Income Tax LawSubmitted to Prof. Umar Zaka

02/06/2012Osama Sohail

L1F08BBAM2005M Ali Amjad

L1F08BBAMRabbia Shafique

L1F08BBAMHassan Shoaib

L1F0

University Of Central Punjab

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Compare Income Tax System of Pakistan with Income tax system of U.K and India[Project Report]

[Income tax forms the single largest source of revenues collected by the government (followed by national insurance contributions, an additional levy on incomes at around 20%. Each person has an income tax personal allowance, and income up to this amount in each tax year is free of tax for everyone.]

Submission Date[02 June 2012]

Table of Contents

Table of Contents...........................................................................2

INCOME TAX SYSTEM IN PAKISTAN................................................4

National Tax Number..................................................................4

Medical Allowance......................................................................4

Special Allowance.......................................................................4

Income Tax Rates.......................................................................5

Marginal Tax Relief (MTR)...........................................................6

Tax Diminution...........................................................................7

Tax collection trend....................................................................7

Filing of Tax Return and Employers’ Certificate..........................8

Wealth Statement.......................................................................9

Wealth statement is a statement of:..........................................9

Employers’ Responsibilities as with holding Tax Agent..............9

Tax withheld from employee under other heads like:...........10

INCOME TAX SYSTEM IN U.K........................................................11

Tax Laws and Tax System in U.K..............................................12

Corporate Tax...........................................................................13

Capital Gains.............................................................................13

Residence.................................................................................13

U.K. Tax Deductions..................................................................14

Income tax year........................................................................14

U.K. Personal Credits and Deductions.......................................14

Income Tax deduction at Source in U.K....................................15

Exceptions................................................................................15

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Discrepancies in UK Income Tax System..................................17

INCOME TAX SYSYTEM IN INDIA...................................................26

Income Tax Rates.....................................................................26

Residential Status.....................................................................28

Heads of Income.......................................................................28

Income from Salary...................................................................29

Perquisites and Exemptions u/s 10...........................................29

Income from House property....................................................30

Income from Capital Gains........................................................30

Deduction.................................................................................31

Refund Status...........................................................................32

Tax Penalties............................................................................32

Conclusion...................................................................................33

References:..................................................................................34

INCOME TAX SYSTEM IN PAKISTANIncome tax in Pakistan is governed by FBR (Federal Board of Revenue) which is the semi-autonomous, supreme federal agency of Pakistan and is responsible for auditing, enforcing and collecting revenue for the government of Pakistan. Federal taxes are administered by the Federal Board of Revenue.

When Pakistan came into existence after Partition, the Islamic Government of Pakistan promulgated the Income Tax Act, 1922, as amended up to the date for regulating the taxation system in Pakistan. "A Taxation Inquiry Committee", was introduced in 1958 which was consisting of officials and the representatives of trade and commerce.

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National Tax Number

National tax number NTN should be mentioned on all returns, employer’s certificate, wealth statement etc. A taxpayer can obtain NTN by submitting an application in the prescribed form along with a photo copy of Computerized National Identity Card (CNIC) and other required documents.

Medical Allowance

Exempt up to 10% of basic salary, if free medical treatment or hospitalization or re-imbursement of medical or hospitalization charges is not provided.

(See Clause (139) (b) of Part I of Second Schedule of ITO 2001)

Special Allowance

Exempt if granted to meet expenses for the performance of official duties.

(See Clause (39) of Part I of Second Schedule of ITO 2001)

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Income Tax Rates

The tax on salary income is calculated at the rates prescribed in Income Tax Ordinance, 2001. Through Finance Bill 2010 different rates are proposed. The proposed rates for Tax Year 2011 are as follows:

