Q3. What are the key steps to calculate the tax liability of an individual ?
Steps to calculate the tax liability of an individual are:
Determine residential status
- First of all to determine the residential status of the assessee.The incomes are taxed according to residential status i.e. Resident in India, Not Ordinarilyresident, or Non resident.
Calculation of gross total income
- For the calculation of the gross total income we shouldhave to calculate the income of five heads according to the provisions of Income Tax Act.
- While calculating the incomes of the different heads, the incomes whichare exempted will not be included.
Income of other persons to be included in the income of assessee
- Few incomes of otherpersons (Sec. 64) includes in the income of assessee.
Set-off of losses
- If there is negative income in a particular head then it is to be set offaccording to the provisions of Income Tax Act.
Deductions u/s 80
- After the above steps, the aggregate amount of income is known as GrossTotal Income. From the gross total income few deductions which are provided under section 80of income tax act will be deducted. After deductions, the balance of income is known as TotalIncome or Taxable Income. The list of deductions available to an individual are as follows:1.Investments and deposits (sec 80C)2.Contribution to certain pension funds (sec 80CCC)3.Contribution of new pension scheme (sec 80CCD)4.Payment to medical insurance premium (sec 80D)5.Medical treatment of handicapped dependents and amount deposited for maintenance ofhandicapped dependents (sec 80DD)6.Expenditure on medical treatment of certain diseases (sec 80DDB)7.Repayment of loan and interest thereon taken for higher education (sec 80E)8.Donations to certain funds/charitable institutions etc. (sec 80G)9.Deductions in respect of rent paid (sec 80GG)10.Donations for scientific research and rural development (sec 80GGA)
Contribution to political parties (80GGC)12.Profit and gain of new industrial undertaking set up for infrastructure development (sec 80IA)13.Profit and gains of new industrial undertakings (sec 80IB)14.profit and specific industrial undertakings establish in specific states (sec 80IC)15.Deduction in respect of profits and gains from business of collecting and processing of biogradable waste (sec 80JJA)16.Deduction in respect of certain incomes of offshore banking unit (sec 80LA)17.Deduction in respect of royalty income to authors (80QQB)18.Deduction in respect of royalty on patent (sec 80RRB)19.Deduction in case of person with disability (sec 80U)
Income rounded off in the multiple of
The total income calculated will roundedoff in multiple of Rs. 10. For this rupee five or more than Rs. 5 will be treated as Rs. 10 andless than Rs. 5 will be deleted.
Q4. Define the treatment of remuneration paid to partners under income tax act.
In all most all the partnership, provision for salary has been included and decided with mutualconsent .But as per Income Tax Act, full amount of salary is not allowed as expenses in profit & lossaccount but salary is restricted to % of profit before salary to the partner. There are some conditionsalso which are to be complied to claim deduction of salary as expense in P & L account of partnershipfirm.
Conditions are defined in section 40(b) of the income tax act.
1.Salary should be paid to working partner.2.Salary must be written/authorized by the Partnership deed3.Salary should be related to the period after the partnership deed date.