Income Tax Law Of India

INCOME TAX LAW OF INDIA AFTERSCHO\u263aOL \u2013 DEVELOPING CHANGE MAKERS CENTRE FOR SOCIAL ENTREPRENEURSHIP PGPSE PROGRAMME \u2013 World\u2019 Most Comprehensive programme in social entrepreneurship & spiritual entrepreneurship OPEN FOR ALL FREE FOR ALL www.afterschoool.tk AFTERSCHO\u263aOL's AFTERSCHO\u263aOL's MATERIAL MATERIAL 1 INCOME TAX LAW OF INDIA Dr. T.K. Jain. AFTERSCHO\u263aOL Centre for social entrepreneurship Bikaner M: 9414430763 [email protected] www.afterschool.tk, www.afterschoool.tk www.afterschoool.tk AFTERSCHO\u263aOL's AFTERSCHO\u263aOL's MATERIAL MATERIAL 2 WHAT IS INCOME TAX? \u2022 Income Tax Act, 1961 imposes tax on income other than agricultural income. Tax on agricultural income can be imposed only by State Governments. www.afterschoool.tk AFTERSCHO\u263aOL's MATERIAL 3 WHO IS AN ASSESSEE? • Assessee means a person by whom any tax or any other sum of money is payable under Income tax Act. It includes deemed assessee [section 2(7) of Income Tax Act] www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 4 WHO IS A PERSON? • Person‘ includes * Individual * HUF * Company * Partnership Firm * Association of Persons (AOP) or body of individuals whether incorporated or not * Local Authority like Municipality etc. * Artificial Judicial person [section 2(31) of Income Tax Act] www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 5 RESIDENTIAL STATUS • There are two tests, if you pass one test, you are a resident (but may be notordinary resident). If you pass both the test, then you are resident and ordinary resident. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 6 First test for residential status… • An individual is resident in India in any previous year, if he satisfies at least one of the following conditions - (a) He is in India in the previous year for a period of 182 days or more or (b) He is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year [section 6(1) of Income Tax Act] www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 7 2nd test for residential status… • (a) He has been resident in India in at least 2 out of 10 previous years immediately preceding the relevant previous year and (b) He has been in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year [section 6(6) of Income Tax Act]. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 8 Points to remember… • For the first test – there is OR • For the second test – there is AND (both the conditions must be satisfied). www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 9 Exceptions…. • Change in 1st condition: • an Indian citizen who leaves India during the previous year for the purpose of employment outside India or an Indian citizen who leaves India during the previous year as a member of the crew of an Indian ship, or Indian citizen or person of Indian origin, the period of 60 days stands extended to 182 days. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 10 WHAT IS HUF • HUF consists of all persons lineally descended from a common male ancestor (joint family). However, income earned by individual members of HUF in their individual and personal capacities is taxed as their personal income. Such income is not treated as income of HUF. Thus, it is possible to have an income from a proprietary firm (in individual capacity) as well as income from a business of HUF. Both are eligible for separate tax exemptions. Business of HUF can, of course, be conducted in a different name. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 11 Number of HUF • each male person can form one separate HUF. • All the decisions of the HUF will be taken by the male head of that HUF called KARTA. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 12 Residential status of HUF • In case of HUF, if control and management of its affairs is wholly or partly situated in India, it will be resident in India‘. If control and management of its affairs is wholly out of India, it will be nonresident in India‘ [Sec. 6(2 of Income Tax Act] www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 13 Firm’s Residential Status… • A partnership firm and an association of persons will be resident in India if control and management of their affairs are wholly or partly situated within India during the relevant previous year. If control and management of their affairs are situated wholly outside India, it will be non-resident in India. [Sec. 6(2)] www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 14 Residential status of a company…. • A company incorporated in India is an Indian company. It will always be resident in India‘. A foreign company (i.e. company incorporated abroad), is resident in India only if, during the previous year, control and management of its affairs is situated wholly in India. [Sec. 6(3) of Income Tax Act] www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 15 TAX ON COMPANY • In case of domestic company, income tax is @ 30% for assessment year 2008-09 and 2009-10.. Surcharge @ 10 per cent of income-tax [i.e., income-tax after rebate under section 88E], if net income exceeds Rs. 1 crore www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 16 INCOME TAX ON FOREIGN COMPANY • In case of foreign company, income tax is @ 40% for assessment year 2008-09 and 2009-10. Surcharge @ 10 per cent of income-tax [i.e., income-tax after rebate under section 88E], if net income exceeds Rs. 1 crore. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 17 DIVIDEND DISTRIBUTION TAX • A domestic company paying dividend will have to pay dividend distribution tax u/s 115-O. The rate applicable w.e.f. 1-4-2007 is 15% plus surcharge @ 1.5% plus education cess @ 2% plus SAH education cess of 1% of income tax. Total 16.995%. (within 15 days) www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 18 Tax by MUTUAL FUNDS • Mutual funds have to pay dividend distribution tax u/s 115R of Income Tax Act. The rate as applicable w.e.f. 1-4-2007 is 12.5% on income distributed to any individual or HUF and 20% on income distributed to any other person. In addition, surcharge, education cess @ 2% and SAH education cess @ 1% will be payable. Total is 14.1625% in case of individual or HUF unit holder and 22.66% in other cases. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 19 Tax by money market mutual fund (MMMF) • Dividend distribution tax rate is 25%. ++ • Including surcharge and education cess, it is 28.325%. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 20 Minimum Alternate Tax… • Many companies charge depreciation in their books on straight line method. Thus, the profit shown is higher in the accounts maintained for company law purposes and they can declare dividend. However, for income tax purposes, they charge depreciation on WDV which is higher. Thus, for income tax purposes, they may show low profit or even loss, while in balance sheet prepared for company law purposes, they will show high profits, which is called book profits. Hence, such companies have to pay minimum income tax [section 115JB]. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 21 Rate of MAT • 10.3% (including cess) • In case of foreign company with profit above 1 crore, it is 11.33% and in case of demestic company with profit above 1 crore, it is 10.55% (including cess). www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 22 TAX ON COOPERATIVES… • If income is below `10000 = 10% • If income is between 10000 to 20000 = 20% • If income is above 20000 = 30%. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 23 Tax on LOCAL AUTHORITIES • Tax rate is 30%. No surcharge applies, but education cess @ 2% of tax and SAH education cess @ 1% of tax is payable. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 24 TAX ON CAPITAL GAIN … • In case of short term gains covered under section 111A of Income Tax Act , the rate is 10% for AY 2008-09 and 15% for Assessment Year 2009-10. Section 111A is applicable in respect of securities transactions which are subject to securities transaction tax. • In case of long term capital gains, tax rate is 20% www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 25 HRA – TAXABILITY … • Exemption will be lowest of (a) 50% of salary where residential accommodation is in Mumbai, Kolkata, Delhi or Chennai and 40% of at other place (b) Excess of rent paid over 10% of salary (c) Actual allowance paid. There will be no exemption if the residential accommodation is owned by employee or employee has not paid any rent for residential accommodation used by him [section 10(13A) of Income Tax Act and rule 2A] (SALARY= basic + DA+ comm (if contract)) www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 26 GRATUITY – TAXABILITY… • Gratuity for Government employees is fully exempt [section 10(10)(i)]. In case of employees covered under Payment of Gratuity Act, exemption is upto Rs 3,50,000 to be reduced by such exemptions claimed in the past or 15 days salary for every completed year of service, whichever is lower.. Salary means basic plus DA (if Contract) [section 10(10)(ii) of Income Tax Act] www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 27 EARNED LEAVE - TAXABILITY • Encashment of earned leave on retirement of employees of Central/State Govt is fully exempt [section 10(10AA)(i) of Income Tax Act] . Leave encashment while in service is treated as part of salary. In other cases, leave encashment of earned leave on retirement will be lowest of 10 months‘ salary, Rs three lakhs or actual sum received www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 28 LTC – taxability (10 (5)) • Leave Travel Assistance/Leave Travel Concession is allowed twice in a block of four years. It is limited to amount actually spent on travelling of employee and his family members. It is limited to economy class of air fare or AC first class fare www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 29 VRS (voluntary retirement scheme ) • It is exempt upto Rs five lakhs if VRS is as per prescribed conditions. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 30 Reimbursement of medical expenses • Reimbursement of amount actually spent for medical treatment upto Rs 15,000 is exempt in a financial year. In addition, reimbursement of insurance premium for self, spouse, children and dependent brothers, sisters and parents is exempt. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 31 Rent Free Accommodation • In case of private sector employees, value of perquisite of rent free unfurnished accommodation is taken as follows - (a) If owned by employer - If population of city exceeds 25 lakhs - 15%, if population exceeds 10 lakhs but below 25 lakhs 10% (c) In other cases - 7.5%. • In govt. employee – as per rent as per rule www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 32 FURNISHED ACCOMMODATION (TV, FRIDGE ETC.) • 10% of cost of furniture (including TV, radio, refrigerator, AC etc.), if owned by employer, will be treated as perquisite. If the furniture is hired from third party, actual hire charges less any amount recovered from employee will be the perquisite. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 33 MOVABLE ASSET TO EMPLOYEE • perquisite will be @ 10% of the cost of asset or rent paid, as reduced by sum paid by employee. • Suppose the company gives a LAPTOP to Goti – 10% of 50000 (cost of laptop) will be added. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 34 OTHER PERQUISITES.. • They will be not be added to employee, as employer will pay FBT. If FBT is not applicble, then it will be added to employee. • motor car, lunch, refreshment, travelling, touring, gift, credit card, club etc. will be added to salary only in cases where employer in individual or HUF and is not liable to FBT. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 35 Valuation of CAR • If car is owned or hired by employer and provided for personal purposes of employees, valuation will be expenditure incurred by employer on running and maintenance plus remuneration of chauffer plus normal wear and tear @ 10% on actual cost less amount charged to employees www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 36 GIFTS.. • Gifts upto Rs 5,000 per year are exempt. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 37 EXEMPTIONS.. • Entertainment allowance upto Rs 5,000 is allowable to Government employees. • Professional tax paid is exempted.. • Transport allowance upto Rs 800 per month granted to an employee to meet his expenditure for the purpose of commuting between place of residence and the place of his duty is exempted. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 38 GAS ETC. • Some benefits like gas, electricity, water are valued at actual cost to employer. If these are provided from own sources, value will be manufacturing cost incurred per unit, less amount recovered from employee. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 39 Taxability of Indian Income…. • Indian income‘ is always taxable in India in case of all tax payers, whether resident or non-resident. (residential status has no relevance). www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 40 Taxablility of foreign income… • Foreign income‘ is taxable in India if the assessee is (a) resident (in the case of a firm, AOP company and every other person) or (b) resident and ordinarily resident (in the case of an individual or a Hindu undivided family) in India. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 41 Setoff of INCOME .. • Income from one head can be set off against loss from other head, unless specifically prohibited. In Rajasthan State Warehousing Corporation v. CIT 2000 AIR SCW 629, it was held that if income is derived from various heads, assessee is entitled to claim deduction permissible under respective head whether or not computation under each head results in taxable income www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 42 HEADS… 1. SALARY 2. HOUSE PROPERTY 3. CAPITAL GAIN 4. BUSINESS AND PROFESSION 5. OTHER (includes lottery etc.) (SECTION 14 OF INCOME TAX ACT) www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 43 SURCHARGE … • Surcharge is 10 per cent of income-tax if net income of an individual, Hindu undivided family, association of persons, or body of individuals, exceeds Rs. 10,00,000. In the case of an artificial juridical person, surcharge is 10 per cent of income-tax (i.e.,income-tax minus rebate under section 88E), even if net income is less than Rs. 10,00,000. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 44 EDUCATION CESS • Education cess payable is 2 per cent of income-tax and surcharge. Secondary and higher education cess is 1 per cent of income-tax and surcharge. This is in addition to income tax. