Tax Concepts Ppt

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1

Taxation

Income Tax Act: 1961



2

Taxation

� Under Constitution of India Govt has right to

collect Income Tax

� As per Income Tax Act,1961

� Implemented according to rules laid down

� Administered by CBDT

� Interpreted by Income Tax Appellate

Commissioner � Income Tax Tribunal/High Court/ Supreme

Court



3

Taxation : Concepts

� Assessment Year : Period of 12 monthscommencing on 1st April every year.

� Current Assessment year began on 1.4.2010

and will end on 31.3.2011.� Relevance :Tax liability is calculated in

Assessment year

� Previous Year : Financial year immediately

preceding the assessment year � For AY.2010-11 : Previous Year 1.4.2009

to31.3.2010.



4

Taxation : Concepts

� Relevance of Previous Year : (P.Y)

� It is the income earned during the previousyear which is taxed.

� For our study :

� Relevant Previous Year :

� 1.4.2010 to 31.3.2011 : Income earned

during this period will be charged to Tax

� Relevant A.Y. : 2011/12: Tax liability willbe assessed in this year.



5

Taxation : Concepts

� Assessee : A person who is liable to pay anysum under Income Tax Act.

� Person: Includes:

� a) individual� b) Hindu undivided family

� c) Company

� d) Firm

� e) association of persons or body of individuals� f) Local authority

� g) Artificial juridical person



6

Taxation - concepts

� Individual: means natural person ±human being

including male, female, minor or lunatic

� HUF : Hindu undivided family consists of all

persons lineally descended from Hindu

ancestors

� Company : i) Indian company

ii) Any body corporate incorporatedoutside India

iii) Declared by CBDT as company



7

Taxation - Concepts

� Firm : Taxable entity distinct from its partners.

� Association of Persons : Association in which two or more persons join in for a common purpose or acommon action to earn income. AOP can have anyperson as member.

� Body of Individuals : A team of individuals carrying onsome activity with object of earning income.

� Local Authority : Municipality, District Board, Port Trust

etc.� Artificial Juridical Person : Diety, idol, corporation

established under separate Act, University, Bar Council



8

Taxation ± Concepts

� Income : Includes :

� Profits and Gains

� Dividend

� Voluntary contributions received by

a) charitable or religious trust or

b) scientific research association

c) sport association/ notified institution� Value of perquisites under the head salaries

for example, Rent free accommodation



9

Taxation - concepts

� Income ± continued :

� Special allowance or benefit specificallygranted to an employee to meet expensesfor performance of his duties : For example : Entertainment allowance.

� Allowance to an employee to meet the

expenses increased cost of living . For example Dearness Allowance ± DA /Cityliving allowance ± CLA.



10

Taxation -concepts

Income ± cont

� Export Incentives

� Any interest, salary, bonus, commission or remuneration earned by a partner of thefirm from such firm.

� Any capital gain chargeable to capital

gains u/s 45� Profit and gains of any business of mutual

insurance company or co operative society



11

Taxation - concepts

� Income ± Contd :

� Profit and gains of business of bankingcarried on by a co operative society withits members

� Winnings from lotteries, cross wordpuzzles, races including horse race card

games, and any other games of any sortor from gambling or betting of any form or nature whatsoever.



12

Taxation concepts

� Income ± Contd :

� Any sum received by the assessee from hisemployer towards welfare fund contributionssuch as provident fund,

superannuation fund etc.

� Any sum received under key man insurancepolicy including the sum allocated by way of bonus.

� No-compete fee and compensation for notsharing of any intangible asset such as knowhow, patent trade mark



13

Taxation - Concepts

� Income contd :

� Any gift referred to in sec.56:ie, Gift wef 1.4.2006 :

� Any sum of money, the aggregate value of whichexceeds Rs.50000/- received from any person without

consideration by an individual or Hindu UndividedFamily-

� However exemption is granted in respect of gift from :

� a) relative

� b) on the occasion of marriage of an individual

� c) under a will or by way of inheritance� d ) From local authority/ foundation /university

� e) from charitable institutions registered under sec.12 A.



14

Taxation - Concepts

� Observations on Income :

� Income as per its natural meaning

� Regularity of income thoguh important , isnot essential.

