CONTENTS
S.no. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
particulars Introduction History of income tax in India Basic concepts Residential status Income exempt from tax Income from salaries Income from house property Profit and gain from business or profession Capital gains Income from other sources Clubbing of incomes/ Deemed income Set off & carry forward of losses Deductions Return of income Advance tax Assessment of individual
INTRODUCTION The government should collect the taxes in the same way as the honey bee collects nectar from the flower without harming harming it. -Kautilya in Arthashastra
“It was only good of his subjects that he collected taxes from them, just as the sun draws moisture from the earth to give it back a thousand t housand fold” -Kalidas
Indian Income Tax Model Why Tax?
To raise resources
Cost of civilization
Tax treasury is the basis of governance Whom to tax
Person
What to tax
Income(total income)
When to tax
Annually
Previous year
Assessment Year
At What Rate?
Finance Act
Income tax act
What is income tax?
Income tax is a tax on the TOTAL INCOME of a PERSON. It is charged on the income of the PREVIOUS YEAR and is assessed and paid in the next succeeding year (assessment year) at the rates prescribed by the Annual Finance Act. Income tax is a tax on yearly taxable income of a person levied by the central govt. at prescribed rate. Taxable income means income calculated under the provision of Income Tax Act.
Silent features of income tax
1. Central tax- Income tax is a central tax. It is levied and collected by the Central government of India. This right has been given to the Central govt. within constitution.
2. Direct tax- According to the tax incidence this is a direct tax. The burden of taxation lies on the person who pays it. The taxpayer cannot realize it from any other person.
3. Tax on taxable income- Tax is imposed on the taxable income of a person. Taxable income means income calculated under the income tax act. 4. Scope of taxation- Not only an individual but also a firm, a company, HUF is taxed. So the scope of income tax is very wide.
5. Administration of income tax- The administration is done by a special department called the INCOME TAX DEPARTMENT. This department work under the control of CENTRAL BOARD OF DIRECT TAXES.
BRIEF HISTORY OF INCOME TAX IN INDIA
1)
Beginning of income tax-Income tax was first introduced by Sir James Wilson in 1860 in India. It was levied with a view to meet the financial crises caused by the Freedom Movement 1857.
2)
Income tax act 1886- Income tax act 1886 was based on the British Income tax act. A number of amendments were made in this act time to time. This act can be treated as the foundation stone of Income tax in India.
3)
Income tax act 1918- A
new income tax act 1918 was
passed as income tax was an important source of revenue to meet financial crises caused after the World War I. 4)
Income tax act 1922- The govt. of India act was passed in 1919 due to which income tax was included in the schedule of income of the centre. According to this act tax was assessed for the current year on the income of previous year.
5) Income tax amendment act 1939-The most important amendment was made in 1939 according to which the slab system was introduced in place of classification. 6) Income tax act 1961- The income tax act 1961 is in force at present. Several amendments have been made in this act time to time.
NEW ECONOMIC POLICY AND INCOME TAX
The govt. of India has adopted a policy of liberalization for the rapid economic development since 1991.under these policy rapid changes have been made in respect of income tax. Due to this following changes have been madea) Tax exemption limit is continuously increased. b) Rates of taxation were reduced. c) Special concessions to female taxpayers, senior citizen, and disabled persons. d) Concessions to non-residents. e) Process for filing returns are simplified etc.
Assessment years and exemption Assessment year Exemption 2010-11 Rs. 160000 2011-12 Rs. 160000 2012-13 Rs. 180000 2013-14 Rs. 180000 2014-15 Rs. 200000
The sources/ components of income tax Law: 1. The income tax act 1961-IT extends to the whole of India and come into force on 1 st April 1962.This Act amended time to time to implement the fiscal policies of the Government. 2. The income tax rules, 1962-Parliament cannot provide for all the circumstances and issues that may arise in the course of implementation of Income tax act. Hence the legislature has left many issues to be decided by the Department. CBDT central board of direct taxes looks after the administration of all the direct taxes.
3. Circulars, Notifications issued by the CBDT -In addition to the above, the board issues from time to time certain circulars and notifications for the direction of the departmental officials. 4. The Finance Act -To give effect to the various fiscal proposals of the Govt. a Finance Act is enacted annually. 5. Case Law -Apart from the above, innumerable disputes arise between the assessee and the department while implementing the provisions of Income-tax Act. The judgments of courts also form part of the law of income tax.
Income The expression income according to the directory means “a thing that comes in”. Generally speaking, there are 4 features of income viz.: a. It must be a return b. It must be received with certain regularity c. It must come in periodically; and d. It must come through a definite source;
Gross total income
Gross Total Income (GTI)
Means total income computed in accordance with the provisions of the act before making any deductions under sec. 80c to 80u.