S.No

Taxable Income Rate of Tax

1 Where the taxable income does not exceed Rs.300, 000. 0%2 Where the taxable income exceeds Rs.300, 000 but does not

exceed Rs.350, 000.0.75%

3 Where the taxable income exceeds Rs.350, 000 but does not exceed Rs.400, 000.

1.5%

4 Where the taxable income exceeds Rs.400, 000 but does not exceed Rs.450, 000.

2.5%

5 Where the taxable income exceeds Rs. 450,000 but does not exceed Rs.550, 000.

3.5%

6 Where the taxable income exceeds Rs. 550,000 but does not exceed Rs.650, 000.

4.5%

7 Where the taxable income exceeds Rs. 650,000 but does not exceed Rs.750, 000.

6.0%

8 Where the taxable income exceeds Rs. 750,000 but does not exceed Rs.900, 000.

7.5%

9 Where the taxable income exceeds Rs. 900,000 but does not exceed Rs.1, 050,000.

9.0%

10 Where the taxable income exceeds Rs. 1,050,000 but does not exceed Rs.1, 200,000.

10.0%

11 Where the taxable income exceeds Rs. 1,200,000 but does not exceed Rs.1, 450,000.

11.0%

12 Where the taxable income exceeds Rs. 1,450,000 but does not exceed Rs.1, 700,000.

12.5%

13 Where the taxable income exceeds Rs. 1,700,000 but does not exceed Rs.1, 950,000.

14.0%

14 Where the taxable income exceeds Rs. 1,950,000 but does not exceed Rs.2, 250,000.

15.0%

15 Where the taxable income exceeds Rs. 2,250,000 but does not exceed Rs.2, 850,000.

16.0%

16 Where the taxable income exceeds Rs. 2,850,000 but does not exceed Rs.3, 550,000.

17.5%

17 Where the taxable income exceeds Rs. 3,550,000 but does not exceed Rs.4, 550,000.

18.5%

18 Where the taxable income exceeds Rs. 4,550,000. 20.0%

Marginal Tax Relief (MTR)

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Through Finance Act 2008 a new provision for marginal relief in the tax rates was introduced to remove anomaly in the tax rates. The marginal relief is available on amount in excess of maximum limit of the preceding slab relative to slab in which the taxable income fall. The marginal amount will be taxed at the following rates:

Sno If taxable income of the tax payer is Percentage of incremental income taxable at next applicable tax rate

1 Where the taxable income does not exceed Rs.550, 000.

20%

2 Where the taxable income exceeds Rs. 550,000 butdoes not exceed Rs.1, 050,000.

30%

3 Where the taxable income exceeds Rs. 1,050,000 butdoes not exceed Rs.2, 250,000.

40%

4 Where the taxable income exceeds Rs. 2,250,000 butdoes not exceed Rs.4, 550,000.

50%

5 Where the taxable income exceeds Rs. 4,550,000.

60%

Special Notes:

1. For withholding tax purposes these rates shall apply to salary paid on or after first day of July 2010.

2. When the relief worked out through this provision ceases to exist then it would not be applicable and tax shall be computed normally without marginal relief.

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Tax Diminution

The tax calculated above can be reduced to a prescribed limit if the salaried person is a senior citizen or a full time researcher or teacher. The gross tax calculated as per applicable rates of tax is subject to reduction for senior taxpayers and full time teacher or researcher.

Teacher or Researcher

A reduction of 75% of tax on income from salary is available to a full time teacher or researcher, employed in a non-profit education or research institution duly recognized by HEC, any university or board and government training and research institution. (Clause (2) of Part III of Second Schedule of ITO 2001)

Senior Taxpayers

If the age of the taxpayer on the first day of a tax year is 60 years or more and taxable income does not exceed Rs.1, 000,000 the gross tax qualifies for a reduction of 50%. (Clause (1A) of Part III of Second Schedule of ITO 2001)

Tax collection trend

This is a chart of trend of taxes collected by the Central Board of Revenue of Pakistan with figures in millions of Pakistani Rupees.

Year Total Direct Taxes Indirect Taxes

1996 129,282,087 658,485,060 211,597,027

2000 982,392,277 251,124,585 124,5267,692

2005 429,282,087 129,282,087 611,597,027

Since the mid-1990s, Sales Tax has grown dramatically in significance to the exchequer while Excise collection has stagnated.