� Income may be in cash or kind

� Income tainted with illegality is alsotaxable

� Capital Receipt is not income



15

Taxation - Concepts

� Capital Receipt v/s Revenue Receipt

� Distinction is important as capital receipt is

not taxable except specially providedunder law ± Capital Gains

� i) Circulating Capital and Fixed Capital

� Receipt on account of circulating capital isa revenue receipt , whereas receipt on

account of fixed capital is capital receipt



16

Taxation -concepts

� Ii)Receipt in lieu of Source of Income or inlieu of Income:

� A receipt in lieu of source of income is capitalreceipt where as receipt in leiu of

income is revenue income.

iii) Income from wasting assets :

� Profit from a capital which is exhausted or consumed during the process of realisation is

chargeable to tax : For example : Income fromminine, querries



17

Taxation - concepts

� Insurance Receipts:

� A receipt under a General Insurance policy

may be a capital receipt if policy relates tocapital asset or may be revenue receipt if

policy relates to circulating assets.



18

Taxation - concepts

� Deemed Income:

� Income Tax contains provisions to tax followingnotional / fictional Incomes:

� Income from self occupied property� Presumptive Incomes

� Unexplained Credits

� Unexplained Investments

� Unexplained expenditure� Amount borrowed or repaid on hundi otherwise

than by way of account payee cheque.



19

Taxation -concepts

� Income deemed to be received in India:

� i)Employers¶ contribution to recognised provident fund inIndia in excess of 12 % of salary.

� Interest credited to recognised P/F in excess of 9.5%

� Employers¶ contribution and interest thereon transferredbalance from unrecognised P/F to recognised P/F

� Contribution made by any employer in the previous year to the account of an employee under a pension scheme

referred to in sec.80CCD.



20

Taxation - Concepts

� Income deemed to accrue and arise in India :

� Income accruing or arising through business connectionin India

� Income through any property, asset or source of income

in India� Income through transfer of capital asset situated in India

� Salary Income earned in India

� Salary payable by the Govt to Indian citizens for servicesoutside India

� Dividend paid by an Indian company outside India� Interest , Royalty and Fees for technical services

payable by Govt, resident / non resident individuals



21

Taxation - RatesIncome of

individual above 65

years of age

Upto Rs. 2,40,000/-

Rate

Nil

Above

Rs.2,40,000/- but

up to Rs.5,00,,000/-

10%

Above Rs. 5,00,000

but up to 8,00,000

20%

Above Rs. 8,00,000

Pluss 3% Ed.cess.

30 %



22

Taxation -Rates

Resident individual

being woman below 65

years of age

Income

Up to Rs.1,90,000/-

Rate of Tax

Nil

Above Rs.1,90,000/- but

up to Rs.5,00,000/-

10%

Above Rs. 5,00,000/-

But up to Rs.8,00,000/-

20%

Above Rs. 8,00,000/-

30%



23

Taxation- Rates

Other Individuals

Income Rate

Up to Rs. 1,60,000/ Nil


up to Rs.500,000/-

10 %


Up to Rs8,00,000/-

20 %

Above Rs.8,00,000/-

Plus : 3% Edu. Cess

30 %



2

4

Taxation - Rates

HUF/ AOP/BOI/ArtificialJuridical Persons

Income Rate

Up to Rs.1,60,000/- Nil


Up to Rs. 5,00,000/-

10%


Up to Rs.800,000/-

20%

Above Rs. 8,00,000/-

Plus : 3% Edu.cess

30%



25

Taxation - Rates

Taxation of Firms &

Cos.

Firm DomesticCos ForeignCos

Basic Tax

Rate

30% 30% 40%

Surhagre if

Income

exceeds 1

cr.

Nil 7.5% 2.5%

Education

Cess

3% 3% 3%

Effective 30.90% 33.225% 42.23%



26

Taxation ± Residential status

Individual

Resident Non Resident

Resident & Ordinary

Resident

Resident and

Not ordinary Resident



27

Taxation ± Residential Status

� Residential Status is to be determined for every

previous year and it may change from year to

year.

� Residential status is different from citizenship :

- An individual may be citizen of UK but resident

in India.

-Indian citizen may be Non ± resident.

� Residential status is important to decide whether

foreign income of a person taxable or not.



28

Taxation ± Residential Status� Resident : Two Basic Conditions and individualsatisfies at least one condition:

� i) He is in India for a period of 182 days or more in thatyear

� ii) He is in India for 60 days or more in the previous year AND

� 365 days or more during 4 years preceding that previousyear.

