Corporate Tax Notes

7/30/2019 Corporate Tax Notes

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CORPORATE TAXATION (A.Y. 2011-12)(Faculty: Anupam De)

-:INCOME TAX:-

1.Definition

:

PERSONS: - According to Section 2(31) of the Income Tax Act, 1961, Person includes: a) An individual; (b)

a Hindu Undivided family; (c) a Company; (d) a Firm; (e) an Association of persons or a body of individuals,whether incorporated or not; (f) a Local Authority; (g) every artificial juridical person not falling within any of

the preceding categories.

ASSESSEE: - Assessee means a person by whom income tax or any other sum of money is payable under the

Act. [Sec.- 2(7).]

INCOME: - Income is a periodically monetary return with some sort of regularity. It may be recurring in

nature. It may be broadly defined as the true increase in the amount of wealth, which comes to a person during

a fixed period of time. [Sec. - 2(24).]

ASSESSMENT YEAR: - Assessment Year means the period starting from April 1 of a year and ending on

March 31 of the next year. [Sec. 2(9)]

PREVIOUS YEAR: - Income earned in a year is taxable in the next year. The year in which income is earned

is known as previous year. [Sec.-3]

GROSS TOTAL INCOME: - As per sec.-14, the aggregate income under the five heads (Salaries, Incomefrom House property, Income from Business or Profession, Income from Capital Gain, Income from other

sources) is termed as Gross Total Income.

TOTAL INCOME: - Total income of an assessee is gross total income as reduced by the amount permissible

as deduction under sec. 80C to 80U.

TAX EVASION: - It is the process by which the taxpayer attempts to reduce the burden of tax by resorting to

downright false and dishonest means.

TAX AVOIDANCE: - Tax avoidance is such an exercise by the taxpayer to ease the burden of tax by taking

the advantages of loopholes or lacuna in the laws of taxation.

TAX PLANNING: - It is a dignified and intelligent device adopted by the taxpayer to reduce his tax liability

by availing of various incentives, allowances, concessions, rebates, reliefs, etc., as provided by the Act.

TAX EXEMPTION: - Some Incomes are exempt from tax either wholly or to the extent provided for under

section 10 of the Income Tax Act, 1961 and the portion of income exempt from tax are not to be included in

the total income of an assessee. Ex. Agricultural Income, Share of profit of a partner, Passage money

received by a noncitizen employee, Salary of a foreign trainee, etc.

DEDUCTION: - The total income of an assessee which forms the basis for determining his tax liability,

deduction under chapter VIA (Sec. 80CCC to 80U) are to be made from his gross total income. Ex.

Deduction U/S. 80C[deduction in respect of life insurance premium, deferred annuity, contribution toProvident fund, etc.], 80CCC[deduction in respect of pension fund], 80CCD [deduction in respect of

contribution to pension scheme of Central Govt.], etc.

REBATE: - Before the assessment year 2005-06, there was a provision of giving rebate from the tax liability

computed (Sec. 88) on certain investments (like, LIC, PF, NSC, Infra structure Bonds, Hous Building LoanRepayment etc). However this rebate has been abolished w.e.f. A.Y. 2005-06. Now same types of investment

is qualified for deduction from Gross Total Income. The relevant section for this purpose is 80.

RELIEF: - Where by reason of any portion of an assessees income paid in arrears or in advance, is taxed athigher rate than it should have been assessed if it was taxed in the relevant year of earning the income, there is


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a provision of giving relief for such higher tax. It has to be applied in prescribed form for this purpose. Arrear

salary is a common example of it.

2. Residential Status & Tax Incidence:

INDIVIDUAL:Residential status of an assessee is three types. They are, (i) Resident and ordinarily Resident [sec. 6(1),

6(6)(a)]; (ii) Resident but not Ordinarily Resident [sec. 6(1), (6)(a)]; (iii) Non Resident. For this an assesseehas to fulfill the some basic conditions or some additional conditions. If an assessee fulfills one of the basic

conditions as well as the two additional conditions, then he can be treated as Resident and Ordinarily Resident.

When assessee fulfills one of the basic conditions and none of additional conditions, he is treated as a Resident

but not Ordinarily Resident. If an assessee fulfills none of the basic conditions, he can be treated as a Non-

resident.

BASIC CONDITIONS: - (a) He is in India in the Previous year for a period of 182 days or more.

(b) He is in India for a period of 60 days or more during the previous year and 365 days or more d uring 4 years

immediately proceeding the previous year.

EXCEPTION OF BASIC CONDITIONS: (i)The period of 60 days referred to in (b) above has beenrelaxed as follows -An Indian Citizen who leaves India during the previous year for the purpose of

employment outside India or an Indian citizen who leaves India during the previous year as a member of a

crew of an Indian Shipextended to 182 days for the assessment year 1990-91 onwards.

(ii) The period of 60 days referred to in (b) above has been relaxed as follows: (a) Indian citizen or a person

of Indian origin who comes on a visit to India during the previous year extended to 182 days for theassessment year 1995-96 onwards.

(b) Indian citizen or a person of Indian origin who comes on a visit to India during the previous year150

days for the assessment year 1990-91 to 1994-95.

ADDITIONAL CONDITIONS: - (a) He has been resident in India in at least 2 out of 10 previous year(according to basic condition noted above) immediately preceding the relevant previous year.

(b) He has been in India for a period of 730 days or more during 7 years immediately preceding the relevant

previous year.

CORPORATE: - An Indian company is always resident in India. A foreign company is resident in India only

if, during the previous year, control and management of its affairs is situated wholly in India. Hence, a foreign

company is treated as non-resident if, during the previous year, control and management of its affairs is either

wholly or partly situated out of India.

TAX INCIDENCE: -Particulars Resident and ordinarily

resident in India

Resident but not

ordinarily resident

Non-Resident

Indian Income

Foreign Income:

-If it is business income andbusiness is controlled wholly or

partly from India.

-If it is income from profession

which is set up in India.

-If it is business income and

business is controlled from

outside India.

-If it is income from profession

which is set up outside India.-Any other foreign Income (like

salary, rent, interest, etc.).

Taxable In India

Taxable In India

Taxable In India

Taxable In India

Taxable In India

Taxable In India

Taxable In India

Taxable In India

Taxable In India

Taxable In India

Taxable In India

Not Taxable In India

Taxable In India

Not Taxable InIndia.

Not Taxable In

India

Not Taxable In

India

Not Taxable InIndia

Not Taxable In

India


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3. Income Exempted from Tax: Individual & Corporate:Income not to be included in Total Income (Section 10) subject certain conditions as mentioned in the act:

(1) Agricultural Income (to be included in Total Income for rate purpose only)(2) Amounts received by a member from the income of the Hindu Undivided Family(3) Share of income of a partner(4) Any income by way of interest on Central Govt. Securities (as prescribed for this purpose)

earned by non-residents

(5) Leave Travel Concession(6) Remuneration received by non-citizens in the category of official of embassy, high commission,

legation, consulate or the trade representatives of a foreign State

(7) Salary of non-residents on board a foreign ship(8) Remuneration received by foreign trainees in government establishments, etc.(9) Tax on royalty or fess for technical services derived by foreign companies(10) Tax paid on behalf of non-resident(11) Tax paid by a Indian company in the business of an aircraft, on income derived by the Govt. of

foreign State or a foreign enterprise as consideration of acquiring an aircraft or aircraft engine on

lease

(12) Income from projects connected with the security of India(13) Allowance or perquisite paid or payable outside India by the Govt. of India to a citizen(14) Any remuneration of fee received by a consultant, directly or indirectly, out of the funds made

available to an international organization (agency) under technical assistance grant agreementwith the agency and the Govt. of foreign State

(15) Gratuity (exempted upto maximum 3,50,000, subject to other conditions as applicable)(16) Payment in commutation of pension (for Govt. employees exempted upto any limit, for private

employees subject to ceilings which is 2/3rd

or 1/3rd

(as applicable) of the commuted value of

pension)(17) Earned Leave (for Govt. employees exempted upto any limit, for private employees subject to a

ceiling of Rs. 3,00,000 and subject other conditions as applicable)

(18) Retrenchment Compensation (least of two (a) amount calculated as per the provisions ofIndustrial Dispute act (b) Rs. 50,000)

(19) Amount received under Voluntary Retirement Scheme (Maximum exemption is Rs. 5,00,000)(20) Income Tax paid by employer on taxable non-cash perquisites on behalf of employees(21) Any sum received under Life Insurance Policy whether it is maturity amount or bonus or

otherwise excluding those policies where premium payable in a year is more that 20% of actual

capital sum assured

(22) Payment from Provident Funds (by a employee who has rendered 5 years of continuous serviceand subject such other conditions)

(23) Payment received from Superannuation Fund(24) House Rent Allowance (amount of exemption is least of three (i) Actual HRA received, (ii) Rent

paid of 10% of salary, (iii) 50% or 40% of salary as applicable and subject to other conditions)

(25) Special Allowances as specified in sec. 10(14) ex.: Transport Allowance, Children EducationAllowance, Hostel Allowance, City Compensatory Allowances, etc.