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 45 INCOME FROM HOUSE PROPERTY.. • In case of let out property, income will be fair annual value‘ i.e. sum reasonably expected to be received from letting or actual rent received‘ whichever is higher. Deduction is allowable for unrealized rent. • Annual Value of Property‘ is the sum for which the property could reasonably be expected to let from year to year. Municipal Valuation of ratable value can be taken as one of the tests to determine bonafide value of the property. If the house property is given on rent, actual rent received will be the annual value of the house property www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 46 DEDUCTIONS FROM HOUSE PROPERTY… • (a) Municipal tax – The deduction will be permitted on actual payment basis (b) Standard deduction of 30% of (gross annual value less municipal tax) [section 24(a) of Income Tax Act] (c) Interest on capital borrowed to acquire or construct the house property subject to limits [section 24(b) of Income Tax Act] www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 47 Self Occupied Property • Annual Value of a self-occupied property is taken as Nil‘, if it is not let out. In such cases, none of the aforesaid expenses are allowed as deduction. However, if the self-occupied property is acquired or constructed or repaired from borrowed funds, interest payable on such funds upto Rs 1,50,000 per annum is allowed as deduction. For repairs = upto Rs. 30000 • (this loss is adjusted with other incomes) www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 48 INCOME FROM BUSINESS • business‘ includes trade, commerce or manufacture or adventure or concern in nature of trade, commerce or manufacture [section 2(13) of Income Tax Act] www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 49 PROFESSION • which calls for an intellectual or manual skill. It covers doctor, lawyers, accountants, consulting engineers, artists, musicians, singers etc www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 50 DEDUCTIONS ALLOWED FROM INCOME FROM BUSINESS / PROFESSION * Rent, rates, taxes, repairs and insurance for business or professional premises [section 30 of Income Tax Act] * Current repairs and insurance of machinery, plant and furniture [section 31 of Income Tax Act] * Depreciation on building, machinery, plant or furniture [section 32 of Income Tax Act] (discussed below) * Revenue expenditure on scientific research [section 35(1) of Income Tax Act] * Capital expenditure on scientific research related to business (except land) [section 35(2) of Income Tax Act] www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 51 DEDUCTIONS ALLOWED FROM BUSINESS / PROFESSION….. * Preliminary expenses in relation to formation of a company or in connection with extension of an undertaking or setting up of a new industrial unit can be amortised in 5 equal installments over 5 years. The preliminary expenditure is permitted only upto 5% of cost of project [section 35D] * Insurance expenses [section 36(1)(i) of Income Tax Act] * Insurance premium on health of employees [section 36(1)(ib) of Income Tax Act] * Bonus or commission to employees [section 36(1)(ii) of Income Tax Act] * Interest on borrowed capital [section 36(1)(iii) of Income Tax Act] www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 52 DEDUCTIONS ALLOWED FROM BUSINESS / PROFESSION….. * Contributions towards approved provident fund, superannuation fund and gratuity fund [section 36(1) (iv) and 36(1)(v) of Income Tax Act] * Bad debts in respect of income considered in previous years can be written off and allowable as deduction [section 36(1)(viii) of Income Tax Act] * Banking cash transaction tax [section 36(1)(xiii) of Income Tax Act] * Advertisement expenditure is fully allowed as deduction. However, expenditure incurred on advertisement in any souvenir, brochure, pamphlet etc. of a political party is not allowed as a deduction [section 37(2B) of Income Tax Act] www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 53 DEDUCTIONS ALLOWED FROM BUSINESS / PROFESSION….. * Expenditure in maintenance of guest house is permissible as deduction [section 36(1)(i) of Income Tax Act] * Any other expenditure which is not of capital nature or personal expenses of the assessee is allowed if it is expended wholly and exclusively for the purposes of business or profession. However, it should not have been for purpose which is an offence or is prohibited by any law [section 37 of Income Tax Act] www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 54 BLOCK OF ASSETS • Block of assets‘ means a group of assets falling within a class of assets, in respect of which the same % of depreciation rate has been prescribed. e.g. all machinery having rate of depreciation as 25% will form one block of asset, machinery having 40% rate of depreciation will form another block of asset‘ and so on. Depreciation is allowed on actual cost of the asset. Interest paid on borrowed funds and capitalised as pre-commencement expenses before the asset is commissioned is added to cost of the asset and depreciation claimed on such expenditure. Thus, pre-production expenditure is also included in cost of the machinery and depreciation can be charged on such actual cost‘. Chellapalli Sugar v. CIT AIR 1975 www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 55 Method of depreciation • Depreciation is calculated on Written Down Value (WDV) method. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 56 If asset is used for less than 6 month • If the asset is put to use for purpose of business for less than 180 days, only 50% of normal depreciation is permissible. In other words, full depreciation for the year is permissible only if asset is commissioned before 30th September of that year. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 57 Carry forward of depreciation…. • If depreciation cannot be fully claimed in a particular year for want of profits, the unabsorbed depreciation can be carried forward for any number of succeeding assessment years. [section 32(2)]. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 58 Rate of depreciation – building • * Residential building – 5%. Others (including hotels and boarding houses) – 10%. Purely temporary structures – 100%. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 59 Rate of depreciation – furniture and car • Furniture and fittings including electrical fittings – 10% • * Motor cars 15% . Buses, lorries, and taxis used in business of running them on hire = 30% www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 60 Rates of depreciation… • Pollution control equipment and specified energy saving devises - 100% www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 61 Rates of depreciation… • General machinery - 15%, • aeroplane – 40%, • Ships – 20% • Computers including software - 60%. • Books by professionals – 100% for annual subscription and 60% for others - books in library - 100%. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 62 Rates of depreciation… • Intangible assets - know-how, patents, copyrights, trade marks, licenses, franchises or any other right of similar nature - 25%. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 63 Is ownership necessary? • In Mysore Minerals v. CIT 1999 AIR SCW 3146 = 1999(5) SCALE 340 = 239 ITR 775 = AIR 1999 SC 3185 = 106 Taxman 166 (SC), it was held that claimant of depreciation need not be owner of asset in legal sense. Person in whom for the time being vests the dominion over the asset and who is entitled to use it in his own right is eligible to claim depreciation. – followed in Dalmia Cement v. CIT 2000 AIR SCW 4198 www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 64 Taxes and dues allowed only if paid by due dates • Tax, duty, cess, fees payable under any law, Employer‘s contribution to provident fund or ESIC, bonus to employees, commission to employees, interest on any loan or borrowing from financial institutions, banks, SFC, leave encashment are eligible as deduction only if they are paid on due dates‘ on which these were payable www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 65 The limit of 20000 • [Till 31-3-2008, each transaction was considered for the limit of Rs 20,000. Now, total transactions in a day will be considered [section 40A(3) of Income Tax Act] • Payment over Rs 20,000 must be made by cheque or demand draft otherwise will not be permissible deduction. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 66 Exceptions (cash payments permitted) • payments to RBI, other banks and financial institutions, LIC, Government payments, payment by book adjustment, railway freight * Payment for agricultural produce, poultry, fish etc. to the cultivator, grower or producer (i.e. payments to middlemen are not excluded from this provision) [rule 6DD] www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 67 Different accounting for IT and or Accounting • Method of depreciation, valuation of stock etc. is different under Companies Act and Income Tax Act. Hence, one method of accounting for income tax and other for Companies Act is permitted. The practice has been specifically approved in United Commercial Bank v. CIT 1999 AIR www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 68 Professionals to maintain books of accounts… • if their gross receipts are less that Rs 1.50 lakhs, they have to maintain such books of account as may enable Income Tax Officer to compute their taxable Income. If their gross receipts exceed Rs 1.50 lakhs, they have to maintain books of account as specified in rule 6F i.e. cash book, journal, ledger, copies of bills exceeding Rs 25 www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 69 System of accounting … • Accounts should be maintained either on mercantile basis or cash basis. Hybrid i.e. mixed system is not permitted. [In cash system, income or expenditure is considered only when it is actually received / paid. In mercantile system, income/expenditure is considered on accrual and payable basis. Actual receipt or payment may occur in subsequent financial year and may not happen in that particular year.] www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 70 Compulsory audit report… • If gross receipts or turnover of business exceeds Rs 40 lakhs per annum, the accounts have to be compulsorily audited. In case of professional income, accounts have to be audited if gross receipts exceed Rs ten lakhs. This audit report should be submitted along with income tax return, before 30th September. [section 44AB]. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 71 Capital Gain • Capital gains means any profit or gains arising from transfer of a capital asset. Such capital asset may be building, non-agricultural land, machinery, shares, jewellery etc. However, stock in trade, agricultural land in rural area and personal effects (other than jewellery) are not capital assets‘. • From AY 2008-09, archaeological collections, paintings, sculptures will not be treated as capital assets‘. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 72 Cost of acquisition… • The cost of acquisition of capital asset‘ is to be increased by Cost Inflation Index. The index is announced by Central Government every year. The index was 100 for 1981-82, 172 for 198990, 244 for 1993-94, 331 for 1997-98, 351 for 1998-99, 389 for 1999-2000, 406 for 2000-01, 426 for 2001-02, 447 for 2002-03, 463 for 200304 and 480 for 2004-05, 519 for 2006-07, 551 for 2007-08 and 582 for 2008-09 www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 73 Exemptions… • Capital gains arising from sale of residential house is exempt if the original asset (i.e. the house) was held for more than three years and a new house was purchased within one year before or two years after the sale of original asset, or a new residential house is constructed within three years. The cost of new asset (residential house) should be more than the amount of capital gains [section 54 of Income Tax Act] www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 74 Exemptions… • Any other long term capital gain is exempt if the capital gains are invested within 6 months in 3 year bonds issued by REC or NHAI and that investment is retained for three years. Investment cannot exceed Rs 50 lakhs - section 54EC of Income Tax Ac www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 75 Income Tax Deductions… • Investments in PPF, Provident Fund, LIC, repayment of housing loans, NSIC, 5 year FDR with scheduled banks, 5 year time deposit in post office, deposit in Senior Citizens Saving Scheme etc. are allowed as deduction upto Rs 1,00,000 u/s 80C. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 76 Deductions… • (a) Medical insurance premium upto Rs 20,000 for senior citizen and Rs 15,000 for others. For the Assessment Year 2009-10, additional deduction of Rs 15,000 will be allowed if insurance policy of parents is taken (section 80D). (b) Contribution to pension fund within overall ceiling of Rs one lakh (section 80CCC) www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 77 Income Tax Deductions… • Contribution to approved charitable institutions - in some cases 50% of amount paid is allowed as deduction, while in some cases, 100% amount paid is allowed as deduction (section 80G). www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 78 Income tax deductions ..,. • Income In case of EOU, STP, EHTP and BTP, the concession will continue upto 313-2010. In case of SEZ, exemption is for larger period. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 79 CLUBBING OF INCOME • … the income of spouse ( wife/ husband) or minor child will be added to the income. The clubbing provision is not applicable if spouse possesses technical or professional qualifications and the income is solely due to application of his / her technical knowledge and experience [section 64(1)(ii) of Income Tax Act] www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 80 Transfer of asset… • If an asset is transferred to the spouse, income from such asset is also treated as income of the individual. [e.g. by transferring shares, house property etc.]. • Similarly, if an individual throws his separate property into the property of HUF, income from such converted property will be included in the total income of such individual [section 64(2) of Income Tax Act] www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 81 Carry forward… • Carry forward of loss is permitted only when return is filed in time. In case of closely held company, unabsorbed loss can be carried forward only if at least 51% of shares are held beneficially by same persons who were holding them in previous year. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 82 Carry forward of depreciation… • Unabsorbed depreciation can be set be against any head of income other than salary. It can be carried forward to any number of years. It can be carried forward by same assessee except in case of amalgamation, demerger and business reorganization. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 83 Speculative losses • Loss from speculative transactions involves sale and purchase of commodities including stocks and shares. It can be set off against speculative profits only and can be carried forward for four years. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 84 PAN… • Every person whose total sales, turnover or gross receipts are over Rs 5,00,000 are required to apply and obtain a Permanent Account Number (PAN) [section 139A]. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 85 Advance payment of tax • Tax is deducted from salary payable to an employee. Since a businessman or professional earns his own income, there is no TDS (Tax Deduction at Source). Hence, he is liable to pay advance tax as he earns income. This is Pay Tax as you Earn‘. Thus, advance tax is payable on the basis of estimated income of the current financial year. [The income is estimated‘ because, actual income will be known only after the financial year is over]. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 86 Advance tax… • Advance tax is payable only in cases where tax payable is in excess of Rs 5,000. The assessee has to pay advance tax on his own accord and no notice will be issued to him. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 87 Advance tax – company… 15% on or before 15th June 30% on or before 15th September 30% on or before 15th December Remaining 25% on or before 15th March. If there was shortfall in earlier installment, it should be made up in subsequent installment. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 88 Advance tax – others.. • 30% on or before 15th September • 30% on or before 15th December Remaining 40% on or before 15th March. If there was shortfall in earlier installment, it should be made up in subsequent installment www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 89 Interest on non-payment of advance tax… • If advance tax was not paid before 31st March of the financial year, or advance tax paid was less than 90% of the assessed tax, interest @ 1% per month or part thereof is payable from 1st April till the month of payment. [section 234B]. The interest is not payable if total tax liability is less than Rs 5,000 or if at least 90% of assessed tax was paid before 31st March. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 90 Interest on non-payment of advance tax… • If installments of advance tax are not paid on due dates, interest on shortfall is payable @ 1% per month. In case of last instalment which is due on 15th March, interest @ 1% is payable for one month if tax is not paid at all or is paid after 15th March. [section 234C]. Note that this interest is calculated only upto 31st March, as from 1st April, interest @ 1% becomes payable on entire tax due under section 234B. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 91 Interest on non-submission of return… • interest @ 1% is payable u/s 234B. In addition, interest @ 1% is payable u/s 234A. Thus, if return is not filed on or before due date, interest payable is 2% for every subsequent month. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 92 Liability of TDS • A person is under liability to deduct income tax at source and pay it to Government. He should issue a certificate to the person from whom tax is deducted, so that the person can submit the same to Income Tax authorities. Tax deducted at source should be paid to Government within one week from date of deduction. At the end of the year, a return in prescribed form has to be filed with ITO. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 93 TDS regarding interest payments… • Tax should be deducted from interest paid if interest payable in financial year exceeds Rs 10,000 in case of banks, post office and cooperative society and Rs 5,000 in case of others [section 194A]. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 94 Rates of TDS … (other than company) • (a) If recipient is individual/HUF/AOP where aggregate payment or credit is upto Rs 10 lakhs, cooperative society, local authority, firm where aggregate payment or credit does not exceed Rs one crore - 10.3% (b) If recipient is individual/HUF/AOP where aggregate payment or credit exceeds Rs 10 lakhs, firm where aggregate payment or credit exceeds Rs one crore - 11.33% www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 95 TDS in case of company • (a) If recipient is domestic company where aggregate payment or credit does not exceed Rs one crore - 20.6% (b) If recipient is domestic company where aggregate payment exceeds Rs one crore - 22.66% www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 96 TDS regarding old age persons… • An individual who is 65 years of age or above can get interest without deduction of tax at source, if he submits a self-declaration to the payer in duplicate, in form No. 15H. Others have to submit declaration in form 15G. • The payer has to submit one copy of declaration (form 15G/15H as applicable) to Commissioner of Income Tax under whose jurisdiction his tax is being assessed. • www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 97 TDS regarding contracts/ advertising contracts… • TDS provisions apply if contract value exceeds Rs 20,000 for single payment or Rs 50,000 in aggregate for a financial year [section 194C]. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 98 TDS rates for non-advertising contracts.. • (a) If recipient is individual/HUF/AOP where aggregate payment or credit is upto Rs 10 lakhs, cooperative society, local authority , firm/domestic company where aggregate payment or credit does not exceed Rs one crore - 1.03% (b) If recipient is individual/HUF/AOP where aggregate payment or credit exceeds Rs 10 lakhs, firm/domestic company where aggregate payment exceeds Rs one crore - 1.133% www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 99 TDS for advertising contracts… • (a) If recipient is individual/HUF/AOP where aggregate payment or credit is upto Rs 10 lakhs, cooperative society, local authority , firm/domestic company where aggregate payment or credit does not exceed Rs one crore - 2.06% (b) If recipient is individual/HUF/AOP where aggregate payment or credit exceeds Rs 10 lakhs, firm/domestic company where aggregate payment exceeds Rs one crore - 2.266% www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 100 TDS in respect of Brokerage… • TDS applies in respect of payment of commission or brokerage to resident. There is no TDS if commission / brokerage paid during the financial year is less than Rs 2,500. [section 194H] www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 101 TDS regarding brokerage… • (a) If recipient is individual/HUF/AOP where aggregate payment or credit is upto Rs 10 lakhs, cooperative society, local authority , firm/domestic company where aggregate payment or credit does not exceed Rs one crore - 10.3% (b) If recipient is individual/HUF/AOP where aggregate payment or credit exceeds Rs 10 lakhs, firm/domestic company where aggregate payment exceeds Rs one crore - 11.33% www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 102 TDS regarding professional services.. • TDS provisions are applicable, if payment for professional or technical services is made by an individual or HUF, who is required to submit income tax audit report u/s 44AB. Provisions of making TDS payment do not apply to small HUF and individuals who do not have to submit income tax audit report. • TAN number – Assessee should obtain TAN (Tax Deduction Account Number) www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 103 TDS regarding rent.. • TDS provisions apply if aggregate sum of rent paid exceeds Rs 1,20,000 per annum [section 194-I] • Rate : • The TDS rates vary between 10.3% to 22.66% depending on whether rent is for plant, machinery, land, furniture etc. and who is the recipient. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 104 TDS forms • Person who has deducted tax at source is required to file return to Income Tax department on annual basis. In case of companies, the return is to be filed on computer media, i.e. for them, filing of e-TDS is compulsory. The form has been prescribed. Electronic Filing of Returns of Tax Deducted at Source Scheme, 2003‘ has been notified by CBDT for this purpose. The return has to be filed in prescribed form in floppy. NSDL (National Securities Depository Ltd.) has been given task of handling e-TDS returns. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 105 Clearance certificates…. • Income Tax department has discontinued giving Income Tax Clearance Certificates for various purposes like filing tender, bidding contracts etc. No such certificate will be issued by Income Tax department. The contractors etc. should quote PAN – CBDT circular No. 2/2004 dated 10-2-2004. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 106 Income tax return numbers…. • ITR 1 • Individuals • Salary (including pension and family pension) and interest • • ITR 2 • Individuals and HUF • Any income other than business income • • ITR 3 • Individuals and HUF • Who are partners in firm but not carrying on business • www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 107 Income tax return numbers… • ITR 4 • Individuals and HUF • Who are proprietors having income from business or profession • • ITR 5 • Firm, AOP, BOI • Including return of FBT • • ITR 6 • Companies except charitable companies claiming exemption u/s 11 • Including return of FBT • www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 108 Income Tax return numbers… • ITR 7 • Charitable trusts etc. including cases covered by section 139(4A) to 129(4D) • Including return of FBT • • ITR 8 • Persons liable to FBT • FBT return only • • ITR-V • All except charitable trusts who have filed return electronically without digital signature • Verification form for persons who have filed return electronically but without digital signatur • www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 109 Due dates for filing returns… • (a) Individuals having only salary income (b) Non-corporate assessees (Individuals, HUF, partnership firms or societies) having income from business or profession but who do not have to get their accounts audited under Income Tax or any other law - 31st July www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 110 Due dates for filing ITR • (a) Non corporate assessees (Individuals, HUF, partnership firms or societies) having income from business or profession and who have to get their accounts audited (b) A working partner where the firm in which he is a working partner has to get its accounts audited (c) Corporate Assessee (d) Persons who have to file return under one by six scheme – 30th September (Till 2007, it was 31st October). www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 111 Due dates of ITR • The dates are mandatory and there is no provision to extend the due date. If the return is filed beyond due date, mandatory interest @ 1% per month of tax due is payable. Belated return upto one year beyond due date is permissible. Mandatory interest is payable, but no penalty is payable. Thus, if no tax was due, belated return upto one year can be submitted without payment of any interest. • A loss return must be filed in time. Otherwise, the carry forward of loss is not permitted www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 112 Scrutiny … • Some of the returns are taken by ITO for detailed scrutiny. Notice for scrutiny has to be served within 6 months from close of financial year in which return is furnished i.e. by 30th September. The ITO can require assessee to attend his office or produce evidence in support of the return filed [section 143(2) of Income Tax Act – section 115WE(2) in respect of FBT] www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 113 Arithmatic Mistakes in ITR • Arithmetical mistakes and incorrect claim apparent from the return can be corrected by department and intimation sent to assessee within one year from end of financial year in which return is made [section 143(1) amended vide Finance Act, 2008]. If no such intimation is made, acknowledgment of return will be deemed to be an intimation. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 114 Interest to partners… • Income Tax Act provides that interest upto 12% paid to the partners will be allowable as deduction from income of partnership firm [section 40(b)((iv) of Income Tax Act]. [The interest rate was 12% upto 315-2002]. Such payment should be authorised by partnership deed. This interest is allowed as deduction from income of the partnership firm and is taken as other income‘ of the individual partner. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 115 About AFTERSCHO☺OL • PGPSE - World’s most comprehensive programme on social entrepreneurship – after class 12th • Flexible – fast changing to meet the requirements • Admission open throughout the year • Complete support from beginning to the end – from idea generation to making the project viable. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 116 Branches of AFTERSCHO☺OL • PGPSE programme is open all over the world as free online programme. • Those who complete PSPSE have the freedom to start branches of AFTERSCHO☺OL • A few branches have already started one such branch is at KOTA (Rajasthan). www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 117 Workshop on social entrepreneurship • We conduct workshop on social entrepreneurship – all over India and out of India also - in school, college, club, association or any such place - just send us a call and we will come to conduct the workshop on social entrepreeurship. • These workshops are great moments of learning, sharing, and commitments. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 118 FREE ONLINE PROGRAMME • AFTERSCHO☺OL is absolutely free programme available online – any person can join it. The programme has four components : • 1. case studies – writing and analysing – using latest tools of management • 2. articles / reports writing & presentation of them in conferences / seminars • 3. Study material / books / ebooks / audio / audio visual material to support the study • 4. business plan preparation and presentations of those plans in conferences / seminars www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 119 100% placement / entrepreneurship • AFTERSCHO☺OL has the record of 100% placement / entrepreneurship till date • Be assured of a bright career – if you join AFTERSCHO☺OL www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 120 Pursue professional courses along with PGPSE • AFTERSCHO☺OL permits you to pursue distance education based professional / vocational courses and gives you support for that also. Many students are doing CA / CS/ ICWA / CMA / FRM / CFP / CFA and other courses along with PGPSE. • Come and join AFTERSCHO☺OL www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 121
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INCOME TAX LAW OF INDIA