� If an individual satisfies at least one condition He is

resident� If he does not satisfy both these condtions ±he is

Non ± Resident.



29

Taxation- Residential Status

� Illustration :

� Mr. A, a British national comes to Indiafor

the first time and stays in India as under :F.Y 2004-05 : 55 days,2005-6 :60 days,

2006-07 :80 days, 2007-08:160 days

2008-09 :

70days.

� Determine residential status for A.Y.2009-

10.



30


� A.Y 2009-10

� P.Y 2008-09 Mr. stays for 70 days First condition of 182 days is not satisfied.

� Second Condition : 60 days in PY. He stays for 70 days :Hence first part of this condition satisfied ,BUT

� In preceding four previous years :He stays for 355 daysagainst the condition of 365 days ( 55+60+80+160) =355.Hence Second condition is also not satisfied.

� Hence both conditions not being satisfied, Mr. A is NonResident.



31


� Mr. B, a Malayasian citizen leaves India on

1.6.2006 after a stay of 10 years I India.

� During the F.Y. 2007-08, he comes to India for a

period of 46 days.

� Later he returns to

India for good on 10.10.2008.

� Determine his residential status for A.Y200

9-10.

� Would your answer be different if his date of

departure was 15.5.2006?



32

Taxation-Residential status

� For A.Y.2009-10 F.Y. 2008-09

� His stay during 2008 -09 wef 10.10.2008

� No. days stayed 173.- condition of 182 days notsatisfied. But satisfies first part of second condition

� Stay in preceding 4 previous years :� 2007-08 : 60 days

� 2006-07 : 365 days

� 2005-06 : 365 days

� 20040-05 : 366 days

� Hence, period of stay is more than 365 days

� He satisfies second part of second condition. In factsecond condition is fully satisfied. Hence he is resident.



33

Taxation -ResidentialStatus

� Resident will have to be further sub

divided into :

� Resident and Ordinary Resident( ROR)

� Resident but not ordinarily resident

(NOR)



34


� Additional Two Conditions for Resident andOrdinarily Resident (ROR):

� i) He has been resident in India in at least 2 outof 10 preceding previous years AND

� Ii) He has been in India for 730 days or more inpreceding 7 previous years

� If both these conditions are satisfied :ROR

� If both these conditions not satisfied and only

one of these additional conditions is satisfiedthe individual is called Resident but NotOrdinarily Residenr ( NOR)



35


� Alternative conditions for Resident but NotOrdinarily Resident (NOR):

� He has been non resident in India in 9 out of 10

preceding previous years OR� He is in India for a period not exceeding 729

days in 7 preceding previous years.

� Individual satisfying any one of the above

conditions is NOR� And if both these conditions are not satisfied :

ROR



36

Taxation ± Residential Sattus

� In our earlier illustration : Malayasian

citizen B is ROR.

� He would remain to be ROR if his date of departure in 2006-07 happens to be

15.5.2006.



37

Taxation-Residential status

� Exceptions :

� i) In respect of Indian Citizen leaving India for employment, or member of crew of Indian shipcan be considered resident in India only if hestays in India for182 days or more.

� ii) Similarly, citizen of India or person of Indianorigin residing outside India comes to India on avisit will be treated resident in India only if he

stays in India for 182

days or more.� In other words, 60days in second condition areextended to 182 days.



38


� Residential status of HUF : Determine the status

of Karta as Resident, Non Resident

Or as ROR and NOR

� Firm, AOP and every other person other than

company can be Resident Or Non resident :

� If control and management is wholly or partly in

India : Resident� If control and management wholly outside India:

Non Resident



39

Taxation ± Residential status

� Company : Following types of Companies

are Resident in India:

� i) An Indian company� Ii) Any other company whose control and

management is wholly in India.

� In any other case it is considered ; NonResident.