Income Deduct Exemption U/s 10, 10A, 11, 12, 13,13A
Salary
House
Business &
Capital
Income
Property
profession
Gains
from Other Sources
Gross total income
Total income
Total income of an assessee is GTI reduced by the amount permissible as deduction u/s 80CCC to 80U.Total income is calculated in accordance with the provisions of the income tax act as they stand on first day on April in any assessment year.
Gross total income Adjustment for set off and carry forward of losses Less: deductions u/s 80C to 80U Total Income Tax on Total income a. Tax payable without surcharge b. Add surcharge
xxx xxx xxx xxx xxx xxx xxx
c. Tax + surcharge (a+b)
xxx
d. Education cess including secondary and higher education cess @ 3% of C
xxx
Total tax payable
xxxx
PERSON Person Includes I. An individual II. A HUF III. A company IV. A firm V. An AOP or BOI VI. A local authority VII.
Every artificial judicial person
Individul Artificial judicial Person
HUF
Person Local Authority
AOP or BOI
Company
Firm
RESIDENTIAL STATUS
The income liable to tax in the hands of an assessee is determined on the basis of Residential Status.
Residential status of individual
Resident
R & OR
Non-resident
R but NOR
Conditions for Residential Status
Basic Conditions:-
a. He must be in India for at least 182 days during the previous year. b. He must be in India for 60 days during the previous year and 365 days during 4 years immediately preceding the previous year.
Additional Conditions:-
a. Resident in India in at least 2 out of 10 years immediately preceding the previous year. b. Present at least 730 days in India during 7 years immediately preceding the previous year.
Ordinarily resident in India A. Any one out of two basic conditions. B. Both the additional conditions.
Not Ordinarily resident in India A. Any one out of two basic conditions. B. None or any one additional condition.
Non- resident Not fulfilling any basic conditions.
Exceptions In
the
following
two
exceptional
cases
the
residential status of an individual shall be determine as followsI. An individual who is a citizen of India leaving India for the purpose of employment or as a member of the crew of an Indian ship is considered resident in India if he has been in India in that year for 182 days or more. II. A citizen of India or a person of Indian origin who is residing outside India and comes to India on a visit in any previous year is required to stay in India for 182 to be resident.
Residential status of an individual
Conditions
R & OR
R but NOR
NR
Basic Conditions:Y
a. He must be in India for at least 182 days during the previous year. b. He must be in India for 60 days during the previous year and 365 days during 4 years immediately preceding the previous year.
Y
Y
N
Y
N
Y
N
-
Y
N
-
Additional Conditions:a. Resident in India in at least 2 out of 10 years immediately preceding the previous year. b. Present at least 730 days in India during 7 years immediately preceding the previous year
RESIDENTIAL STATUS OF HUF
Ordinarily resident -The HUF will be ordinarily
resident ifI.
The control and management of the affairs of the HUF is wholly or partly situated in India.
II.
The Karta of the HUF satisfies both the additional conditions.
Not
ordinarily resident -The HUF will be not ordinarily
resident ifI.
The control and management of the affairs is wholly or partly in India.
II.
The Karta of the HUF does not satisfy any one or both additional conditions.
Non-
resident -The HUF will be not resident if the control
and management of its affairs situated wholly outside India.
RESIDENCE OF FIRM OR AOP A Firm or AOP can be-
A
resident -A firm or AOP and every other person other than a
company is considered as resident if the control and management is wholly or partly situated in India.
A
non-resident -
A firm or AOP and every other person
other than a company is considered as resident if the control and management is wholly situated outside India.
Residence of company I.
Resident company - A company is resident in India if in the previous year-
It is an Indian company
During the year the control and management of its affair situated wholly in India.
II.
Non-resident company - A company is non-resident in India if in the previous year
It is not an Indian company
During the year the control and management of its affair situated wholly or partly outside India.
Incidence of Tax
Particulars Income received or deemed to be received in India Income accrued or deemed to be accrued in India Income from business outside India a. If controlled from India b. If controlled outside India Other foreign income
R &OR
R but not OR
NR
T
T
T
T
T
T
T
T
NT
T
NT
NT
T
NT
NT
NT
NT
NT
Past untaxed foreign income bought in India during the previous year
T- Taxable
NT - Not taxable
Assessment year and previous year
Assessment year- Assessment
year means the period of 12
months commencing on 1st of April every year. In other words period of 12 months-1st April to 31st March is called Assessment year.
Previous year- Previous
year means the financial year
immediately preceding the assessment year e.g. for the assessment year 2014-15 previous year will be 2013-14.
