Income Tax Ppt 1 44

8/4/2019 Income Tax Ppt 1 44

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INDEX

1. Introduction2. Residential Status

3. Tax Rates

4. Income from Salary

5. Income from House Property

6. Income from Business & Profession

7. Capital Gains

8. Income from Other Sources

9. Clubbing of Income 2

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Contd

10.Set-off Carry Forward11.Deductions from Gross Total Income

12.Agricultural Income

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Charge of Income Tax

Income tax is charged in assessment year at ratesspecified by the Finance Act applicable on 1st April of

the relevant assessment year.

It is charged on the total income of every person forthe previous year.

Total Income is to be computed as per the provisionsof the Act.

Income tax is to be deducted atsource or paid in advance whereverrequired under the provision of theAct.

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Important Definitions

1. Person u/s 2(31) includes,a. An Individual,

b. Hindu Undivided Family (HUF),

c. A Company,

d. A Firm,

e. An Association of Persons(AOP) or Body ofIndividuals (BOI),

f. A Local Authority,g. Every other Artificial Juridical Person

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Contd

2. Assessment Year u/s 2(9) means, the period of 12months commencing on the 1st April every year. It is

the year (just after previous year) in which income isearned is charged to tax. The current Assessment is

2011-2012.

3. Previous Year u/s 2(34) means, the year inwhich income is earned.

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Contd

4. Gross Total Income (G.T.I) :- The aggregateincome under the 5 heads of income (viz. Salary,House Property, Business or Profession, CapitalGains & Other Sources) is termed as Gross Total

Income.

5. Total Income (T.I) :- Total Income of assessee isgross total income as reduced by the amountpermissible as deduction under sections 80C to

80U.

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Index

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Types of Residential Status

The different types of residential status are:-

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Resident(R)

Not Ordinarily Resident (NOR)

Non-Resident (NR)

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Residential Status of Individual

The residential status of individual will be determined as under-

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Assessee Basic Condition Additional Condition

ResidentHe must satisfy at one of the basic

conditions.Not required.

Not Ordinarily ResidentHe must satisfy at least one of the

basic conditions.

He must satisfy either one or both

the additional conditions given u/s

6(6).

Non-Resident Should not satisfy any of the basicconditions.

Not required.

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Contd

Basic Conditions u/s 6(1):i. He must be in India for a period of 182 days or more during

the previous year; or

ii. He must be in India for a period of 60 days or more during the

previous year and 365 days or more during the four yearsimmediately preceding the previous year.

Additional Conditions u/s 6(6):

i. He must be a non-resident in India in nine out of the ten

previous years preceding that year; orii. He must be in India during 7 preceding

previous years for aggregate period of729 days or less.

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Incidence of Tax

ParticularsTax Incidence

R NOR NR

Income received in India by or on behalf of assessee Yes Yes Yes

Income deemed to received in India by or on behalf of assessee Yes Yes Yes

Income accruing or arising in India Yes Yes Yes

Income deemed to accrue or arise in India Yes Yes Yes

Income which accrues or arise outside India Yes No No

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RATES OF INCOME TAX (Assessment Year 2011-2012)

1. In case of every Individual/ HUF/ AOP/BOI artificial juridical Person.

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S.No INCOME TAX RATE

1 Up to 180000 NIL

2 180010-500000 10%

3 500010-800000 20%

4 Above 800000 30%

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Contd

3. In case of resident senior citizen i.e. age of 65 years or above

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S.No INCOME TAX RATE

1 Up to 250000 NIL

2 250010-500000 10%

3 500010-800000 20%

4 Above 800000 30%

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Meaning

Salary includes [section17(1)] :-i. Wages

ii. Any annuity on pension

iii. Any gratuity

iv.Any fees, commission, bonus, perquisite on profits in lieu ofor in addition to any salary on wages

v. Any advance of salary

vi.Any earned leave

vii.Employers contribution (taxable) towards recognizedprovident fund.

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BASIS OF CHARGE

Income is taxable under head Salaries, only if there exists Employer -Employee Relationshipbetween the payer and the payee. The following

incomes shall be chargeable to income-tax under the headSalaries:-

1.Salary Due

2.Advance Salary [u/s 17(1)(v)]3.Arrears of Salary

Note:

(i)Salary is chargeable on due basis or receiptbasis, whichever is earlier.

(ii)Advance salary and Arrears of salary arechargeable to tax on receipt basis only.

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Allowances

Allowance is generally defined as a fixed quantity ofmoney or other substance given regularly in additionto salary for the purpose of meeting some particularrequirement connected with the services rendered by

the employee or as compensation for unusualconditions of that service.