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Filing of Tax Return and Employers’ Certificate

When income exceeds the taxable limit in a tax year and is exclusively derived from “salary” being less than Rs. 500,000, one may file an Employer’s Certificate in lieu of a return of income by the due date. (i.e. August 31 next following the tax year) if the employer has not furnished the Annual Statement of Deduction of Income Tax from Salary. The salaried taxpayer is not required to even furnish Employer’s Certificate if his/her taxable salary income is less than Rs. 500,000 and his/her employer has filed an Annual Statement of Deduction of Income Tax from Salary as prescribed under the Income Tax Rules.

However, if a person exclusively deriving income from salary and the salary income for the tax year is Rs. 500,000 or more, the taxpayer shall file return of income electronically in the prescribed form and it shall be accompanied by the proof of deduction or payment of tax and wealth statement as required under section 116.

The deduction of tax at source by an employer from the salary is a final discharge of employee’s obligation in case if the employee’s salary is less than Rs. 500,000 ,his/her employer has deducted proper tax due from him/her and filed an annual statement of deduction of tax from salary. In other cases such a deduction of tax should not be the final discharge of employee’s obligation and such an employee is liable to file the employer’s certificate on prescribed form or e-file his/her return of income on due date as the case may be.

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Wealth Statement

A salaried taxpayer is obliged to file a Wealth Statement and wealth reconciliation statement if his or her last declared or assessed taxable income or declared income for the year is Rs. 500,000 or more. Wealth statement should be filed in all cases whether the annual statement has been filed or not by his / her employer.

Wealth statement is a statement of:

total assets and liabilities of the taxpayer as on a closing date of financial year (i.e. June 30 each year);

total assets and liabilities of the taxpayer’s spouse, minor children, and other dependants on the same date;

any assets transferred by the taxpayer to any other person during the year; and

The detail of such total expenditures incurred by taxpayer and his or her spouse, minor children, and other dependants during the year.

The reconciliation statement of wealth.

Employers’ Responsibilities as with holding Tax Agent

Every employer paying salary to an employee shall, at the time of payment, deduct tax from the amount paid at the employee’s average rate of tax computed at the prescribed rates on the estimated salary income of the employee for the tax year in which the payment is made. While making deduction of tax from an employee, the employer shall make an adjustment for the following on production of documentary evidence:

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Tax withheld from employee under other heads like:

On payment of landline telephone bills (if connection is in the name of employee);

On payment of mobile bills (if connection is in the name of employee);

On payment of vehicle registration/renewal token (if vehicle is registered in the name of employee); and

On cash withdrawal from bank (if the bank account is in the name of employee).

Allow tax credits available to an employee on :

(a) Donations to approved NPOs (section 61 of ITO 2001);

(b) Investment in shares (section 62 of ITO 2001);

(c) Contribution to approved pension funds (section 63 of ITO 2001); and

(d) Profit on debt (section 64 of ITO 2001).

The tax so deducted shall be deposited in the government treasury within seven days from the end of each fortnight.

The salaried person shall submit declaration to the employer regarding his/her sources of income and tax credits claimed on prescribed form IT-3. This shall be kept by the employer in his record for a period of five years.

Every employer is required to file / e-file a quarterly* statement on prescribed form regarding the deduction of tax from salaries of employees within the twenty days of the end of the relevant quarter. The quarterly statement is required to be filed even if there is no withholding tax deduction during the relevant quarter.

Every employer is also required to file / e-file an Annual Statement of Deduction of Tax from Salary on prescribed form within two months of the end of the financial year.

Employer responsible for deducting tax from salary shall issue a certificate to the employee, in the prescribed form with in forty-five days after the end of the financial year.

*Quarterly statement is required i.e. July 2010; up to year June 2010 only monthly statement was required to be filed.

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INCOME TAX SYSTEM IN U.KIncome tax (in UK) forms the single largest source of revenues collected by the British government (followed by national insurance contributions, an additional levy on incomes at around 20%. Each person has an income tax personal allowance, and income up to this amount in each tax year is free of tax for everyone. For 2010-11 the tax allowance for fewer than 65s is £6,475. This reduces by £1 for every £2 of taxable income above £100,000; whilst this allowance is withdrawn the effective income tax rate is 60% and with the NI rate in this band the effective tax rate is 62%.