Agriculture income Sec.10 (1) Under the income tax act agriculture income is exempt from taxation from central govt. Agriculture Income means
Any rent or revenue derived from land which is situated in India and is used for agricultural purpose.
Any income derived from such land by agriculture or by the process employed to render the produce fit for the market or by sale of such produce by a cultivator or receiver of rent in kind.
Any income from saplings or seeding grown in a Nursery shall be deemed to be agriculture income.
Composite income In case the assessee has composite activity of growing & manufacturing certain produce. The ratio of agricultural & business income shall be-
Produce Rubber Coffee grown manufactured & cured Coffee grown manufactured cured & roasted Tea
Agriculture income Business income 65% 35% 75%
25%
60%
40%
60%
40%
Tax free incomes S.No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Particulars Agriculture income Sum received by member from HUF Share of profit from partnership firm Travel concession to employees Death cum retirement gratuity Commutation of pension Payment for Bhopal leak disaster Payment from SPF & PPF Payment from RPF House Rent Allowance Educational Allowance Long term capital gain on which STT paid Subsidy from tea board Subsidy for growing rubber Awards etc. Pension to gallantry award winners Income of a local authority Income of a news agency Income of a mutual fund Income of medical institution
Heads of income
Income from salaries There are four components of salary income1. Salary proper 2. Allowances 3. Perquisites 4. Profit in lieu of salary
Salary includes1. Wages 2. Any annuity or pension 3. Any gratuity 4. Any fees, commission, perquisites or profit in lieu of salary 5. Any advance salary 6. Encashment of leave
Allowances An allowance is a fixed monetary amount paid by the employer to the employee, for meeting particular expenses. Allowances are part of salary. All allowances are taxable except they are specifically exempt.
Perquisites Perquisites are the benefits fee or profit attached to the office or position in addition to salary. For e.g. Rent free accommodation.
Profits In Lieu Of Salary
A. Compensation received in connection with termination of employment B. Payment from an unrecognized provident fund C. Any sum received under a key man insurance policy including bonus D. Any amount received prior to employment or after cessation of employment.
Computation of salary income
Particulars Salary Allowances Perquisite(only taxable value) Profit in lieu of salary Gross salary Less: Entertainment allowance Less: Professional tax
Income under the head salary
Amount xxx xxx xxx xxx xxx xx xx
xxx
Fully Taxable Allowances a. Dearness allowance b. City compensatory allowance c. House rent allowance d. Entertainment allowance e. Fixed medical allowance f. Overtime allowance g. Servant allowance h. Housekeeping allowance
Allowance exempt up to they spent a. Travelling allowance b. Daily allowance c. Conveyance allowance d. Helper allowance e. Academic & Research allowance f. Uniform allowance
Allowance exempt up to certain amount Children education allowance Hostel expenditure allowance Tribal area allowance Transport allowance
Rs. 100 p.m. per child for 2 children Rs. 300 p.m. per child for 2 children Rs. 200 p.m. Rs. 800 p.m. (1600 in case of handicapped)
House rent allowance Exempt from tax to the extent of the least of followinga. 50% of salary in Delhi, Mumbai, Chennai, Kolkata or 40% of salary in other cases. b. House Rent Allowance c. The excess of Rent Paid over 10% of salary Exemption is denied if employee lives in own house, or in a house for which he has not pay any rent.
Salary here means-
Basic salary +
DA(if forming part of retirement benefit) +
Commission (as fixed % of Turnover)
Entertainment allowance In case of govt. employees, least of the following is exempt from tax: a. Rs. 5000/b. 20% of salary c. Entertainment allowance actually received. For entertainment allowance, Salary means basic salary; it excludes all benefits and allowances.
Tax treatment of provident funds SPF
Employer’s Contribution
Employees contribution deduction u/s 80 C Interest on PF Lump sum payment on retirement
RPF
UPF
Exempt
Exempt up to 12% of salary
Exempt
Available
Available
Not Available
Exempt
Exempt up to 9.5% Exempt
Exempt
Exempt
a. Own contribution exempt b. Employer contribution & interest thereon is taxable c. Interest on own contribution is taxable as income from other sources
Residential accommodation A. Central & state govt. employeesUnfurnished accommodation Furnished accommodation License fee determined by Union (a+b) or State Govt. a. Value of unfurnished Less-Rent actually paid by accommodation employee b. 10% p.a. of cost of furniture or actual hire charges payable if hired from a third party.
Other employees Where accommodation is owned by the employer Population(2001 census)
Exceeding 25 lacs Exceeding 10 lacs but not exceeding 25 lacs In case of others
% of salary 15% 10% 7.5%
Furnished- same as in case of govt. Employees.