(26) Daily Allowance received by M.P. and M.L. As (subject to a ceiling)(27) Pension received by recipient of gallantry awards(28) Family pension received by widow/children/nominated heirs of members of armed force(29) Income of Scientific Research Associations approved under section 35(1)(ii)(30) Income of news agency (for collection and distribution of news only and profit should not be

distributed to its members)

(31) Specific income and any income of venture capital funds and venture capital companies (subjectto conditions as applicable)

(32) Income of Infrastructure Capital Fund or Company(33) Income from dividend distributed by a limited company and Mutual Fund(34) Long-term Capital Gain of listed equity shares(35) Long-term capital gains on compulsory acquisition of agricultural land situated within specified

urban limits(36) Long-term capital gains on sale of equity shares/units of an equity oriented fund(37) Income received by any person on behalf of specified national funds, approved public charitable

trust, educational institute and hospital.


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(38) Income from news agency (e.g. PTI).4. Computation of Taxable Income of Individual, HUF, Firm

& Corporates :- : INCOME FROM SALARY: -

HOW TO COMPUTE SALARY INCOME: -Amount Amount

Basic Salary

Add: -

Dearness Allowance

Commission

Bonus

Employer contribution to Provident Fund less exempt upto 12 %

Interest credited to Provident Fund less exempt upto 9.5%

Other Allowances to the extent taxable

Entertainment Allowance

Advance Salary

Arrear Salary

Leave Salary

Gratuity

Pension

Perquisite [U/S17(2): -

(i) Rentfree accommodation

(ii) Valuation of perquisite in respect of free domestic servants(iii) Valuation of perquisite in respect of gas, electric energy or water supply

(iv) Valuation of perquisite in respect of free education

(v) Valuation of leave travel concession in India

(vi) Employees obligation met by employer

(vii) Perquisite in respect of use of movable assets(viii) Valuation of the perquisite in respect of movable assets sold by an

employer to its employees at a nominal price

(ix) Valuation of medical facilities

GROSS INCOME FROM SALARY

Less: Deductions U/S 16

i) Entertainment Allowanceii) Professional Tax

NET SALARAY

Less: - Deductions under Chapter VI A (i.e. 80C, 80D, etc.)

TAXABLE INCOME (Rounded off u/s 288A)

Tax on above net income [(See ANNEXURE) (Rounded Off U/S 288B)]

Add: Surcharge (If income exceeds Rs. 10 Lacks)

Tax Plus SurchargeAdd: Education Cess (@ 3% on Tax plus Surcharge)

Total Tax Payable (Tax + Surcharge + Education Cess)

House Rent Allowance:

The following amount will be deducted from the HRA received:

House situated in Delhi, Mumbai, Chennai & Kolkata House situated in other city

Minimum of the followings: Minimum of the followings:

a) Actual HRA b) Actual HRAc) Rent paid in excess of 10% ofSalary d) Rent paid in excess of 10% ofSalarye) 50% ofSalary f) 40% ofSalary

Salary (on accrual basis) = Basis + DA + Commission as fixed % of turnover.

PERQUISITE: -


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Specified Employee: - (a) An employee who is a Director in the employed company is a specified employee,

whether he is part-time, full-time or whole time it is immaterial.

(b) An employee who has a substantial interest in the employer company is a specified employee of the

company [if he is a beneficial owner of equity shares carrying 20 % or more voting power in the employer

company].

(c) An employee whose income chargeable under the head Salaries exceeds Rs. 50000 is a specifiedemployee.

1. Valuation of rentfree unfurnished and furnished accommodation provided

(a) Central Govt. and State Govt. Employees Value of Perquisite is equal to the licence fee, whichwould have been determined by the Central Govt.plus 10% of the cost of the furniture provided.

(b) Private Sector or Other EmployeeSituation Where the unfurnished

accommodation is ownedby the employer

Where the unfurnished

accommodation is takenon lease or rent by the

employer

Where furnished

accommodation isprovided

(1) (2) (3) (4)

Cities havingpopulation exceeding

25 Lakh as per 2001

census

15 % of salary in respect ofthe period during which

the employee occupies the

accommodation minus rent

recoverable from, or

payable by assessee.

Amount of lease rentpaid or payable or 15%

of salary, whichever is

lower minus rent



Amount derivedfrom Col No. (2) or

(3) as the case may

be plus 10% of the

cost of furniture and

fixtures( ex. TV,

Radio, Refrigerators,

AC Machine, etc.)

provided

Cities having

population exceeding10 Lakh but not

exceeding 25 Lakh

as per 2001 census

10 % of salary in respect of

the period during whichthe employee occupies the


recoverable from, orpayable by assessee.

Amount of lease rent

paid or payable or 15%of salary, whichever is

lower minus rent

recoverable from, orpayable by assessee.

Amount derived

from Col No. (2) or(3) as the case may

be plus 10% of the

cost of furniture andfixtures( ex. TV,


AC Machine, etc.)provided

In any other place 7.5 % of salary in respect

of the period during which

the employee occupies the




Amount of lease rent

paid or payable or 7.5%

of salary, whichever is

lowerminus rent



Amount derived

from Col No. (2) or

(3) as the case may

beplus 10% of the

cost of furniture and

fixtures( ex. TV,


AC Machine, etc.)

provided

NOTE: -

Salary = Basic salary, Bonus, Commission, Fees, Allowances, etc., are included on accrual basis.

2. Valuation of rentfree furnished accommodation in a hotel

Furnished accommodation in a hotel: -i) 24% of salary paid or payable for the period during which such accommodation is

provided in the previous year.

ii) Actual hire charges paid or payable by the employer to such hotel.Exception: - If an accommodation is provided in a hotel and the following conditions are satisfied, nothing is

chargeable to tax.

a. The hotel accommodation is provided for total period not exceeding in aggregate 15 days in aprevious year and


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b. Such accommodation is provided on an employees transfer from one place to another place.

3. Valuation of accommodation provided at new place of posting on transfer while retaining the

accommodation at the other place: - For a period not exceeding 90 days lower of the two, after that both of

such accommodation.

4. Valuation of perquisite in respect of free domestic servants: - (a) if the domestic servant is engaged by theemployee and the salary of the servant is paid by the employer, it is taxable on the hands of the all employee.

(b) If an employer provides a rent-free house (owned by the employer) to his employee, expenses incurred bythe employer on maintenance of garden and ground attached to the house, nothing should be taxable.

(c) If domestic servant allowance is given to an employee is always chargeable to tax. It is taxable even if the

allowance is used for engaging a domestic servant.

5. Valuation of perquisite in respect of gas, electric energy or water supply provided free of cost (for specified

employees only) : -

Mode of Valuation The employer from outside agencypurchases gas, Electricity or water.

The employer out of own sourcespurchases gas, Electricity or water.

Find out cost to the employer

Less: - Amount recovered from the

employee.

Taxable value of the perquisite.

Amount paid or payable by the

employer to the outside agency.

Recovery from the employee

Balancing amount (if it is positive)

Manufacturing cost per unit

incurred by the employer.

Recovery from the employee

Balancing amount (if it is positive)

6. Valuation of perquisite in respect of free education: - (i) Amount spent for providing free education facilities

to, and training of the employee is not taxable. (ii) Fixed education allowance given in cash by the employer to

meet the cost of education of the family member of the employee is not taxable to the extent of Rs. 100 per

month per child subject to the maximum of two children. And Hostel facility given by the employer to the

employee for the family member of the employee is not taxable to the extent of Rs. 300 per month per child,subject to maximum of two children.