On 22 June 2010, the Chancellor (George Osborne) increased the personal allowance by £1000 in his emergency budget, bringing it to £7,475 for the tax year 2011-12. For the 2012/13 tax year, tax-free allowance is £8105.

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Tax Laws and Tax System in U.K

The top 10 per cent of UK earners contributes 58 per cent of all UK income tax revenues. I hear many claims lately that the 1 per cent doesn’t pay its fair share, but then many people I ask are also surprised at how high the 1 per cent’s contribution already is (28 per cent of UK income tax receipts). In the US, the figure is even higher – the top 1 per cent of US earners contributes 37 per cent of income tax receipts. By contrast, the poorest 50 per cent of the UK population supplies 10 per cent of income tax revenues.

Individual Income Tax: The U.K. individual income tax rates for 2010-2011 are 10%-50%.

U.K. Personal annual tax rates 2010-2011

Income (GBP) %

1-2,440 10

1-37,400 20

37,401-150,000 40

Over 150,000 50

Note:

The 10% rate relates to saving income of up to GBP 2,440.

Dividend income below GBP 37,400 is taxed at 10%.

Dividend income of GBP 37,400- GBP 150,000 is taxed at 32.5%.

Dividend income exceeding GBP 150,000 is taxed at 42.5% 

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Corporate Tax

UK's corporate tax rate for 2010-2011 is 28%. For UK resident companies with annual profits below GBP 300,000 the tax rate is 21%.

Capital Gains

Capital gains of individuals are generally taxed at 18%. There is an annual exemption of GBP 10,000.

Capital gains for companies are generally taxed at the standard corporate tax rate. There is a participation exemption for sale of shares, subject to certain terms. 

Residence

An individual in UK is resident is one who is neither resident nor ordinarily resident in the UK which is limited to any tax deducted at source on UK income, together with tax on income from a trade or profession carried on through a permanent establishment in the UK and tax on rental income from UK real estate.When staying in the UK for more than 183 days in a tax year, or when having annual visits to the UK for 91 days in 4 consecutive years.

A company is UK resident if incorporated in UK or its central management and control lies inside the UK(although in the former case a company could be resident in another jurisdiction in certain circumstances where a tax treaty applies). Double taxation of income and gains may be avoided by an applicable double tax treaty - the UK has one of the largest networks of treaties of any country.

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U.K. Tax Deductions

Losses are carried forward indefinitely. Losses can be carried back for one year.

A company holding 75% in a subsidiary can usually file a consolidated tax return.

Depreciation is deducted using the reducing balance method.

The depreciation rate for machinery and equipment is 25%. Industrial buildings are depreciated on a straight line method, 4% per year.

Companies involved in enterprise zones can claim 100% depreciation for commercial buildings.

Income tax year

The tax year in UK which applies to income tax and other personal taxes, runs from 6 April in one year to 5 April the next (for income tax purposes). Hence the 2010-11 tax year ran from 6 April 2010 to 5 April 2011.

The tax year is sometimes also called the Fiscal Year. The Financial Year is used mainly for corporation tax purposes, runs from 1 April to 31 March. Financial Year 2011 runs from 1 April 2010 to 31 March 2011, as Financial Years are named according to the calendar year in which they end.

U.K. Personal Credits and Deductions

For British residents, the first annual income of GBP 6,475 is tax exempt in 2010-2011. The exemption is limited to annual income below GBP 100, 00.There are also tax credits for taxpayers aged 65-74, with additional GBP 9,640 credit for those above 75 years.There is a standard deduction for each dependent.Deductions are also permitted for pension plans payments by an employee.There is a tax relief for gifts given to UK charities. 

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Income Tax deduction at Source in U.K

In the U.K. income tax is deducted at source from the following payments to non-residents:

Dividend: 0% (20% for dividends paid by REITs).Interest: 20%.Royalties: 20%. 

