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Contents Acknowledgement Introduction to Tax Introduction to Income Tax Residential Status Heads of Income Income from Salaries Income from House Property Capital Gains Profits and Gains of Business or Profession Income from Other Sources Advance Payment of Tax Computation of Total Income Computation of Tax Liability on Total Income TDS Rates for Assessment Year 09 – 10 Assessment of Firms Assessment of Companies Page Number 2 3 4 6 9 10 15 19 30 55 60 61 64 66 72 74
I owe a great many thanks to a great many people who helped and supported me during the writing of this book. My deepest thanks to Prof. (Professor’s Name), the Guide of the project for guiding me throughout the project and make necessary correction as and when needed. My deep sense of gratitude to (Name and Position of the Work Guide) support and guidance. Thanks and appreciation to the helpful people at (Name of the Office where the
Project was done) for their support.
I would also thank my Institution and my faculty members without whom this project would have been a distant reality. I also extend my heartfelt thanks to my family and well wishers.
Tax is nothing but the Money people have to pay to the government which is used to provide Public Services. There are two Types of Taxes. They are 1. Direct Tax and 2. Indirect Tax. Direct tax is the charge that is paid directly to the government by the persons on whom it is imposed. Direct Tax is divided into 3 parts, 1. Income Tax, 2. Wealth Tax and 3. Corporate Tax. Indirect tax is the charge that is paid by one individual at the beginning, but the burden of which will be passed over to some other individual, who eventually holds the burden. Indirect Tax is divided into 3 parts, 1. Sales Tax, 2. Excise Duty and 3. Custom Duty.
Income Tax Introduction
The direct tax which is paid by individual to the Central Government of India is known as Income Tax. It is imposed on our income and plays a vital role in the economic growth & stability of our country. For years the Government is generating revenue through this tax system. The word 'Tax' originated from the 'Taxation.' which mean 'Estimate.' Hence, 'Income Tax' mean 'Income Estimate,' which helps the government to know the actual economic strength of a person. It is also a way to set up an economic standard for general people. It helps the Government to know the distribution of money among country's people. Income Tax has been in force in different forms since years. If we go through the history of India, we get relevant information regarding the taxation system of India. In ancient history, it is mentioned that at about such system which were imposed on the income, expenditure and other subject. Even information of such is given Manu Smriti and Arthasatra which confirms its existence at that time. In modern India, Income Tax came into existence in 1860 with the implementation of first Income Tax Act. After implementation of this Act, people became aware of the actual meaning of Income Tax. This act was in force for first five years. After this, in 1865, second Act came into force. There were major changes in this Act relative to the first. It proved itself as a good factor for the growth of our economy. With this Act a new concept of Agriculture Income came into existence. After this, different new Act was also implemented. The most important of them is the Income Tax Act, 1961. According to ruling of Income Tax Act, 1961, any person whose salary from any source of income is more than the maximum limit of unchargeable amount will be liable to pay Income Tax. There is also a provision of deduction and exemptions in Income Tax, depending upon the type of assessee, source of income, residential status and investment in saving schemes. Income tax rates are a matter of chang, which is declared by Ministry of Finance, Government of India regularly, usually on annual basis.
Assessee [Sec. 2(7)] Assessee means a person by whom income-tax or any other sum of money is payable under the Act. It includes every person in respect of whom any proceeding under the Act has been taken for the assessment of his income or loss and the amount of refund due to him. It also includes a person who is assessable in respect of the income or loss of another or who is deemed to be an assessee or an assessee in default under any provision of the Act. Person [Sec. 2(31)] includes 1. An Individual, 2. A Hindu Undivided Family, 3. A Company, 4. A Firm, 5. An Association of Persons or A Body of Individuals, 6. A Local Authority and 7. Every Artificial Juridicial Person not falling within any of the preceding categories. Assessment Year [Sec. 2(9)] Assessment Year may be defined as a year in which the income of the previous year is to be assessed. In some countries it is called “Tax Year”. It always starts on April 1st and ends on March 31st of the next year. Previous Year [Sec. 3] Income of the previous year is taxed in the immediately following assessment year. In some countries it is called “Income Year”. In the case of a newly set up business or profession or a source of income newly coming into existence, the first previous year will be the period commencing from the date of setting up of the business/ profession, or as the case may be, the date on which the source of income newly comes into existence and ending on the immediately following March 31st.
The exceptions to the rule that the income of the previous year, is not taxable in the immediately following assessment year are 1. Income of a Non-Resident from Shipping, 2. Income of Persons leaving India either Permanently, or for a very long time, 3. Income of Bodies formed for a Short Duration, 4. Income of a Person trying to Alienate his Assets with a view to Avoid Payment of Tax and 5. Income of a Discontinued Business. Residential Status – General Norms Assesses are either 1. Resident in India, or 2. Non-Resident in India However, Resident Individuals and Hindu Undivided Families have to be 1. Resident and Ordinary Resident, or 2. Resident but Not Ordinary Resident. The Residential status of each assesse is to be determined for each previous year. Residential Status of an Individual [Sec. 6] Basic Conditions [Sec. 6(1)] 1. He is in India in the previous year for a period of 182 days or more 2. He is in India for a period of 60 days or more during the previous year and for a period of 365 days or more during the four years immediately preceding the previous year.
Additional Conditions [Sec. 6(6)] 1. He has been a resident of India in at least 2 out of 10 previous years immediately preceding the relevant previous year. 2. He has been in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year. Resident and Ordinary Resident An Individual is said to be a Resident and Ordinary Resident in India in any previous year, if he satisfies at least one of the basic conditions, and both the additional conditions. Resident but not Ordinary Resident An Individual is said to be a Resident but not Ordinary Resident in India in any previous year, if he satisfies one or more of the basic conditions, but does not satisfy the two additional conditions. Non-Resident An Individual is said to be a Non-Resident in India in any previous year, if he satisfies none of the basic conditions. Residential Status in the case of Other Persons Residential Status of a Hindu Undivided Family [Sec. 6(2)] Resident and Ordinary Resident A Hindu Undivided Family is said to be a Resident and Ordinary Resident in India if the control and management of its affairs are wholly or partly situated in India and if it satisfies both the additional conditions.
Resident but not Ordinary Resident A Hindu Undivided Family is said to be a Resident but not Ordinary Resident in India if the control and management of its affairs are wholly or partly situated in India but does not satisfy the two additional conditions. Non-Resident A Hindu Undivided Family is said to be a Non-Resident in India, if its control and management is situated wholly outside India. Residential Status of a Firm or an Association of Persons [Sec. 6(4)] Resident A Firm or an Association of Persons is said to be a Resident in India, if its control and management is situated wholly within India during the relevant previous year. Non-Resident A Firm or an Association of Persons is said to be a Non-Resident in India, if its control and management is situated wholly outside India. Residential Status of a Company [Sec. 6(3)] Resident An Indian Company is always a Resident in India A Foreign Company is said to be a Resident in India, if its control and management is situated wholly within India during the relevant previous year. Non-Resident
A Foreign Company is said to be a Non-Resident in India, if its control and management is situated wholly outside India. Heads of Income [Sec.14] Income of a person is Computated under the following Five Heads
1. Income from Salaries,
2. Income from House Property, 3. Profits and Gains from Business or Profession, 4. Capital Gains and 5. Income from Other Sources. The Aggregate Income under these Heads is Termed as “Gross Total Income”.
Income From Salaries
Income under heads of salary is defined as remuneration received by an individual for services rendered by him to undertake a contract whether it is expressed or implied. Basis of Charge According to Income Tax Act there are following conditions where all such remuneration are chargeable to income tax:
When due from the former employer or present employer in the previous year, whether paid or not. When paid or allowed in the previous year, by or on behalf of a former employer or present employer, though not due or before it becomes due. When arrears of salary is paid in the previous year by or on behalf of a former employer or present employer, if not charged to tax in the period to which it relates.
Under section 17 of the Income Tax Act, 1961 the following incomes comes under the head of salary: 1. Basic Salary 2. Dearness Allowance 3. Advance Salary 4. Arrears of Salary 5. Leave Encashment 6. Salary in Lieu of Notice 7. Salary to Partner 8. Fees and Commissions 9. Bonus 10. Gratuity 11. Pensions 12. Annuity from Employer
13. Annual Accretion to the Credit Balance in a Recognised Provident Fund 14. Contribution by Central Government towards Pension Fund 15. Retrenchment Compensiation 16. Remuneration for Extra Work 17. Voluntary Payment 18. Salary from a United Nations Organisatin 19. Salary to a Foreign Citizen 20. Payment Received at the Time of Voluntary Retirement Basic Salary It is fully taxable under Sec. 15 Dearness Allowance It is fully taxable under Sec. 15 Advance Salary It is Taxable in the Year of Receipt Arrears of Salary It is Taxable in the Year of Receipt, if not Taxable on due basis Leave Encashment In case of a Government Employee, any amount received is fully Exempted [Sec. 10(10AA)(i)]. In case of a Non-Government Employee, the least of the following is Exempted [Sec. 10(10AA) (ii)] 1. Cash Equivalent of the Leave Salary in respect of the Period of Earned Leave to the Credit of an Employee only at the Time of Retirement whether on Superannuation or Otherwise
2. 10 months Average Salary 3. Rs.3,00,000 4. Actual Leave Encashment. Salary in Lieu of Notice It is Taxable on Receipt basis Salary to Partner Not chargeable under Salaries but Taxable under Profits and Gains from Business or Profession. Fees and Commission It is fully Taxable under Sec. 15 Bonus It is fully Taxable under Sec. 15 Gratuity In case of a Government Employee, any amount received is fully Exempted [Sec. 10(10)(i)]. In case of a Non-Government Employee covered under The Payment of Gratuity Act,1972, the least of the following is Exempted [Sec. 10(10)(ii)] 1. 15 days’ salary. 2. Rs.3,50,000. 3. Actual Gratuity. In case of a Non-Government Employee, the least of the following is Exempted [Sec. 10(10AA) (ii)] 1. Half Month Salary for each Completed year of Service.