(iii) School fees of the family members of the employee paid by the employer directly to the school, is taxable

as a perquisite in all cases.

(iv) Reimbursement of school fees to the employee for the employees children is taxable as a perquisite forthe specified employees.

Different Situation Amount chargeable to tax

Where the educational institution is owned andmaintained by the employer and education facility is

provided or where such educational facility is

provided in any institute by reason of employees

employment with the employer

a. Where education facility is provided to employees

children

- Where cost of education or value of suchbenefits does not exceed Rs. 1000 per month

per child.

- Where such amount exceeds Rs. 1000 permonth per child.

b. Where educational facility is provided to member

of his household (other than children).

-

NIL

Cost of such education in a similar institution in or

near the locality (-) Rs. 1000 per month per child (-)amount paid or recovered from the employee.

Cost of such education in a similar institution in or

near the locality (-) amount paid or recovered from

the employee.

7. Valuation of leave travel concession in India: -

Different situation Amount of exemption if journey is performed on orafter October 1, 1997.

1.Where Journey is performed by air 1. Amount of economy class airfare of theNational carrier by the shortest route or the

amount spent whichever is less.


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2.Where journey is performed by rail.

3.Where the places of origin of journey and

destination are connected by rail and journey is

performed by any other mode of transport.

4.Where the place of origin of journey and destination(or part thereof) are not connected by rail

- Where a recognized public transport exists.- Where no recognized public transport system

exists.

2. Amount of air-conditioned first class railfare by the shortest route or amount spent

whichever is less.

3. Amount of air-conditioned first class railfare by the shortest route or amount spent

whichever is less.

- First class or deluxe class fare by the shortest route

or the amount spent, whichever is less.- Air-conditioned first class rail fare by the shortest

route (as if the journey had been performed by rail) or

the amount actually spent, whichever is less.

8.Employees obligation met by employer: - Amount paid by an employer in respect of any obligation which

otherwise would have been payable by the employee is taxable in all cases.

9.Valuation of perquisite in respect of interest-free loan or loan at concessional rate of interest: - If an

employer gives a loan to the employee (or any member of his household) it is a perquisite chargeable to tax. It

is taxable in the hands of all employees (whether specified or not).Step-1 Find out the maximum outstanding monthly balance (i.e., the aggregate outstanding balance for

each loan as on the last day of each month).

Step-2 Find out rate of interest charged by the SBI as on the first day of the relevant previous year in

respect of loan for the same purpose advanced by it

Step-3 Calculate interest for each month of the previous year on the outstanding amount mentioned in step1 at the rate of interest given in step 2.

Step-4 From the total interest calculated for the entire previous year under step 3, deduct interest actually

recovered, if any, from the employee during the previous year.

Step-5 The balance amount [i.e. step-3 minus step-4] is taxable value of the perquisite.

NOTE: - 1. Where the original loan amount does not exceed in the aggregate of Rs. 20000, no tax is

chargeable on the perquisite.

2.The rate inside the bucket is applicable in rural or semi urban borrowings.

10. Perquisite in respect of use of movable assets (other than Computer, Laptop or Car): -

(a) If the assets are owned by the employer: - 10% of actual cost of the assets (cost to the employer)minus amount recovered from the employee.

(b) If the assets taken on lease or rent by the employer: - Amount paid to the lessor (owner of the assets)minus amount recovered from the employee.

(c) In case of Motor Car or Vehicle (for specified employees only):A. Motor Car

Car owned by the employer: a) used for official purposes: Nil

b) used for private purposes: Actual expenditures / 10% of the cost of the motor car + Actual Salary

of chauffer /Rs. 900 for chauffer if anyAmount charged

c) used for partly private and partly official purposes where segregation is not possible:i) if maintained by the employer: Rs. 1,800/2,400 (higher for engine capacity above 1600cc) + Rs.

900 for chauffer if any

ii) if maintained by the employee: Rs. 600/900 (higher for engine capacity above 1600cc) + Rs. 900

for chauffer if any

Car owned by the employee but maintained by the employer including the chauffer:a) used for official purposes: Nil

b) used for partly private and partly official purposes where segregation is not possible: Actual

expendituresamount as per point no. (c )(i) above

A. Motor Vehicle (owned by the employee but maintained by the employer): Same as above

(owned by employee) as relevant / replace all amount by Rs. 900.


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(d) NOTE: - For the computer or laptops no perquisite. For other assets: Actual Hire Charges/10% paof actual cost

11. Value of free food and non-alcoholic beverages:

Tea or snakes during working hours Nil

Free food and non-alcoholic beveragesduring working hours in a remote area or an

offshore installation

Nil

Free food and non-alcoholic beverages

during working hours at office or business

premises or through paid vouchers which arenot transferable and usable only at eating

joints.

Taxable over and above Rs. 50 per meal.

In any other case Actual amountamount recovered from the employee

12. Perquisite in respect of movable assets sold by an employer to its employees at a nominal price: -

Mode of valuation Perquisite in respect of sale of movable assets to employees

Electronic items /computer

Motor Car Any other asset

Step-1 Find out cost ofthe asset to the employer.

Step-2 Less Normal wear

and tear for completed

years during which the

asset was used by the

employer for his businesspurpose.

Step-3 Less: Amount

recovered from the

employee.

Taxable value of the

perquisite.(Step1-Step2-Step3)

Actual cost to theemployer.

50% for each completed

year by reducing

balance method.

Consideration recovered

from the employee.

Balancing amount.

(If it is positive)



year by reducing

balance method.


from the employee.

Balancing amount.

(If it is positive)



year by straight line

method.


from the employee.

Balancing amount.

(If it is positive)

13.Medical facilities

a) In India: -

Tax-free for expenditure of medical treatment of the employee or any member of his family in hospital for

prescribed diseases or ailments.

However, if the medical reimbursement is given, only 15,000 is tax free subject to the maximum of actual

expenditure.

b) Outside India: -

Medical treatment of employee or any member of family of such employee outside India Expenditure shall

be excluded from perquisite only to the extent permitted by the R.B.I. no perquisite is chargeable to tax.

Cost of travel of the employee/ any member of his family and one attendant who accompanies the patient in

connection with treatment outside IndiaExpenditure shall be excluded from perquisite only in the case of anemployee whose gross total income, as computed before including therein the expenditure on traveling, does

not exceed Rs. 2,00,000 - no perquisite.

14. Other Points

Entertainment Allowance: - Entertainment allowance is first included in the salary and thereafter adeduction is allowed in accordance with the rule [In case of Govt. Employee (a) Rs. 5000, (b) 20% of basic


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salary, (c) Amount of entertainment allowance granted during the previous year. Whichever is less][ In case of

non Govt. Employee entertainment allowance is not deducted.]

PROFESSIONAL TAX: - Under Article 276 of the Constitution, a State Govt. cannot impose more than Rs.

2500 per annum as professional tax. Under the Income Tax whatever professional tax is paid during the

previous year is deductible.

LEAVE SALARY: - As per service rule an employee gets different leaves. An employee has to earn leave in

the first instance and only when he has leave to his credit, he can apply for leave. If a leave is not taken withina year, as per the service rules, it may be encashed or it may accumulate. The accumulated standing to the

credit of an employee may be availed by the employee during his service time or, subject to service rules, such

leaves may be encashed at the time of retirement or leaving the job.

Nature of leave encashment Status of employee Whether it is taxable.

Leave encashment during

continuity of employment.

Government / non-government

employee

It is chargeable to tax. However,

relief can be taken u/s 89.

Leave encashment at the time of

retirement / leaving job.

Government employee It is fully exempt from tax u/s

10(10AA)(i)

Leave encashment at the time of

retirement / leaving job.

Non-Government employee It is fully or partly exempt from

tax in some cases u/s 10(10AA)(ii)

For Non Government Employee the least of the following is exempted from tax:

(a) Period of earned leave to the credit of the employee at the time of his retirement or leaving the job (max 30

days in a year) X Average monthly salary.

(b) 10 XAverage monthly salary.(c) Amount specified by the Govt. [i.e., Rs. 3,00,000 applicable from 1-4-1998].