Taken on lease or rent
Actual amount of lease rental paid OR 15% of salary
(Whichever is lower) Less- rent; if any payable by the employee.
Salary means-Basic pay + DA (If consider for retirement) + all taxable allowances + bonus + Commission Any monetary payment.
Various types of employees & impact on taxability
s.no.
Items
1
Free education in employers school
2
Payment of medical bills by the employer Gas, electricity & water facility Servant facility Motor car facility
3 4 5
Specified employees Taxable in excess of Rs.1000 p.m. per child
Non - specified employees
Exempt up to Rs. 15000 Taxable
Fully exempt Tax free
Taxable Taxable
Tax free Tax free
Exempt
Tax free perquisites
Tea & snacks in working hours.
Free telephone incl. mobile phone.
Gift in kind to employee up to Rs.5000.
Computer / laptop given for official & personal purpose.
Recreational facilities to groups of employees.
Perquisites to govt. employees posted abroad etc.
Income From House Property
The basis of charge is the ANNUAL VALUE of house property. It is taxable under this head subject to the satisfaction of following three conditions-
a) The property should consist of any buildings or lands appurtenant thereto. b) The assessee should be the owner of the property. c) The house property should not be occupied by the assessee for the purpose of his business or profession the profit of which is chargeable to income tax.
ANNUAL VALUE
Annual value is a notional figure representative of the income, which a property is capable of generating. Annual value is determined by taking into account the following factorsa. Rent received or receivable b. Municipal valuation of property c. Fair rent of property d. Standard rent under rent control act.
Property Income Not Chargeable To Tax Income from the following house property is exempt from taxa. Farm building b. Annual value of any one place of ex-ruler. c. Property income of a local authority/trade union /marketing authority d. Property used for own business or profession e. One self- occupied property
House property
LET - OUT
SELF- OCCUPIED
One house- self occupied house SOP
More than one house One house – SOP Other house- deemed to be let out
Computation Of Taxable Income Of Let – Out Property Gross annual value (GAV)
XXXX
Less- Municipal taxes paid by landlord (Deduction is allowed on actual payment basis) Net Annual value (NAV)
XXXX
Less-Deduction U/S 24 a. 30% of NAV b. Interest on housing loan (Deduction on accrual basis) Income From House Property
XXXX
XXXX XXXX XXXX
Gross annual value (GAV) - GAV will be higher of the following two
Reasonable expected Rent (RER) - municipal value or fair rent whichever is higher subject to standard rent.
Actual rent received or receivable- after excluding unrealized rent and rent pertaining to vacancy period.
COMPUTATION OF TAXABLE INCOME OF SELF OCCUPIED PROPERTY
Annual value as per sec.23(2)
NIL
Less-interest on loan borrowed
XXX
Loss from house property
XXX
INTEREST ON HOUSING LOAN FOR SOP
Interest
construction /aquisition
Before 1.4.99Rs.30000
On or After 1.4.99-Rs. 150000
Repairs/ Reconstructio n
up to Rs. 30000
Interest on loan taken for let-out property There is no limit to the interest amount for let out property.
Interest Of Pre- Construction Period It is deductible in 5 equal annual installments. The first installment is deductible in the year in which construction of property is completed or in which property is acquired. Pre construction period means the period commencing on the date of borrowing and ending march 31st immediately prior to the date of completion of the construction or the date of repayment of loan whichever is earlier.
Income Under The Profit And Gain From Business & Profession
Profits and gains from any business or profession
Any sum received under a key man insurance policy
Any interest, salary, bonus, commission or remuneration received by a partner from firm
Income derived by a trade professional or similar association from specific services performed for its members
Export incentive available to exportsa. Profit on sale of import license b. Cash assistance against exports c. Duty drawback
Any sum received or receivable under an agreement for – a. Not carrying out any activity in relation to any business ( non compete fee) b. Non sharing of any know how, patent, copyright, trademark etc.
Income from speculative transaction is taxable under business income.
The value of any benefit or perquisite whether convertible into money or not arising from business or the exercise of a profession.
Computation of income from business or profession Rs.
Rs.
Net profit or loss as per profit & loss A/C Item Disallowed 1. Capital losses/ capital expenditure 2. Household expenses/ personal expenses 3. Income tax , wealth tax, gift tax 4. Charity & Donation 5. Gifts & presents to others 6. All reserves/provisions 7. All expenses related to other heads of income 8. Depreciation (taken separately) 9. Expenses not related to current year but debited to P & L a/c 10. Any tax penalty, penal interest, fine etc.