2. Rs.3,50,000. 3. Actual Gratuity. Pension Any Uncommuted Pension is Taxable as Salary under Sec. 15 in the hands of a Government as well as a Non- Government Employee. Any Commuted Pension received by a Government Employee is wholly Exempted from Tax Under Sec. 10(10A). Any Commuted Pension received by a Non-Government Employee 1. In case where the Employee receives Gratuity, the Commuted value of 1/3 of the Pension he is normally entitled to receive, 2. In any other case, the Commuted value of ½ of such Pension Is Exempt from Tax. House Rent Allowance [Sec. 10(13A) and Rule 2A] Exemption in respect of House rent Allowance is regulated by Rule 2A. The least of the following is exempt from tax 1. Amount equal to 50% of salary, where the Residential house is situated at Bombay, Calcutta, Delhi or Madras; and an amount equal to 40% of salary, where the Residential house is situated at any other place. 2. Actual House Rent Allowance Received. 3. Excess of Rent paid over 10% of Salary. Entertainment Allowance [Sec. 10(ii)] Entertainment Allowance is first included in Salary Income and there after a deduction is given.
In case of a Government Employee, the least of the following is deducted, 1. Rs. 5,000 2. 20% of Basic Salary or 3. Actual Entertainment Allowance received In case of a Non-Government Employee, no deduction is available. Perquisites [Sec. 17(2)] Perquisites are any casual emolument or benefit attached to an officer or a position in addition to salary or wages There are following perquisites which are tax free:
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.
Medical facility Medical reimbursement Refreshments Subsidised Lunch/ Dinner provided by employer Facilities For Recreation Telephone Bills Products at concessional rate to employee sold by his/ her employer Insurance premium paid by employer Loans to employees by given by employer Transportation Training House without rent Residence Facility to member of Parliament, judges of High Court/ Supreme Court Conveyance to member of Parliament, judges of High Court/ Supreme Court Contribution of employers to employee's pension, annuity schemes and group insurance
Income From House Property
Under the Income Tax Act the owner of a House property is taxed on the income in the form of its annual value under the head “Income from House Property”. Owner It is the Legal Owner of the house property who is chargeable to tax in respect of property income. In the following cases enumerated by Sec. 27, persons are deemed to be owners of the house property for the purpose of computing income from house property, 1. An individual, who transfers house property otherwise than for adequate consideration to his or her spouse or to his minor child, is treated as deemed owner of the house. 2. The holder of an impartible estate is treated as deemed owner of the house property. 3. A member of a co-operative society, company or other association of persons, to whom a building or a part thereof is allotted or leased under a house building scheme of the society, company or association of persons, is treated as deemed owner of such property. 4. A person who comes to have control over the property in part performance of a contract of the nature referred to in Sec. 53A of the Transfer of Property Act or by virtue of such transaction are referred to in clause (f) of Sec. 269UA is deemed as owner of such property. Basis of computing Income from a let out house property Income from a let out house property is determined as Gross Annual Value Less: Municipal Taxes Net Annual Value
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Less: Deductions Standard Deduction Interest on Borrowed Capital Income from House Property Gross Annual Value [Sec. 23(1)] Though the tax under the head “Income from House Property” is a tax on income, yet it is not a tax upon rent but upon inherent capacity of a building to yield income. The standard selected as a measure of income to be taxed is Annual Value. Gross Annual Value is determined as Reasonable Expected Rent of the Property Actual Rent Received The above higher value Loss due to Vacancy Gross Annual Value Reasonable Expected Rent of the Property Reasonable Expected Rent is deemed to be the sum for which the property might reasonably be expected to be let out from year to year. Reasonable Expected Rent of the Property can be determined by taking into consideration the following factors 1. Municipal Value 2. Fair Rent
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3. The higher value of (1) and (2) is the Expected Rent Municipal Value For collecting Municipal Taxes, the Local Authority makes a periodic survey of all buildings in its jurisdiction. The value estimated is the Municipal Value. Fair Rent This is estimated on the basis of the rent collected for a similar property in a similar location. Standard Rent If a property is covered under a Rent Control Act, its reasonable expected rent cannot exceed the standard rent fixed in the Act. Actual Rent Received This is the rent collected in the previous year for which the property is available for letting out less the unrealised rent. Municipal Taxes These taxes are deductable only if 1. They are borne by the owner and 2. They are actually paid by him during the previous year. Deductions under Sec. 24 There are two deductions available under this Section 1. Standard deduction and 2. Interest borrowed on capital
Standard deduction It is 30% of Net Annual Value irrespective of any Expenditure incurred by the Taxpayer. Interest borrowed on capital It is deducted if the capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the house property. Interest on Pre-Construction Period Interest payable by an assessee in respect of funds borrowed for the acquisition or construction of a house property and pertaining to a period prior to the previous year in which such property has been acquired or constructed.
Capital Asset is defined to include property of any kind held by assessee whether fixed or circulating, movable or immovable, tangible or intangible. The following assets are excluded from Capital Assets. 1. Any stock-in-trade, consumable stores or raw materials held for the purpose of business or profession; 2. Personal effects of the assessee; 3. Agricultural land in India. 4. 6.5% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Gold Bonds, 1980 issued by the Central Government. 5. Special Bearer Bonds, 1991; and 6. Gold Deposit Bonds, issued under the Gold Deposit Scheme, 1999. Types of Capital Assets Short Term Capital Asset means a capital asset held by an assessee for not more than 36 months immediately prior to its date of Transfer. However, in a few cases, an asset held for not more than 12 months, is treated as Short Term Capital Asset. 1. Equity or Preference share of a Company, 2. Securities listed in a Recognised Stock Exchange in India, 3. Units of UTI, 4. Units of Mutual Funds specified under Sec. 10(23D) 5. Zero Coupons Bonds Any Asset other than a Short Term Capital Asset is regarded as a Long Term Capital Asset.
Determining the Period of Holding Different Situations Shares held in a Company-in-Liquidation Period of Holding Calculation The Period Subsequent to the date on which the Company goes into Liquidation shall be Excluded Capital Assets which becomes the Property of The Period for which the asset was held by the the Assessee in the circumstances mentioned in Previous Owner should be Included Sec. 49(1) Allotment of Shares in Amalgamated Indian The Period of holding shall be counted from Company in Lieu of Shares held in the date of Acquisition of shares in the Amalgamating Company The Period of holding shall be counted from the date of Allotment The Period of holding shall be counted from the date of offer to Subscribe to Shares to date Bonus Shares when such Right is Renounced by a Person The Period of holding shall be counted from Amalgamating Company Right Shares Right Entitlement
the date of Allotment Issue of Shares by the Resulting Company in a The Period of holding shall be counted from Scheme of Demerger to the Share Holders of a the date of Acquisition of Shares in the Demerged Company Demerged Company Membership Right held by a Member of The Period of holding shall be counted from Recognised Stock Exchange Sweat Equity Shares Allotted by Employer the date of becoming a Member of the Stock Exchange The Period of holding shall be counted from
the date of Allotment or Transfer Transactions in Shares and Securities not given above Date of Purchase Date of Transfer Date of Purchase by Broker on behalf of Investor Date of Broker’s note provided such
transactions are followed up by Delivery of Date of Purchase or Transfer Shares and also the Transfer Deeds Date of Contract of Sale as declared by the
parties provided it is followed up by actual Delivery of Shares and the Transfer Deeds Date of Purchase or Sale of Shares and The First-in-First-out method shall be adopted Securities purchased in several Lots at to reckon the Period of the holding of the different points of time but Delivery taken off Security in one lot and subsequently sold in Parts Transfer of a Security by a Depository
The First-in-First-out method shall be adopted to reckon the Period of the holding
Computation of Capital Gains Computation of Capital Gains depends upon the Nature of Capital Assets transferred. Computation of Short Term Capital Gains Value of Consideration Less : Expenditure incurred during Transfer Less : Cost of Acquisition Less : Cost of Improvement XXX XXX XXX XXX XXX Less : Exceptions [ Sec. 54B, 54D and 54G] Short Term Capital Gains XXX XXX
Computation of Long Term Capital Gains Value of Consideration Less : Expenditure incurred during Transfer
Less : Cost of Acquisition Less : Cost of Improvement
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Less : Exceptions [ Sec. 54, 54B, 54D ,54EC, 54ED, 54F and 54G] Long Term Capital Gains Benefit of Indexation In the following cases the Benefit of Indexation is not available 1. Bonds or Debentures 2. Shares in or debentures of an Indian Company acquired by utilizing Convertible Foreign Exchange 3. Depreciable Assets 4. Undertaking or Division transferred by way of Slump Sale 5. Units purchased in Foreign Currency 6. Global Depository Receipts purchased in Foreign Currency Cost of Acquisition Cost of Acquisition of an asset is the value for which it was acquired by the assessee. Expenses of the Capital nature for completing or acquiring the title to the property are includible in the Cost of Acquisition. Cost Inflation Index Cost Inflation Index for any year means such index as the Central Government ma, having regard to 75% of the average rise in the Consumer Price Index for Urban Non-Manual Employees, for