GRATUITY: - Gratuity is a retirement benefit. It is generally payable at the time of cessation of employment

and on the basis of duration of service. Tax treatment of gratuity is given below:

Status of employee Whether gratuity is taxable

Govt. employee It is fully exempt from tax u/s 10(10)(ii)

Non Govt. employee covered by the payment

of Gratuity Act, 1972.

It is fully or partly exempt from tax u/s 10(10)(ii).[ Least of

the following is exempt: (a) 15 days salary based on the

salary last drawn for every completed year of service or partthereof in excess of 6 months, (b) Rs. 10,00,000, (c)

Gratuity actually received.]

Non Govt. employee not covered by the

payment of Gratuity Act, 1972.

It is fully or partly exempt from tax u/s 10(10)(iii).[ Least of

the following is exempt: (a) Half months average salary

based on the 10 months average salary for each completed

year of service, (b) Rs. 10,00,000, (c) Gratuity actually

received.]

PENSION: - Pension is two types. One is computed pension, and another is uncommuted pension.

Uncommuted pension is taxable as salary u/s 15 in the hands of a Govt. employee as well as non-govt.

employee. Computed pension is taxable as under For Govt. employee: whether Gratuity received or not

entire pension is exempted from tax. And for Non- Govt. employee: if gratuity received 1/3 rd of the pension is

exempted from tax and if gratuity not received 1/2th of the pension is exempted from tax.

ANNUITY: - An Annuity payable by a present employer is taxable as salary even if it is paid voluntarily

without contractual obligation of the employer. An Annuity received from former employer is taxed as profit

in lieu of salary.

-:INCOME FROM HOUSE PROPERTY: -KEY TERMS: -

DEEMED OWNER: - Section 27 provides that the following persons are to be treated as deemed owner of

house property for the purpose of Income Tax:1.Transfer to spouse or minor child.

2.Holder of impartible estate.3.Property held by a member of co-operative society/ company/AOP.

4.Person who has acquired a property under a power of attorney transaction.


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5. A person who has acquired a right in a building u/s 269UA(f).

GROSS ANNUAL VALUE: - The value of the property determined by the Municipal Authority or by the rent

received or receivable, but deduction of the municipal tax is known as Gross Annual Value.

MUNICIPAL VALUE: - For collecting municipal taxes, local authorities make a periodical survey of all

buildings in their jurisdiction. Such valuation is known is Municipal value of the property.

FAIR RENT: - Fair rent of the property is the value, which is determined on the basis of a rent fetched by asimilar property in the same or similar locality.

STANDARD RENT: - Standard rent is the maximum rent which a person can legally recovered from his

tenant under a Rent Control Act.

COMPUTATION OF TAXABLE INCOME OFA LET-OUT HOUSE PROPERTY: -

Amount Amount

Step-1: Find out the higher of the Municipal value of fair rent, subject to the

Standard Rent.Step-2: If rent received/ receivable is more than step-1, then taken step-2 as Gross

annual value.

Step-3: If the property is vacant during the whole period or any part thereof in theprevious year, then actual rent received or receivable is taken as Gross Annual

Value.

GROSS ANNUAL VALUE

Less: - Municipal Taxes.

NET ANNUAL VALUE

Less: - Deduction U/s 24:

a) Standard deduction @ 30% of net annual value u/s 24(a).

b) Interest on borrowed capital u/s 24(b).INCOME FROM HOUSE PROPEERTY.

COMPUTATION OF TAXABLE INCOME OF A SELF-OCCUPIED PROPERTY: -

Amount Amount

GROSS ANNUAL VALUELess: Municipal Taxes

NET ANNUAL VALUE

Less: Deduction U/s 24:

Interest on borrowed Capital u/s 24(b)INCOME FROM HOUSE PROPERTY

NILNIL

Rs.1,50,000/Rs.30,000

INTEREST ON BORROWED CAPITAL: - Maximum ceilling of interest on borrowed capital is Rs. 1,50,000

subject to satisfied some conditions. (a) It is borrowed on or before 1/04/1999; (b) Construction is completed

within 3 years, from the end of financial year in which the capital was borrowed, (c) A certificate is obtained

that the loan is taken for the purpose of construction of the property. Otherwise, upto Rs. 30,000 is deductedfrom the Net Annual Value.

-: INCOME UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION: -

COMPUTATION OF INCOME FROM BUSINESS OR PROFESSION: -

Amount Amount

Net profit as per Profit & Loss A/C.

Add: Expenses debited to Profit & Loss Account but disallowed by the IncomeTax Act: ( A)

Income Tax/ Wealth Tax, etc.

Household expenses

Legal charges for infraction of law

Reserve for bad debt

Interest on capital, etc.Depreciation as per Companies Act.

Bad debt (If not allowed by I.T.O., not taken into the account when

recovered)


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TOTAL (A)

Less: - Expenses not debited to Profit & Loss Account but allowed by the

Income Tax Act: (B)

Capital expenditure on scientific research

Depreciation as per Income Tax Act.

Total (B)

Less: - Income credited to profit & Loss A/C but not chargeable under the headProfits & Gains of Business or Profession:

Bank Interest

Dividend from shares

Rent from house property let out not incidental to business, etc.

Less: - Items credited to Profit & Loss A/C as income but not taxable under the

Act:

Gift from father

Interest from Post Office Savings Bank A/C.

Bad Debt recovered (If disallowed in earlier year, not taken)

Add: - Loss debited to Profit & Loss A/C but not charged under this head as

per the Act:

Loss on sale of Capital Assets.Loss of security deposits, etc.

Income from Business or Profession.

Note: The above Income from business will be separately calculated speculation (i.e. transaction settled

without actual delivery of goods) and non-speculation business. Losses under speculation business can notadjusted against profits under non-speculation business whereas vice versa is true.

Depreciation: - Depreciation is the diminution in the value of an asset due to normal wear and tear and due to

obsolescence. In the Income Tax Act, they are followed only two methods. They are (a) Straight Line Method

and (b) Written Down Value Method.

Block of Assets: - Block of Assets means a group of assets falling within a class of assets comprising, -

(a) Tangible assets(b) Intangible assets.(c) Same percentage of depreciation of the assets.

NOTE: -(i) If the assets are used in the previous year for less than 180 days, the rate of depreciation is 50% on

the rate prescribed.

(ii) If the block of assets is zero, no depreciation is to be charged whether there are some assets; it is applicable

when the assessee sells the assets.

(iii) If there is a profit on sells of assets, the profit/ loss on sell should be treated as Capital Gain/ Loss.

Rent, rates, taxes, repairs and insurance for buildings [sec. 30]: - If the building is occupied as a tenant, the

rent paid by him is allowed as a deduction and repairs to the premises is also allowed as a deduction.

If the buildings is occupied otherwise than as a tenant, the amount paid by him on account of current repairs to

the premises is allowed as deduction.

Repairs and insurance of machinery, plant and furniture [sec.-31]: - Current repairs in respect ofmachinery; plant furniture used for the purpose of business is allowed as deduction.

Tea/Coffee/Rubber Development Account [sec. 33AB]: - If the conditions are satisfied then the amount

deposited in deposit in special account or 40% of the profit of such business. Conditions are as follows:

(a) Assessee must engage in tea, coffee or rubber business.(b) It must make a deposit in Special Account.(c) The deposit should be made within specified time limit.(d) The accounts of the assessee should be audited.(e) The audit report must be gave in Form No. 3AC.


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Site Restoration Fund [Sec. 33ABA]: - If the conditions are satisfied then the amount deposited or 20% of

the profit of such business computed under the head Profits or gains of Business or profession should be

allowed as deduction. The conditions are as follows: -

(a) Assessee must engaged in production of petroleum/ natural gas in India.(b) Assessee has an agreement with the Central Govt.(c) It must make a deposit in Special Account.(d) Deposit should be made within specified time limit.(e) The accounts of the assessee should be audited.

Revenue Expenditure on Scientific research [sec. 35(1)(i)]: - If the expenditure is incurred in his own

business deduction is allowed for such expenditure.

Revenue expenditure on scientific research for outsiders [sec. 35(1)(ii)/(iii)]: - If the assessee contributes to

other institution, then one and one-fourth of such expenditure is allowed as deduction.