AFTERSCHO☺OL
– DEVELOPING CHANGE MAKERS
CENTRE FOR SOCIAL ENTREPRENEURSHIP
PGPSE PROGRAMME –
World’ Most Comprehensive programme in social
entrepreneurship & spiritual entrepreneurship
OPEN FOR ALL FREE FOR ALL

www.afterschoool.tk AFTERSCHO☺OL's
AFTERSCHO☺OL's MATERIAL
MATERIAL 1
FOR PGPSE PARTICIPANTS
INCOME TAX LAW OF INDIA

Dr. T.K. Jain.

AFTERSCHO☺OL
Centre for social entrepreneurship
Bikaner M: 9414430763
[email protected]
www.afterschool.tk, www.afterschoool.tk

www.afterschoool.tk AFTERSCHO☺OL's
AFTERSCHO☺OL's MATERIAL
MATERIAL 2
FOR PGPSE PARTICIPANTS
WHAT IS INCOME TAX?

• Income Tax Act, 1961 imposes tax on
income other than agricultural income. Tax
on agricultural income can be imposed
only by State Governments.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 3
FOR PGPSE PARTICIPANTS
WHO IS AN ASSESSEE?

• Assessee means a person by whom any
tax or any other sum of money is payable
under Income tax Act. It includes deemed
assessee [section 2(7) of Income Tax Act]

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 4
FOR PGPSE PARTICIPANTS
WHO IS A PERSON?

• Person‘ includes * Individual * HUF *
Company * Partnership Firm * Association
of Persons (AOP) or body of individuals
whether incorporated or not * Local
Authority like Municipality etc. * Artificial
Judicial person [section 2(31) of Income
Tax Act]

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 5
FOR PGPSE PARTICIPANTS
RESIDENTIAL STATUS

• There are two tests, if you pass one test,
you are a resident (but may be not-
ordinary resident). If you pass both the
test, then you are resident and ordinary
resident.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 6
FOR PGPSE PARTICIPANTS
First test for residential status…

• An individual is resident in India in any
previous year, if he satisfies at least one of
the following conditions - (a) He is in India
in the previous year for a period of 182
days or more or (b) He is in India for a
period of 60 days or more during the
previous year and 365 days or more
during 4 years immediately preceding the
previous year [section 6(1) of Income Tax
Act]
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 7
FOR PGPSE PARTICIPANTS
2nd test for residential status…

• (a) He has been resident in India in at
least 2 out of 10 previous years
immediately preceding the relevant
previous year and (b) He has been in
India for a period of 730 days or more
during 7 years immediately preceding the
relevant previous year [section 6(6) of
Income Tax Act].

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 8
FOR PGPSE PARTICIPANTS
Points to remember…

• For the first test – there is OR
• For the second test – there is AND (both
the conditions must be satisfied).

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 9
FOR PGPSE PARTICIPANTS
Exceptions….