-
Add:
-
Deduct1. Income not taxable as business income 2. Expenses not debited but allowed 3. Depreciation as per income tax 4. Income tax refunds
-
-
Add :income not credited to P&L a/c but chargeable under this head
-
Taxable profit……….
-
CAPITAL GAINS Capital gain is the gain arising from transfer of a capital asset. It may arise from the following transactions
Capital gain arising from insurance claim received for damage or destruction of a capital asset.
Capital gain on conversion of a capital asset into stock – in – trade.
Capital gain on enhanced compensation.
Capital gain on transfer by a firm of any capital asset on its dissolution.
Capital asset means
Land, building, flat, plot etc. immovable property.
Furniture, machinery, plant etc.
Gold, silver, precious metal, precious stone etc.
Goodwill, patent, interest in firm.
Shares, securities, bond etc.
Urban agricultural land situated in the local limits of municipality or cantonment board or notified area populated not less than 10000.
Types of Capital Gain & Capital Asset 1. Short term capital asset- Asset held by the assessee for not more than 36 months immediately preceding to the date of transfer is a short term capital asset. 2. Long term capital asset- Long term asset means asset which is held for more than 36 months. However in the following cases instead of 36 months only 12 months will be taken for the purposea) Shares (quoted or not) b) Listed securities (like debentures/ Govt. securities) c) Units of UTI or Mutual funds Procedure for computation of long term capital gain / loss Full value of consideration
---
Less-Total of the followinga) Transfer expenses b) Indexed cost of acquisition c) Indexed cost of improvement
-
Long term capital gain or loss
(---) ---
Indexed cost means-Original cost or fair market value on 1.4.81 X index for the year in which asset is transfer/ cost inflation index for 1981-82 i.e. 100
Capital gain or loss on short term capital asset
Full value of consideration
---
Less-Total of the followinga) Transfer expenses b) Cost of acquisition ( actual) c) Cost of improvement
-
Short term capital gain or loss
(---) ---
When the benefit of indexation is not allowed-
1. In case of debentures & bonds 2. In case of depreciable asset 3. Slump sale 4. In case of non residents on transfer of shares acquired in foreign currency in an Indian company 5. GDR purchased in foreign currency
INCOME FROM OTHER SOURCES The income tax act lays down thata) Income of every kind which is not to be excluded from the total income and b) Which is not chargeable under any of the head shall be chargeable to income tax under the residuary head “income from other sources”
Specified incomes includible under income from other sources a) Dividends b) Winning from lotteries c) Winning from cross word puzzles, races card and games. d) Income from interest on securities e) Income from machinery, plant or furniture let on hire f) Any sum received under a key man insurance policy if not taxable as salary or business income g) Gift h) Interest
received
on
delayed
compensation
or
compensation i) Interest on bank deposits and loan j) Director’s fee from a company k) Income from ground rent or rent of plot or subletting l) Family pension m)Salary & allowances received by an MLA n) Interest on Indira vikas patra and Kisan vikas patra o) Deemed income, income from undisclosed source
enhanced
COMPUTATION OF INCOME FROM OTHER SOURCES
Receipts falling under income from other sources
XXX
DeductionsGeneral deductions: Any expenditure incurred wholly & exclusively for the purpose of earning income from other sources.
XXX
Special deductions : a) Commission for realizing interest b) Deduction & restriction on family pension c) Deduction of repairs, insurance premium, depreciation if let on hire
Income from other sources
XXX XXX XXX
XXX
Deductions to be made from “Income from Other Sources”
In respect of Dividends & interest on securities-
a. Collection charges-commission or remuneration paid for realizing dividend or security interest. b. Interest on loan taken for purchasing shares & securities.
In respect of income from machinery, plant, or furniture-
a. Current repairs of buildings, machinery, or plant let out b. Insurance premium c. Depreciation
In respect of interest on compensation or enhanced Compensation- A deduction of a sum equal to fifty percent of such income shall be allowed. No other deduction will be available.
In respect of employee’s contribution towards staff welfare
schemes- Deduction shall be allowed to the extent of the amount is credited by the tax payer to the employee’s account before the due date.
Amount not deductible 1. Personal expenses 2. Wealth tax 3. Expenditure in respect of winnings from lotteries 4. Interest paid outside India on which TDS has not been deducted 5. Excessive payment to relatives, payment more than Rs. 20000 in cash.