40

Taxation- Significance of

Residential status

Particalars ROR NOR NR

Income received or deemed to be

received in India T T T

Income accruing or arising or

deemed be accruing/arising in

India

T T T

Income accruing or arising outside

India from

i) Business / Profession

controllled / set up in India

ii) Any other source

T

T

T

NT

NT

NT



41

Incomes which do not form part of

total income : Exempt Income

Sec.10

Incomes

not

includedIn

total

income

Sec.10 A New

Undertaking in

FTZ/ Export

Processing ZoneSec.10 AA New

Undertaking in

SEZ

Sec.10B :100%EOU

Sec.10BA Export

of certain articles

Sec11 to 13

Charitable

And Religious

Trusts

Sec.13 A

Income of

politicalparties



42

Taxation :Exempt Income u/s 10

� Agricultural Income

� Receipt by a member from HUF

� Share of profit from partnership firm

� Compensation received by Bhopal gasvictims

� Any sum received / receivable from :

Central/ State Govt, Local Authority byindividual/ his legal heir by way of compensation on account of disaster.



43

Taxation: Exempt Incomes

� Sum received from Life insurance policyincluding bonus but this exemption isnotavailable for:

a) Scheme under sec.80DD ± Maintenance andmedical treatment of dependant with disability

b) Key man insurance policy

c) Where annual premium exceeds 20% of

actual capital sum assured.- however if amountis received on death of a person the entireamount is allowed without any restriction.



44

Taxation ± Exempt Income

� Income by way of interest, premium onredemption or other payment on securitiesbonds or certificates notified by Govt.:

� List of 21 Notified securities :

Examples : Post office cash certificates

National Plan certificatesPost office savings bank accounts, cumulativetime deposits

NRI Bonds, Tax free bonds of HUDCOGold deposit bonds etc. ( for Detailed Listrefer page 68/69 of the Text book)



45

Taxation ± Exempt Income

� Scholarship granted to meet cost of education



46

Taxation- Exempt Incomes

� In respect of Non residents : Interest onnotified securities including redemptions

� Interest on Non resident external accounts

� An income by a foreign company by wayof royalty or fees for technical services inpursuance of an agreement entered into

with foreign govt for services in India or outside India for security of India andnotified by theGovt.



47

Taxation ±Exempt Incomes

� Daily allowances of MP s and MLA s includingconstituency allowances

� Recipients of Gallantry awards ± ParamVir/ Mahavir or Vir Chakra ± pension / family pension as notified

� Former Rulers ± Annual value of one palace inoccupation is exempt.

� Income of Research Institutions, News Agency,Professional Institutions approved funds, educationalinstitutions and hospitals on certain

conditions



48

Taxation ± Exempt Incomes

� Income of Mutual Funds registered under

SEBI or set up by public sector bank /

Institution authorised by RBI subject to

conditions as may be notified by the Govt.

� Dividends

� Income of Registered Trade Unions



49

Exempt Income Sec.10 A &10B

� Eligible Assessees:

� Newly established undertakings in

- Free trade zone

- Electronic Hardware Technology park- Electronic Software Technology park

Sec.10 A.

- Newly established undertakings which are

100% Export oriented units

Sec.10 B.



50

FTZ

� Kandla Free Trade Zone

� SEEPZ ±Santacruz Electronic Export

Processing Zone� Falta Export Processing Zone

� Madras Export Processing Zone

� Cochin Export Processing Zone



51

Hardware/ Software Technology

Parks

� Any parks set up in accordance with EHTPor STP scheme, notified by Govt. of India,Ministry of Commerce & Industry.

� 100% EOU : Undertakings which areapproved as 100% EOU by the board

appointed in this behalf by Central Govt.under Inds. Development & Regulation Act, 1951.



52

Common Conditions In Provisions

10 A & 10B

� Must begin manufacturing or production in ± FTZ / EHTP / STP / 100% EOU

� Should not be formed by splitting /

reconstruction of business� Should not be formed by transfer of old

machinery

� Sale proceeds must be repatriated into India ±

within six moths or extended time as permittedby RBI.

� Audit



53

Period & Amount Of Deduction

� The Deduction is available in respect of any profit and gains derived from theexport of articles or things or computer

software.� For a period of 10 consecutive

assessment years beginning with theassessment year relevant to previous year in which the unit began to mfg./ producethe articles/things/computer software.



54

Computation of Deduction

� FORMULA :

Export Turnover

------------------------- x Total Profit

Total Turnover



55

Taxation ±Sec.10 A,10B

� Other Points:

� During period of deduction depreciation is deemed tohave been allowed.Written down value shall beaccordingly reduced.

� No deduction u/s 80 IA or Sec.80IB shall be allowed.� Any unabsorbed depreciation or business loss or loss

under capital gains shall be allowed to be carried forwardand set off in subsequent years.