• Change in 1st condition:
• an Indian citizen who leaves India during
the previous year for the purpose of
employment outside India or an Indian
citizen who leaves India during the
previous year as a member of the crew of
an Indian ship, or Indian citizen or person
of Indian origin, the period of 60 days
stands extended to 182 days.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 10
FOR PGPSE PARTICIPANTS
WHAT IS HUF

• HUF consists of all persons lineally descended
from a common male ancestor (joint family).
However, income earned by individual members
of HUF in their individual and personal
capacities is taxed as their personal income.
Such income is not treated as income of HUF.
Thus, it is possible to have an income from a
proprietary firm (in individual capacity) as well
as income from a business of HUF. Both are
eligible for separate tax exemptions. Business of
HUF can, of course, be conducted in a different
name.
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 11
FOR PGPSE PARTICIPANTS
Number of HUF

• each male person can form one separate
HUF.
• All the decisions of the HUF will be taken
by the male head of that HUF called
KARTA.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 12
FOR PGPSE PARTICIPANTS
Residential status of HUF

• In case of HUF, if control and
management of its affairs is wholly or
partly situated in India, it will be resident in
India‘. If control and management of its
affairs is wholly out of India, it will be non-
resident in India‘ [Sec. 6(2 of Income Tax
Act]

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 13
FOR PGPSE PARTICIPANTS
Firm’s Residential Status…

• A partnership firm and an association of
persons will be resident in India if control
and management of their affairs are
wholly or partly situated within India during
the relevant previous year. If control and
management of their affairs are situated
wholly outside India, it will be non-resident
in India. [Sec. 6(2)]

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 14
FOR PGPSE PARTICIPANTS
Residential status of a company….

• A company incorporated in India is an
Indian company. It will always be resident
in India‘. A foreign company (i.e. company
incorporated abroad), is resident in India
only if, during the previous year, control
and management of its affairs is situated
wholly in India. [Sec. 6(3) of Income Tax
Act]

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 15
FOR PGPSE PARTICIPANTS
TAX ON COMPANY

• In case of domestic company, income tax
is @ 30% for assessment year 2008-09
and 2009-10.. Surcharge @ 10 per cent of
income-tax [i.e., income-tax after rebate
under section 88E], if net income exceeds
Rs. 1 crore

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 16
FOR PGPSE PARTICIPANTS
INCOME TAX ON FOREIGN COMPANY

• In case of foreign company, income tax is
@ 40% for assessment year 2008-09 and
2009-10. Surcharge @ 10 per cent of
income-tax [i.e., income-tax after rebate
under section 88E], if net income exceeds
Rs. 1 crore.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 17
FOR PGPSE PARTICIPANTS
DIVIDEND DISTRIBUTION TAX

• A domestic company paying dividend will
have to pay dividend distribution tax u/s
115-O. The rate applicable w.e.f. 1-4-2007
is 15% plus surcharge @ 1.5% plus
education cess @ 2% plus SAH education
cess of 1% of income tax. Total 16.995%.
(within 15 days)

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 18
FOR PGPSE PARTICIPANTS
Tax by MUTUAL FUNDS

• Mutual funds have to pay dividend distribution
tax u/s 115R of Income Tax Act. The rate as
applicable w.e.f. 1-4-2007 is 12.5% on income
distributed to any individual or HUF and 20% on
income distributed to any other person. In
addition, surcharge, education cess @ 2% and
SAH education cess @ 1% will be payable. Total
is 14.1625% in case of individual or HUF unit
holder and 22.66% in other cases.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 19
FOR PGPSE PARTICIPANTS
Tax by money market mutual fund
(MMMF)
• Dividend distribution tax rate is 25%. ++
• Including surcharge and education cess, it
is 28.325%.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 20
FOR PGPSE PARTICIPANTS
Minimum Alternate Tax…

• Many companies charge depreciation in their
books on straight line method. Thus, the profit
shown is higher in the accounts maintained for
company law purposes and they can declare
dividend. However, for income tax purposes,
they charge depreciation on WDV which is
higher. Thus, for income tax purposes, they may
show low profit or even loss, while in balance
sheet prepared for company law purposes, they
will show high profits, which is called book
profits. Hence, such companies have to pay
minimum income tax [section 115JB].

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 21
FOR PGPSE PARTICIPANTS
Rate of MAT

• 10.3% (including cess)
• In case of foreign company with profit
above 1 crore, it is 11.33% and in case of
demestic company with profit above 1
crore, it is 10.55% (including cess).

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 22
FOR PGPSE PARTICIPANTS
TAX ON COOPERATIVES…

• If income is below `10000 = 10%
• If income is between 10000 to 20000 =
20%
• If income is above 20000 = 30%.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 23
FOR PGPSE PARTICIPANTS
Tax on LOCAL AUTHORITIES

• Tax rate is 30%. No surcharge applies, but
education cess @ 2% of tax and SAH
education cess @ 1% of tax is payable.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 24
FOR PGPSE PARTICIPANTS
TAX ON CAPITAL GAIN …

• In case of short term gains covered under
section 111A of Income Tax Act , the rate
is 10% for AY 2008-09 and 15% for
Assessment Year 2009-10. Section 111A
is applicable in respect of securities
transactions which are subject to
securities transaction tax.
• In case of long term capital gains, tax rate
is 20%

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 25
FOR PGPSE PARTICIPANTS
HRA – TAXABILITY …

• Exemption will be lowest of (a) 50% of salary
where residential accommodation is in Mumbai,
Kolkata, Delhi or Chennai and 40% of at other
place (b) Excess of rent paid over 10% of salary
(c) Actual allowance paid. There will be no
exemption if the residential accommodation is
owned by employee or employee has not paid
any rent for residential accommodation used by
him [section 10(13A) of Income Tax Act and rule
2A] (SALARY= basic + DA+ comm (if contract))
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 26
FOR PGPSE PARTICIPANTS
GRATUITY – TAXABILITY…

• Gratuity for Government employees is fully
exempt [section 10(10)(i)]. In case of
employees covered under Payment of
Gratuity Act, exemption is upto Rs
3,50,000 to be reduced by such
exemptions claimed in the past or 15 days
salary for every completed year of service,
whichever is lower.. Salary means basic
plus DA (if Contract) [section 10(10)(ii) of
Income Tax Act]
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 27
FOR PGPSE PARTICIPANTS
EARNED LEAVE - TAXABILITY

• Encashment of earned leave on retirement
of employees of Central/State Govt is fully
exempt [section 10(10AA)(i) of Income
Tax Act] . Leave encashment while in
service is treated as part of salary. In other
cases, leave encashment of earned leave
on retirement will be lowest of 10 months‘
salary, Rs three lakhs or actual sum
received
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 28
FOR PGPSE PARTICIPANTS
LTC – taxability (10 (5))

• Leave Travel Assistance/Leave Travel
Concession is allowed twice in a block of
four years. It is limited to amount actually
spent on travelling of employee and his
family members. It is limited to economy
class of air fare or AC first class fare

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 29
FOR PGPSE PARTICIPANTS
VRS (voluntary retirement scheme )

• It is exempt upto Rs five lakhs if VRS is as
per prescribed conditions.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 30
FOR PGPSE PARTICIPANTS
Reimbursement of medical expenses

• Reimbursement of amount actually spent
for medical treatment upto Rs 15,000 is
exempt in a financial year. In addition,
reimbursement of insurance premium for
self, spouse, children and dependent
brothers, sisters and parents is exempt.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 31
FOR PGPSE PARTICIPANTS
Rent Free Accommodation

• In case of private sector employees, value
of perquisite of rent free unfurnished
accommodation is taken as follows - (a) If
owned by employer - If population of city
exceeds 25 lakhs - 15%, if population
exceeds 10 lakhs but below 25 lakhs -
10% (c) In other cases - 7.5%.
• In govt. employee – as per rent as per rule

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 32
FOR PGPSE PARTICIPANTS
FURNISHED ACCOMMODATION (TV,
FRIDGE ETC.)
• 10% of cost of furniture (including TV,
radio, refrigerator, AC etc.), if owned by
employer, will be treated as perquisite. If
the furniture is hired from third party,
actual hire charges less any amount
recovered from employee will be the
perquisite.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 33
FOR PGPSE PARTICIPANTS
MOVABLE ASSET TO EMPLOYEE

• perquisite will be @ 10% of the cost of
asset or rent paid, as reduced by sum paid
by employee.
• Suppose the company gives a LAPTOP to
Goti – 10% of 50000 (cost of laptop) will
be added.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 34
FOR PGPSE PARTICIPANTS
OTHER PERQUISITES..

• They will be not be added to employee, as
employer will pay FBT. If FBT is not
applicble, then it will be added to
employee.
• motor car, lunch, refreshment, travelling,
touring, gift, credit card, club etc. will be
added to salary only in cases where
employer in individual or HUF and is not
liable to FBT.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 35
FOR PGPSE PARTICIPANTS
Valuation of CAR

• If car is owned or hired by employer and
provided for personal purposes of
employees, valuation will be expenditure
incurred by employer on running and
maintenance plus remuneration of
chauffer plus normal wear and tear @
10% on actual cost less amount charged
to employees

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 36
FOR PGPSE PARTICIPANTS
GIFTS..

• Gifts upto Rs 5,000 per year are exempt.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 37
FOR PGPSE PARTICIPANTS
EXEMPTIONS..

• Entertainment allowance upto Rs 5,000 is
allowable to Government employees.
• Professional tax paid is exempted..
• Transport allowance upto Rs 800 per
month granted to an employee to meet his
expenditure for the purpose of commuting
between place of residence and the place
of his duty is exempted.
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 38
FOR PGPSE PARTICIPANTS
GAS ETC.

• Some benefits like gas, electricity, water
are valued at actual cost to employer. If
these are provided from own sources,
value will be manufacturing cost incurred
per unit, less amount recovered from
employee.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 39
FOR PGPSE PARTICIPANTS
Taxability of Indian Income….

• Indian income‘ is always taxable in India in
case of all tax payers, whether resident or
non-resident. (residential status has no
relevance).