Note: With holding rates are subject to double taxation treaties.Interest and royalties are exempt under the EU (European Union) directive.

Exceptions

Many holdings and income from them are exempt for "historical reasons".

These include

o Special, low tax arrangements for the monarchy, such as the arrangement used by the British Royal Family to avoid inheritance taxation.

o Reduced income tax for special classes of person, such as non-doms, who claim to be resident in the UK but not "domiciled".

o An Act of Parliament to protect the Earl of Abingdon and his “heirs and assignees” from paying income tax on the tolls on the Swinford Toll Bridge.

o The income of charities is usually exempt from UK income tax.

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Social Security in U.K

Social Security of income tax is governed by National Insurance Contributions (NIC) in the UK.

The contributions by the employer and the employee are subject to ceiling defined by law.

Employer

o 12.8% on salary above GBP 5,715.

Employee

o 11% on salary of GBP 5,715- GBP 43,875, with additional 1% for salary is above GBP 43,875.

o Self-employed pays 8% for income of GBP 5,715- GBP 43,875 with additional 1% on income exceeding to GBP 43,875. 

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Discrepancies in UK Income Tax System

There are a number of reasons why people may have under or overpaid their tax:

1. Tax Payers’ employer may have used the wrong tax code, because you started a new job or you had an emergency tax code for a while.

2. Tax Payer may have only worked for part of the year or you had more than one job at the same time.

3. Tax Payer may not have told HMRC right away about changes to benefits you got through your work, or your circumstances changed.

4. Tax Payer was made redundant or became self-employed and therefore your income reduced.

5. Other income such as investments or rental income may have reduced but tax payer didn't inform HMRC.

6. It could also be that HMRC made a mistake with tax payer tax.

How does PAYE work?

If you are an employee your employer will deduct income tax directly from your wages and pass it on to HMRC.

The amount deducted is based on your total taxable income, taking into account any tax allowances and your individual tax code as provided by HMRC.

At the end of the financial year, HMRC compares the amount of tax it has received from each taxpayer with the amount it would expect to receive according to their tax code and income. Anyone on the wrong tax code could end up paying too much or too little.

Why have so many discrepancies occurred?

The PAYE system was originally devised around employers since at the time it was introduced many people tended to stay with a single firm for life.

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Until recently it was possible to keep an accurate record of employees, but since the 1970s work patterns have been transformed with workers now often having many jobs during their lifetimes. Taxable benefits like health cover and company cars have complicated matters further.

In response the system was overhauled, and in June 2009 a new IT system was introduced focusing on the employee. Where previously, all the data for an individual could be spread across as many as 12 databases, it is now all in one place.

An HMRC spokesman said the new system enables it to keep much more up-to-date records, so initially more mistakes will be highlighted. However, in the future more people will pay the correct tax at the right time, thus reducing the number of corrections.

How will TAX PAYER know if TAX PAYER is affected?

If you are one of the estimated six million people affected you will receive a letter from HMRC between now and Christmas.

The first 45,000 people will receive their letter, known as the P800, in the week of 6 September. The majority of these have paid more tax than they should but some 15,000 have not paid enough.

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If TAX PAYER have underpaid, how will TAX PAYER pay the extra TAX PAYER owe?

In most cases, for sums less than £2,000, underpayments will be recovered during the 12 months of the financial year 2011/12 through your salary. This will happen automatically via a changed tax code, so you will not need to do anything unless you believe the information in your P800 letter is wrong. If so, you should contact HMRC.

HMRC says that in some circumstances they will consider writing off underpayments, but only if they are provided with sufficient evidence to prove that an individual provided all the information needed to get their tax right in the first place, and could have reasonably expected their PAYE deductions to be correct.

Taxpayers will also have to show that HMRC did not use the information within 12 months of the end of the tax year in which it was received.

What if TAX PAYER cannot afford to repay the tax? Can TAX PAYER refuse to repay?

HMRC says that if tax payer genuinely cannot afford to repay the tax, they should contact their local tax office. In genuine hardship cases, the repayments may be spread over as much as three years. And in these cases normal interest payments will not be charged.

