CALCULATION OF INCOME TAX FOR SALARIED EMPLOYEES

BNN Lakshmaji Rao,

Assistant accounts officer, dr. mcr hrd institute,hyd.

Laws applicable:

INCOME TAX ACT,1961; INCOME TAX RULES,1962; & Finance (No.2) Act of 2014

Circular No.17/2014,dt.10.12.2014 Website:www.incometaxindia.gov.in

Personal Income Tax for the

Financial Year 2014-15 / Assessment Year 2015-16

i) Individual Assessees (including Women Assessees…

as they are not distinct now) - Below 60 years;

ii) Senior Citizens --60 and above but below 80 years;

iii) Very Senior Citizens -- 80 years and above

IT IS INEVITABLE FOR A GOVERNMENT EMPLOYEE TO BE

FAMILIAR WITH TWO ‘ITs’ TO SUCCEED IN ONE’S CAREER

INCOME TAX (I.T)

INFORMATION TECHNOLOGY (I.T)

Some Facts about Income Tax • The word ‘Tax’ is derived from a Latin word “Taxo”, which means “I

assess”.

• Russia, being less populous country, Joseph Stalin imposed 6% additional Income Tax on the people who are unmarried and married childless w.e.f. F.Y. 1941-42 and the same was in force till 1990-91.

• In British India, when the capital was at Calcutta, Mr. James Wilson (Finance Secretary in the Viceroy’s Council) introduced Finance Bill in February, 1860 introducing income tax for the first time in India.

• On 28-02-1950, Mr. John Mathay, while introducing the Finance Bill, reduced income tax from 5 annas per rupee to 4 annas. He also levied super tax @ 8.5% on the income above Rs.1.20,000.

• Sri Morarji Desai, who introduced budget proposals on 29-2-1968 (on 29-2-1964 also, he introduced finance bill earlier. 29th Feb happens to be the his birth-day) duly exempting allowances received by either of the spouses/assessees if both of them happen to be income-earners.

2015-16 F.Y. (yet to be approved) Highlights about Income Tax

• Tax free Infra bonds for Roads, Rail & Irrigation Projects.

• Literally no changes except minor reliefs.

• No changes in Tax Slabs and Sec.80C Deduction limit.

• Total relief is said to be Rs.4,44,200 as follows:

No Tax Limit Sec. 80-C Deductions New Pension Scheme

Contribution (Sec.80CCD(1)

Health Insurance

Limit (Sec.80D)

Transportation Allowance for the disabled

Rs.250000 (No Change)

Rs.150000 (No Change)

Rs.50000 (Existing Rs.1,00,000

to Rs.1,50,000) inclusive of max limit

of Rs.1,50,000)

Rs.25000 (Existing:Rs.15000/-)

Rs.19200 (Rs.1600 p.m.)

INCOME TAX RATES/SLABS (As amended vide Finance (No.2) Act, 2014)

S.No. Taxable

Income (Rs.) Male Female

Senior

Citizen (60 yrs & above)

Very

Senior

Citizen (80 yrs & above)

1 up to

2,50,000 NIL NIL NIL NIL

2 2,50,001 to

3,00,000 10% 10% NIL NIL

3 3,00,001 to

5,00,000 10% 10% 10% NIL

4 5,00,001 to 10,00,000

20% 20% 20% 20%

5 ABOVE

10,00,000 30% 30% 30% 30%

EDUCATION CESS & SURCHARGE

Education Cess - 2% of I.T. and Surcharge

Secondary & Higher Edn Cess – 1% of I.T. and Surcharge

Surcharge – 10% of I.T., where the total taxable income is more than Rs. 1 crore

Steps / Precautions to be taken by the DDO/Assessee while calculating the Income Tax:

Salary from more than one employer – Certified statements to be obtained.

To obtain PAN, if not furnished….As per Sec. 206AA, 20% or the prescribed rate of tax, which ever is higher, is deductible.

Relief when salary is paid in Arrears or Advance - This relief is allowed after ascertaining the amounts of tax worked out by including and excluding the arrears in the present Financial Yer and relevant Financial Years.

Income under any other head can be reported by the Assessee. eg. besides IfOS, Capital Gains, Profit & Gains from Business/Prof. Negative income (loss) can be accepted by the DDO in case of House Property only.

Computations should be done in respect of the following, before finalising the estimated income and income tax:

A. House Rent / HRA calculation.

B.‘Income from House Property’ – i) Self occupied house (ii) Let Out house

C. Capital Gains, if any.

Salary paid in Foreign currency-as per

telegraphic transfer buying rate of the currency

as on the date on which tax is required to be

deducted at source (Rule 26)

* Adjustment for excess or shortfall deduction with reference to an employee can be done by the DDO within the current financial year only, if such excess/shortfall relates to current FY. *Excess or shortfall in deductions made during the previous years, are dealt with the I.T. Dept only.