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 40
FOR PGPSE PARTICIPANTS
Taxablility of foreign income…

• Foreign income‘ is taxable in India if the
assessee is (a) resident (in the case of a
firm, AOP company and every other
person) or (b) resident and ordinarily
resident (in the case of an individual or a
Hindu undivided family) in India.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 41
FOR PGPSE PARTICIPANTS
Setoff of INCOME ..

• Income from one head can be set off
against loss from other head, unless
specifically prohibited. In Rajasthan State
Warehousing Corporation v. CIT 2000 AIR
SCW 629, it was held that if income is
derived from various heads, assessee is
entitled to claim deduction permissible
under respective head whether or not
computation under each head results in
taxable income
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 42
FOR PGPSE PARTICIPANTS
HEADS…

1. SALARY
2. HOUSE PROPERTY
3. CAPITAL GAIN
4. BUSINESS AND PROFESSION
5. OTHER (includes lottery etc.)
(SECTION 14 OF INCOME TAX ACT)

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 43
FOR PGPSE PARTICIPANTS
SURCHARGE …

• Surcharge is 10 per cent of income-tax if
net income of an individual, Hindu
undivided family, association of persons,
or body of individuals, exceeds Rs.
10,00,000. In the case of an artificial
juridical person, surcharge is 10 per cent
of income-tax (i.e.,income-tax minus
rebate under section 88E), even if net
income is less than Rs. 10,00,000.
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 44
FOR PGPSE PARTICIPANTS
EDUCATION CESS

• Education cess payable is 2 per cent of
income-tax and surcharge. Secondary and
higher education cess is 1 per cent of
income-tax and surcharge. This is in
addition to income tax.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 45
FOR PGPSE PARTICIPANTS
INCOME FROM HOUSE PROPERTY..

• In case of let out property, income will be fair annual
value‘ i.e. sum reasonably expected to be received from
letting or actual rent received‘ whichever is higher.
Deduction is allowable for unrealized rent.
• Annual Value of Property‘ is the sum for which the
property could reasonably be expected to let from year
to year. Municipal Valuation of ratable value can be
taken as one of the tests to determine bonafide value of
the property. If the house property is given on rent,
actual rent received will be the annual value of the house
property

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 46
FOR PGPSE PARTICIPANTS
DEDUCTIONS FROM HOUSE
PROPERTY…
• (a) Municipal tax – The deduction will be
permitted on actual payment basis (b)
Standard deduction of 30% of (gross
annual value less municipal tax) [section
24(a) of Income Tax Act] (c) Interest on
capital borrowed to acquire or construct
the house property subject to limits
[section 24(b) of Income Tax Act]

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 47
FOR PGPSE PARTICIPANTS
Self Occupied Property

• Annual Value of a self-occupied property is
taken as Nil‘, if it is not let out. In such cases,
none of the aforesaid expenses are allowed as
deduction. However, if the self-occupied
property is acquired or constructed or repaired
from borrowed funds, interest payable on such
funds upto Rs 1,50,000 per annum is allowed as
deduction. For repairs = upto Rs. 30000
• (this loss is adjusted with other incomes)

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 48
FOR PGPSE PARTICIPANTS
INCOME FROM BUSINESS

• business‘ includes trade, commerce or
manufacture or adventure or concern in
nature of trade, commerce or manufacture
[section 2(13) of Income Tax Act]

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 49
FOR PGPSE PARTICIPANTS
PROFESSION

• which calls for an intellectual or manual
skill. It covers doctor, lawyers,
accountants, consulting engineers, artists,
musicians, singers etc

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 50
FOR PGPSE PARTICIPANTS
DEDUCTIONS ALLOWED FROM INCOME
FROM BUSINESS / PROFESSION
* Rent, rates, taxes, repairs and insurance for business
or professional premises [section 30 of Income Tax
Act]
* Current repairs and insurance of machinery, plant
and furniture [section 31 of Income Tax Act]
* Depreciation on building, machinery, plant or
furniture [section 32 of Income Tax Act] (discussed
below)
* Revenue expenditure on scientific research [section
35(1) of Income Tax Act]
* Capital expenditure on scientific research related to
business (except land) [section 35(2) of Income Tax
Act]

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 51
FOR PGPSE PARTICIPANTS
DEDUCTIONS ALLOWED FROM
BUSINESS / PROFESSION…..
* Preliminary expenses in relation to formation of a
company or in connection with extension of an
undertaking or setting up of a new industrial unit can
be amortised in 5 equal installments over 5 years.
The preliminary expenditure is permitted only upto
5% of cost of project [section 35D]
* Insurance expenses [section 36(1)(i) of Income Tax
Act]
* Insurance premium on health of employees [section
36(1)(ib) of Income Tax Act]
* Bonus or commission to employees [section 36(1)(ii)
of Income Tax Act]
* Interest on borrowed capital [section 36(1)(iii) of
Income Tax Act]
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 52
FOR PGPSE PARTICIPANTS
DEDUCTIONS ALLOWED FROM
BUSINESS / PROFESSION…..
* Contributions towards approved provident fund,
superannuation fund and gratuity fund [section 36(1)
(iv) and 36(1)(v) of Income Tax Act]
* Bad debts in respect of income considered in
previous years can be written off and allowable as
deduction [section 36(1)(viii) of Income Tax Act]
* Banking cash transaction tax [section 36(1)(xiii) of
Income Tax Act]
* Advertisement expenditure is fully allowed as
deduction. However, expenditure incurred on
advertisement in any souvenir, brochure, pamphlet
etc. of a political party is not allowed as a deduction
[section 37(2B) of Income Tax Act]

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 53
FOR PGPSE PARTICIPANTS
DEDUCTIONS ALLOWED FROM
BUSINESS / PROFESSION…..
* Expenditure in maintenance of guest house is
permissible as deduction [section 36(1)(i) of
Income Tax Act]
* Any other expenditure which is not of capital
nature or personal expenses of the assessee is
allowed if it is expended wholly and exclusively
for the purposes of business or profession.
However, it should not have been for purpose
which is an offence or is prohibited by any law
[section 37 of Income Tax Act]
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 54
FOR PGPSE PARTICIPANTS
BLOCK OF ASSETS

• Block of assets‘ means a group of assets falling
within a class of assets, in respect of which the
same % of depreciation rate has been prescribed.
e.g. all machinery having rate of depreciation as 25%
will form one block of asset, machinery having 40%
rate of depreciation will form another block of asset‘
and so on. Depreciation is allowed on actual cost of
the asset. Interest paid on borrowed funds and
capitalised as pre-commencement expenses before
the asset is commissioned is added to cost of the
asset and depreciation claimed on such expenditure.
Thus, pre-production expenditure is also included in
cost of the machinery and depreciation can be
charged on such actual cost‘. Chellapalli Sugar v.
CIT AIR 1975
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 55
FOR PGPSE PARTICIPANTS
Method of depreciation

• Depreciation is calculated on Written
Down Value (WDV) method.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 56
FOR PGPSE PARTICIPANTS
If asset is used for less than 6 month

• If the asset is put to use for purpose of
business for less than 180 days, only 50%
of normal depreciation is permissible. In
other words, full depreciation for the year
is permissible only if asset is
commissioned before 30th September of
that year.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 57
FOR PGPSE PARTICIPANTS
Carry forward of depreciation….

• If depreciation cannot be fully claimed in a
particular year for want of profits, the un-
absorbed depreciation can be carried
forward for any number of succeeding
assessment years. [section 32(2)].

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 58
FOR PGPSE PARTICIPANTS
Rate of depreciation – building

• * Residential building – 5%. Others
(including hotels and boarding houses) –
10%. Purely temporary structures – 100%.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 59
FOR PGPSE PARTICIPANTS
Rate of depreciation – furniture and car

• Furniture and fittings including electrical
fittings – 10%
• * Motor cars 15% . Buses, lorries, and
taxis used in business of running them on
hire = 30%

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 60
FOR PGPSE PARTICIPANTS
Rates of depreciation…

• Pollution control equipment and specified
energy saving devises - 100%

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 61
FOR PGPSE PARTICIPANTS
Rates of depreciation…

• General machinery - 15%,
• aeroplane – 40%,
• Ships – 20%
• Computers including software - 60%.
• Books by professionals – 100% for annual
subscription and 60% for others - books in
library - 100%.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 62
FOR PGPSE PARTICIPANTS
Rates of depreciation…

• Intangible assets - know-how, patents,
copyrights, trade marks, licenses,
franchises or any other right of similar
nature - 25%.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 63
FOR PGPSE PARTICIPANTS
Is ownership necessary?