If TAX PAYER have overpaid, how will TAX PAYER get the money back?

Money that was overpaid will be returned via a cheque.

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How can TAX PAYER find out my tax code and keep it up-to-date?

Tax payer will find his code on his P45 form, given to him by his employer when tax payer stops working for them, which is why tax payer should make sure he gives that form to his next employer. If tax payerhave lost his P45 and want to find out his code he should contact his local Tax Office or ask his employer.

If you think your tax code is wrong or tax payerthinkshe may need to update it, tax payer should also contact his Tax Office.

Sometimes when tax payer starts a new job his/her employer will put him on an emergency tax code until HMRC has worked out what it should be. While tax payer are on this emergency code tax may be over or underpaying the right tax.

Moreover it is not very revealing to list the proportion each income group pays in tax if tax payer does not list what is the total income that group receives upon which the tax is paid.

The percentage of income taxed is the key figure and as we read today, for the top 1% it is so low that even CEO’s of Multi-national company’s’are shocked by the level of avoidance income tax reveals.

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Income Tax Rates in UK

Income Tax Rates 2012 - 13

Starting rate for savings 10%   £0 - £2,710Basic  tax rate 20%   £0 - 34,370Higher tax rate 40%   Over £34,370

Additional rate 50% Over £150,000

Income Tax Allowances In Pound  (£)

Personal allowance for people under 65 8,105Personal allowance for people aged 65-74 10,500

Personal allowance for people aged 75 and over 10,660

Income limit for age-related allowances 25,400Married couple's allowance - aged 75 or more 7,705

Minimum amount of married couple's allowance 2,960

Blind person's allowance 2,100

Reduced tax allowances and tapered down to zero over

£100,000

National Insurance 2012 - 13

LEL  per week £107

UEL per week £817Primary Threshold per week £146Secondary Threshold per week £144Employee - between PT - UEL (A) 12%Employee - Over UEL 2%Employers class 1 13.8%

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Corporation Tax 2012 - 13

0 - 300,000 20%300,001 - 1.5m marginal relief fraction

1/100Over 1.5m 24%

Capital Gains Tax 2012 - 13

Individuals 18% + 28%Trust 28%Qualifying Entrepreneurs' Relief 10%

Annual Exemption/ reliefIndividuals £10,600Trust  £5,300

Inheritance Tax 2012 - 13

Nil band £325,000

Lifetime transfers 20%Transfer within 7 years of death 40%If more than 10% of net estate left to charity 36%

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Income Tax allowances in U.K

Income Tax allowances 2010-11

2011-12

2012-13

Personal Allowance (1) £6,475 £7,475 £8,105

Income limit for Personal Allowance

£100,000

£100,000

£100,000

Personal Allowance for people aged 65-74 (1)(2)

£9,490 £9,940 £10,500

Personal Allowance for people aged 75 and over (1)(2)

£9,640 £10,090 £10,660

Married Couple's Allowance (born before 6th April 1935 and aged 75 and over) (2) (3)

£6,965 £7,295 £7,705

Income limit for age-related allowances

£22,900 £24,000 £25,400

Minimum amount of Married Couple's Allowance

£2,670 £2,800 £2,960

Blind Person's Allowance £1,890 £1,980 £2,100

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1. From the 2010-11 tax year the Personal Allowance reduces where the income is above £100, 000 - by £1 for every £2 of income above the £100,000 limit. This reduction applies irrespective of age.

2. These allowances reduce where the income is above the income limit for age-related allowances by £1 for every £2 of income above the limit. For the 2010-11 tax year the Personal Allowance for people aged 65 to 74 and 75 and over can be reduced below the basic Personal Allowance where the income is above £100,000.