CLUBBING OF INCOME/ DEEMED INCOME Sometimes the assessee in order to avoid tax liability may dispose of their property or income into different hands. Such income of other person is included in the assessee’s
total
income & referred as Deemed Incomes. 1. Transfer of income without transfer of asset- if any person transfers income without transferring the ownership of the asset such income is taxable in the hands of the transferor. 2. Transfer of income by revocable transfer of assets-a transfer deemed to be revocable ifa. It contains any provision for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor b. It gives any right to reassume power over the whole or any part of the income or assets. 3. Income of individual to include income of spousea. Salary, commission etc. of spouse in a firm in which the assessee has substantial interest b. Income to spouse from the asset transfer c. Asset transfer to son’s wife d. Income from asset transferred to a person for the benefit of spouse e. Income from asset transferred for the benefit of Son’s wife 4. Conversion of self acquired property into joint family property and subsequent partition.-when an individual member transfers his self acquired property directly or indirectly to the family otherwise than for adequate consideration.
CLUBBING OF INCOME OF MINOR In computing the total income of any individual there shall be included all such income as arises or accrues to his minor child. Provided that in the following cases income of minor will not be clubbed-
a. Income of minor child on account of manual work done by him b. Income of minor child on account of activity involving application of his skill, talent or specialized knowledge and experience. c. Income of minor child suffering from any disability of the nature specified U/S 80U is not subject to clubbing provision. When the marriage of his parent subsists income of the minor shall be included in the income of that parent whose total income is greater. Where however the marriage of his parent does not subsist it shall be included in the income of that parent who maintains the minor child in the previous year.
Exemption under 10 (32)In case of income of individual includes the income of his minor child such individual shall be entitled to exemption of Rs. 1500 in respect of each minor child if the income of such minor as includible exceeds that amount.
Set Off And Carry Forward Of Losses Heads of income and set off of losses-
S.no. Heads of income
Set off of losses during current previous year Firstly set off against another house property income & if required from another heads of income.
1
Loss from house property ( whether SOP or let out)
2
Non speculation business loss
3
Speculative business loss Only against another speculation profit if any.
4
Short term capital loss
Either from STCG or LTCG
5
Long term capital loss
Only against LTCG
6
Loss from the activity of owing and maintaining horses race Unabsorbed depreciation
Only against income from the activity of owing and maintaining horses race. Except salary head
7
Firstly set off against another business income and if required from other heads of income except salary.
Carry Forward Of Losses
S.no.
Heads of income
Set off in subsequent years
1
Loss from house property Any income under the head ( whether SOP or let out) house property for 8 years
2
Non speculation business Any income under head loss PGBP for 8 years
3
Speculative business loss
Only against speculative income for 4 years
4
Short term capital loss
Any type of capital gain for 8 years
5
Long term capital loss
Only against LTCG for 4 years
6
Loss from the activity of owing and maintaining horses race
Only against the income from the activity of owing and maintaining horses race For 4 years
7
Unabsorbed depreciation Any head of income except salary. There is no time limit for set off.
Deductions from gross total income for individuals (Chapter VI-A of Income Tax Act, 1961)
i.
Deductions in respect of certain payments-
a. 80C-deduction in respect of certain investment like LIC, PPF
etc.
b. 80CCC-deduction in respect of pension fund c. 80CCC-deduction in respect of notified pension scheme (NPS)
d. 80D- deduction in respect of medical insurance premiumMediclaim policy
e. 80DD-deduction in respect of maintenance including medical treatment of handicapped disabled
f. 80DDB-deduction in respect of medical treatment of specified diseases
g. 80E-deduction in respect of repayment of loan taken for higher education
h. 80G-deduction in respect of donations to certain funds, charitable institutions
i. 80GG-deduction in respect of rent paid j. 80GGA-donation for scientific research or rural development etc. k. 80GGC-donation to political parties or electoral trust.
ii.
Deductions in respect of certain income
a. 80RRB-deduction for royalty on patents. The amount of deduction is 100%of such income or Rs. 300000 whichever is lower.
b. 80QQB-deduction for royalty income of authors of certain books. The quantum of deduction is 100% of such income or Rs. 300000 whichever is lower.
c. 80U-deduction in case of permanent physical disability. An individual who is a resident & who is certified by medical authority to be a person with disability at any time during the previous year shall be entitled to deduction of Rs. 50000.If it is a case of severe disability i.e. having disability for more than 80% deduction shall be Rs. 100000.
FILING OF RETURN OF INCOME
RETURN OF INCOME In income tax act there is a provision of voluntary voluntary filing of return of income.
Voluntary return sec. 139 (1) S.no. Who has to file the return
conditions
1
Partnership firm or company
Any income or loss
2
Individual, HUF, AOP, BOI
If the income without claiming the deduction exceeds the exemption limit
3
A person in receipt of income derived from a property held under trust or CEO of any political party
If the income before claiming exemption u/s 11, 12, 13A exceeds the maximum exemption limit
4
By certain association, institution, etc.