Capital expenditure on scientific research [sec.35(2)]: - If the assessee incurred any expenditure for his

business for scientific purpose, which is capital nature, whole of such expenditure is allowed as deduction.

Contribution to National Laboratory [sec. 35(2AA)]: - If the assessee made a contribution in favor of

national laboratory / University/ Indian Institution of Technology etc. then one and one-fourth of suchexpenditure is allowed as deduction.

Expenditure on acquisition of patent rights and copyrights [sec. 35A]: - In respect of revenue expenditure

incurred in this respect, the assessee can claim deduction u/s 37(1). In respect of capital expenditure incurred

after April 1, 1998, the assessee can claim depreciation u/s 32. Any capital expenditure incurred in respect of

patent rights or copyrights for the purpose of business, is allowable as business expenditure in equal

installments over a period of 14 years.

Amortisation of telecom licence fees [Sec. 35ABB]: - If the assessee satisfied the conditions 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. Conditions are:

(a) Expenditure is capital nature, (b) it is incurred for acquiring any rights to operate telecommunication

service, (c) payment has been made for the obtaining the licence.

Insurance Premium [Sec. 36(1)(i)]: - Any premium paid in respect of insurance against risk of damage or

destruction of stocks or stores used for the purposes of business is allowable as deduction.

Interest on borrowed capital [Sec.36 (1)(iii)]: - If the assessee borrowed capital for the purpose of hisbusiness, interest thereon is allowed as deduction.

Employers contribution to Recognised Provident Fund, Approved Superannuation Fund [Sec.

36(1)(iv)]: - Any contribution in respect of the above fund by the employers is allowed as deduction.

Employers contribution towards Approved Gratuity Fund [Sec 36(1)(v)]: - Any contribution towards the

above by the employers is allowed as deduction.

Bad Debts [Sec 36(1)(vii)]: - If there is bad debt, which is connected with the assessees business, is allowed

as deduction.

Note: - If the bad debt is taken into account as an allowable expenditure, when the bad debt is recovered itshould be treated as income, in which year it was recovered.

Provisions: - Any type of provision does not take into account when calculating the profit or loss as per

Income Tax Act.

Securities Transaction Tax [Sec 40(a)(ib)]: - Security transaction tax is not deductible while calculatingbusiness income.

Fringe Benefit Tax [Sec 40(a)(ic)]: - Fringe benefit tax is not deductible while calculating business income

from the Assessment year 2006-07.


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Income Tax [Sec 40(a)(ii)]: - Any sum paid in respect of Income Tax is not deductible while calculating

business income.

Wealth Tax {Sec 40(a)(iia)]: - Any sum paid in respect of wealth tax, whether paid outside India or not is not

deductible while calculating business income.

Salary paid outside India [Sec 40(a)(iii)]: - If salary paid outside India without deduct the tax is not

deductible.

Payment made to the Relative [Sec 40A(2)]: - Any sum paid to the relatives by an assessee is disallowed to

the extent of excessive payment paid to the relatives.

Amounts paid in respect expenditure exceeding Rs. 20,000 [Sec 40A(3)]: - Any sum paid by way of cash or

bearer cheque in excess of Rs. 20000 then 20 % of such payment is not allowed as deduction.

Exception of this Rule: - Any payment made to the (a) Govt., (b) Bank, (c) payment made by bookadjustment, (d) Payment made to a person where no banking system.

-: INCOME FROM CAPITAL GAINS: -

Any gain arising from transfer of a capital asset during a previous year is chargeable to a tax under the head

Capital Gain in the immediately following assessment year subject claim deduction U/S 54, 54B, 54D,

54EC, 54ED, 54F, 54G, and 54GA. The excess of the transfer price is treated as long term or sort term capital

Gain. In case of Long Term Capital gain tax rate is 20% and for Sort Term Capital Gain tax rate is 10%.

Capital assets does not include (a) Stock in trade (b) personal effects (c) Rural agricultural land (d) Gold

Bonds (e) Special Bear Bond

Type of Capital Assets: - There are two types of capital assets. One is a short-term capital asset (holding

period is less than 36 months or 12 months as applicable), and another is a long-term capital asset.

Transfer [sec. 2(47)]: - Transfer includes: the sale, exchange or relinquishment of the asset, extinguishments

of any right, compulsory acquisition, stock transfer, etc.

Cost of Acquisition [Sec. 55(2)]: - Cost of acquisition is the price, which the assessee has paid for acquiring

the assets.

Indexed cost of acquisition: - Indexed cost of acquisition means an amount which bears to the cost of

acquisition the same proportion as cost inflation index for the year in which the asset is transferred bears to the

cost inflation index for the first year in which the asset was held by the assessee or for the year beginning on

01-04-1981 whichever is later.

Cost of Improvements: - All capital expenditure incurred in making any additions or alterations to the capital

asset by the assessee after it became his property and where the capital asset became the property of theassessee by any mode specified in section 49(1).

COMPUTATION OF CAPITAL GAINS [SEC. 48]: -

Computation of short term capital gain Computation of long term capital gain

1.Find out full value of consideration.

2. Deduct the following:

(a) Expenditure incurred wholly and exclusivelyin connection with such transfer.

(b) Cost of acquisition.(c) Cost of Improvement.

3. From the resulting sum deduct the exemption

provided by section 54B, 54D, 54G and 54GA.

4. The balancing amount is short-term capital gain.

1. Find out full value of consideration.

2. Deduct the following:

(a) Expenditure incurred wholly and exclusively

in connection with such transfer.(b) Indexed cost of acquisition.

(c) Indexed cost of Improvement.

3.From the resulting sum deduct the exemption

provided by section 54, 54B, 54D, 54EC, 54F, 54G

and 54GA.

4. The balancing amount is Long- term capital gain


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-: INCOME FROM OTHER SOURCES: -

The following incomes are always taxable under the head Income from Other Sources.

1. Dividend (however normal corporate dividend and mutual fund dividend received is not taxablecurrently if dividend distribution tax paid on it)

2. Any winnings from lotteries, crossword puzzles, races including horse races, card games and othergames of any sort or from gambling or betting of any form or nature whatsoever.

3. Any sum received by the assessee from his employees as contributions to any staff welfare scheme (ifnot taxable underhead Profits and gains of business or profession.

4. Interest on securities if not tax under the head Profits and gains of business or profession. 5. Income from machinery, plant or furniture let on hire (if not taxable under the head Profits or gains

of business or profession.6. Income from letting of plant, machinery or furniture along with the building and letting of building is

inseparable from letting of plant, machinery or furniture (if not taxable under the head profits and

gains of business or profession.

7. Any sum received under Keyman insurance policy including bonus if not taxable as salary orbusiness income.

8. Where any sum of money exceeding Rs. 50,000 is received without consideration by an individual ora Hindu Undivided family from any non-relative person after August 31,2004, the whole of such sum.

NOTE: - If income exceeding Rs. 2,500 in respect of income from lotteries, crossword puzzles, horse races

and card games, payment should be made after 30% deducted from the income as a Tax deducted at sources

under section 194B and 194BB subject to charged surcharge and education cess.

-: EXEMPTION AND DEDUCTIONS FROM THE TOTAL INCOME: -

Special Provision in respect of newly established undertakings in free trade zone, STP, etc. (Sec. 10A).

Special Provision in respect of newly established undertakings in special economic zone (Sec. 10AA).

DEDUCTIONS UNDER SECTION 80

Deduction in respect of life insurance premium, deferred annuity, contribution to Provident fund,

subscription to certain equity shares or debentures, etc. [U/S 80C]: - The Silent features are as follows:

1. Deduction is available to the Individual and Hindu Undivided Family.2. Deductions are available on the basis of specified qualifying investments/ contributions/ deposits.3. The gross qualifying amount would be allowed as deduction subject to maximum of Rs. 1,00,000.4. The maximum amount deductible u/s 80C, 80CCC and 80CCD cannot exceed Rs. 1,00,000.

Computation of deduction U/S 80C (individual and HUF): - The deduction is calculated as per the

following steps

Step-1 Findout the Gross Qualifying Amount.Step-2 Amount of deduction.