the immediately preceding previous year to such previous year, by notification in the Official Gazette, specify in this behalf. The Central Government has notified the Cost Inflation Index for the purpose of Long-Term Capital Gain Financial Year 1981 – 82 1982 – 83 1983 – 84 1984 – 85 1985 – 86 1986 – 87 1987 – 88 1988 – 89 1989 – 90 1990 – 91 1991 – 92 1992 – 93 1993 – 94 1994 – 95 Cost Inflation Index 100 109 116 125 133 140 150 161 172 182 199 223 244 259 Financial Year 1995 – 96 1996 – 97 1997 – 98 1998 – 99 1999 – 2000 2000 – 01 2001 – 02 2002 – 03 2003 – 04 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 – 09 Cost Inflation Index 281 305 331 351 389 406 426 447 463 480 497 519 551 582
Computation of Indexed Cost of Acquisition and Indexed Cost of Improvement Indexed Cost may be computed under any of the following Situations
Situation 1: Capital Asset is Acquired by the Assessee, before 1.4.81 Indexed Cost of Acquisition: Fair Market Value of the Asset on 1.4.81 X or Cost of Acquisition, whichever is more
Cost Inflation Index for 1981 – 82
Cost Inflation Index for the year in which the Asset is
Indexed Cost of Improvement: Cost X Cost Inflation Index for the of Improvement Cost Inflation Index for the year in which Transferred Improvement Year Situation 2: Capital Asset is Acquired by the Assessee on or after 1.4.81 Indexed Cost of Acquisition: Cost X Cost Inflation Index for the year in which Assets are Acquired Indexed Cost of Improvement: Cost of Improvement incurred X Cost Inflation Index for the Cost Inflation Index for the year in which Transferred Improvement Year Situation 3: the Asset is of Acquisition Cost Inflation Index for the year in which Transferred the Asset is the Asset is
Capital Asset is Acquired by the Assessee, before 1.4.81 in one of the circumstances specified in Sec. 49(1) and originally Acquired by the Previous Owner before 1.4.81 Indexed Cost of Acquisition: Fair Market Value of the Asset on 1.4.81 X is more or Cost of Acquisition . to the Previous Owner, whichever Cost Inflation Index for the year in which Transferred the Asset is
Cost Inflation Index for 1981 – 82 Indexed Cost of Improvement: Cost of Improvement incurred by the X Assessee and the . Index for the Previous Owner Cost Inflation Cost Inflation Index for the year in which Transferred the Asset is
Improvement Year Situation 4: Capital Asset is Acquired by the Assessee on or after 1.4.81 in one of the circumstances specified in Sec. 49(1) and originally Acquired by the Previous Owner before 1.4.81 Indexed Cost of Acquisition: Fair Market Value of the Asset on 1.4.81 or Cost of Acquisition, whichever is more X Cost Inflation Index for the year in which the asset was first held by the Assessee
Cost Inflation Index for the year in which the Asset is
Indexed Cost of Improvement: Cost of Improvement incurred by the X Assessee and the . Index for the Previous Owner Cost Inflation Cost Inflation Index for the year in which Transferred the Asset is
Improvement Year Situation 5: Capital Asset is Acquired by the Assessee on or after 1.4.81 in one of the circumstances specified in Sec. 49(1) and originally Acquired by the Previous Owner on or after 1.4.81 Indexed Cost of Acquisition: Cost . Cost Inflation Index for the year in which the asset was first held by the Assessee Indexed Cost of Improvement: Cost of Improvement incurred by the X Assessee and the
Cost Inflation Index for the year in which Transferred the Asset is
Index for the
Cost Inflation Index for the year in which Transferred the Asset is
Computation of Capital Gains for Non-Residents Under the First Provision in Sec. 48, Capital Gain is calculated in Foreign Currencies in some Cases Conditions 1. The Taxpayer is a Non-Resident 2. He acquires Shares in an Indian Company utilizing Foreign Currency 3. The Asset may be a Short Term or Long Term Special Provisions for Non-Residents Conditions 1. The Taxpayer is a Non-Resident 2. He has Transferred Specified Asset, Acquired or Purchased with, or Subscribed to in, Convertible Foreign Exchange 3. Asset is a Long-Term Capital Asset 4. Within Six months of the transfer of the Original Asset, the Taxpayer has Invested the Whole or Part of Net Consideration in any of the following a. Shares in an Indian Company b. Debentures of an Indian Public Limited Company c. Deposit with an Indian Public Limited Company d. Central Government Securities
e. National Savings Certificates VI and VII Issues Computation of Capital Gain for Self-Generated Assets Self-Generated Assets Sale Consideration Goodwill of a Business, Right Actual to Manufacture, Produce or Process any Article or Right to Carry on any Business Tenancy Rights, Route Permits Actual and Loom Hours, Trade Mark or Brand Name associated with a Business Cost of Acquisition of Bonus Shares Sec. 55 has been amended with effect from the Assessment year 1996 – 97 so as to specify that the Cost of Acquisition of any Additional Financial Asset as Bonus Shares or Security or otherwise which is received without any payment by the Assessee on the basis of his Holding any financial Asset shall be taken to be Nil. The Effect of the Aforesaid Amendment may be summarised as Cost of Acquisition if Original and bonus Shares are Transferred after 31.3.95 If Original Shares and Bonus Share are Original – Actual Cost or Fair Market Value on Acquired before 1.4.81 1.4.81, whichever is more Nil Actual Actual Sale Consideration less Cost of Improvement less Expenses on Transfer Cost of Cost of Expenses Acquisition Nil Improve -ment Nin on Transfer Actual Sale Consideration less Expenses on Transfer Capital Gain
Bonus – Fair Market Value on 1.4.81 If Original Shares are Acquired before 1.4.81, Original – Actual Cost or Fair Market Value on but bonus Shares are Allotted after 1.4.81 1.4.81, whichever is more
Bonus – Nil If Original and Bonus Shares are Acquired Original – Actual Cost
after 1.4.81 Bonus – Nil Capital Gain on Transfer of Right Share and Right Entitlement Cost of Acquisition in Different Situations Situations Original Shares Rights Entitlement Rights Shares Acquired by the Taxpayer by Cost of Acquisition Amount actually paid for Acquisition Nil Amount actually paid for Acquisition
Exercising his Rights Entitlement Rights Shares purchased by the person in Purchase Price Paid to Renouncer of rights whose Favour the Rights Entitlement has been Entitlement plus Amount paid to the Company Renounced which has Allotted the Rights Shares.
Tax Charge on Short-term or Long-term Capital Gains Gross Total Income Excluding Capital Gains Less: Deductions Permissible under Sec. 80C to 80U Other Net Income Income Tax on Other Net Income (A) Long Term Capital Gain Income Tax on Long Term Capital Gain Sec. 112 (B) Short Term Capital Gain Income Tax for Short Term Capital Gain Sec. 111A (C) Total Income Tax Surcharge Education Cess
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Tax Liability Long Term Capital Gain is Taxable at a flat rate of 20%.
In a few cases if Long Term Capital Gain is covered by Sec. 115AB, 115AC, 115AD or 115E, is Taxable at the rate of 10%.
Profits and Gains of Business or Profession
The following Incomes are chargeable under the head “Profits and Gains of Business and Profession. 1. Profits and Gains of any Business or Profession carried on by the assessee at any time during the previous year. Income earned from the exercise of any profession or vocation, which involves the idea of occupation requiring either purely intellectual skill or any manual skill, is taxable under this head. 2. Any compensation or other payment due to or received by any person specified by Sec. 28(ii). 3. Income derived by a Trade, Profession or similar Association from specific services performed for its members. 4. Profit on sale of a licence granted under the Imports (Control) Order, 1955 made under the Imports and Exports (Control) Act, 1947. 5. Cash Assistance received or receivable by any person against Exports under any Scheme of the Government. 6. Any duty of Customs or Excise repaid or repayable as drawback to any person against Exports under the Customs and Central Excise Duties Drawback Rules, 1971. 7. Value of any benefits or perquisites arising from a business or the Excise of a Profession. 8. Interest, Salary, Bonus, Commission or Remuneration due to or received by a partner of a firm for such firm. 9. Any sum received for not carrying out any activity in relation to any business or not to share any Know-how, Patent, Copyright, Trademark, etc. 10. Any sum received under a Keyman Insurance Policy including the sum by way of bonus on such policy.
11. Any sum received, on account of any capital asset being demolished, destroyed, discharged or transferred, if the whole of the expenditure on such capital asses has been allowed as a deduction under Sec. 35AD.
Expenses expressly allowed as deduction Rent, Rates, Taxes, Repairs and Insurance for Buildings [Sec. 30] In case of premises taken out in rent, the actual rent paid by the assessee and, if he has undertaken to bear cost of repairs, the expenditure on repairs are permissible deductions. In respect of premises owned by the assessee, no deduction is allowable on account of notional rent; amount spent on current repairs is however, allowed as deduction. Besides, the amount paid on account of Land Revenue, Local Rates and Insurance Premium against the risk of damage or destruction of the business premises are also allowed as business deduction under this Sec. Repairs and Insurance of Machinery, Plant and Furniture [Sec. 31] the Expenditure incurred on Current Repairs, in respect of the Machinery, Plant and Furniture used for business purpose is allowable as deduction under this section. If, however, Expenditure is incurred to bring into existence an advantage of an Enduring nature or a New Capital asset, it cannot be regarded as an expenditure on current repairs. Similarly the Premium paid in respect of insurance against risk of damage or destruction of such asset is an allowable deduction. Depreciation [Sec. 31] In order to claim Depreciation, an assessee has to fulfil the following Conditions
1. The asset should be Owned by the assessee. Where, however, an assessee carries on Business or Profession in a building not owned but taken on lease, he is entitled to depreciation in respect of the Capital Expenditure incurred by him after 31.3.70 on the construction of any structure or any work in relation to the building by way of Improvement, Renovation or Extension. 2. The asset, in respect of which Depreciation is claimed, must have been used for the purpose of business. Where, however the asset is partly used for business or profession and partly used for personal purposes, a reasonable portion of Depreciation attribute to the Business user of the asset is allowed.