5
Any university or other educational institution
If income without giving exemption u/s 10 exceeds exemption limit Return to be submitted whether income or loss
Exemption limits for the assessment year 2014-15
S.no.
Assessee
Amount (Rs.)
1
Individual (male or female), HUF, AOP, BOI
2,00,000
2
Senior citizen( male or female) Age -60 years or more
2,50,000
3
Super senior citizen (male or female) Age- 80 years or more
5,00,000
Due dates for filing voluntary return of income for the assessment year 2014-15-
a) b)
c)
d)
If the assessee is A company If it is an individual or a firm whose accounts are required to be audited Assessee is the working partner partner of a firm whose accounts are required to be audited In any other cases
Due dates 30th sep. 30th sep.
30th sep.
31st July
Loss return sec. 139 (3) If an assessee fails to file his return of loss on or before the due date of furnishing of return as prescribed by sec. 139 (1) then the following losses cannot be carried forward
Loss of a speculative or non speculative business
Short or long term capital loss
Loss from owing or maintaining of race horses.
Belated return sec. 139 (4) If an assessee has not furnished a return of income under sec 139 (1) he may furnish the return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier. This return cannot be revised.
Revised Return Sec. 139 (5) If after furnishing a return any omission or wrong statement is discovered a revised return can be filed at any time before the expiry of one year from the end of the relevant assessment year or before completion of assessment whichever is earlier.
Defective Return Sec. 139 (9) A return of income shall be regarded as defective in the following cases
Return form has not been duly filed
Statement, accounts are not accompanied with return
Signing of return sec. 140 In case of individual - individual himself or duly authorized
person or by his guardian if he is mentally incapacitated.
In case of HUF -Karta/if he is absent from India by adult member of family.
In case of company -by the managing director, any director if there is no managing director, liquidator if company is under liquidation.
In case of firm-by the managing partner or any partner except minor.
In case of local authority -by the principal officer.
Consequences for failure to furnish return of income
If a person fails to furnish return of income he shall liable to pay a penalty of Rs. 5000. No penalty shall be levied if he proves that there is a reasonable cause for such failure.
Interest @ 1% for every month or part of month of the delay in filing return will be levied.
If return is not filed best judgment assessment can be made.
Willful failure to furnish return will also attract prosecution.
NEW RETURN FORMS
Forms
Subjects
ITR-1
For individual having income from salary, house
Sahaj
property & other sources except income from race horses
ITR-2
For individual & HUF not having business or professional income
ITR-3
For individual & HUF being partner in firms and not having business or professional income
ITR-4
For individual & HUF having income from a proprietary business or profession
ITR-4S Sugam
For individual & HUF having income from a business and such income is computed u/s 44AD & 44AE
ITR-5
For firms, AOPs, BOIs
ITR-6
For
companies
other
than
companies
claiming
exemption under sec. 11
ITR-7
For assessee who have to furnish return in case of income or loss
ITR-8
Fringe benefits
ITR-V
Electronically filing of return
Permanent Account Number (PAN) PAN is a taxpayer identification number allotted to a person by the income tax department. It is a number allotted under the new series having ten alphanumeric characters issued on laminated cards .once a PAN is allotted it would remain valid forever unless cancelled or modified. For example-
1 A
2 B
3 I
4 P
5 J
6 1
7 8
8 6
9 1
10 H
Every person will have to quote PANa. In his income tax return. b. In any correspondence with income tax authorities c. In challans for payment of any sum d. In the document pertaining to prescribed transactions like
Sale or purchase of any immovable property valued at Rs. 5 lakh or more
Sale or purchase of securities exceeding Rs. 1 lakh Application for credit card to any bank. Purchase of debenture or bonds of any company for Rs. 50000 or more during the previous year.
Payments to hotel or restaurants of an amount Rs. 25000 or more at any one time etc.
ASSESSMENT OF INDIVIDUALS Computation of tax liabilityIncome from salaries
-
Income from house property
-
Income from business or profession
-
Income from capital gains
-
Income from other sources
-
Deemed incomes
-
Gross total income
-
Less – deductions under chapter VI A
-
Total income
-
Tax on total incomea. At special rates b. At normal rates Less-Rebate
-
Tax payable
-
Add-Surcharge (if any)
-
Add-education cess @ 3%
-
Total tax payable
-
Less-TDS Less- Advance tax paid Less- Self assessment tax paid
-
Balance tax payable/ refundable
-
Advance tax The scheme of advance payment of tax ensures the regular flow of revenue to the govt. & lightens the intensity of the burden of taxes. Under this scheme the assessee is required to pay tax on current income by installments during the financial year itself. Therefore the scheme of advance payment of tax is also known as “ PAY AS YOU EARN ”. Table showing the installments & due dates of payments of advance tax-
FOR NON-COMPANY ASSESSEE
Installment Due date 1st 15 Sep.