Step-1 Gross Qualifying Amount: - The gross qualifying amount is the aggregate of the following:-

1. Life Insurance Premium (including payment made by Govt. employees to the Central Govt.Employees Insurance Scheme and payment made by a person under childrens deferred endowment

assurance policy)[subject to a maximum of 20% of sum assured].

2. Payment in respect of non-commutable deferred annuity.3. Any sum deducted from salary payable to a Govt. employee for the purpose of securing him a

deferred annuity (subject to a maximum of 20% of salary).

4. Contribution towards Statutory Provident Fund, recognized Provident Fund, approved superannuationfund and 15 years public Provident fund.

5. Subscription to National Savings Certificates, VIII Issue and Bank (with scheduled bank) FixedDeposit (maturity 5 years and above)


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6. Contribution for participating in the Unit-Linked Insurance Plan (ULIP) of Unit Trust of India (UTI)LIC Mutual Fund.

7. Payment for notified annuity plan of LIC (i.e. Jeevan Dhara, Jeevan Akshay, New Jeevan Dhara, NewJeevan Akshay, New Jeevan Dhara 1, New Jeevan Akshay 1) or any other insurer.

8. Subscription towards notified units of Mutual Fund or UTI.9. Contribution towards notified pension fund set up by Mutual Fund or UTI.10. Any sum paid as subscription to Home Loan Account Scheme of the National Housing Bank orcontribution to any notified pension fund set up by the National Housing Bank.11. Tuition Fees (Max. of two children) for full time education in India12. Principle amount repaid to House Building Loan.13. Subscription to equity shares or debentures of an eligible public company or public financial

institution.

Step-2: - Amount of Deduction: - Amount deduction under section 80C (along with 80CCC & 80CCD) is

least of the Gross Qualifying Amount or Rs. 1,00,000.

Deduction in respect ofpension fundwhen available [sec. 80CCC]: - The conditions are as follows:

1. The taxpayer is an Individual (may be resident or non-resident, Indian Citizen or Foreign Citizen).2. During the previous year he deposited a sum under an annuity plan of the Life Insurance Corporation

of India or any other insurer for receiving pension.

3. The amount paid out of his income chargeable to tax.Amount of Deductions: - If the above conditions satisfied then amount deposited or Rs. 10,000 whichever isless deducted, subject to aggregate deduction U/S 80C, 80CCC and 80CCD cannot exceed Rs. 1,00,000.

Deduction in respect ofinvestment in Infrastructure Bond [sec. 80CCF]

Amount of Deduction is maximum Rs. 20,000.

Deduction in respect ofmedicalinsurance premium[sec. 80D]: - The conditions are as follows:

1. The taxpayer is an Individual (resident/ non-resident or Indian citizen/ foreign citizen) or a HUF (maybe resident/ non-resident).

2. Insurance premium is paid by the taxpayer in accordance with the scheme framed in this behalf by theGeneral Insurance Corporation of India.

3. The GIC is approved by the Central Govt.4. The scheme is known as Mediclaim insurance policy.5. If it is deposited in another Insurer, it should be approved by the Insurance regulatory and

Development Authority.

6. The premium should be paid by cheque (Bearer/ crossed/ account payee).7. It is paid out of income chargeable to tax.8. Individual should be made on the health of the taxpayer, spouse, and dependent children/ parents.9. HUF should be made on the health of any member of the family.

Amount of deduction: - If the conditions satisfied, premium paid or Rs. 15,000 whichever is lower is

deductibles [For Senior Citizen instead of Rs. 15,000 it is Rs. 20,000.]

Deductions in respect of maintenance including medical treatment of a dependent being a person with

disability [sec. 80DD]: -

A fixed deduction of Rs. 50,000. A higher deduction of Rs. 1,00,000 shall be allowed, where such dependent

is a person with severe disability having any disability over 80%.

Deduction in respect ofmedical treatment (certificate from specialist has to be obtained), [sec.-80DDB]: -Amount incurred or Rs. 40,000/60,000 whichever is lower is deductible.

Deduction in respect of repayment of loan taken for higher education-when and to what extent available

(loan taken for relatives i.e spouse and children)[sec. 80E]: - Conditions are as follows:

1. Assessee is an Individual.2. He had taken a loan from any financial institution or an approved charitable institution.3. Loan is taken for the purpose of pursuing his higher education [full time studies for any graduate, post

graduate course].

4. The assessee pays amount during the previous year by way of interest on such loan.5. Such amount is paid out of his income chargeable to tax.


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Amount of Deduction: - If the above conditions are satisfied the entire amount paid by way of interest is

deductible for the period of8 succeeding assessment years under section 80E.

Deduction in respect of certain funds, charitable institution [Sec. 80G]: - Deduction under this section is

available to any taxpayer and calculates under the following steps: -

Step-1 Calculates Gross Qualifying Amount.

Step-2 Calculates Net qualifying Amount.Step-3 Amount Deductible.

Step-1 Calculations of Gross Qualifying Amount: Gross qualifying amount is the aggregate of the donations

made to any of the institutions/ fund given in column 1 of the table given in step3.

Step-2 Net qualifying Amount: - Net qualifying amount is limited to 10% of gross total income of the assessee

as reduced by the following:

a. Amount deductible under sec. 80C to 80U.b. Such incomes on which income tax is not payable.c. Long term capital gains.d. Short term capital gain, which is taxable u/s 111A at the rate of 10%.e. Incomes referred to in sections 115A, 115AB, 115AC or 115AD.

Step-3 Amount deductible: -

Different heads Maximum

Limit

Deductions (as a %

of net qualifying

amount)

a. National Defence Fund set up by the Central Govt. Not Applicable 100%

b. Jawaharlal Nehru Memorial Fund Not Applicable 50%

c. Prime Ministers Drought Relief Fund Not Applicable 50%

d. Prime Ministers National Relief Fund Not Applicable 100%

e. Prime Ministers Armenia Earthquake Relief Fund Not Applicable 100%

f. Africa (public Contributions- India) Fund Not Applicable 100%

g. National Childrens Fund Not Applicable 50%

h. Indira Gandhi Memorial Trust Not Applicable 50%

i. Rajib Gandhi Foundation Fund Not Applicable 50%

j. National Foundation for communal Harmony Not Applicable 100%

k. An approved University/ educational Institution. Not Applicable 100%

l. The Maharastra Chief Minister Relief Fund Not Applicable 100%

m. Any fund set up by the Govt. of Gujarat for providing relief to

victims of earthquake in Gujarat.

Not Applicable 100%

n. Zila Saksrta Samiti Not Applicable 100%

o. National Blood Transfusion Council and State Council for Blood

Transfusion.

Not Applicable 100%

p. Fund Set up by a State Govt. for the medical relief to the poor. Not Applicable 100%

q. Central Welfare Fun of the Army and Air force and the IndianNaval Benevolent Fund.

Not Applicable 100%

r. Andhra Pradesh Chief Ministers Cyclone Relief Fund. Not Applicable 100%s. National Illness Assistance Fund. Not Applicable 100%

t. Chief Ministers Relief Fund or Lieutenant Governors Relief

Fund.

Not Applicable 100%

u. National sports Fund or National cultural Fund of Fund for

Technology Development and Application.

Not Applicable 100%

v. Any other fund or any institution which satisfies conditions

mentioned in sec. 80G(5).

As given below 50%

w. Government or any local authority, institution or association to

be utlised for the purpose of promoting family planning.

As given below 100%

x. Government or any local authority to be utlised for any charitable

purpose other than the purpose of promoting family planning.

As given below 50%

y. Any notified temple, mosque, gurdwara, church or other place of

religion (for renovation or repair)

As given below 50%

* 10% of the Adjusted GTI.


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Donations in respect of rent paidto whom and to what extent available [sec. 80GG]: - The conditions are as

follows:

1. Taxpayer is an individual.2. Taxpayer is a self employed employed person.3. Taxpayer has not receipt any allowance from his employer.4. If the taxpayer owns a residential accommodation at a place other than the place noted above, then inrespect of that house the concession in respect of self occupied property is not claimed by him.5. Taxpayer files a declaration in Form no. 10BA regarding the expenditure incurred by him towards

payment of rent.

Amount of Deductions: - If the above conditions satisfied the least of the following are deduct:

a. Rs. 2000 per month.b. 25% of total incomec. The excess of actual rent paid over 10% of total income.