Self Occupied House Property:-

Gross Annual Rent/value: Nil

Ded: interest paid, if any, u/s.24(b)…max.Rs.2.00 lakhs for construction or ready built house for the properties acquired with capital borrowed after 1-4-1999. If prior to that period …only Rs.30,000.

For allowing the deduction, the following details have to be submitted to the DDO in addition to statement of interest paid.

Address of the property

Amount of the loan, if any and

Name and address of the lender

If more than one HP, at the option of the owner.

Additional Deduction of Interest Rs.1.00 lakh was allowed under Sec.80EE, subject to the following conditions:

A.The assessee possesses no other house property;

B. The loan is sanctioned by a financial institution;

C. Acquisition during the FY 2013-14;

D. Loan upto Rs.25.00 lakhs only;

E. Value of the House is below Rs.40.00 lakhs;

F. The balance of interest out of Rs.1.00 lakh max. limit can be allowed during 2014-15.

PROBLEM ON HOUSE PROPERTY Mr. Venkat purchased a house property for Rs.30.00 lakhs on 1.6.2013 with a finance of Rs.24.00 lakhs from Vijaya Bank with interest rate @ 11% p.a.

Compute the eligible deduction in respect of interest on housing loan for A.Y. 2014-

15 and A.Y. 2015-16 presuming that (a)he does not own any other house property; and (b) the entire loan is

outstanding as on 31.3.2015.

: SOLUTION FOR THE PROBLEM : Deductions allowed:

I. 2014-15 A.Y.:

i)Sec.24(b): Rs.24,00,000X 11/100 X 10/12

=Rs.2,20,000 restricted to …………….. Rs. 1,50,000

ii)Sec.80 EE:Rs.2,20,000 – Rs.1,50,000 ……………Rs. 70,000

II. 2015-16 A.Y.:

i) Sec.24(b): Rs.24,00,000X 11/100

=Rs.2,64,000 restricted to …………….. Rs. 2,00,000

ii)Sec.80EE:Rs.2,64,000 – Rs.2,00,000=Rs. 64,000

Rs.1,00,000 – Rs. 70,000 admitted during 2014-15 AY

=Rs. 30,000……….Rs. 30,000

TAXABLE INCOME FROM LET OUT HOUSE PROPERTY:

Gross rental value of property is the highest of the following items:

a) Municipal Value; (b) Fair rental Value subject to the standard rent under Rent Control Act; (c) Actual Rent received.

Deduct municipal taxes,

the remaining is the Net Annual Value (NAV)

Deduct 30% of NAV towards maintenance charges, insurance premia etc.(irrespective of actuals)

Deduct Interest on borrowed capital (actuals)

=Taxable income from the house property.

Finally, the DDO

furnishes

Form – 16 certifying the salary income and the tax deducted during

the Financial Year.

Income-Tax Annual Return (Sec.139) 1. By 31st July of Assessment year;30th Sep.for Companies etc.

2. In electronic form (ON LINE) if the taxable income is Rs.5.00 lakhs and more.

Form-16

Employer- PAN,TAN,BIN,CIN

Employee, PAN*

Assessment year u/s -2(9)

Previous year u/s -3

Period of the return

Address of CIT

Gross salary: Pay, D.A., HRA, CCA, I.R., Addl Pay (FAC), Pension, Family Pension, S.L. Salary, Perquisites etc.

Allowances exempted under section 10 House Rent Allowance ( least of the following three :- (1) HRA received (2) HR paid in excess of 10% of salary (3) 40% of salary) Leave Travel Concession Death-cum-Retirement Gratuity Commutation value Encashment of EL/HPL at the time of retirement (continued…..)

Exemptions under Section 10 (contd):- Retrenchment Compensation Voluntary retirement payment Any sum received under a LIC policy Any payment of Provident Fund Conveyance Allowance up to Rs.9,600/-p.a. (Proposed to enhance to

Rs.19,200/- for the FY 2015-16) Uniform Allowance Conveyance allowance for Physically Handicapped. Travelling Allowance Interest payable on notified scheme for Retiring Govt.

employees,1989 Any scholarship to meet the cost of education Gallantry Awards: Pension/family pension received by an individual

awarded ‘Param Vir Chakra’, ‘Maha vir chakra’ or ‘Vir Chakra’ Sumptuary Allowance – paid to Judges, Speaker, Dy. Speaker, Hon’ble

Ministers and other dignitaries.