Disallowance of Depreciation No Depreciation is allowed under Sec. 37(4)(ii) in respect of a building used as a Guest House. Any other asset used therein also does not qualify for Depreciation Allowance. Where a car is used otherwise than in a business of running it on hire for tourists: 1. Depreciation is not allowed on the excess of the actual cost over Rs.25,000 if the car is acquired after 31.3.67 but before 31.3.75; and 2. Depreciation is wholly disallowed if the car is a Foreign car and has been acquired after 28.2.75 but before 1.4.01. Block of Assets [Sec. 2(11)] The term Block of Assets has been defined as a Group of Assets falling within a class of assets, comprising 1. Tangible Assets – Building, Machinery, Plant or Furniture and
2. Intangible Assets – Know-how, Patents, Copyrights, Trademarks, Licences, Franchises and any other Business or Commercial Rights of similar nature. In respect of which the percentage of Depreciation is prescribed Number Block 1 Block 2 Block 3 Nature of Asset Depreciation Rate Buildings – Residential buildings other than Hotels and 5% Boarding Houses Buildings – Office, Factory, Godowns or buildings not used for 10% Residential Purpose Buildings1. Buildings acquired on or after 1.9.02 for installing Machinery and Plant forming part of Water Supply Project or Water Treatment System and which is put to use for the purpose of Business of providing Infrastructure Facilities under Sec. 80-IA(4)(i); 2. Temporary Erections Furniture – Any Furniture or Fittings including Electrical 10% Fittings Plant and Machinery – Any Plant or Machinery and Motor Cars 15% acquired or put to use on or after 1.4.90 Ocean-going Ships, Vessels ordinarily Operating on Inland 20% waters including Speed Boats Plant and Machinery – Buses, Lorries and Taxies used in the 30% business of running them on hire, Machinery used in SemiConductor Industries, Moulds used in Rubber and Plastic Goods Block 8 Factories Plant and Machinery – Aeroplanes – Besides, it includes 40% Commercial Vehicles which is acquired after 30.9.98 but before 1.4.99 and it is put to use for any period prior to 1.4.99, Life Block 9 Saving Medical Equipment Plant and Machinery – Containers made of Glass and Plastics 50%
Block 4 Block 5 Block 6 Block 7
used as Refills, Plant and Machinery which satisfy Conditions of rule 5(2) an the following: 1. New Commercial Vehicle acquired during 01 – 02 and put to use before 31.3.02 2. Machinery or Plant used in Weaving, Processing and Garment sector of Textile Industry which is purchased under Technology Upgradation Fund Scheme during 1.4.01 and 31.3.04 and put to use up to 31.3.04 3. New Commercial Vehicle which is acquired during
1.1.09 and 30.9.09 and is put to use before 1.10.09 Block 10 Plant and Machinery – Computers including Computer 60% Softwares. Besides, it includes new Commercial Vehicles acquired in Replacement of Condemned Vehicle of 15 years of age and put to use before 1.4.99 or 2000. It also includes books owned by a Professional. It also includes Gas Cylinders; Plant used in Field Operations by Mineral Oil Concerns; Direct Fire Glass Melting Furnaces Block 11 Plant and Machinery – Energy Saving Devices; Renewal Energy 80% Devices; Rollers in Flour Mills, Sugar Works and Steel Industry Block 12 Plant and Machinery – Air Pollution Control Equipments; Water 100% Pollution Control Equipments; Solid Waste Pollution Control Equipments; Recycling and Resource Recovery Systems; Machinery acquired and Installed on or after 1.9.02 in a Water Supply Project or Water Treatment System or for the purpose of providing Infrastructure Facility; Wooden parts used in Artificial Silk Manufacturing Machinery; Cinematograph Films, Bulbs of Studio Lights; Wooden Match Frames; some plants used in Mines, Quarries, Salt Works; and Books owned by assessee carrying on a profession or business in running Lending Libraries Block 13 Intangible Assets – Know-how,
Trademarks, Licences, Franchises and any other Business or Commercial Rights of similar nature. Written Down Value [Sec. 43(6)] Written Down Value for the Assessment Year 09 – 10 will be determined as under Depreciated Value of the Block of Assets on 1.4.08 XXX Add: Actual Cost of the Asset acquired during the Previous Year ending 31.3.09 XXX
XXX Less: Money Received or Receivable in respect of the Asset Sold XXX
XXX Investment Allowance [Sec. 32A] It is provided in respect of Eligible Assets and admissible to any Taxpayer who carries on any Business the Profits and Gains of which are chargeable to tax in India. Development Allowance [Sec. 33A] An Assessee, who carries on the business of Growing and Manufacturing Tea in India, is entitled to Development Allowance in respect of expenditure incurred for plantation of tea bushes on any land in India owned by him.
Tea or Coffee or Rubber Development Account [Sec. 33AB] An Assessee can claim this deduction if the following Conditions are Satisfied 1. He must be engaged in the Business of Growing and Manufacturing Tea or Coffee or Rubber in India. 2. He must make the following Deposits. A. Deposit with National Bank for Agricultural and Rural Development in accordance with and for the purpose specified in a scheme approved by the Tea Board or Coffee Board or Rubber Board B. Deposit in the Deposit Account opened by the Assessee in accordance with and for the purpose specified in a scheme framed by the Tea Board or Coffee Board or Rubber Board with the Previous approval of the Central Government. 3. The aforesaid amount shall be deposited within 6 months from the End of the Previous Year or Before the Due Date of furnishing the Return of Income, whichever is earlier. 4. The Accounts of the Taxpayer should be Audited by a Charted Accountant and the report of the Auditor in Form No. 3AC is to be filed along with the Return of relevant Assessment Year. Site Restoration Fund [Sec. 33ABA] An Assessee can claim this deduction, if the following Conditions are Satisfied 1. The Taxpayer is engaged in the Business of the Prospecting for, or Extraction or Production of, Petroleum or Natural Gas or both in India.
2. The Central Government has entered into an agreement with the Taxpayer for such Business 3. It must A. Deposit with SBI any amount in an account maintained by the Assessee with that bank in accordance with and for the purpose specified in, a scheme approved by the Government of India in the Ministry of Petroleum and Natural Gas. B. Deposit any amount in an account opened by the Assessee in accordance with and for the purposes specified in the scheme framed by the Ministry of Petroleum and Natural Gas. 4. The aforesaid amount shall be deposited before the end of the previous year. 5. The Accounts of the Taxpayer should be Audited by a Charted Accountant and the report of the Auditor in Form No. 3AD is to be filed along with the Return of relevant Assessment Year. Reserve for Shipping Business [Sec. 33AC] An Indian Public Limited Company engaged in the Business of Operation of Ship can claim this Deduction.
Expenditure on Scientific Research [Sec. 35]
The deduction in respect of expenditure on scientific research may be grouped as under: Revenue Expenditure Incurred by an Assessee who Himself carries on Scientific Research [Sec. 35(1)(i)] Where the Assessee himself carries on the Scientific Research and incurs Revenue Expenditure, deduction is allowed for such expenditure only if such Research relates to his Business. Further, where Salary has been paid to an Employee engaged in Scientific Research or any Expenditure has been incurred on purchase of Materials used in Scientific Research such Salary or Expenditure, paid or incurred after 31.3.73, but within 3 Years immediately preceding the Commencement of the Business, is deemed to have been paid or incurred in the previous year in which the Business is commenced to the Extent it is Certified by the Authority prescribed for the purpose under Rule 6. Contribution to Outsiders [Sec. 35(1)(ii)/(iii)] Where the Assessee does not himself carry on Scientific Research but makes Contribution to other Institutions for this purpose, a Weighted Deduction is allowed of One and One-Fourth times of Payment if: 1. The Payment is made to an Approved Scientific Research Association which has, as its Object, undertaking of Scientific Research related or unrelated to the Business of the Assessee. 2. The Payment is made to an Approved University, College or Institution for the use of Scientific Research related or unrelated to the Business of the Assessee. 3. The Payment is made to an Approved University, College or Institution for the use of Research for Social Science or Statistical Research related or unrelated to the Business of the Assessee.
Amount Paid to an Approved Scientific Research Company [Sec. 35(1)(iia)] With a view to Encourage Outsourcing of Scientific Research, particularly by Small Companies which are Handicapped in making Lumpy Investments for Building In-House Scientific Facilities, has been included. Conditions 1. The Taxpayer is any Person. 2. The Taxpayer has paid any sum to the Company to be used by the Payee for Scientific Research. 3. The Scientific Research may or may not be related to the Business of the Taxpayer. 4. The Payee-Company is registered in India. 5. The Payee-Company has as its Main Object the Scientific Research and Development. 6. The Payee-Company is for the Time being approved by the Prescribed Authority. An Application shall be submitted for this purpose in duplicate in Form No. 3CF-III. 7. The Payee-Company fulfils such other Conditions as may be prescribed. These Conditions are given in Rule 5F. Amount of Deduction If the above Conditions are satisfied, then the Taxpayer can claim a Weighted deduction of 125% of the Amount paid by him to the PayeeCompany. Payee-Company cannot claim Weighted Deduction under Sec. 35(2AB)
With a view to Avoid Multiple claims of deduction, it has been provided that the Payee-Company approved under the Provision of Sec. 35(2)(iia) will not be entitled to claim Weighted deduction to the extent of 150% under Sec. 35(2AB). However, deduction to the extent of 100% of the sum spent as Revenue Expenditure or Capital Expenditure on Scientific Research which is available under Sec. 35(1) will continue to be allowed.