Deduction in respect of certain donations for scientific research or rural development- when eligible [sec

80GGA]: - An assessee (other than an assessee whose gross total income includes income chargeable under

the head Profits and gains of business or profession) is entitled to deduction in the computation of his total

income in respect of the following payments/ donations:

1. Any sum paid to an approved scientific research association or to an approved university/college/other institution.

2. Sum paid to an approved association or institution which has as its object, the undertaking of anyprogramme of rural development, to be used for the purpose of carrying out any approved programme

of rural development provided that the assessee furnishes the certificate referred to in section

35CCA(2).

3. Sum paid to an approved association or institution which has as its object, the training of persons forimplementing programmes of rural development provided that the assessee furnishes the certificate

referred to in section 35CCA(2A).

4. Sum paid to a public sector company or a local authority or an association or institution approved bythe National Committee for carrying out any eligible project or scheme provided that the assessee

furnishes the certificate referred to in section 35AC(2)(a).5. Sum paid to National Fund for rural development set-up and notified by the Govt.6. Sum paid on or before March 31, 2002 to notified fund for afforestation.7. Sum paid to the notified National Urban Poverty Eradication Fund.

Deduction in the case of a person with disabilityTo what extent available [Sec. 80U]: - If the conditionsare satisfied then a fixed deduction of Rs. 50,000 is available. A higher deduction of Rs. 75,000 is allowed in

respect of person with severe disability. The conditions are as follows: -

1. Taxpayer is an Individual.2. Taxpayer may be an ordinarily resident or not ordinarily resident in India.3. Taxpayers suffer 40% or more than 40% of any disability (i.e. blindness, low vision, etc.).4. Taxpayer shall furnish a copy of the certificate issued by the medical authority along with the return

of income.

-: SET OFF & CARRY FORWARD OF LOSSES: -

Inter-Source Adjustment How made [sec. 70]: - If the net result for any assessment year, in respect of any

source under any head of income, is a loss, the assessee is entitled to have the amount of such loss set off

against his income from any other source under the same head of income for the same assessment year.

Exceptions: -1. Loss in Speculation Business: - Loss in speculation business can be set off against the profit in a

speculation business.

2. Long term capital Loss: - Long-term capital loss can be set off only against long-term capital gain.3. Loss from the activity of owning and maintaining race horses: - Loss incurred in the business of

owning and maintaining race horses cannot be set off against any income, if any, from any other

source except income from such business.


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4. Loss can be set off against winnings from lotteries, crossword puzzles, etc.: - A loss cannot set offagainst winnings from lotteries, crossword puzzles, races including horses races, card games of any

sort or from gambling or betting of any form or nature.

Inter Head adjustmentHow made [Sec. 71]: - Where the net result of computation made for any assessment

year in respect of any head of income is a loss, the same can be set off against income from other heads.

Exceptions: -1. Loss in a speculation business: - Loss in a speculation business cannot be set off against any other

income.2. Loss under the head Capital Gains: - Losses under the head Capital Gains cannot set off against

any income except income under the head Capital Gains.

3. Loss from the activity of owning and maintaining race horses: - Losses from the activity of owningand maintaining race horses cannot be set off against any other income.

4. Business loss cannot be set off against salary income: - From the Assessment year 2005-06, loss frombusiness or profession cannot be set off against income under the head Salaries.

5. Loss cannot be set off against winnings from lotteries, etc: - By virtue of section 58(4) a loss cannotbe set off against winnings from lotteries, crossword puzzles, races including horses races, card

games and other games of any sort or from gambling or betting of any form or nature.

Carry forward and set off of business loss other than speculation loss [Sec. 72]: -Loss can be set off only against Business Income: - A loss can be carried forward and set off against the profits

of any business or profession in a subsequent year, the assessee who incurred the loss. If the assessee carried

forward the losses, he must submit a Return of loss u/s 80 in time [i.e. U/S 139(1) of the Income Tax Act.].

Exceptions: -(i) Accumulated business loss of an amalgamating company U/S 72A or 72AA.

(ii) Accumulated business loss of demerged company.(iii) Accumulated business loss of a proprietary concern or a firm when its business is taken over by a

company by satisfying conditions of Sections 47.

(iv) Loss of business acquired by inheritance.

(v) Loss of speculative or non-speculative business loss cannot carry forward.

(vi) Sort term or long-term capital loss cannot carry forward.

(vii) Loss from the activity of owning and maintaining racehorses.

Speculative loss can be set off only against speculative Income [Sec. 73]: - Loss in a speculation business can

be carried forward to the subsequent year and set off only against the profits of a speculation business carried

on in that year. Such loss can be carried forward for four-assessment year, immediately the assessment year for

which the loss was first computed.

-: TAX REBATE: -Rebate in respect of Securities Transaction Tax [Sec. 88E]: - Where total income of an assessee in a previous

year includes any income, chargeable under the head Profits and Gains of Business or Profession, arising

from securities transactions, he shall be entitled to a deduction, from the amount of income tax on such income

arising from such transactions, computed in the manner provided in sub-section (2), of an amount equal to the

securities transaction tax paid by him in respect of taxable securities transactions entered into in the course of

his business during the previous year.

5. Computation:

TAX RATES:-

WOMEN: -

NET INCOME RANGE RATE OF INCOME TAX

Upto Rs. 2,00,000

Above Rs. 2,00,000 and upto Rs. 5,00,000


Above Rs. 10,00,000 and above

NIL

10% of (Total Income minus Rs. 2,00,000)

Rs. 30,000 + 20% of (Total income minus Rs. 5,00,000)

Rs. 130,000 plus 30% of (Total income minus Rs. 8,00,000)SENIOR CITIZEN (age more than 60 but less than 80): -


Upto Rs. 2,50,000Above Rs. 2,50,000 and upto Rs. 5,00,000

NIL10% of (Total Income minus Rs. 2,50,000)


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Rs. 25,000 + 20% of (Total income minus Rs. 5,00,000)

Rs. 85,000 plus 30% of (Total income minus Rs. 8,00,000)

SUPER SENIOR CITIZEN (age more than 80): -


Upto Rs. 5,00,000

Above Rs. 5,00,000 and upto Rs. 10,00,000Above Rs. 10,00,000 and above

NIL

20% of (Total income minus Rs. 5,00,000)Rs. 60,000 plus 30% of (Total income minus Rs. 8,00,000)

OTHER INDIVIDUAL: -


Upto Rs. 2,00,000Above Rs. 2,00,000 and upto Rs. 5,00,000



NIL10% of (Total Income minus Rs. 2,00,000)

Rs. 30,000 + 20% of (Total income minus Rs.5,00,000)

Rs. 130,000 plus 30% of (Total income minus Rs. 8,00,000)

SURCHARGE: -

Nil.

SPECIAL NOTE: - Education Cess is applicable @ 2% and Higher Education Cess is applicable @ 1% onthe tax calculated above.

COMPANY: a)In the case of a domestic company 30% of Total Incomeb) In case of other companies 40% Total Income (excluding specified royalties), in

few cases 50% of specified royalties and fess forrendering technical services.

A surcharge of 2.5% is applicable on total tax payable in the case of foreign companies, in case domestic

companies it is 10% of total tax payable

ASSESSMENT PROCEDURE:-

Submission of return of income [Sec. 139(1)]: - Section 139(1) requi9res that every person, - (a) being a

company; or (b) being a person other than a company, if (i) his total income or (ii) the total income of any

other person in respect of which he is a assessable under the Income Tax Act, during the previous year,

exceeds the maximum amount which is not chargeable to Income tax, shall furnishes a return of his income or

the income of such other person.

Time for filling return of Income [Sec. 139(1)]: - The due dates for filling returns of income are given bellow:

Different Situation Due date of submission of

return.

1.Where the assessee is a company September 30

2. Where the assessee is a person other than a company: -

(a) In case where accounts of the assessee are required to be audited under any

law

September 30

(b) Where the assessee is a Working Partner in a firm whose accounts are

required to be audited under any law

September 30

3. In any other case July 31

Permanent Account Number (PAN)[sec.139A]: - Permanent Account Number is a number which theAssessing Officer may allot to any person for the purpose of identification and includes a PAN allotted under

the new series. The provisions as submitted by the Finance Act, 1995 and applicable with effect from July

1,1995. Whose income is exceeding the limit (i.e. Rs. 1,00,000) can apply for the PAN. It is a ten-

alphanumeratic character and issued in the form of laminated card.