• In Mysore Minerals v. CIT 1999 AIR SCW 3146
= 1999(5) SCALE 340 = 239 ITR 775 = AIR
1999 SC 3185 = 106 Taxman 166 (SC), it was
held that claimant of depreciation need not be
owner of asset in legal sense. Person in whom
for the time being vests the dominion over the
asset and who is entitled to use it in his own
right is eligible to claim depreciation. – followed
in Dalmia Cement v. CIT 2000 AIR SCW 4198

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 64
FOR PGPSE PARTICIPANTS
Taxes and dues allowed only if paid by
due dates
• Tax, duty, cess, fees payable under any
law, Employer‘s contribution to provident
fund or ESIC, bonus to employees,
commission to employees, interest on any
loan or borrowing from financial
institutions, banks, SFC, leave
encashment are eligible as deduction only
if they are paid on due dates‘ on which
these were payable
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 65
FOR PGPSE PARTICIPANTS
The limit of 20000

• [Till 31-3-2008, each transaction was
considered for the limit of Rs 20,000. Now,
total transactions in a day will be
considered [section 40A(3) of Income Tax
Act]
• Payment over Rs 20,000 must be made
by cheque or demand draft otherwise will
not be permissible deduction.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 66
FOR PGPSE PARTICIPANTS
Exceptions (cash payments permitted)

• payments to RBI, other banks and
financial institutions, LIC, Government
payments, payment by book adjustment,
railway freight * Payment for agricultural
produce, poultry, fish etc. to the cultivator,
grower or producer (i.e. payments to
middlemen are not excluded from this
provision) [rule 6DD]

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 67
FOR PGPSE PARTICIPANTS
Different accounting for IT and or
Accounting
• Method of depreciation, valuation of stock
etc. is different under Companies Act and
Income Tax Act. Hence, one method of
accounting for income tax and other for
Companies Act is permitted. The practice
has been specifically approved in United
Commercial Bank v. CIT 1999 AIR

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 68
FOR PGPSE PARTICIPANTS
Professionals to maintain books of
accounts…
• if their gross receipts are less that Rs 1.50
lakhs, they have to maintain such books of
account as may enable Income Tax
Officer to compute their taxable Income. If
their gross receipts exceed Rs 1.50 lakhs,
they have to maintain books of account as
specified in rule 6F i.e. cash book, journal,
ledger, copies of bills exceeding Rs 25

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 69
FOR PGPSE PARTICIPANTS
System of accounting …

• Accounts should be maintained either on
mercantile basis or cash basis. Hybrid i.e. mixed
system is not permitted. [In cash system, income
or expenditure is considered only when it is
actually received / paid. In mercantile system,
income/expenditure is considered on accrual
and payable basis. Actual receipt or payment
may occur in subsequent financial year and may
not happen in that particular year.]

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 70
FOR PGPSE PARTICIPANTS
Compulsory audit report…

• If gross receipts or turnover of business
exceeds Rs 40 lakhs per annum, the
accounts have to be compulsorily audited.
In case of professional income, accounts
have to be audited if gross receipts
exceed Rs ten lakhs. This audit report
should be submitted along with income tax
return, before 30th September. [section
44AB].
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 71
FOR PGPSE PARTICIPANTS
Capital Gain

• Capital gains means any profit or gains arising
from transfer of a capital asset. Such capital
asset may be building, non-agricultural land,
machinery, shares, jewellery etc. However, stock
in trade, agricultural land in rural area and
personal effects (other than jewellery) are not
capital assets‘.
• From AY 2008-09, archaeological collections,
paintings, sculptures will not be treated as
capital assets‘.
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 72
FOR PGPSE PARTICIPANTS
Cost of acquisition…

• The cost of acquisition of capital asset‘ is to be
increased by Cost Inflation Index. The index is
announced by Central Government every year.
The index was 100 for 1981-82, 172 for 1989-
90, 244 for 1993-94, 331 for 1997-98, 351 for
1998-99, 389 for 1999-2000, 406 for 2000-01,
426 for 2001-02, 447 for 2002-03, 463 for 2003-
04 and 480 for 2004-05, 519 for 2006-07, 551
for 2007-08 and 582 for 2008-09

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 73
FOR PGPSE PARTICIPANTS
Exemptions…

• Capital gains arising from sale of residential
house is exempt if the original asset (i.e. the
house) was held for more than three years and a
new house was purchased within one year
before or two years after the sale of original
asset, or a new residential house is constructed
within three years. The cost of new asset
(residential house) should be more than the
amount of capital gains [section 54 of Income
Tax Act]
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 74
FOR PGPSE PARTICIPANTS
Exemptions…

• Any other long term capital gain is exempt
if the capital gains are invested within 6
months in 3 year bonds issued by REC or
NHAI and that investment is retained for
three years. Investment cannot exceed Rs
50 lakhs - section 54EC of Income Tax Ac

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 75
FOR PGPSE PARTICIPANTS
Income Tax Deductions…

• Investments in PPF, Provident Fund, LIC,
repayment of housing loans, NSIC, 5 year
FDR with scheduled banks, 5 year time
deposit in post office, deposit in Senior
Citizens Saving Scheme etc. are allowed as
deduction upto Rs 1,00,000 u/s 80C.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 76
FOR PGPSE PARTICIPANTS
Deductions…

• (a) Medical insurance premium upto Rs
20,000 for senior citizen and Rs 15,000 for
others. For the Assessment Year 2009-10,
additional deduction of Rs 15,000 will be
allowed if insurance policy of parents is taken
(section 80D). (b) Contribution to pension
fund within overall ceiling of Rs one lakh
(section 80CCC)

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 77
FOR PGPSE PARTICIPANTS
Income Tax Deductions…

• Contribution to approved charitable
institutions - in some cases 50% of
amount paid is allowed as deduction,
while in some cases, 100% amount paid is
allowed as deduction (section 80G).

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 78
FOR PGPSE PARTICIPANTS
Income tax deductions ..,.

• Income In case of EOU, STP, EHTP and
BTP, the concession will continue upto 31-
3-2010. In case of SEZ, exemption is for
larger period.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 79
FOR PGPSE PARTICIPANTS
CLUBBING OF INCOME

• … the income of spouse ( wife/ husband) or
minor child will be added to the income. The
clubbing provision is not applicable if
spouse possesses technical or professional
qualifications and the income is solely due
to application of his / her technical
knowledge and experience [section 64(1)(ii)
of Income Tax Act]

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 80
FOR PGPSE PARTICIPANTS
Transfer of asset…

• If an asset is transferred to the spouse, income
from such asset is also treated as income of the
individual. [e.g. by transferring shares, house
property etc.].
• Similarly, if an individual throws his separate
property into the property of HUF, income from
such converted property will be included in the
total income of such individual [section 64(2) of
Income Tax Act]

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 81
FOR PGPSE PARTICIPANTS
Carry forward…

• Carry forward of loss is permitted only when
return is filed in time. In case of closely held
company, unabsorbed loss can be carried
forward only if at least 51% of shares are
held beneficially by same persons who were
holding them in previous year.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 82
FOR PGPSE PARTICIPANTS
Carry forward of depreciation…

• Unabsorbed depreciation can be set be
against any head of income other than
salary. It can be carried forward to any
number of years. It can be carried forward
by same assessee except in case of
amalgamation, demerger and business
reorganization.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 83
FOR PGPSE PARTICIPANTS
Speculative losses

• Loss from speculative transactions
involves sale and purchase of
commodities including stocks and shares.
It can be set off against speculative profits
only and can be carried forward for four
years.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 84
FOR PGPSE PARTICIPANTS
PAN…

• Every person whose total sales, turnover
or gross receipts are over Rs 5,00,000 are
required to apply and obtain a Permanent
Account Number (PAN) [section 139A].

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 85
FOR PGPSE PARTICIPANTS
Advance payment of tax

• Tax is deducted from salary payable to an employee.
Since a businessman or professional earns his own
income, there is no TDS (Tax Deduction at Source).
Hence, he is liable to pay advance tax as he earns
income. This is Pay Tax as you Earn‘. Thus, advance
tax is payable on the basis of estimated income of
the current financial year. [The income is estimated‘
because, actual income will be known only after the
financial year is over].

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 86
FOR PGPSE PARTICIPANTS
Advance tax…

• Advance tax is payable only in cases
where tax payable is in excess of Rs
5,000. The assessee has to pay advance
tax on his own accord and no notice will
be issued to him.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 87
FOR PGPSE PARTICIPANTS
Advance tax – company…

15% on or before 15th June
30% on or before 15th September
30% on or before 15th December
Remaining 25% on or before 15th March. If there
was shortfall in earlier installment, it should be
made up in subsequent installment.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 88
FOR PGPSE PARTICIPANTS
Advance tax – others..

• 30% on or before 15th September
• 30% on or before 15th December
Remaining 40% on or before 15th March. If
there was shortfall in earlier installment, it
should be made up in subsequent
installment

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 89
FOR PGPSE PARTICIPANTS
Interest on non-payment of advance
tax…

• If advance tax was not paid before 31st March of
the financial year, or advance tax paid was less
than 90% of the assessed tax, interest @ 1% per
month or part thereof is payable from 1st April till
the month of payment. [section 234B]. The
interest is not payable if total tax liability is less
than Rs 5,000 or if at least 90% of assessed tax
was paid before 31st March.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 90
FOR PGPSE PARTICIPANTS
Interest on non-payment of advance
tax…

• If installments of advance tax are not paid on due
dates, interest on shortfall is payable @ 1% per
month. In case of last instalment which is due on 15th
March, interest @ 1% is payable for one month if tax
is not paid at all or is paid after 15th March. [section
234C]. Note that this interest is calculated only upto
31st March, as from 1st April, interest @ 1% becomes
payable on entire tax due under section 234B.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 91
FOR PGPSE PARTICIPANTS
Interest on non-submission of return…

• interest @ 1% is payable u/s 234B. In
addition, interest @ 1% is payable u/s
234A. Thus, if return is not filed on or
before due date, interest payable is 2% for
every subsequent month.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 92
FOR PGPSE PARTICIPANTS
Liability of TDS

• A person is under liability to deduct income tax at
source and pay it to Government. He should issue a
certificate to the person from whom tax is deducted,
so that the person can submit the same to Income
Tax authorities. Tax deducted at source should be
paid to Government within one week from date of
deduction. At the end of the year, a return in
prescribed form has to be filed with ITO.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 93
FOR PGPSE PARTICIPANTS
TDS regarding interest payments…

• Tax should be deducted from interest paid
if interest payable in financial year
exceeds Rs 10,000 in case of banks, post
office and cooperative society and Rs
5,000 in case of others [section 194A].