3. Tax relief for the Married Couple's Allowance is given at the rate of 10 per cent.

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Income Tax rates and taxable bands in U.K

Rate 2010-11

2011-12

2012-13

Starting rate for savings: 10%* £0-£2,440

£0-£2,560

£0-£2,710

Basic rate: 20% £0-£37,400

£0-£35,000

£0-£34,370

Higher rate: 40% £37,401-£150,000

£35,001-£150,000

£34,371-£150,000

Additional rate: 50% Over £150,000

Over £150,000

Over £150,000

* The 10 per cent starting rate applies to savings income only. If, after deducting your Personal Allowance from your total income liable to Income Tax, your non-savings income is above this limit then the 10 per cent starting rate for savings will not apply. Non-savings income includes income from employment, profits from self-employment, pensions, income from property and taxable benefits.

The rates available for dividends are the 10 per cent ordinary rate, the 32.5 per cent dividend upper rate and the dividend additional rate of 42.5 per cent.

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INCOME TAX SYSYTEM IN INDIAThe government of India imposes an income tax on taxable income of individuals, Hindu Undivided Families (HUFs), companies, firms, co-operative societies and trusts (identified as body of individuals and association of persons) and any other artificial person. Levy of tax is separate on each of the persons. The levy is governed by the Indian Income Tax Act, 1961. The Indian Income Tax Department is governed by the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue under the Ministry of Finance, Govt. of India.

There are close to 35 million income tax payers in India.

Income Tax Rates

Income tax is a tax payable, at the rate enacted by the Union Budget (Finance Act) for every Assessment Year, on the Total Income earned in the Previous Year by every Person.

The chargeability is based on nature of income, i.e., whether it is revenue or capital. The rates of taxation of income are-:

Income Tax Rates/Slabs Rate (%) (as per budget 2012)

Up to 2, 00,000 = 0%,

2, 00,001 – 5, 00,000 = 10%,

5, 00,001 – 10, 00,000 = 20%,

10, 00,001 upwards = 30%,

Up to 2, 50,000 (for resident individual of 60 years or above) = 0,

Up to 5, 00,000 (for very senior citizen of 80 years or above) = 0.

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Education cess is applicable @ 3 per cent on income tax, surcharge = NA

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Residential Status

The three residential statuses:

Resident Ordinarily Residents

Under this category, person must be living in India at least 182 days

during previous year or must have been in India 365 days during 4

years preceding previous year and 60 days in previous year.

Ordinary residents are always taxable on their income earned both

in India and Abroad.

Resident but not Ordinarily Residents

Must have been a non-resident in India 9 out of 10 years preceding

previous year or have been in India in total 729 or less days out of

last 7 years preceding the previous year. Not residents are taxable

in relation to income received in India or income accrued or deemed

to be accruing or arise in India and income from business or

profession controlled from India.

Non Residents

Non Residents are exempt from tax if accrue or arise or deemed to

be accrued or arise outside India. Taxable if income is earned from

business or profession setting in India or having their head office in

India.

Heads of Income

The total income of a person is divided into five heads:

1. Salary income

2. Income from house property,

3. Income from business or profession,

4. Capital Gain

5. Income from other sources.

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Income from Salary

 Employers must withhold tax compulsorily, if income exceeds minimum exemption limit, as Tax Deducted at Source (TDS), and provide their employees with a Form 16 which shows the tax deductions and net paid income.

In addition, the Form 16 will contain any other deductions provided from salary such as:

1. Medical reimbursement: Up to 15,000 per year is tax free if supported by bills.

2. Transport allowance: Up to 800 per month (9,600 per year) is tax free if provided as transport allowance. No bills are required for this amount.

3. Conveyance allowance: is tax exempt.4. Professional taxes: Most states tax employment on a per-professional

basis, usually a slabbed amount based on gross income. Such taxes paid are deductible from income tax.

5. House rent allowance: the least of the following is available as deduction

i. Actual HRA received

ii. 50%/40%(metro/non-metro) of basic salary

iii. Rent paid minus 10% of 'salary'. Basic Salary for this purpose is

basic+DA forming part commission on sale on fixed rate.

Income from salary is the least of all the above deductions.