Capital Expenditure Incurred by an Assessee who Himself Carries on Scientific Research [Sec. 35(2)] Where the Assessee incurs any Capital Expenditure on Scientific Research related to his Business, the Whole of such Expenditure incurred in any previous year is allowable as deduction for that previous year. The following should also be kept in mind 1. Where any Capital Expenditure has been Incurred before the Commencement of the Business, the Aggregate of such Expenditure, incurred within 3 Years immediately preceding the commencement of business, is deemed to have been incurred in the previous year in which the business is commenced 2. The aforesaid deduction is not available in respect of Capital Expenditure incurred in the acquisition of any Land. 3. If the Asset is Sold without having been used for other purpose, Surplus or Deduction allowed whichever is Less, is Chargeable to Tax as Business Income of the previous Year in which the Sale took place [Sec. 41(3)] 4. Deduction by way of Depreciation is not Admissible in respect of an Asset used in Scientific Research, either in the year in which the Capital Expenditure is Incurred or in a Subsequent year. Contribution to National Laboratory [Sec. 35(2AA)]
Conditions to be Satisfied 1. The Payment is made to a. National Laboratory b. University c. Indian Institute of Technology d. Specified Person as Approved by the Prescribed Authority. 2. The above Payment is made under a specific direction that it should be used by the aforesaid person for undertaking Scientific Research Programme approved by thr Prescribed Authority. Amount of Deduction If the aforesaid Conditions are Satisfied, the Taxpayer is eligible for Weighted Deduction which is Equal to One and One-Fourth times of Actual Payment. Expenses on In-House Research and Development [Sec. 35(2AB)] This provides for a Weighted Deduction in respect of expenditure on InHouse Research and Development expenses subject to the following Conditions 1. The Taxpayer is a Company 2. It is engaged in the Business of Bio-Technology or in the Business of Manufacture or Production of any Drugs, Pharmaceuticals, Electronic Equipments, Computers, Telecommunication Equipments, Chemicals or any other Article or Thing Notified by the Board. 3. It incurs any expenditure on Scientific Research and such expenditure is of Capital Nature or Revenue Nature 4. The Research and Development Facility is Approved by the Prescribed Authority. Once it is approved, the Entire Expenditure
Incurred during the Previous Year by the Assessee on development of such Facility has to be allowed as Weighted Deduction. 5. The Taxpayer has entered into an Agreement with the Prescribed Authority for Cooperation of such Research and Development Facility and for Audit of the Accounts maintained for that facility. Amount of Deduction If all the above Conditions are Satisfied, then a Sum Equal to One and OneHalf times of the expenditure so incurred shall be allowed as deduction.
Expenditure on Acquisition of Patent Rights and Copyrights [Sec. 35A] For Claiming Deduction, the following Conditions should be Satisfied 1. The Know-How, Secret Formula, Designs and Specifications are either Patent Rights or Copyrights 2. The Expenditure is of Capital Nature 3. The Expenditure is Incurred on Acquisition of the Patent Rights or Copyrights 4. Patent Rights or Copyrights are used for the purpose of Business or Profession of the Taxpayer and 5. The Capital Expenditure is Incurred prior to 1.4.98 If all the aforesaid Conditions are not Satisfied, Then 1. In respect of Capital Expenditure Incurred on or after 1.4.98, one can Claim Depreciation under Sec. 32 2. In respect of any other Capital Expenditure, no Deduction is available and 3. In respect of Revenue Expenditure, one can Claim Deduction under Sec. 37(1).
Expenditure on Know-How [Sec. 35AB] Deduction under Sec. 35AB is not Available if expenditure is incurred after 31.3.98 Amortisation of Telecom Licence Fees [Sec. 35ABB] Conditions 1. The Expenditure is Capital in Nature 2. It is incurred for acquiring any right to Operate Telecommunication Services 3. The Expenditure may be incurred either before the Commencement of Business or at any Time thereafter. 4. The Payment for which has actually been made to Obtain Licence If all the above Conditions are Satisfied one can Claim Deduction under this Sec. Amount of Deduction The Payment will be allowed as deduction in Equal Installments over the period starting from the year in which such Payment has been made and ending in the year in which the Licence comes to an end. It may be noted that the deduction starts from the year in which Actual Payment of Expenditure is made Irrespective of the Previous year in which the Liability for the Expenditure is incurred according to the Method of Accounting Regularly Employed by the Assessee. Expenditure on Eligible Projects or Scheme [Sec. 35AC] Deduction is Available, for Promoting Social and Economic Welfare or Uplift of the Public.
Who Can Claim Deduction Assessee A Company To Whom the Payment should be Made Direct Expenditure on also
Eligible Project Deduction is available if the Taxpayer incurs any A Company can Public Sector Company or a Local Authority or in respect of
expenditure by way of Payment of any sum to a Directly Incur Expenditure Eligible to an Association or Institution Approved by the Project and Claim the National Committee for carrying out any same as Deduction Eligible Project or Scheme A Person Other Same as Above than a Company Certificate from the Recipient or Charted Accountant The Claim for Deduction should be supported by an Audit Certificate obtained from a Public Sector Company or a Local Authority or to an Association or Institution Approved by the National Committee to whom the Payment is to be made Direct Expenditure is not Permitted
Payment to Associations and Institutions for Carrying out Rural Development Programmes [Sec. 35CCA] This provides Deduction of Sums paid by an Assessee to 1. Any Association or Institution to be used for carrying out any Programme of Rural Development [Sec. 35CCA(1)(a)], 2. Any Association or Institution which has as its Object the Training of Persons for Implementation of a Rural Development [Sec. 35CCA(1)(b)], 3. The National Fund for Rural Development set up by the Government [Sec. 35CCA(1)(c)]
4. The National Urban Poverty Eradication Fund Conditions for Availing Deduction under Sec. 35CCA(1)(a) 1. The Association or Institution has as its Object the undertaking of Programmes of Rural Development 2. The Association or Institution is for the Time Being Approved by the Prescribed Authority 3. The Programme of Rural Development for which sums are paid has been Approved by the Prescribed Authority 4. Where payment is made after 28.2.83, such Programmes involves work by way of Construction of any Building or Other Structure. Conditions for Availing Deduction under Sec. 35CCA(1)(b) 1. The prescribed Authority had Approved the Association or Institution before 1.3.83 2. The Training of Persons for Implementing any Programme of Rural Development had been started by the Association or Institution before 1.3.83 Amortisation of Preliminary Expenses [Sec. 35D] Certain Preliminary Expenses incurred by an Indian Company or a Resident Non-Corporate Assessee before the Commencement of Business Qualify for Amortisation. Its Benefit is also available if Preliminary Expenses are incurred after the Commencement of Business in Connection with extension of an industrial Undertaking or Setting up a New Unit. The Aggregate Amount of Expenses cannot Exceed 5% of the Cost of the Project. One Fifth of the Qualifying Expenditure is allowed as Deduction in each of the 5 Successive Years beginning with the year in which extension is Completed or the New Industrial Unit commences.
Amortisation of Expenditure Incurred under Voluntary Retirement Scheme [Sec. 35DDA] It provides that where an Assessee incurs any Expenditure in any previous year by way of payment of any sum to an Employee in connection with his Voluntary Retirement under any scheme of Voluntary Retirement One Fifth of the Amount so paid shall be deducted in Computing the Profits and Gains of the Business for the Previous Year and the Balance shall be Deducted in Equal Installments for each of the 4 Immediately Succeeding Previous Years. Insurance Premium [Sec. 36(1)(i)] The amount of any Premium paid in respect of insurance against risk of Damage, or Destruction of Stocks or Stores, used for the purpose of Business or Profession, is allowable as deduction. Bonus or Commission to Employees [Sec. 36(1)(ii)] This is Allowable as a deduction provided it is not payable to him as Profit or Dividend if it had not been Payable as Bonus or Commission. The deduction is available in the Payment Year. Interest on Borrowed Capital [Sec. 36(1)(iii)] Interest paid on Capital Borrowed for the purpose of Business or Profession is allowable as deduction. If Capital is borrowed for acquiring a Capital Asset, then Interest Liability pertaining to the period till the Asset is put to use cannot be allowed as a deduction. Discount on Zero Coupon Bonds Discount on Zero Coupon Bond is deductible on Pro Rata Basis.
Employer’s Contribution to Recognised Provident Fund and Approved Superannuation Fund [Sec. 36(1)(iv)] Employer’s Contribution to Recognised Provident Fund and Approved Superannuation Fund is allowable as deduction to the Limits laid down. Contribution towards Approved Gratuity Fund [Sec. 36(1)(v)] Employer’s Contribution towards Approved Gratuity Fund created by him for the Benefit of his Employees under an Irrecoverable Trust is allowable as deduction. Employee’s Contribution to Staff Welfare Schemes [Sec. 36(1)(va)] Deduction in respect to any sum received by the Taxpayer as Contribution from his Employees towards any Welfare Fund of such Employees is allowable as deduction only if such sum is credited by the Taxpayer to the Employee’s Account in the Relevant Fund on or before the Due Date. Allowance for Animals [Sec. 36(1)(vi)] In respect of Animals which are used for the purpose of Business or Profession and have died or have become Permanently useless, the Difference between the Actual Cost of the Animals to the Assessee and the Amount Realised in respect of Carcasses or Sale of Animals is Allowed as a deduction. Bad Debts [Sec. 36(1)(vii)] Amount of any Debt or part thereof is allowed as Deduction subject to the following Conditions
1. The Debt has been taken into account in computing the Income of
the Assessee of the previous year or of an earlier previous year, or represents money lent in Ordinary Course of Business of Banking or Money-Lending which is carried on by the Assessee.
2. It has been written off as Irrecoverable in the Accounts of the
Assessee of that previous year. Transfer of Special Reserve [Sec. 36(1)(viii)] Amount of Deduction The Lowest of the following Amounts is Deductable 1. The Amount Transferred to the Special Reserve Account during the previous year. 2. 20% of the Profits derived from the Business Activities computed before claiming Deductions. 3. 200% of Paid Up Share Capital and General Reserve as on the last day of the previous year minus the Balance of the Special Reserve Account on the First Day of the previous year. Family Planning Expenditure [Sec. 36(1)(ix)] Any Bona Fide expenditure Incurred by the Company for the purpose of promoting Family Planning among its Employees is allowable as deduction. Contribution towards Exchange Risk Administration Fund [Sec. 36(1) (x)] Contribution made by a Public Financial Institution towards Exchange Risk Administration Fund is allowable as deduction. Deduction of Y2K Expenses [Sec. 36(1)(xi)]
This is applicable only if expenditure is incurred by an Assessee during 99 – 2000. Expenditure Incurred by Entitles Established under Statutory Act [Sec. 36(1)(xii)] Any expenditure incurred by a Corporation or a Body Corporate constituted or established by a Central, State or Provincial Act for the Objects and purposes Authorised by the Act under which such Corporation was Constituted or established shall be allowed as deduction.
