COMPUTATION OF TOTAL INCOME
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Computation Of Total Income includes all the heads of income, these are : income from salary income from house property income from capital gains income from business or profession income from other sources.
Adding all the above heads gives us the TOTAL INCOME.
From this we claim deductions u/s 80(C), 80(CCC), 80(D), 80(DDD), 80(U)
and 80(E). After these deductions what we get is Total Taxable Income.
Income from house property : It basically refers to the
income which the owner earns from his house property. According to section 22, the annual value of property consisting of any building or apartment thereto, of which assessee is the owner, other than such portions of such property as you may occupy for the purpose of any business or profession shall be chargeable to tax under this head.
Income from business or profession: It refers to the profits
or gains earned from a business or profession including vocation carried on by the assessee.
Income from other sources : It is income of every
kind is chargeable but which is not chargeable under any of the specified heads (u/s 14) is under the head ‗ Income from other sources.‘
Income from Capital Gains: It refers to the profit (or
loss) made while selling a capital asset.
Income from salary: Income under the head ‗salary‘
comprises of remuneration in any form (including perquisites) received by an employee from employer. Thus, there should be contractual employer-employee relationship. The contract may be express, oral or implied.
INCOME FROM HOUSE PROPERTY
TYPES OF HOUSE PROPERTY
In case of a let out property (LOP) annual value is higher of the RLV or actual rent. In case of a let out property which was vacant for sometime during the year the (VLOP), the AV is the same but the annual value is taken as the actual rent, if the actual rent is lower than the RLV due to such vacancy.
SOP: The annual value will be taken as nil, i.e. self
DLOP: In case more than one house is used by the owner
for self-occupation, he can choose only one house whose annual value is to be taken as nil.
WHEN CAN INCOME BE CHARGED UNDER THIS HEAD?
The following 3 conditions must be satisfied: 1. The property must consist of any buildings or lands appurtenant thereto. 2. The property must be owned by the assessee. 3. The property must not be occupied by the owner for the purpose of any business or profession carried on by the owner, the profits of which are taxable.
INCOME FROM BUSINESS OR PROFESSION
The following types of income are chargeable to tax under the heads profits and gains of business or profession:-
Profits and gains of any business or profession.
Income derived by a trade, profession or similar
association from specific services performed for its members. Any interest, salary, bonus, commission, or remuneration received by a partner of a firm, from such a firm. Any sum whether received or receivable in cash or kind, under an agreement for not carrying out any activity in relation to any business or not to share any know-how, patent, copyright, franchise, or any other business or commercial right of similar nature or technique likely to assist in the manufacture or processing of good. Any sum received under a keyman insurance policy.
INCOME FROM CAPITAL GAINS
Capital Asset: Sec. 2(14): Capital Asset means property of any kind (Fixed, Circulating, movable, immovable, tangible or intangible) whether or not connected with business or profession. Exclusions —
Personal effects of the assessee
Agricultural land in a rural area 6½% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Bonds, 1980 issued by the Central Government Special Bearer Bonds, 1991 issued by the Central Government.
Gold Deposit Bonds issued under Gold Deposit Scheme 1999
Short-term capital asset: Sec. 2(42A): means a capital asset held by an assessee for not more than thirty six months immediately preceding the date of its transfer. However, in the following cases, an asset, held for not more than twelve months, is treated as short-term capital asset—
Quoted or unquoted equity or preference shares in a company Quoted Securities Quoted or unquoted Units of UTI Quoted or unquoted Units of Mutual Funds specified u/s. 10(23D) Quoted or unquoted zero coupon bonds
Long-term capital asset: Sec. 2(29A): means a capital asset which is not a short-term capital
INCOME FORM SALARY
Section 17 of the income tax act includes:
Basic salary Wages Annuity Provident fund (PF) House rent allowance (HRA) Gratuity Cess tax and incentives generated from the salary Miscellaneous amount
Any encashment of leave salary Transport allowance
Exemption of tax in the salary:
This is a myth that every income is taxable that is received from an employer:
Any travelling facility provided by an employer to its employee such as train
or airplane passes is not come under the tax bracket.
Gratuity amount is also not subjected to the income tax. Any payment received by the employee of central or state government from
the encashment of his/her leave balance is entitled of exemption from tax.
As per the provident fund act 1925. Provident fund amount is also exempted
from the tax list.
Any sum received under life Insurance policy is exempted from the list as per
sub section (3) of section 80DDA.
Income received by way of pension received by an individual or family for a
member who was employed with central government/state government is also exempted from a tax list.