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 94
FOR PGPSE PARTICIPANTS
Rates of TDS … (other than company)

• (a) If recipient is individual/HUF/AOP where
aggregate payment or credit is upto Rs 10 lakhs,
cooperative society, local authority, firm where
aggregate payment or credit does not exceed Rs one
crore - 10.3% (b) If recipient is individual/HUF/AOP
where aggregate payment or credit exceeds Rs 10
lakhs, firm where aggregate payment or credit
exceeds Rs one crore - 11.33%

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 95
FOR PGPSE PARTICIPANTS
TDS in case of company

• (a) If recipient is domestic company where
aggregate payment or credit does not
exceed Rs one crore - 20.6% (b) If
recipient is domestic company where
aggregate payment exceeds Rs one crore
- 22.66%

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 96
FOR PGPSE PARTICIPANTS
TDS regarding old age persons…

• An individual who is 65 years of age or above can
get interest without deduction of tax at source, if he
submits a self-declaration to the payer in duplicate,
in form No. 15H. Others have to submit declaration
in form 15G.
• The payer has to submit one copy of declaration
(form 15G/15H as applicable) to Commissioner of
Income Tax under whose jurisdiction his tax is
being assessed.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 97
FOR PGPSE PARTICIPANTS
TDS regarding contracts/ advertising
contracts…

• TDS provisions apply if contract value
exceeds Rs 20,000 for single payment or
Rs 50,000 in aggregate for a financial year
[section 194C].

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 98
FOR PGPSE PARTICIPANTS
TDS rates for non-advertising contracts..

• (a) If recipient is individual/HUF/AOP where
aggregate payment or credit is upto Rs 10 lakhs,
cooperative society, local authority , firm/domestic
company where aggregate payment or credit
does not exceed Rs one crore - 1.03% (b) If
recipient is individual/HUF/AOP where aggregate
payment or credit exceeds Rs 10 lakhs,
firm/domestic company where aggregate
payment exceeds Rs one crore - 1.133%

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 99
FOR PGPSE PARTICIPANTS
TDS for advertising contracts…

• (a) If recipient is individual/HUF/AOP where
aggregate payment or credit is upto Rs 10 lakhs,
cooperative society, local authority , firm/domestic
company where aggregate payment or credit
does not exceed Rs one crore - 2.06% (b) If
recipient is individual/HUF/AOP where aggregate
payment or credit exceeds Rs 10 lakhs,
firm/domestic company where aggregate
payment exceeds Rs one crore - 2.266%

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 100
FOR PGPSE PARTICIPANTS
TDS in respect of Brokerage…

• TDS applies in respect of payment of
commission or brokerage to resident.
There is no TDS if commission /
brokerage paid during the financial year is
less than Rs 2,500. [section 194H]

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 101
FOR PGPSE PARTICIPANTS
TDS regarding brokerage…

• (a) If recipient is individual/HUF/AOP where
aggregate payment or credit is upto Rs 10 lakhs,
cooperative society, local authority , firm/domestic
company where aggregate payment or credit
does not exceed Rs one crore - 10.3% (b) If
recipient is individual/HUF/AOP where aggregate
payment or credit exceeds Rs 10 lakhs,
firm/domestic company where aggregate
payment exceeds Rs one crore - 11.33%

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 102
FOR PGPSE PARTICIPANTS
TDS regarding professional services..

• TDS provisions are applicable, if payment for
professional or technical services is made by an
individual or HUF, who is required to submit
income tax audit report u/s 44AB. Provisions of
making TDS payment do not apply to small HUF
and individuals who do not have to submit income
tax audit report.
• TAN number – Assessee should obtain TAN (Tax
Deduction Account Number)

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 103
FOR PGPSE PARTICIPANTS
TDS regarding rent..

• TDS provisions apply if aggregate sum of rent paid
exceeds Rs 1,20,000 per annum [section 194-I]
• Rate :
• The TDS rates vary between 10.3% to 22.66%
depending on whether rent is for plant, machinery,
land, furniture etc. and who is the recipient.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 104
FOR PGPSE PARTICIPANTS
TDS forms

• Person who has deducted tax at source is required
to file return to Income Tax department on annual
basis. In case of companies, the return is to be filed
on computer media, i.e. for them, filing of e-TDS is
compulsory. The form has been prescribed.
Electronic Filing of Returns of Tax Deducted at
Source Scheme, 2003‘ has been notified by CBDT for
this purpose. The return has to be filed in prescribed
form in floppy. NSDL (National Securities Depository
Ltd.) has been given task of handling e-TDS returns.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 105
FOR PGPSE PARTICIPANTS
Clearance certificates….

• Income Tax department has discontinued
giving Income Tax Clearance Certificates for
various purposes like filing tender, bidding
contracts etc. No such certificate will be
issued by Income Tax department. The
contractors etc. should quote PAN – CBDT
circular No. 2/2004 dated 10-2-2004.

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Income tax return numbers….

• ITR 1
• Individuals
• Salary (including pension and family pension) and interest

• ITR 2
• Individuals and HUF
• Any income other than business income

• ITR 3
• Individuals and HUF
• Who are partners in firm but not carrying on business

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Income tax return numbers…

• ITR 4
• Individuals and HUF
• Who are proprietors having income from business or profession

• ITR 5
• Firm, AOP, BOI
• Including return of FBT

• ITR 6
• Companies except charitable companies claiming exemption u/s 11
• Including return of FBT

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Income Tax return numbers…

• ITR 7
• Charitable trusts etc. including cases covered by section 139(4A) to 129(4D)
• Including return of FBT

• ITR 8
• Persons liable to FBT
• FBT return only

• ITR-V
• All except charitable trusts who have filed return electronically without digital
signature
• Verification form for persons who have filed return electronically but without
digital signatur

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Due dates for filing returns…

• (a) Individuals having only salary income (b)
Non-corporate assessees (Individuals, HUF,
partnership firms or societies) having
income from business or profession but who
do not have to get their accounts audited
under Income Tax or any other law - 31st
July

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Due dates for filing ITR

• (a) Non corporate assessees (Individuals, HUF,
partnership firms or societies) having income from
business or profession and who have to get their
accounts audited (b) A working partner where the firm
in which he is a working partner has to get its
accounts audited (c) Corporate Assessee (d) Persons
who have to file return under one by six scheme –
30th September (Till 2007, it was 31st October).

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Due dates of ITR

• The dates are mandatory and there is no provision to
extend the due date. If the return is filed beyond due
date, mandatory interest @ 1% per month of tax due
is payable. Belated return upto one year beyond due
date is permissible. Mandatory interest is payable,
but no penalty is payable. Thus, if no tax was due,
belated return upto one year can be submitted
without payment of any interest.
• A loss return must be filed in time. Otherwise, the
carry forward of loss is not permitted

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Scrutiny …

• Some of the returns are taken by ITO for detailed
scrutiny. Notice for scrutiny has to be served
within 6 months from close of financial year in
which return is furnished i.e. by 30th September.
The ITO can require assessee to attend his office
or produce evidence in support of the return filed
[section 143(2) of Income Tax Act – section
115WE(2) in respect of FBT]

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Arithmatic Mistakes in ITR

• Arithmetical mistakes and incorrect claim
apparent from the return can be corrected by
department and intimation sent to assessee
within one year from end of financial year in
which return is made [section 143(1) amended
vide Finance Act, 2008]. If no such intimation is
made, acknowledgment of return will be deemed
to be an intimation.

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Interest to partners…

• Income Tax Act provides that interest upto 12% paid
to the partners will be allowable as deduction from
income of partnership firm [section 40(b)((iv) of
Income Tax Act]. [The interest rate was 12% upto 31-
5-2002]. Such payment should be authorised by
partnership deed. This interest is allowed as
deduction from income of the partnership firm and is
taken as other income‘ of the individual partner.

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About AFTERSCHO☺OL

• PGPSE - World’s most comprehensive
programme on social entrepreneurship –
after class 12th
• Flexible – fast changing to meet the
requirements
• Admission open throughout the year
• Complete support from beginning to the
end – from idea generation to making the
project viable.
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Branches of AFTERSCHO☺OL

• PGPSE programme is open all over the
world as free online programme.
• Those who complete PSPSE have the
freedom to start branches of
AFTERSCHO☺OL
• A few branches have already started -
one such branch is at KOTA (Rajasthan).

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Workshop on social entrepreneurship

• We conduct workshop on social
entrepreneurship – all over India and out
of India also - in school, college, club,
association or any such place - just send
us a call and we will come to conduct the
workshop on social entrepreeurship.
• These workshops are great moments of
learning, sharing, and commitments.

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FREE ONLINE PROGRAMME

• AFTERSCHO☺OL is absolutely free
programme available online – any person can
join it. The programme has four components :
• 1. case studies – writing and analysing – using
latest tools of management
• 2. articles / reports writing & presentation of
them in conferences / seminars
• 3. Study material / books / ebooks / audio / audio
visual material to support the study
• 4. business plan preparation and presentations
of those plans in conferences / seminars

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100% placement / entrepreneurship

• AFTERSCHO☺OL has the record of
100% placement / entrepreneurship till
date
• Be assured of a bright career – if you join
AFTERSCHO☺OL

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Pursue professional courses along with
PGPSE

• AFTERSCHO☺OL permits you to pursue
distance education based professional /
vocational courses and gives you support
for that also. Many students are doing
CA / CS/ ICWA / CMA / FRM / CFP / CFA
and other courses along with PGPSE.
• Come and join AFTERSCHO☺OL

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