Contribution to Credit Guarantee Trust Fund [Sec. 36(1)(xiv)] A Public Financial Institution can claim deduction in respect of to a Notified Credit Guarantee Trust Fund for Small Industries. Advertisement Expenditure [Sec. 37(2B)] No Allowance is available in respect of expenditure incurred by an Assessee on Advertisement. General Deductions [Sec. 37] Any expenditure not Covered by Sec. 30 – 36 is deductible under Sec. 37, provided the following Conditions are Satisfied 1. It should be in respect of a Business carried on by the Assessee 2. It should have been Laid Out or Expended Wholly and Exclusively for the purpose of the Business 3. It must have been incurred during the Previous Year 4. It should not be in the Nature of Capital Expenditure or Personnel Expenditure of the Assessee and
5. The Expenditure should not have been incurred for any purpose which is an Offence or is Prohibited by any Law. Amounts expressly disallowed under the Act The following expenses are disallowed by the act while computing income chargeable under the head “Profits and Gains of business or profession”. Besides these provisions, no deduction is permissible in respect of any expenditure or allowance under section 28 to 44C in respect of income referred to in sections 115A, 115AB, 115AC, 115BBA and 115D. Amounts not deductible under section 40 In the case of any assessee, the following expenses are expressly disallowed
Interest, Royalty, Fees for Technical Services Payable Outside India [SEC. 40(a)(i)] If the following three conditions are satisfied the assessee is supposed to deduct tax at source (TDS) under section 195 1. The amount paid is interest, royalty, fees for technical services or other sum 2. The aforesaid amount is chargeable to tax under the Act in the hands of the recipient 3. The aforesaid amount is paid or payable
a. Outside India to any person b. In India to a non-resident.
Fringe Benefits Tax Any sum paid on account of fringe benefits tax is not deductible.
Income Tax [Sec. 40(a)(ii)] Any sum paid on account of income tax is not deductible. Similarly, any interest or penalty or fine for non-payment or late payment of income-tax is not deductible. This rule is applicable whether income-tax is payable in India or outside India. Wealth –Tax [Sec. 40(a)(iia)] Any sum paid on account of Wealth-Tax under the Wealth Tax -Act, 1957, or tax of a similar nature chargeable under any law outside India is not deductible. Salary Payable Outside India Without Tax Deduction [Sec. 40(a)(iia)] Conditions 1. The payment is chargeable under the head “Salary” in the hands of the recipient 2. It is payable a. Outside India to any person resident or non-resident b. In India to a non-resident 3. Tax has not been paid to the Government nor deducted at source under the Income –Tax Act If the aforesaid conditions are satisfied, then the payment is not allowed as deduction. Provident Fund Payment Without Tax Deduction at Source [Sec. 40(a) (iv)] Any payment to a provident fund is not deductible if the assessee has not made effective arrangements to secure that tax shall be deducted at source
from any payments made from the fund which are chargeable to tax under the head Salaries. Tax on Perquisite paid by the Employer [Sec. 40(a)(v)] Provisions 1. The employer provides non-monetary perquisites to employees 2. Tax on non-monetary perquisites is paid by the employer 3. The tax so paid by the employer is not taxable in the hands of employees by virtue of section 10 (10CC) 4. While calculating income of the employer, the tax paid by the employer on non-monetary perquisites is not deductible under section 40(a)(v) Amounts not deductible in respect of payment to relatives [Sec. 40A(2)] Any expenditure incurred by an assessee in respect of which payment has been made to the persons mentioned is liable to be disallowed in computing business profit to the extent such expenditure is considered to be excessive or unreasonable, having regard to the fair market value of the goods or services or facilities, etc. Amounts Not Deductible in respect of Expenditure Exceeding Rs.20,000 [Sec.40A(3)] If an assessee incurs any expenditure in respect of which payment in excess of Rest.20,000 is made otherwise than by an account payee cheque or an account payee bank draft, 100 percent of such expenditure will not be allowable as deduction. Rule 6DD, however prescribes the case and circumstances in which payment in excess of Rs.20,000 may be made otherwise than by an account payee cheque or an account payee bank draft
without attracting the disallowance. Even payment made for purchase of goods falls with in the expression expenditure occurring in this section Exceptions 1. Payments made to banking and other credit institutions, such as the Reserve Bank of India , commercial banks in the public and private sectors, co-operative banks or land mortgage bank, primary credit/agricultural credit societies, Life Insurance Corporation of India 2. Payment made to government if under the rules framed by it such payment is required to be made in legal tender, such as a payment of direct taxes, customs duty, excise, railway freight, sales tax, etc 3. Payment through the banking system, e.g. letters of credit, mail or telegraphic transfer, book adjustment in the same bank or between one bank and another and bills of exchange payable to a bank, use of electronic clearing system through a bank account , credit card and debit card 4. Payment made by book adjustment by an assessee in the account of the payee against money due to the assessee for any goods supplied or services renderd by him to the payee 5. Payment to cultivator, grower, or producer in respect of the purchase of agricultural or forest produce or product of animal husbandry or dairy or poultry farming or fish or fish products or products of horticulture or apiculture. Provision for payment of gratuity under section 40A(7) No deduction is allowed in computing business income in respect of a mere provision made by the assessee in his books of account for the payment of gratuity to his employees on retirement or termination of employment or fro any other reason. The provision made for the payment of sums by way of
contribution towards an approved gratuity fund or for the purpose of making any payment on account of gratuity that has become payable during the previous year is, however eligible for deduction Contribution to non-statutory funds under section 40A (9) No deduction is allowed in the computation of taxable profits in respect of any sum paid by the assessee as an employer towards the setting up or formation of or as contribution to any fund, trust, company , association of persons , body of individuals, society registered under the Societies Registration Act or other institution for any purpose except where such sum is paid or contributed to a recognized provident fund or an approved gratuity fund or an approved superannuation fund or for the purposes and to the extent required by or under any other law Deemed profits chargeable to tax as business income By virtue of section 41, the following receipts are chargeable to tax as business income not withstanding that the business or profession to which the receipts relate ceased to be in existence in the year in which they are received Recovery against any deduction [Sec. 41(1)] Recovery against any deduction is applicable if the following conditions are satisfied 1. In any of the earlier years a deduction was allowed to the taxpayer in respect of loss, expenditure or trading liability incurred by the assessee. 2. During the current previous year, the taxpayer a. Has obtained a refund of such trading liability
b. Has obtained some benefit in respect of such trading liability by way of remission or cessation thereof If the above two conditions are satisfied the amount obtained by such persons shall be deemed to be profits and gains of business or profession accordingly chargeable to tax as income of that previous year. Balancing charges [Sec. 41(2)] If the Sale Consideration is more than the Written Down Value, then the Tax Treatment of Surplus is as follows 1. The Surplus Amount which is Equal to the Amount of Depreciation already Claimed, is Taxable as Balancing Charge as Business Income 2. The Remaining Surplus is Taxable under “Capital Gains”. Sale of assets used for scientific research [Sec .41(3)] Where any capital asset used in scientific research is sold without having been used for other purpose and the sale proceeds, together with the amount of deduction allowed under section 35, exceeds the amount of the capital expenditure, such surplus or the amount, whichever is less, is chargeable to tax as income in the year in which the sale took place. Recovery of bad debts [Sec. 41(4)] Where any bad debt has been allowed as deduction under section and the amount subsequently recovered on such debt is greater than the difference between the debt and the deduction so allowed, the excess realisation is chargeable to tax as business income of the year in which the debt is recovered. Amount withdrawn from special reserve [Sec. 41(5)]
Where any amount is withdrawn from any reserve, it will be chargeable to in the year in which the amount is withdrawn, regardless of the fact whether the business is in existence in that year or not. Maintenance of accounts by persons [sec.44aa] Specified Profession Legal, medical, engineering, architectural, accountancy, technical
consultancy, or interior decoration or any other notified profession are specified professions for this purpose “authorised representative” means a person , who represents any other person, on payment of any fee of remuneration, before any tribunal or authority constituted or appointed by or under any law for the time being in force, but does not include an employee of the person so represented or a person carrying on legal profession or a person carrying on profession of accountancy. Non-Specified Profession A non specified profession is a profession other than a specified profession mentioned above. Requirement of compulsory maintenance of books of account The requirement of section44aa and the rule 6f for compulsory maintenance of books of account may be summarised by grouping different taxpayers in the following group • Category A
Persons carrying on a specified profession whose gross receipts in the profession do not exceed rs 150000 in any of the three years immediately preceding the previous year.
Persons coming under this category are required to maintain such books of account and other documents as may enable the assessing officer to compute their taxable income under the income tax act. • Category B
Persons carrying on a specified profession whose gross receipts in the profession exceed rs150000 in all the three years immediately preceding the previous year. Persons coming in this category are required to maintain such books of account. • Category C
Persons carrying on s non specified profession or a business whose income from such business or profession does not exceed rs 120000 or the total sales, turnover or gross receipts thereof are not in excess of rs 1000000 in all the three years immediately preceding the previous year. Persons coming under this category are not required to maintain any books of account. • Category D
Persons carrying on a non specified profession or a business whose income from such business or profession exceeds rs120000 or the total sales, turnover, or gross receipts thereof are in excess of rs1000000 in any of the three years immediately preceding the previous year. Persons falling under this Category are required to maintain such Books of Account and Other Documents as may enable the Assessing Officer to compute their Taxable Income.