1.Dearness Allowance- It is Always Taxable.

2.City Compensatory Allowance- It is Always Taxable.

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Contd

3. House Rent AllowanceExemption In Respect Of House Rent allowance is regulated by

rule 2A. The least of the three given below is Exempt from Tax.

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1An Amount Equal to 50 % of Salary. Where Residential House in situated at Bombay,Calcutta, Delhi or Madras and An Amount Equal to 40 % of Salary where Residential Houseis situated at any Other Place.

2

House Rent Allowance Received by The Employee in Respect of The Period during which

Rental Accommodation is Occupied by the Employee during the Previous Year.

3 The Excess of Rent Paid over 10 % of Salary.

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Contd

4. Entertainment allowance [sec.169(ii)]-Entertainment allowance is first included in salary in come under

the head salaries and thereafter a deduction is given on the basisenumerated below:

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GovernmentNon- Government

Least of the Following is deductible :1. Rs. 50002. 20 % of basic salary3. Amount of entertainment allowance

grated during the previous year

Nothing is deductible

Status of Employee

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Contd

5. Special allowances prescribed as exempt undersection 10(14) In the cases given below theamount of exemption under section 10(14) is :

i. The amount of the allowance ; orii. The amount utilized for the specific purpose for

which allowance is given.

Whichever is lower.

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ContdExemption is available on the aforesaid basis in the case of following allowances :-

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NAME OF ALLOWANCE NATURE OF ALLOWANCE

Travelling Allowance/ Transfer

Allowance

Any allowance granted to meet the cost of travel on tour or on transfer

(including sum paid in connection with transfer, packing and transportation

of personal effects on such transfer).

Conveyance Allowance Conveyance allowance granted to meet the expenditure on conveyance in

performance of duties of an office (expenditure for covering the journey

between office and residence is not to be included).

Daily Allowance Any allowance whether granted on tour or for the period of journey inconnection with transfer, to meet the ordinary daily charges incurred by an

employee on account of absence from this normal place of duty.

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Contd

Name of allowance Exemption as specifiedin rule 2BB

Special Compensatory

(Hill Areas) Allowance

Amount exempt from tax varies from Rs. 300 per mount to Rs. 7,000 per

month

Border area allowanceThe amount of exemption varies from Rs. 200 Per month to Rs. 1,300 per

month

Tribal areas/ scheduled areas

allowance Rs. 200 Per Month

Allowance for transport

employees

The amount of exemption is-

a.70 per cent of such allowance; or

b.Rs. 6,000 per month, whichever is lower.

Children education allowanceThe amount exempt is limited to Rs. 100 per month per child up to a

maximum of two children.

Hostel expenditure allowanceIt is exempt from tax to the extent of Rs. 300 per month per child up to a

maximum of two children.

Compensatory field area

allowanceExemption is limited to Rs. 2,600 per month in some cases.

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Contd

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Name of Allowance Exemption as Specified in Rule 2BB

Compensatory modified area

allowanceExemption is limited to Rs.1,000 per month in some cases.

Counter insurgency allowance Exemption is limited to Rs.3,900 per month in some cases.

Transport allowanceIt is exempt up to Rs. 800 per month (Rs. 1,600 per month in the case of

an employee who is blind or orthopedically handicapped)

Underground allowance Exemption is limited to Rs. 800 per month.

High altitude allowanceIt is exempt from tax up to Rs. 1,060 per month (for altitude of 9,000 to

15,000 feet) or Rs. 1,600 per month (for altitude above 15,000 feet).

Highly active field area

allowanceIt is exempt from tax up to Rs. 4,200 per month.

Island duty allowance It is exempt up to Rs. 3,250 per month.

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Contd

7. Allowance to Government employees outsideIndia [Sec. 10( 7)] - Any allowance paid orallowed outside India by the Government to anIndian citizen for rendering service outside Indiais wholly exempt from tax.

8. Tiffin allowance- It is taxable.

9. Fixed medical allowance It istaxable.

10.Servant allowance - It istaxable.

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Contd

11.Allowance to High Court and Supreme CourtJudges - Any allowance paid to High CourtJudges under section & 22C of the High CourtJudges (Conditions of Service) Act, 1954 is not

chargeable to tax.12. Allowance received from a United Nations

Organization - Allowance paid by a UnitedNations Organization to its employees is not

taxable by virtue of section 2 of theUN (Privileges and Immunities) Act,1974.

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PERQUISITES

Perquisite may be defined as any Casual Emolumentor Benefitattached to an office or position in Addition toSalary or Wages. It also denotes something thatbenefits a man by going in to his own pocket.