� In case of amalgamation or demerger, benefit of deduction shall be made available to the amalgamatedor the resulting company as the case may be for theunexpired period.



56

Taxation ± Sec.10 A/10B

� Option not to claim deduction.

� Export Turnover means consideration in respect

of export of articles or things or computer

software received in or brought into India inconvertible foreign exchange within the time

stipulated but does not include freight,

insurance and telecommunication charges if

incurred in fgn exchange in providing thetechnical services outside India.



57

IllustrationInformation from A ltd. Situated in FTZ for Fin.YE 31/3/07.

Total Turnover (TT) :Rs. 12 Cr

Export Turnover (ET) :Rs. 9.5 Cr

Profit (P) : Rs. 2.2 Cr

Computation of Deduction Under Sec 10A :

ET

----- x P

TT = 9.5/12 *2.2

= 1.74

Taxable Profit = Profit from undertaking 2.20 Cr

Less: Deduction 1.74 Cr

0.46 Cr



58

Taxation ± Units in SEZ

� Unit to manufacture / produce articles or

services in SEZ as defined in SEZ Act 2005.

� Production in SEZ on or after 1.4.2005

� Unit is not set up by splitting or reconstruction of existing business.

� Not formed by transfer to a new business of

machinery or plant previously used for any

purpose. ( Value of used machinery transferred

not to exceed 20 %)



59

Taxation ± units in SEZ

� Deduction for Profits and gains derived

from export of services, articles or things

produced .

� Computation amount of profit from export:

Export Turnover

------------------------ x Total Profit

Total Turnover



60


Amount of deduction

Period Deduction

First 5 consecutive years 100% of profits

Next 5 years 50 % of profits

Next 5 years Any amount transferred to

Special Economic zone

Reinvestment Reserve or

50 % of profits which ever is

lower.



61


� Conditions for utilisation of SEZ ReinvestmentReserve :

� For acquiring plant and machinery which is firstput to use before the expiry of aperiod of 3 years

following the previous year in which reserve wascreated

� For the purpose of business of the undertakingother than for distribution by way of dividends or profits or remittance outside India as profits or for the creation of any asset outside India.

� Assessee to furnish the particulars of machinery along with return of Income.



62


� Withdrawal of emption

Violation Of Condition Tax Implications

1. Incase special reserve isutilized for any purpose

other than the specified one.

The amount so utilized shallbe chargeable to tax in the

year of such utilization.

2. In case the reserve is not

utilized before the expiry of 3 years from the end of the

previous year in which

reserve was created.

The amount of unutilized

reserve shall be deemed tobe the profits in the year

immediately following the

period of 3 years.



63

Conversion of FTZ/EPZ to SEZ

� The Unit located in FTZ/EPZ subsequentlyconverted to SEZ , by reason of conversion of FTZ/EPZ into SEZ, tax

deductions are allowed to FTZ/ EPZ for 10 years from the date of manufacture under sec 10 AA.

� Unit initially setup in FTZ/EPZ and hascompleted 10Years will not get deductionsif it is subsequently located in SEZ.



64

Taxation ± Sec.10BA

� Export of certain articles or things:

� Eligible articles or things: all hand made articlesor things which are of artistic value and which

require the use of wood as the main rawmaterial.

� Conditions : Manufacture of articles or thingswithout the use of imported raw materials

� Not formed by splitting up or reconstruction of existing business.

� Not formed transferof used machinery



65

Taxation ± Sec.10BA

� Conditions of Sec.10 BA Contd:

� 90%of sales to b e by way of exports

� Employment of 20

or more workers.� Sales proceeds to be realised and brought

into India within a period of 6 months or

within extended time as per RBI approval.

� Certificate from C.A for correctness of

claim.



66

Taxation ± Sec.10 BA

� Amount of Deduction :

� Export Turnover ------------------------ x Profit

Total Turnover

� Exercise : 3.4 ( Page :91)



67

Taxation ± Charitable Trusts /

Institutions Sec.11-13.

� The Income derived from the property held

under Trust for charitable or religious

purposes is exempt from tax subject to

certain conditions. Sec.11.

� Voluntary contributions received ( not

being corpus funds ) shall be deemed tobe income of the trust.



68

Taxation ± Charitable trust

� Conditions :

� The Trust should be registered withCommissioner of Income Tax u/s 12 A.