Deduction allowed u/sec. 16 i) Entertainment Allowance (Employer pays it to motivate employees): a) Rs.5,000; or b) 20% of basic pay; or c) the amount of EA whichever is the least.

ii) Professional Tax up to Rs.2,500

Capital Gains calculation 1. Sale proceeds as on the date of sale…. 2. Less indexed cost of acquisition(Inflation index with 1981-82 as the base year) 3. Net value 4. Less exemption under 54 5. capital gains chargeable to tax: 6. new house purchased (within one year if ready built ; 3 years if construction of a new house) from capital gains should not to be sold within 3 years 7. in case of agricultural land, it has to be purchased within 2 years from the date of sale for exemption u/s 54B 8. Rate of LTCG 9. Rate of STCG

Problem on Capital Gains • Mr. Rama Rao furnished his transactions during 2014-15:

• Sold a residential house in Jubilee Hills for Rs.1.45 crore in Aug.,2014 (which he purchased in Feb.,2000 at a cost of Rs.15.56 lakhs

• Sold Listed shares of M/s. Infosys for Rs.2.00 lakhs in Sept., 2014 (which he purchased in May, 2012 at a cost of Rs.1.00 lakh)

• Sold unlisted shares for Rs.0.75 lakh in in Nov.,2014 (which he purchased in May,12 at a cost of Rs.0.50 lakh).

• Purchased a residential flat at Vijayawada at a cost of Rs.35.00 lakhs on 21.3.2015

• Purchased 3-year bonds of NHAI for Rs.40.00 lakhs on 20-03-2015.

• Purchased 3-year bonds of RECL for Rs.30.00 lakhs on 15-05-2015.

• Cost Inflation Index for FY 2014-15 is 1024 vide Notification No.31/2014,

dt.11-06-14.

Cost Inflation Index (Average raise in the consumer price index for urban non-manual employees)

Year CII Year CII Year CII Year CII

1981-82 100 1989-90 172 1997-98 331 2005-06 497

1982-83 109 1990-91 182 1998-99 351 2006-07 519

1983-84 116 1991-92 199 99-2000 389 2007-08 551

1984-85 125 1992-93 223 2000-01 406 2008-09 582

1985-86 133 1993-94 244 2001-02 426 2009-10 632

1986-87 140 1994-95 259 2002-03 447 2010-11 711

1987-88 150 1995-96 281 2003-04 463 2011-12 785

1988-89 161 1996-97 305 2004-05 480 2012-13 852

2013-14 939 2014-15 1024

Capital Gains-Solution: Term Particulars Rs.

Residential Houses:

LTCG Gross sale consideration 1,45,00,000

Less: Indexed cost of acquisition (15,56,000 X 1024/389)

40,96,000

Capital gained: 1,04,04,000

Less: Exemption under Sec.54 for investment in residential flat at Vijayawada Rs.35,00,000

For investment in NHAI/RECL restricted to u/s.54 EC Rs.50,00,000 85,00,000

BALANCE OF CAPITAL GAIN TAXABLE (Long-term Capital Gains are taxable @ 20% u/s.112) to be indicated Separately in the Tax payable

19,04,000

Listed Equity shares held for more than 12 M is long term capital gain and exempted under sec.10(38)

Nil

STCG Add: Gain on sale Unlisted shares (less than 36 M) Rs.75,000 minus Rs.50,000 (taxable at normal rates of I.T)

to be included in the other income to be reported to the DDO

……….25,000

Deductions under Chapter VI-A of the Act

Under Section 80 C i) LIC Policy Premia ii) Subscription to GPF/PF/PPF iii) ULIP iv) Mutual Funds v) Deposits with NHB vi) Principal on HBA including stamp duty, regn. fee etc. vii) Tuition Fee viii) Senior Citizens Savings Scheme,2004 ix) Subscription to NABARD Bonds x) 5-year time deposit at Post Office

Deduction under section 80CCC eg.Jeevan Suraksha – Pension linked scheme

(Maximum limit Rs.1.00 lakh)

Deduction under Section 80CCD(1).. (Contribution to notified pension scheme of GoI restricted to Rs.1,00,000)

Exemption under Section 80CCD(2).. (Employer’s contribution to notified pension scheme .. To be first included under the head

“Salaries” while computing gross total income and the deduction is allowed subject to a maximum of 10% salary).

u/s 80 C + 80CCC + 80 CCD(1) should not exceed Rs. 1.50 lakh as per Section 80CCE

Under Section 80 CCG – inserted in 2013-14 A.Y. Rajiv Gandhi Equity Savings Scheme

i) Maximum invest Rs.50,000

ii) Lock in period 3 years

iii) Gross total income should not exceed Rs.12 lakh per year

iv) The investment can be made in three years.. Exemption applicable for 3 yrs.

v) The deduction will be ½ of the investment subject to a maximum of Rs.25,000

vi) New investor only is eligible for deduction

Section 80 D: i) Health Insurance premium to self or spouse or children (any mode other than cash) @ Rs.5000 per head subject to maximum limit of Rs.15,000; ii) any contribution to CGHS (any mode other than cash) iii) Master Health Checkup up to Rs.5,000 P.A.(in cash)

iv) in case of senior Citizen (60 yrs) (Aggregate Rs.5,000 extra i.e.Rs.20000)

v) In addition Health Insurance premium to parents upto Rs.15000 Proposed enhancement for 2015-16 FY :-

by Rs.5000/-upto Rs.25,000 to Sr. Citizens &

Rs.30,000 to Super Senior Citizens.