Perquisites may be provided in cash or in kind.Perquisites are included in salary income only if theyare received by an employee from his employer.

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Perquisites as defined u/s 17 (2)

The term perquisites is defined by section 17 (2)as including the following items:

1.The value of Rent-free Accommodation provided tothe assessee by his employer

2.The value of any concession in the matter of rentrespecting any accommodation provided to theassessee by his employer

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3. The value of any benefit or amenity grantedor providedfree of cost or at concessional rate in any of thefollowing cases :

i. By a company to an employee who is a director thereof ;

ii. By a company to an employee, being a person who hassubstantial interest in the company ;

iii. By any employer (including a company) to an employee towhom provisions of (i) and (ii) above do not apply and whoseincome under the head salaries exclusive of the value of all

benefits or amenities not provided for by way ofmonetary benefits, exceeds Rs. 50,000

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Contd

4. Any sum paid by the employer in respect of anyobligation which but for such payment would have beenpayable by the assessee. Obligation of Employee metby Employer.

5. Any sum payable by the employer, whether directly orthrough a fund other than a recognized provident fundor approved superannuation fund or a deposit-linkedinsurance fund, to effect an assurance on the life of theassessee or to effect a contract for an annuity

6. The value of any other fringebenefits or amenity as may beprescribed

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TERMINAL BENEFITS

1. Gratuity [Sec.10(10)] Gratuity is a retirement benefit. It is generallypayable at the time of cessation of employment and on the basis of

duration of service. Tax treatment of gratuity is given below:

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Status of Employee

Government Employee Non-government employeecovered by the payment of

Gratuity Act, 1972

Non-government employee notcovered by the payment of

Gratuity Act, 1972

It is fully exempt fromtax under section

10(10)(i) Least of following is exempt:1) 15 days salary x Length of

service2) Rs. 3, 50, 000

3) Gratuity actually received.

Least of following is exempt:1) month avg. salary x Length

of service2) Rs. 3, 50, 000

3) Gratuity actually received.

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Contd

2. PENSION [SEC. 17(1)(ii)]- Pension is chargeable tax as follows :-

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PENSION

Taxable for

Government as wellas Non-Government

employeesEntire CommutedPension is exempt

whether or not Gratuity

received.

UNCOMMUTEDCOMMUTED

GovernmentEmployee

Non-GovernmentEmployee

1/3 of commutedpension is

exempt

If GratuityReceived

If Gratuity notReceived

1/2 of commutedpension is

exempt

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3.Annuity [Sec. 17(1)(ii)] An annuity payable by a presentemployer is taxable as salary even if it is paid voluntarilywithout any contractual obligation of the employer. An annuityreceived from an ex-employer is taxed as profit in lieu ofsalary.

4.Retrenchment compensation [Sec. 10(10B)] Compensationreceived by a workman at the time of retrenchment is exemptfrom tax to the extent of the lower of the following:

a. an amount calculated in accordance with the provisions of sec. 25F(b)

of the Industrial Disputes Act, 1947; orb. such amount as notified by the Government

(i.e., Rs, 5, 00, 000); or

c. the amount received.

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Contd

5. Compensation received at the time ofVoluntary Retirement [sec.10 (10C)] -Compensation received at the time of

voluntary retirement is exempt from tax,subject to certain conditions. Maximumamount of exemption is Rs. 500000.

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LEAVE SALARY

Encashment of leave by surrendering leave standing to ones credit is

known as leave salary.

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LEAVE ENCASHMENT

During EmploymentRetirement / Leaving the Job

Chargeable toTax

Non-GovernmentEmployee

GovernmentEmployee

Fully Exempt

Least of following is exempt :-1) Earned Leave on the basis of

Average Salary2) 10 x Average monthly salary3) Rs. 3000004) Leave Salary Received

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Deductions Admissible in Computing


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Deductions Admissible in Computing

Income under head SALARIES

1. Entertainment allowance granted by employer[Sec.16(ii)]: This deduction is available in case ofGovernment employees only.

2. Employment Tax / Professional Tax [Sec.16(iii)]:Any sum paid by assessee on account of a tax onemployment within the meaning of Article 276(2).Under the said article employment tax cannotexceed Rs. 2500 p.a.

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Relief in respect ofAdvance or Arrears of Salary u/s 89

When an assessee is in receipt of a sum in thenature of salary, being paid in arrears or in advance,

due to which his total income is assessed at a ratehigher than that at which it would otherwise have

been assessed, Relief is granted on anapplication made by the assessee to the assessingofficer.

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INCOME TAX

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EDITEDBY

MANJEET KAUR GILL

Documents

Income Tax Ppt 1 44