TAN: - TAN is required for every person deducting tax at source on amount payable to other persons.

TDS: - It is a one type of tax, which is deducted by the employer from its employee when paid them their

salary. Before paid the salary to the employee the employer deducted the tax and deposited it on behalf of the

employee. The employer can also deduct the tax when he paid the amount to the contractor, to the shareholderswhen paid the dividend. It also deducted when different departments pay the amount of lotteries or crossword


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puzzles or horses race etc. After deduct the tax by those different persons, they gave him to that person a

certificate, which is submitted at the time of return filled by that person.

Advance payment of Tax: - According to the Income Tax Act, every assessee must paid the advance tax as per

the Income Tax Rule. Advance tax is payable if his tax liability is Rs. 5000 or more, otherwise it cannot be

paid. There is a time limit for depositing the advance tax in case of different assessee.

In the case of a corporate assessee In the case of a non-corporateassessee.

On or before June 15, of the P.Y. Up to 15% of advance tax payable. Nil

On or before September 15 of the

P.Y.

Up to 45% of advance tax payable. Up to 30% of advance tax payable

On or before December 15 of the

P.Y.

Up to 75% of advance tax payable Up to 60% of advance tax payable

On or before March 15 of the P.Y. Upto 100% of advance tax payable Upto 100% of advance tax payable

Refund of Tax: - Refund means, to pay back. If, therefore, any person satisfies the Assessing Officer that the

amount of tax paid by him or on his behalf for any assessment year, exceeds the amounts with which he is

properly chargeable under the Act for that year, he is liable to a refund of the excess amount paid. The refund

should be claimed within one year from the last day of the Assessment Year.

Indirect Tax

1. Central Sales Tax Act, 1956:

-: CENTRAL SALES TAX : -

Dealer: - Dealer means any person who carries on (whether regularly or otherwise) the business of buying,

selling, supplying or distributing goods, directly or indirectly, for cash or for deferred payment, or for

commission, remuneration or other valuable consideration.

Sale: - Sale within its grammatical variations and cognate expressions means any transfer of property in goods

by one person to another for cash or for deferred payment or for any other valuable consideration, but does notinclude a mortgage or hypothecation of or a charge or pledge on goods.

Turnover: - It is the aggregate of the sale prices received and receivable by the dealer in respect of sales ofany goods in the course of inter-State trade or commerce made during any prescribed period.

Sale Price: - It means the amount payable to a dealer as consideration for the sale of any goods.

Sale or purchase in course of Inter-State Trade or Commerce : - According to section 3, a sale or purchase

of goods shall be deemed to take place in the course of inter-state trade or commerce if the sale or purchase:(a) Occasions the movement of goods from one state to another; or(b) Is effected by a transfer of documents of title to the goods during their movement from one

sale to another.

Sale or Purchase outside the State: - Section 4(1) states that [subject to provision of section 3] when a sale or

purchase is inside a state [as per section 4(2)] such sale or purchase shall be deemed to have taken place

outside all other states.

Sale or Purchase in the course of Import or Export: - The constitution of India prohibits of sales tax on

import or export of goods and empowers Parliament to prepare rules for determining when sale is in the course

of import/export. Section 5 has been enacted under these powers.

Incidence & Levy of Tax and Exemption: - As per section 8(1)(a), every dealer who in the course of inter-

state trade or commerce, sells any goods to the Government shall be liable to pay tax @ 4 % or at the local rate

(if it is lower) of his turnover. Salient features of incidence & levy of tax and exemption thereof:

Liability of CST is on sales effected by a dealer in the course of inter-state trade orcommerce only.

Inter-state sale of electrical energy is not liable to CST


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Sale or purchase taking place outside a state is outside the scope of CST of that state Transfer of goods otherwise than by way of sale is outside the purview of CST Sale or purchase in the course of export is outside the purview of CST Subsequent levy of tax in a same chain of transaction due to change of hand ix exempted (on

submission of Form C or Form D as applicable)

Determination of Turnover:

Turnover is aggregate of sale price less (a) sales tax included (if not separately charged) (b) sales price ofgoods returned within a period of 6 months from date of delivery.

Relevant formula: Turnover = (rate of tax X aggregate of the sale price)/(100 + rate of tax)

Sale Price = Amount payable to a dealer as consideration for sale of any goods Cash discountsFreight

& delivery ChargeCost of Installation

Registration of Dealers & Procedures thereof:

There are two types of registration:

Compulsory Registration (every dealer liable to pay CST has to compulsorily registerhimself )

Voluntary Registration (a dealer not liable to pay CST but having state sales taxregistration may go for voluntary registration)

Procedures It has to be applied in prescribed form (i.e. Form A presently) Verified in a manner prescribed for this purpose Signed by the appropriate person (ex. In case of proprietorship concern: Owner, In case of

limited company: Managing Director) It should contain the information like (a) the name (b) the principal place of business (c) the

address (d) Other places of business inside or outside the state etc.

Prescribed fee has to be paid Application along with fee has to be submitted within 30 days from the date form when the

dealer becomes liable to pay tax.

2. Customs Act and Valuation : Basic Concepts only

Custom duty is a duty which is levied upon dutiable goodsimported and exported.

Dutiable goods are any goods which are chargeable to duty as per the Customs Act, 1962. Goods include : (a)Vessels (b) aircrafts (c) baggage (d) currency and negotiable instruments (e) any other kind of movable

property. Under this concept movable and marketable condition of goods has a special interpretation.

Export means taking out of India to a place outside India and Import means bringing into India from a place

outside India. India includes the territorial waters of India and it also includes the air space above and the

bottom of the sea.

Duty of customs is leviable as percentage of the value of goods. Normally Basic Duty and Additional Duty

are charged. However there are also Protective Duty, Safeguard Duty, Countervailing Duty, Anti-

dumping Duty.

Valuation of goods under Custom Act: As per the Custom Tariff Act, 1975, the chargeable value of goods

shall be deemed to be the price at which such orlike goods are ordinarily sold, or offered for sale, for deliveryat the time and place of importation orexportation, as the case may be, in the course of international trade,

where (i) the seller and the buyer have no interest in the business of each other or (ii) one of them has no

interest in the business of the other and the price is the sole consideration for the sale or offer for sale.

3. Central Excise Act, 1944 : Definitions Broker or

Commission Agent, Central Excise Officer, Excisable Goods,

Factory, Manufacture, Sale & Purchase, Wholesale Dealer &

Cenvat.

Broker or Commission Agent: A person who in the ordinary course of business makes contracts for the

sale or purchase of excisable goods for others.

Central Excise Officer: Chief Commissioner of Central Excise, Commissioner of Central Excise,Commissioner of Central Excise (appeals), Addl. Commissioner of Central Excise, Joint Commissioner of


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Central Excise, Assistant Commissioner of Central Excise, Deputy Commissioner of Central Excise, or any

other officer of the central excise department or any person invested by Central Board of Excise.

Excisable Goods: Goods specified in the schedule to Central Excise and Tariff Act as being subject to duty of

excise and includes salt.

Factory: Any premises wherein or in any part of it excisable goods other than salt are manufactured orwherein or any part of which a manufacturing process connected with production of these goods is being

carried on or ordinarily carried on.

Manufacture: Includes any process incidental or ancillary to the completion of a manufactured product and

includes packing and re-packing of goods, labelling and re-labelling of containers or any such treatment on the

goods to render the product marketable to the consumer.

Sale & Purchase: A any transfer of the possession of goods by one person to another in the ordinary course

of trade or business for cash or deferred payment or other valuable consideration.

Wholesale Dealer & CENVAT: Wholesale dealer means a person who buys or sells excisable goods

wholesale for the purpose of trade or manufacture, and includes a broker or commission agent who, in additionto making contract for sale or purchase of excisable goods for others, stock such goods belonging to others asan agent for the purpose of sale.

CENVAT i.e. Central Value Added Tax: Excise duty is a levy on a manufacture or production and not upon

sales or the proceeds of sale of goods. Basic Excise Duty is termed as CENVAT.

-:End:-

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