Specified Books of Account 1. a cash book 2. a journal, if the accounts are maintained according to the mercantile system of accounting 3. a ledger 4. carbon copies of copies of bills exceeding rs 25, issued by the person and carbon copies or counterfoils of machine numbered or otherwise serially numbered receipts issued by the person 5. original bills whenever issued to the person and receipts in respect or expenditure incurred by the person or, where such bills and receipts are not issued and the expenditure incurred does not exceed fifty rupees, payment vouchers prepared and signed by the person.
Income From Other Sources
Basis of Charge [Sec. 56] This is the residual head of charge of income. Where a source of income does not specifically fall under any one of the other heads of income viz. Salaries, Income from House Property, Profits and Gains of Business or Profession, Capital gains, such income is to be brought to charge under sec. 56 under the head ‘Income from other sources’. This residuary head of income would be invoked only if all the following conditions are fulfilled 1. There is a taxable income. 2. The income is not exempt from tax. 3. Income should not fall under any of the heads of income viz. salaries, income from House Property, Profits and gains of Business or Profession and capital gains. Chargeable Income [Sec. 56(2) ] As per Sec. 56(2), the following incomes are expressly stated to be chargeable to tax under the head “Income from other sources”— 1. Dividend [Sec. 56 (2) (i)] 2. Any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or form, gambling or betting of any form or nature whatsoever [ Sec.56(2) (ib)] 3. Any sum received by assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees’ State Insurance Act, 1948 or
any other fund for the welfare of the employees, if such income is not chargeable under the head “Profits and gains of Business or Profession”- [Sec. 56(2)(ic)]. 4. Income by way of interest on securities, if it is not chargeable as Profits and gains of business i.e. where securities are held as investments- Sec. 56(2)(id). 5. Income from machinery, plant or furniture belonging to the assessee let on hire, if the income is not chargeable to income-tax under the head, Profits and gains of Business or Profession - Sec. 56(2)(ii). 6. Income from letting of machinery, plant or furniture, if such income is not chargeable under the head “Profits and gains of Business or Profession”- Sec. 56(iii) 7. Any sum received under “Key man insurance policy including bonus, if not charged under the head “Profits and gains of Business or Profession”- Sec. 56(iv) 8. Gifts aggregating to more than Rs. 50,000 in a year on or after 1st Day of April, 2006 - Sec. 56(vi) Some important items of income stated above are hereunder discussed: Dividend [Sec. 56(2)(I)] Dividend means the sum paid to or received by a shareholder proportionate to his shareholding in a company out of the total sum distributed. The term “Dividends” includes deemed dividends of the following nature :
1. Any distribution of accumulated profits entailing the release of
company’s assets- Sec. 2(22)(a).
2. Any distribution of debenture stock, deposit certificates to
shareholders and bonus to preference shareholder- Sec. 2(22)(b).
3. Any distribution to shareholders on liquidation of company to the
extent to which the distribution is attributable to the accumulated
profits of the company, other than distribution in respect of any share issued for full cash consideration where the shareholder is not entitled to participate in the surplus assets in the event of liquidationSec. 2(22)(c).
4. Any distribution on reduction of share capital to the extent to which
the company possesses accumulated profit except a distribution in respect of any share issued for full cash consideration where the shareholder is not entitled to participate in the surplus asset in the event of liquidation — Sec. 2(22)(d). 5. Any payment by way of advance or loan by a closely held company following :
a. a shareholder, being a person who is the beneficial owner of
shares (other than shares entitled to a fixed rate of dividend) holding not less than 10% of voting power ; or
b. any concern in which such shareholder is a member or
partner and in which he has a substantial interest; or
c. a person acting on behalf or for the individual benefit of any
such shareholder - Sec. 2(22)(e)] Employee’s Contributions to Provident Fund [Sec. 56(2)(ic)] It has to be remembered that any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees’ State Insurance Act, 1948 or any other fund for the welfare of such employees is income in the hands of the assessee and is chargeable as income from other sources if not chargeable as Profits and gains on Business or Profession [Sec. 2(24)(x)] However, the tax payer is entitled to deduction of the sum of such contributions received from his employees if such sum is credited by the taxpayer to the employee’s account in the relevant fund on or before the due
date. Here, the due date means the date by which the assessee is required as an employer to credit an employees’ contribution to the employees’ account in the relevant fund under an Act, rule, etc. issued in that behalf [Sec. 36(1) (va)]. Therefore, any sum received by the assessee from his employees as contributions to any fund as aforesaid and is not deposited or deposited belatedly to the employee’s account, it becomes income of the assessee. Interest on Securities Interest on securities is chargeable as income from other sources if it is not chargeable as Profits and gains of Business or Profession, i.e. when the securities are held as investment.
Basis of Charge If the books of account are maintained on cash basis the interest on securities will be chargeable on receipt basis. However, where books of account are maintained on mercantile system or where no method of accounting is regularly employed by the assessee, such interest will be chargeable on “accrual basis” i.e. as the income of the Previous Year in which such interest is due to the assessee – second proviso to sec. 145(1). Interest on securities exempt The interest on securities of the following description is exempt from tax –
1. Interest on notified securities, bonds or certificates issued by the
2. Interest to an individual or a HUF on 7% Capital investment Bond or
on notified Relief Bonds.
3. Interest to non-resident Indians on notified bonds. 4. Interest on securities held by issue Department of the Central Bank
5. Tax planning - Taxpayer is entitled to the deduction of any
reasonable sum paid as commission or remuneration to a banker or any other person for the purpose of realizing interest on securities. Similarly, he will also be entitled to the deduction of interest on capital borrowed for investing in securities. Income from Inseparable Letting of Machinery, Plant or Furniture with Building If an assessee lets on hire machinery, plant or furniture and also buildings and the letting of building is inseparable from the letting of machinery, plant or furniture, the income from such letting would be chargeable to tax under the residuary head where it is not chargeable under the ‘Profits and gains of Business or Profession”. Gift Now gift received during the previous year shall be included in the income if the aggregate of the gifts received exceeds Rs. 50,000. However, the following gifts are not included in taxable income, viz.
1. From any relative; or
2. on the occasion of the marriage of the individual; or 3. under a will or by way of inheritance; or 4. in contemplation of death of the payer; or 5. from any local authority as defined in the Explanation to clause (20) of section 10; or
6. from any fund or foundation or university or other educational
institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or 7. from any trust or institution registered under section 12AA. For this purposes of this clause, “relative” means— 1. spouse of the individual; 2. brother or sister of the individual; 3. brother or sister of the spouse of the individual; 4. brother or sister of either of the parents of the individual; 5. any lineal ascendant or descendant of the individual; 6. any lineal ascendant or descendant of the spouse of the individual; 7. spouse of the person referred to in clauses (ii) to (vi). In respect of gifts from relatives, although exempt from tax, in respect of income earned from such a gift, provisions relating to clubbing of income apply in certain cases e.g. gift received from spouse and father-in-law.
Advance Payment of Tax
Advance Tax is Payable as follows A Corporate Assessee A Non-Corporate Assessee
On or Before June 15 of the Up to 15% of Advance Tax Previous Year the Previous Year the Previous Year Previous Year Payable Payable Payable Payable Payable Payable Payable On or Before September 15 of Up to 45% of Advance Tax Up to 30% of Advance Tax On or Before December 15 of Up to 75% of Advance Tax Up to 60% of Advance Tax On or Before March 15 of the Up to 100% of Advance Tax Up to 100% of Advance Tax
Computation of Total Income
Income from Salary Basic Salary XXX Allowances XXX Perquisites XXX Profits XXX Gross Salary XXX Less : Deductions u/s 16 Entertainment Allowances XXX Professional Tax XXX XXX
Income from House Property
Gross Annual Value XXX Less: Municipal Taxes XXX Net Annual Value XXX Less: Deductions u/s 24 Standard Deduction (30% on N.A.V.) XXX Interest on Capital Borrowed XXX XXX
Profits from Business or Profession Business Net Profit as per Profit and Loss A/c XXX Add: Debit Side Disallowed Expenses XXX Income Allowed but not Included XXX Less: Credit Side Disallowed Income XXX Expenses Allowed but not Included XXX
Depreciation According to Income Tax Act XXX Profession Professional Receipts XXX Less: Professional Payments XXX XXX XXX
Income from Capital Gains Short Term Sale Value XXX Less: Expenses on Sale XXX Net Consideration XXX Less: Cost of Acquisition XXX Cost of Implantation XXX Short Term Capital Gain XXX
Less: Exemption u/s 54B, 54D, 54G XXX Long Term Sale Value XXX Less: Expenses on Sale XXX Net Consideration XXX Less: Cost of Acquisition XXX Cost of Implantation XXX Long Term Capital Gain XXX Less: Exemption u/s 54, 54B, 54D, 54ED, 54F 54G XXX XXX XXX
Income from Other Sources General Income XXX Special Income XXX
Less: Deductions XXX XXX
Gross Total Income XXX Less: Deductions u/s 80C, 80CC, 80CCD, 80G, 80GG.….80U XXX Total Taxable Income XXX
Computation of Tax Liability on Total Income
Individuals Up to Rs. 150000 Nil Rs. 150000 to Rs. 300000 10% Rs. 300000 to Rs. 500000 20% Rs. 500000 and Above 30%
Women Up to Rs. 180000 Nil Rs. 180000 to Rs. 300000 10% Rs. 300000 to Rs. 500000 20% Rs. 500000 and Above 30%
Senior Citizen Up to Rs. 225000 Nil Rs. 225000 to Rs. 300000 10% Rs. 300000 to Rs. 500000 20% Rs. 500000 and Above 30%
Note For the next assessment year 2010-11 income tax slabs have been increased slightly (by Rs. 10,000 for men & women and Rs. 15,000 for Senior Citizens). Surcharge of 10%, if Total Income is 10,00,000 or more Cess (on Surcharge and Tax) Education 2% Secondary and Higher Education 1% Long Term Capital Gain 20%
Casual Income 30%
TDS Rates for Assessment Year 2009-10:
Section 192 Criterion of Deduction
Payment of Salary and Wages Deducted if the estimated income of the employee is taxable. Employer must not deduct tax on non-taxable allowances like conveyance allowance, rent allowance, medical allowance and deductible investments under sections like 80C, 80CC, 80D, 80DD, 80DDB, 80E, 80GG and 80U. No tax is required to be deducted at source if the estimated total
Applicable TDS Rate
income of the employee is less than the minimum taxable income. Income Tax, Surcharge and Education Cess at the applicable rate on the estimated income of employee for the year.