� The accounts of the trust for the previous year should be audited if total income exceeds Rs.1,60,000/-

� At least 85 % of Income is required to be appliedfor the approved purposes,

� The unapplied income and money accumulatedshould be invested in the specified forms/modes.



69

Taxation ± charitable Trust

� Charitable Purpose :Sec.2(15):

� It includes relief to the poor, education,medical relief, and the advancement of any

other object of general public utility.� Advancement of general public utility includesany object which will be beneficial even to asegment of the society not necessarily the wholemankind.

� However object should not be for the benefit of specified person.



70

Taxation - Trust

� Examples of advancement of general public

utility :

� Chambers of Commerce ; Promotion and

protection of trade , commerce and industry.� State Bar Council : Beneficial for segment of

public as distinct from general public utility.

� Institute of Chartered Accountants : It is a

society for dissemination of knowledge .



71

Taxation ± Charitable Trust

� Corpus Donation :These are donations received with aspecific instructions that the amount donated shall formpart of the corpus of the Trust.

� Such donations are not treated as income but regarded

as capital receipts and not chargeable to tax.� Investment of corpus donations to be in approved

investments and assets.

� Condition of audit applicable if such donationexceedRs.1,60,000/-

� Other voluntary donations are treated as income of thetrust but exemption can be claimed subject to fulfillment

of certain conditions.



72


� Registration:

� Application to Commissioner of Income Tax in Form10 A

� On receipt of application commissioner may call for information.

� On being satisfied about genuineness of activities of trust/ institution, order of registration to be passed inwriting.

� Otherwise order of refusal in writing .

� Time period for registration /refusal : within six monthsfrom date of application for registration.

� Refusal order is appealable before Income Tax AppellateTribunal



73


� Application of Income :

� Trust must utilise 85 % of income of the previousyear for the objects of the trust.

� Utilisation of income for acquiring assets topromote the objects satisfies the condition.

� If income applied falls short of 85 % of incomederived that year, due to the reason that part of the income has not been received during that

year, can be applied in the following year.� Non application of income for any other reasonwill be taxable.



74


� Application of Income contd :

� Amount equal to 15 % of the Income of the trustis exempt even if not spent.

� This 15 % is worked out after deductingdepreciation and expenses incurred for earningincome.

� Administrative , Misc. expenses, income tax andwealth tax paid are treated as amount spent on

the objects of the trust.� For calculating 15 % donations / contributionsare considered.



75


� Accumulation of Income: Sec.12

� The Trust can accumulate or set apart its income for a specifiedpurpose by informing assessing officer.

� Period of accumulation not to exceed five years.

� The amount accumulated to be invested in specified investments.

� If income accumulated is not utilised for specified purpose inspecified period, or immediately following year, it will be deemed tobe income in the immediately following year.

� If trust is unable to apply income soaccumulated for the purpose for which it was accumulated due tocircumstances beyond control, Assessing officer may allow theapplication of such funds for other objects of the trust.

� Charitable trust is expected to make application for accumulation of funds alongwith return of income.



76


� Accumulation of Income contd :

� Trust can spend or contribute to another trust in

the year of earning income.

� However, if income is accumulated for specifiedpurpose it can not be used for contribution to

another trust. Even assessing officer can not

authorise such use. Incase it is used for such

contributions shall be deemed to be incomechargeable tax in the year of such contribution.



77

Taxation-Trust

� Accumulation of Income :

� However, where the trust or Institute is

dissolved, the assessing officer may allow

application of such accumulated income towardscontribution to another trust registered u/s 12 AA

or to any fund or institution or any university or

educational institute or hospital or medical

institute referred to u/s 10 ( 23) only in the year in which dissolution takes place.



78

Taxation- Trust

� Illustration of Trust Income:

� Acharitable Trust derives income, net of rxpenses,Rs.15 lakhs and corpus donation of

Rs.8

lakhs for the year ending31.3.2008

.� It accumulated Rs.10lakhs out of 15 lakhs for specified purpose and informs

Assessing Officer.

� Out of the balance, spends Rs. 1 lakh for theobjects of Trust. Determine Taxable income of Trust for A.Y. 2008-09.



