is perquisite ? Any gain or profit incidentally made from employment in addition to the regular salary / wages / remuneration.
What are tax-free perquisites ? Medical benefits tea, snacks residetial accommodation at site reimbursement of mobile / telephone bills employer's contribution to staff insurance scholarship to children of employee interest free or concessional upto 20000 journal / periodicals related to work refresher courses/ training laptops / computers
What are taxable perquisites ? Rent free accommodation (sec. 17(2)(i)) residential accommodation club membership payment of loans of employees payment of educational expenses of employee domestic servant interest free loan / concessional interest loan
What is the difference between revenue and capital receipt ? An amount referable to fixed capital is a capital receipt whereas a receipt referable to circulating capital would be a revenue receipt Only revenue receipt is taxable in income tax and only revenue expenditure is allowed
If you receive any compensation on cancellation of a contract, is it a capital receipt ? compensation received for the loss of a capital asset is a receipt of a capital nature whereas the compensation received for damage to or loss of a trading asset is a revenue receipt.
What type of receipt is commutation of service or insurance amount received? a lump sum payment received in commutation of salaries or pension is a capital receipt, However, it would be taxable as salary income. Any amount received under a policy of insurance would be a revenue receipt if the policy was held by the assessee as a trading asset and it would be a capital receipt if the policy was held as a capital asset.
Will it be taxable for a debenture holder : the premium received on redemption or the discount on issue of the debentures by the company No, It would be a capital receipt and would not consequently be liable to tax
Royalty received by a mine owner shold be income from business and profession – is it true ? No Royalties in every case are taxable as ‘income from other source
Compensation received on cancellation of agency should be a capital receipt, so it should not be taxed – is it true ? No it is taxable as business income by virtue of the specific provision in Section 28 of the Act
An employee director of a company was paid Rs. 7,50,000 as a lump sum consideration for not resigning from the directorship. Should it be taxed ? It is a reward received from the employer. Therefore it is a revenue receipt.
the sales-tax collected from the buyer of goods is a capital receipt. - it is true ? No the sales-tax collected from the buyer of goods is a revenue receipt.
Receipt in substitution of a source of income is a capital receipt – is it true ? Yes
If you have spent money on training of production manager abroad to study new methods of production- is it a revenue expenditure Yes Amount spent by a company for sending its production manager abroad to study new methods of production is a revenue expenditure
What will be the date of receipt – the date of cheque / date of encashment ? If the payment is made by the drawee on presentment of the cheque, the date of receipt of the cheque and not the date of its encashment shall be the date of receipt.
How will you determine the place of receipt of some payment ? If the postal expenses are borne by the creditor, the place of debtor would be place of receipt. If, on the other hand, the debtor bears the postal expenses, the place of creditor would be the place of receipt.
What will be the Date and place of receipt in case of articles sent by V.P.P. In this case the place of the delivery by the Post Office would be the place of receipt and the date of receipt would be the date of payment by the buyer.
What are the incomes deemed to be received ? All sums deducted by way of taxes at source (Section 198). Incomes of dependent persons which are included in the income of the assessee under Sections 60 to 64. unexplained or unrecorded investments (Section 69). unexplained or unrecorded moneys. (Section 69A)
Where does income acrue – at your registered office or at the place of contract ? Income accrues at the place where the source of the income is situated, which may or may not be the same as the place from which the business activities are carried on. Normally, income accrues at the place where the contract yielding the income is entered into and for this purpose the contract should be taken to have been entered into at the place where the offer is accepted
What part of income of business of which all the operations are not carried out in India, will be deemed as income arising out in India in the case of a business of which all the operations are not carried out in India, only such part of the income as is reasonably attributable to the operations carried out in India is deemed to have arised in India
What is relation between business connection and income ? Income arising through or from business connection to any assessee is deemed to accrue or arise in India where a business connection actually exists
What is business connection? a branch office, factory, agency, receivership, management or other establishment for the purchase or sale of goods or for transacting any other business a factory where goods are made for export outside India agent or agents in India for the systematic and regular purchase of raw materials or for the sale of the non-residents' goods a close financial association between a resident and a non-resident company a subsidiary company to sell or otherwise deal with the products of the non-resident parent company a continuing licence to a non-resident
What are the cases when income is assessed in the same year when it accrues ? Assessment of non-residents in respect of their income from shipping business (Section 172). Assessment of persons leaving India (Section 174). artificial juridical person formed for a particular event or purpose (section 174A). persons trying to alienate their assets with the object of avoiding liability to tax (Section 175). Assessment of the income from discontinued business (Section 176).
Can tax be levied when it appears to the Assessing Officer that an individual may leave India during the current assessment year without any intention of returning to India Yes
Suppose your employer reimburses your expenses (incurred for office work) is it taxable ? No Mere relief or reimbursement of expenses is not treated as income.
If an employer gives goods instead of salary, how can its value be identified for tax purpose ? If income is received in kind, its valuation will be made in accordance with the rules prescribed in the Income-tax Rules, 1962. Where there is no prescribed value in the rules, valuation thereof is made on the basis of its market value.
If a person buys and sells a crop, is it agricultural income ? If a person purchases a standing crop, and makes a profit out of it, the income is not agricultural income to the buyer of the standing crop. The income to the seller of standing crop, who has put in labour and skill to make the crop sprout out of the land, is agricultural income.
What are the cases when operations on agricultural produce is also treated as agricultural income ? The operation must be one which is ordinarily employed by the cultivator to make the produce fit for market, i.e., threshing, winnowing, cleaning, drying, etc. There is no market for the produce as received from the farm. The process to make it marketable has been performed either by the cultivator or receiver of rent-in-kind. The produce must not change its original character.
Can income tax assessment be postponed in the event of dispute regarding income ? No Income-tax assessment cannot be held up or postponed merely because of existence of a dispute regarding the title of income.
What is ‘carry-over’ concession in the case of LTC ? If travel concession or assistance is not availed during any of the four year block period, exemption can be claimed provided he avails the concession or assistance in the calendar year immediately following that block
Can a person claim taxi fare for visit on LTC ? No air -economy class or AC rail first class or first class by public transport is permitted
Is tiffin allowance taxable ? Yes It is given for lunch and refreshments to the employees. It is taxable.
Is servant allowance taxable ? Yes It is fully taxable even if it is given to a low paid employee, not being an officer, i.e., it is taxable for all categories of employees.
Is non practicing allowance taxable ? Yes It is generally given to those medical doctors who are in government service and they are banned from doing private practice. It is to compensate them for this ban. It is fully taxable.
Is hill allowance taxable ? Yes It is given to employees working in hilly areas on account of high cost of living in hilly areas as compared to plains. It is fully taxable, if the place is located at less than 1,000 metres height from sea level.
Is overtime allowance taxable ? When an employee works for extra hours over and above his normal hours of duty he is given overtime allowance as extra wages. It is fully taxable.
Is deputation allowance taxable ? Yes When an employee is sent from his permanent place of service to some other place or institution or organisation on deputation for a temporary period, he is given this allowance. It is fully taxable.
Is warden allowance taxable ? Yes These allowances are given in educational institutions for working as Warden of the hostel and/or working as Proctor in the institution. These allowances are fully taxable.
Vehicle provided to travel from place of work to home is taxable or not ? No use of any vehicle provided by a company or an employer for journey by the assessee from his residence to his office or other place of work, or from such office or place to his residence, is not be regarded as a benefit or amenity granted or provided to him free of cost or at concessional rate for the purpose of computation of perquisite.
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