Under Section 80 DD maintenance including medical treatment of a dependent who is a person with disability…..……….. >40%....Rs.50,000 or actual expenditure Severe disability………..>80%.... Rs.1,00,000 which ever is lesser. If reimbursed by employer, deduction needs to be reduced to that extent. *Proposed to increase the above amount by Rs.25,000 for the FY 2015-16

Section 80DDB:

Deduction towards medical treatment of employee or a dependent actually paid amount for medical treatment of such

disease or ailment ……………..Rs.40,000

Senior Citizen…………………………..….Rs.60,000 on production of the proof of expenditure and treatment. *2015-16 FY proposal: Rs.80,000 on production of mere prescription of the Doctor. Note:- Reduced by the amount received from an insurer or reimbursed by the employer

Under Sec. 80 U if the Individual Assessee is with

disability 40% & above but below 80%…..…..50,000

Severe disability 80% & above ……..….1,00,000

*Proposed to increase the above amount by Rs.25,000

for the FY 2015-16

Under section 80 E i) Loan for Higher Education; ii) interest on loan in full iii) for seven years only; iv) self, spouse, children

Under Section 80 G

Donation for 100% deduction (Cat.A .eg.NDF,PMNRF) Donation for 50% deduction (Cat.B-eg.JNMF,IGMT)

(NOT MORE THAN 10% OF GROSS INCOME) Donations for 100% deduction subject to QA(Cat.C-

eg.Indian Olympic Association etc.) Donations for 50% deduction subject to QA (Cat.D-

Donations to approved charitable institutions, notified place of public worship, GoI Corporations for promoting

minority welfare, authority set up for housing accommodation etc)

Under Section 80 GG i) HRA Rs.2,000/-P.M. ii)House rent paid in excess of 10% of his total income iii) 25% of his total income whichever is less Under Section 80 GGA Certain donations for Scientific Research or Rural Development (u/s 35) i) No deduction if the employee’s gross total

income includes profits and gains of business or profession.

ii) 100% deduction allowed. iii) If it exceeds Rs.10,000 and is paid in cash

Under Section 80 TTA Deduction of interest on deposits

in savings account (The interest amount or Rs.10,000

whichever is less)

Eg. Mr. ABCD got Rs.50,000/- during a financial year, towards interest on deposit held by him, the total amount should be first included in other income

and then,

Rs.10,000 is to be deducted from Gross Income,

before arriving at taxable income.

i) Calculation of tax in the present year including arrears

ii) Calculation of tax in the present year excluding arrears

iii) Difference of (i) and (ii)

iv) Calculation of tax in the relevant year including arrears

v) Calculation of tax in the relevant year excluding arrears

vi) Difference of (iv) and (v)

vii) The excess of tax computed at (iii) over (vi) is the relief

Relief under section 89 in case of arrears of salary

:Calculation of Relief under Sec.89: • Arrears of Rs.86,000 relating to the period from April, 2012 to

March, 2014, were paid during the current financial year 2014-15. Calculate the relief under Sec.89, with a presumption that Rs.50,000 relates to 2013-14 and Rs.36,000 relates to 2012-13. F.Y. A.Y. Taxable Income (Rs.) Income Tax (Rs.)

Without Arrears

With Arrears

Without Arrears

With Arrears

Difference

2012-13 2013-14 373490 409490 17349 20949 3600

2013-14 2014-15 412480 462480 19248 24248 5000

Total 36,597 45,197 (vi)---8600

2014-15 2015-16 445756 531756 17576 31351 (iii)-13775

Relief under Sec.89 (vii)--5175

Calculation of tax i) if it is capital gains, tax has to be deducted at special rates ii) Agricultural income is used for arriving at the slab at which the IT has to be deducted

Income Tax Returns ITR 1…………………only Salary income ITR 2………………… salary income along with Agricultural income and House rent income etc.

Thank you and wish you

MANY MANY HAPPY

TAX RETURNS

---LAKSHMAJI RAO, B.N.N., AAO, Dr. MCR HRD Institute, Hyd.