79

Taxation - Trust

� Income Net of Expenses 15,00,000

� Less 15 % Exempt 2,25,000

� Balance 12,75,000

� Less Amount accumulated 10,00,000

� Balance Trust should utilise 2,75,000

� Less Actual amount spent 1,00,000

� Taxable Income of the Trust 1,75,000

� Exercise : 3.10 Page 99



80

Taxation Trust

� Capital Gains :

� Where a capital asset is transferred and thewhole of net consideration is utilised for

acquiring another asset : Entire capital gain isdeemed to have been applied for the objects of the trust.

� If only part of consideration is utilised : Amountof asset acquired less the original cost of assetwill be deemed to be applied for the objects of the trust.



81

Taxation - Trust

� Illustration : Capital Gain of Trust :

� Trust sold the land for Rs. 22.5 lakhs and

incurred expenses of Rs.50000/-. The land

was acquired for Rs.7 lakhs.

� Advise Trust on taxable gain assuming

Trust acquires another asset for

� A) Rs. 22 lakhs

� B) Rs. 18 lakhs.



82

Taxation - Trust

� Capital Gain :

� Sale Proceeds 22.5 lakh

� Less Expenses 00,5 lakh

� Less OriginalCost 7.00 lakh

� Capital Gain 15 lakh.� A)New asset acquired Rs. 22 lakh : Entire capital gain

is utisled and hence exempt

� B) New asset acquired Rs. 18 lakh :Exempt capital gainwould be Rs.18 lakhs ± Rs. 7 lakhs= 11 lakhs. Taxable

capital gain = 15 lakhs- Rs.11 lakhs as exempt =Rs. 4lakhs taxable capital gain.

� Exercise : 3.12 Page 100.



83

Taxation - Trust

� Business Income:

� In case of a Trust or Institution, Income from

business would be eligible for exemption , if the

following conditions are satisfied :� Business should be incidental to the attainment

the objects of the trust/ institution.

� Separate books of account should be

maintained in respect of such business.



84

Taxation - Trust

� Specified Investments :Se.11(5):

� Govt. savings certificates /securitiesissued by Central Govt under Small

Savings Scheme� Post Office Savings Bank account

� Deposit with any scheduled bank or a

co operative society engaged in bankingbusiness

� Central / state Govt securities



85

Taxation - Trust

� Specified Investments Contd :

� Units of UTI

� Deposits with IDBI

� Deposits / Investments made in shares of public sector companies ±If public sector co. ceases to be public sector co.- shares acquired to

be transferred within3

years and other investments withdrawn onmaturity

� Deposit/ Investment in bonds issued by Fin. Corporation engaged inproviding long term funds for industrial development in India.

� Deposit / Investment in bonds of any public company providingfinance for construction or purchase ofresidential houses in India

� Depodit / Investment in any bonds issued by a public co. providinglong term finance ( Repayment in not less than 5 years

� Immovable property.



86

Taxation - Trust

� Cases where income shall not be exempt :

� Income from the property held under a trust for private religious purposes, which does notensure benefit of the public.

� Income of a charitable trust or institution createdfor benefit of any particular religion, communityor caste.

Exception : Trust formed for benefit of backwardclasses, scheduled tribes or women andchildren.



87

Taxation - Trust

� Income Not EXEMPT Contd:

� Any income of a trust used directly or indirectly

for the benefit of author, founder, manager or

any person who made substantial contribution (Rs. 50000/-and above in a year).

� Any shares in a company other than

a) shares in public sector company

b) shares prescribed as a mode of investment



88

Taxation - Trust

� Income not exempt contd:

� Income from business not incidental for the

attainment of objectives and/ or where separate

books of accounts have not been maintained.� Any voluntary contribution in respect of which

trust / institution does not maintain record of

identity of person making contribution.( such

donations are called anonymous donations andare charged at a flat rate of 30 %.



89

Taxation ± Political Parties Sec.13 A

� Following income of political party is

exempt:

� Income from house property

� Income from other sources

� Income by way of voluntary contributions

� Capital gains



Taxation ± Political parties

� Conditions :

� The political party is registered under Representation of Peoples Act,1951.

� Keeps and maintains books of accounts and other

documents� Keeps and maintains record ( name and address) of

voluntary donations in excess of Rs.20000/-

� Accounts should be audited.

� Filing of report before Election Commissioner before duedate of filing return with details of voluntary donations inexcess of Rs. 20000/- received.

Documents

Tax Concepts Ppt