Perquisites and Exemptions u/s 10

The term "Perquisite" includes value of any benefit or amenity/value of any concession provided by the employer to the employees. Perquisite Valuation does not include certain medical benefits. Section 10 exemptions are available for the following perquisites:

1. Leave Travel Concession u/s 10(5)2. Perquisites paid to Indian Citizens Employed Abroad 10(7) no3. Tax Paid on Behalf of Any Employee by the Employer 10(10CC)

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Income from House property

The annual value (in the case of a let out property) is the maximum of the following:

Rent received. Municipal Valuation Fair Rent (as determined by the IT department)

Deductions:

30% of Net value as repair cost (This is a mandatory deduction) No other deduction available Interest paid or payable on a housing loan against this house

Income from Capital Gains

Transfer of capital assets results in capital gains. A Capital asset is defined s property of any kind held by an assesses such as real estate, equity shares, bonds, jewellery, paintings, art etc. but does not include some items like any stock-in-trade for businesses and personal effects.

For tax purposes, there are two types of capital assets:

1. Long term assets2. Short term assets

Long term asset is that which is held by a person for three years except in case of shares or mutual funds which becomes long term just after one year of holding.

1. long term capital gains on shares or securities or mutual funds on which Securities Transaction Tax (STT) has been deducted and paid, no tax is payable. STT has been applied on all stock market transactions since October 2004 but does not apply to off-market transactions and company buybacks; therefore, the higher capital gains taxes will apply to such transactions where STT is not paid.

2. In case of other shares and securities, person has an option to either index costs to inflation and pay 20% of indexed gains, or pay 10% of

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none indexed gains. The indexation rates are released by the I-T department each year.

3. In case of all other long term capital gains, indexation benefit is available and tax rate is 20%.

Short term capital gains, which are taxed as such:

Under section 111A, for shares or mutual funds where STT is paid, tax rate is 10% From Asst Yr 2005-06 as per Finance Act 2004. For Asst Yr 2009-10 the tax rate is 15%.

In all other cases, it is part of gross total income and normal tax rate is applicable.

For companies abroad, the tax liability is 20% of such gains suitably indexed (since STT is not paid).

Income from Other Sources

This is a residual head; under this head income which does not meet criteria to go to other heads is taxed. There are also some specific incomes which are to be taxed under this head.

1. Income by way of Dividends2. Income from horse races3. Income from winning bull races4. Any amount received from key man insurance policy as donation.5. Income from shares (dividend other than Indian company)

Deduction

While exemptions are on income some deduction in calculation of taxable income is allowed for certain payments.

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Refund Status

State Bank of India (SBI) is the refund banker to the Indian Income Tax Department (ITD). Your tax refund details are sent to SBI, by the Income tax department. Then SBI will process the refund, and send you the refund intimation. While filing your return you can choose any one of the two Refund modes ECS or Paper (cheque). The refund status can be checked online at the NSDL site.

Tax Penalties

The major number of penalties initiated every year as

A ritual by I-T Authorities is under section 271(1) (c) which is for either concealment of income or for furnishing inaccurate particulars of income.

"If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person-

(b) has failed to comply with a notice under sub-section (1) of section 142 or sub-section (2) of section 143 or fails to comply with a direction issued under sub-section (2A) of section 142, or

(c) Has concealed the particulars of his income or furnished inaccurate particulars of such income,

He may direct that such person shall pay by way of penalty,-

(ii) In the cases referred to in clause (b), in addition to any tax payable by him, a sum of ten thousand rupees for each such failure;

(iii) In the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income.

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ConclusionFactors Income Tax

System of PakistanIncome Tax System of India

Income Tax System of U.K

Tax Collecting Authority

FBR

(Federal Board of Revenue)

IRS

(Indian Revenue Service)

HMRC

(Her Majesty's Revenue and Customs)

Tax Rates

Penalties

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References:

1. http://fbr.gov.pk

2. http://hmrc.gov.uk

3. http://wikipedia.org

4. http://answers.com

5. http://www.bbc.co.uk/news/uk-11186767

6. http://www.cityam.com/forum/why-britain-s-income-tax-system- already-astonishingly-progressive

7. http://asalamjan.com/wp-content/uploads/Salary_brochure_TY2011.pdf

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