Armed force professional who won the gallantry award for their services
towards the country are exempted from the list of income tax. Employees of central or state government who have won Param vir Chakra, Maha vir
DEDUCTIONS CHARGED UNDER COMPUTATION OF TOTAL INCOME
Sec 80(c) :
The total limit under this section is Rs 1 lakh. Included under this heading are many small savings schemes like NSC, PPF and other pension plans. Payment of life insurance premiums and investment in specified government infrastructure bonds are also eligible for deduction under Section 80C. Coming under this head are: - Provident fund - Stamp Duty and Registration Charges for a home - Voluntary Provident fund - Post Office Time Deposit Account - Public Provident Fund - Senior Citizen Savings Scheme (SCSS) - Life Insurance Premiums - Bank Fixed Deposits - Equity Linked Savings Scheme (ELSS) - National Savings Certificate (NSC) - Infrastructure Bonds - Home Loan Principal Repayment - Pension Funds – Section 80CCC
Sec 80(ccc): Permitted Deduction: Section 80CCC allows to an individual, tax deduction for amount paid during the financial year out of income chargeable to tax, towards specified Pension Plan. Maximum deduction allowed is Rs.100,000, the overall limit provided under the Income-tax Act for payments/deposits specified under Section 80C, 80CCC and 80CCD (contribution to pension scheme of Central Government) in aggregate.
Sec 80(d): includes premiums paid for medical insurance. The qualifying amounts under Section 80D is upto Rs. 15,000.
Sec 80(dd): If you are incurring expenditure for the treatment of your handicapped dependent, you could claim a deduction under section 80DD upto Rs 50,000. Sec 80(u): Income tax law gives a special deduction to the persons who suffer from some kind of disability. This comes under section 80U of income tax act in which the persons who are suffering from some kind of or total disability has the special relief in income tax act. Sec 80(e): If you have taken an education loan from any financial institution or an approved charitable institution, Section 80E provides a tax deduction on the loan interest that you are paying.
PARTICULARS 1) Income from salary 2) Income from House Property a) Let out property b) self occupied property 3) Income from Business/Profession 4) Income for Capital Gains a) Long-term Capital Gain b) Short-term Capital Gain 5) Income from other sources Gross Total Income (1+2+3+4+5) Less: Deduction under chapter 6 A I) U/S 80 C ii) U/S 80 CCC III) U/S 80 D iv) U/S 80 DD v) U/S 80 E vi) U/S 80 U Net Taxable Income AMT AMT Xx Xx Xx Xx Xx Xx Xx
Xx xx Xx
Xx Xx Xx Xx Xx Xx
Dr. Ram Bharose is employed with Bhagwan Hospital as a full time Doctor. Following are the details of his income for the year ended 31st March,2010. 1. Basic Salary Rs. 12,000/month 2. D.A @ 30% of Basic 3. H.R.A Rs.10,000[ Exempt u/s 10(13A) Rs. 4,500 ] 4. He is provided conveyance facility for journey from his residence to hospital and back costing the hospital Rs. 10,000. 5. Entertainment allowance Rs. 500 per month 6. Arrears of salary Rs. 6,000 7. Professional Tax deducted by hospital Rs. 2,400. 8. Best Doctor Award given to him by Bhagwan Hospital Rs. 2,500. 9. He was selected the best surgeon by the state government and was awarded ―The Dhanvantari‖ award instituted in Public Interest Rs. 10,000. 10. He received honorarium for presenting papers in various seminars Rs. 3,000. 11. He was owning a surgical equipment which was given on hire to Dr. Laxman Prasad. Charges received by him were Rs. 30,000. The expenses on maintenance amounted to Rs. 2,500 and allowable depreciation Rs. 4,500. 12. He paid Rs. 16,000 by cash to LIC for pension fund. 13. He paid by cheque for medical insurance as follows :
1. 2. 3. 4.
For Self For Wife Dependent Children Independent Parents
12,670 12,670 12,670 12,670
50,680 Compute his Net Taxable Income for the A.Y. 2010 – 11.
A. INCOME FROM SALARY Gross Salary From Bhagwan Hospital Basic (12,000 * 12) Dearness Allowance (1,44,000 * 30% ) House Rent Allowance (10,000 – 4,500 ) Entertainment Allowance ( 5000 * 12) Arrears Best Doctor Award Less: Deduction u/s 16 - Professional Tax u/s 16 Income from Salaries B. INCOME FROM OTHER SOURCES Best Surgeon Award Less: Exempt U/S 10(17A) Honorarium of Seminars Equipment Hire Charges Less : Maintenance Depreciation Income From Other Sources C. GROSS TOTAL INCOME
1,44,000 43,200 5,500 6,000 6,000 2,500
10,000 (10,000) 30,000 (4500) (2500)
23,000 26,o00 2,30,800
D. DEDUCTIONS UNDER CHAPTER VIA U/S 80CCC – Contribution to pension funds U/S 80D – Mediclaim Insurance Premium E. TOTAL INCOME Working Notes: 1. Conveyance facility between home and office is an exempt perquisite. 2. Award from employer is taxed as ‗Profit in lieu of Salary‘ 3. Entertainment allowance is taxable for a Nongovernment employee. 4. Medical Insurance Claim = Rs. 15,000(self + wife + children) + Rs. 12,670(Parents) = Rs. 27,670.
(43,670) 1,87,13 0
Varun Murpana – 68 Yash Nahata – 70 Lakshay rohra – 80 Aman takhtani – 110 Ronak saluja - 115