2nd
3rd
15 Dec.
15 March
Particulars Amount 30 % of advance tax payable Less- advance tax paid in XXX earlier installments 60 %of advance tax payable Less- advance tax paid in earlier installments
XXX
100 %of advance tax payable Less- advance tax paid in earlier installments
XXX
FOR COMPANY ASSESSEE
Installment Due date
Particulars
Amount
1st
15 June
15 % of advance tax payable
2nd
15 Sep.
45 % of advance tax payable Less- advance tax paid in earlier installments
XXX
3rd
15 Dec.
75 %of advance tax payable Less- advance tax paid in earlier installments
XXX
4th
15 March
100 %of advance tax payable Less- advance tax paid in earlier installments
XXX
Total advance tax
XXX
XXX
Deduction Of Tax At Source Levy & collection of tax at the very source of income is called TDS. The person responsible for making payment deducts tax at source from the income of the recipient. Thus the income tax is collected from the assessee’s in the previous year itself through TDS / Advance tax. TD so collected is required to be deposited with the central govt. within prescribed time.
SUMMARY OF IMPORTANT TDS RATES Nature of payment Interest on securities
Interest on monies borrowed or deposits Payment to contractor / subcontractor Payment of commission or brokerage Rent
Professional fees
TDS on amount TDS rate exceeding 2500 10 % on listed securities & unlisted securities 5000 10%
30000 in a single 1% if the recipient is payment or Rs. 50000 individual / HUF in the aggregate otherwise 2 % 5000
180000
30000
10 %
For plant, machinery or equipment – 2 % For land or building or furniture or fittings for all – 10 % 10 %
Assessment of individual Dr. Bajaj is running a clinic. His income and expenditure account for the year ending March 31 is given below:
Rs.
Rs.
430000 9250 Consumables 364800 Medicine consumed 91000 Depreciation 146000 Administrative expenses 15000 Donation to prime
Fees receipts
minister’s relief fund
Income tax refund
Staff salary
247440
Dividend
1263240 from 9500
Indian companies Winning lotteries
from net
of
TDS Rs. 12000
28000
Excess of income over expenditure 1303490
2390 1303490
Depreciation in respect of all assets has been ascertained at Rs. 50000 as per income tax rules.
Medicines consumed include medicine of (cost) Rs. 16000 used for his family.
Fees receipts include Rs. 14000 honorarium for valuing medical examination answer books.
He has also received Rs. 80000 on account of agriculture income which had not been included in the above income & expenditure account.
He has also received Rs. 57860 on maturity of one LIC policy not included in the above income & expenditure account.
He received Rs. 6000 per month as salary for a city care centre.
This has not been included in the fees receipts credited to income & expenditure account.
He has sold land in June 2013 for Rs. 800000 (valuation as per stamp valuation authority Rs. 1500000). The land was acquired by him in October 1998 for Rs. 450000
He has paid Rs. 2500 for purchase of lottery tickets.
He has paid premium of LIC policy of Rs. 12000 (sum assured Rs. 50000)
Computation Of Income Of Dr. Bajaj
Rs. Income from salary (Rs. 6000X 12) Income from profession Capital gains Income from other sources
72000 265550 296154 54000
Gross total income Less – deduction u/s 80 C Less – deduction u/s 80 G
687704 10000 15000
25000
Net income (rounded off) Agriculture income Computation of tax Tax on (non- agricultural income) + (agricultural income) Less – tax on (agricultural income) + exempted slab Rs. 200000 ( 280000)
662700 80000
Balance
83885
Add – Education cess @ 3% of tax Tax Less – TDS on lottery income
2517 86402 12000 74400
Balance tax payable (rounded off)
91885 8000
Computation of income from profession Income as per income & expenditure account Adjustments – Add –donation to prime minister’s Relief fund Medicines consumed by family Depreciation Less- dividend from Indian companies(exempt) Winning from lotteries Income tax refund Depreciation as per income tax Examination honorarium Income from profession
247440 15000 16000 91000 (9500) (28000) (2390) (50000) (14000) 265550
Income from capital gains Consideration ( stamp value) Less – Indexed cost of acquisition (Rs. 450000X 939 /351)
1500000
Long term capital gains
296154
(1203846)
Income from other sources Lottery winnings (Rs.28000 + Rs. 12000 ) Examination honorarium Dividend from Indian companies (exempt from tax) Maturity value of LIC policy (capital receipt not chargeable to tax) Total
40000 14000 Nil Nil 54000