Section 193 Criterion of Deduction
Payment of Interest on Securities Deductible if payment exceeds Rs. 5,000/- per annum. Surcharge 2.00% 1.00% Education Cess 0.66% 0.33% Total 22.66% 11.33%
Applicable TDS Rate Income Tax If the recipient is a Company, Firm 20.00% or Cooperative Society * If the recipient is an Individual or 10.00% HUF and payment exceeds Rs. 10 lac per annum. If the recipient is an Individual or 10.00% HUF and payment does not exceed Rs. 10 lac per annum.
Section 194 B Criterion of Deduction Applicable TDS Rate HUF and payment exceeds Rs. 10
Winnings from Lotteries or Cross Word Puzzle or Card Game or any other Game Deductible if payment exceeds Rs. 5,000/-. Income Tax Surcharge Education Cess 3.00% 0.99 Total 33.99%
If the recipient is an Individual or 30.00% lac per annum. If the recipient is an Individual or 30.00% HUF and payment does not exceed Rs. 10 lac per annum.
Section 194 BB Criterion of Deduction
Winnings from Horse Race Deductible if payment exceeds Rs. 2,500/- per annum. Surcharge 3.00% Education Cess 0.99 Total 33.99%
Applicable TDS Rate Income Tax If the recipient is an Individual or 30.00% HUF and payment exceeds Rs. 10 lac per annum. If the recipient is an Individual or 30.00% HUF and payment does not exceed Rs. 10 lac per annum.
Section 194 A Criterion of Deduction Applicable TDS Rate
Payment of Interest Deductible if payment exceeds Rs. 5,000/- per annum. Income Tax Surcharge Education Cess Total 2.00% 0.66% 22.66%
If the recipient is a Company, Firm 20.00%
or Cooperative Society * If the recipient is an Individual or 10.00% HUF and payment exceeds Rs. 10 lac per annum. If the recipient is an Individual or 10.00% HUF and payment does not exceed Rs. 10 lac per annum. 0.00% 0.30% 10.30% 1.00% 0.33% 11.33%
Section 194 C Criterion of Deduction
Payment to Contractors (In case of Advertising Contracts) Deductible if Payment exceeds Rs. 20,000/- per contract or Rs. 50,000/- per annum. Surcharge 0.10% 0.10% Education Cess 0.033% 0.033% Total 1.133% 1.133%
Applicable TDS Rate Income Tax If the recipient is a Company, Firm 1.00% or Cooperative Society * If the recipient is an Individual or 1.00% HUF and payment exceeds Rs. 10 lac per annum. If the recipient is an Individual or 1.00% HUF and payment does not exceed Rs. 10 lac per annum.
Section 194 C Criterion of Deduction
Payment to Contractors / Sub-contractors (In case of Other than Advertising Contracts) Deductible if Payment exceeds Rs. 20,000/- per contract or Rs. 50,000/- per annum. Surcharge 0.20% 0.20% Education Cess 0.066% 0.066% Total 2.266% 2.266%
Applicable TDS Rate Income Tax If the recipient is a Company, Firm 2.00% or Cooperative Society * If the recipient is an Individual or 2.00% HUF and payment exceeds Rs. 10
lac per annum. If the recipient is an Individual or 2.00% HUF and payment does not exceed Rs. 10 lac per annum. 0.00% 0.060% 2.06%
Section 194 H Criterion of Deduction Applicable TDS Rate
Payment of Commission or Brokerage Deductible if payment exceeds Rs. 2,500/- per annum. Income Tax Surcharge Education Cess Total 1.00% 1.00% 0.33% 0.33% 11.33% 11.33%
If the recipient is a Company, Firm 10.00% or Cooperative Society * If the recipient is an Individual or 10.00% HUF and payment exceeds Rs. 10 lac per annum. If the recipient is an Individual or 10.00% HUF and payment does not exceed Rs. 10 lac per annum.
Section 194 I Criterion of Deduction
Payment of Rent of Land, Building or Furniture Deductible if payment exceeds Rs. 1,20,000/- per annum. Individuals and HUFs whose sales/gross receipts in business is less than Rs 40 lac or professional receipts is less than Rs 10 lac are not required to deduct TDS
Applicable TDS Rate
Surcharge 2.00% 1.50%
Education Cess 0.66% 0.495%
Total 22.66% 16.995%
If the recipient is a Company, Firm 20.00% or Cooperative Society * If the recipient is an Individual or 15.00% HUF and payment exceeds Rs. 10
lac per annum. If the recipient is an Individual or 15.00% HUF and payment does not exceed Rs. 10 lac per annum.
Section 194 I Criterion of Deduction Applicable TDS Rate or Cooperative Society * If the recipient is an Individual or 10.00% HUF and payment exceeds Rs. 10 lac per annum. If the recipient is an Individual or 10.00% HUF and payment does not exceed Rs. 10 lac per annum.
Payment of Rent of Plant & Machinery Deductible if payment exceeds Rs. 1,20,000/- per annum. Income Tax Surcharge Education Cess Total 1.00% 1.00% 0.33% 0.33% 11.33% 11.33%
If the recipient is a Company, Firm 10.00%
Section 194 J Criterion of Deduction Applicable TDS Rate
Payment of Professional Charges Deductible if payment exceeds Rs. 20,000/- per annum. Income Tax Surcharge Education Cess Total 1.00% 1.00% 0.33% 0.33% 11.33% 11.33%
If the recipient is a Company, Firm 10.00% or Cooperative Society * If the recipient is an Individual or 10.00% HUF and payment exceeds Rs. 10 lac per annum. If the recipient is an Individual or 10.00% HUF and payment does not exceed Rs. 10 lac per annum.
(*) Surcharge is deductible if total payments to the payee during the financial year exceed
Rs. 1 Crore.
TDS deducted is required to be deposited within one week from the last day of the month of deduction.
If TDS amount is not deposited by the due date, then for each month a penalty of interest equal to 1% of the TDS amount is to be paid.
If the quarterly TDS return is not filed by the due date, a penalty of Rs. 100 per day subject to maximum limit equal to the TDS amount is chargeable.
Assessment of Firms
Kinds of Partnership Firms For Taxation Purpose According to the new schemes of taxation of firms, there will be two types of firms, namely, 1. A firm assessed as such 2. A firm assessed as an association of person A partnership shall be assessed as a firm, if the following conditions are satisfied [sec. 184]: 1. A firm must be Evidenced by an Instrument Sec. 184(1)(I) 2. Individual Share of Partners must be Specified in ‘Instrument’ 3. Submission of Certified Instrument: Revised instrument should be submitted whenever there is change in the constitution of firm. Computation Of Total Income Of A Firm: Total income of a partnership firm will be ascertained as a separate entity. Income under various heads: Income of a firm will be computed under various heads of income in the same manner as in the case of any other assessee. However, a firm will have income under four heads only i.e., income from house property, profits and gain of business or profession, capital gains and other sources. There is a material difference in respect of computation of income under head profits and gains of business or profession. Profits and Gains of Business or Profession
Section 40(b) deals with the amounts, which are not deductible in the case of a firm assessable as such. Hence, deduction on account of interest and remuneration to the partners is allowed to be claimed under section 36 and 37, but it will be subject to the condition prescribed by section 40(b) as under: Payment to non-working partners: Any payment of salary, bonus, commission, remuneration by whatever name called, to a non-working partner is disallowed. i. Payment to working partners: Payment of interest and remuneration to partners will be allowed as deduction only when it is authorized by and in accordance with partnership deed. ii. Payment to partners for a period prior to the date of deed: Remuneration and interest authorized by the deed but relates to the period prior to date of such deed, shall be disallowed. iii. Payment of remuneration as per section 40(b): Payment of remuneration authorized by and in accordance with the partnership deed relating to any period falling after date of partnership deed to any working partner exceeding the specified limit is disallowed.
Assessment of Companies
A company has to pay tax on every rupee of its total income at a flat rate, without any exemption limit. It is essential to understand the meaning of a company for the assessment of companies. Computation of gross total income of a company: The procedure for computation of total income in the case of a company is the same as in regard to other assesses, such as classification and computation of income under each head, computation of gross total income etc. Deduction under section 80: From the gross total income a company is allowed the following deduction under deduction 80:80G, 80GGA, 80GGB, 80-IA, 80-IAB, 80-IB, 80-IC, 80JJA, 80JJAA, 80LA. Assessment of companies A company is required to file the return of total income of the company on or before 31st October of the assessment year. A company is assessed like any other assessee. However, its liability differs in two respects: 1. No exemption limit: A company does not enjoy any exemption limit. 2. Flat rate of tax: A company pays income tax at a flat rate instead of slab rate. For the assessment year 2009-10 the following rates of income tax are applicable: Domestic company
Short term capital gain on Sale of listed securities Long term capital gain Casual income Other income Surcharge: 10% of tax (If income exceeds Rs.1 Crore) Education cess: 2% of tax and surcharge SHEC: 1% of tax and surcharge
15% 20% 30% 30%
15% 20% 30% 40%
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