ndim taxation 2 (1)
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Contd.
Agriculture does not merely imply raising of
foods and grains. It includes all the products from the
performance of the basic and subsequentoperations on land.
Example: fruits, vegetables, tea , coffee,sugar-cane, tobacco, spices, cotton , jute,timber, tendu leaves etc.
All products of the land which has got someutility either for the consumption or for trade &commerce
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Contd.
Mere connection with land not sufficient torefer the income as agricultural. Example:poultry farming , breeding and rearing of livestock.
With effect from A.Y. 2009-10, nurseryoperations income from saplings or seedlings grown in a nursery shall be
deemed to be agricultural income.
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Income attributable to a farm houseSection 2(1A)(c)
To qualify for the above, certain conditionsneeds to be satisfied- The building should be occupied by the
cultivator (as a landlord or as a tenant) or receiver of rent-in-kind as a landlord.
The cultivator or receiver of the rent-in-kindshould by reason of his connection with theagricultural land requires the building as adwelling house or as a store house.
It should be on or in the immediate vicinity of land situated in India and used for agriculturalpurposes.
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Contd.
The land is assessed to land revenue or localrate or alternatively the land is situatedoutside urban areas
(Urban area = an area which is comprised withinthe jurisdiction of any municipality / cantonmentboard having population of not less than 10000persons or within 8 kilometers from the limits of themunicipality or contentment board.)
The land or building should be used for agricultural purposes. For example giving thebuilding on rent is not agricultural purposeand such case income will not be exempt.
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Capital and revenue expenditure Not defined under the act, but one has to
follow the natural meaning & decidedcases.
Acquisition of fixed asset against routineexpenditure Capital expenditure means expenses incurred
while purchasing a fixed assets, as against
revenue expenditure is recurring or incurredduring the normal course of business
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Contd. Benefit over several years against one
year Capital expenditure benefits us for several
years (life of the asset) as against revenue
expenditure is consumed within a year. Improvement as against maintenance
Capital expenditure leads to increasing the
efficiency or earning capacity of the fixedasset. Whereas revenue expenditure helps inrunning the business smoothly.
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Contd. Lump sum payment as against periodic
payments To decide whether Capital expenditure or
revenue expenditure, whether payment was
made in lump sum or periodic cannot bedeciding factor.
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Company Section 2(17) defines Company to mean
An Indian company or A body Corporate incorporated under the laws
of a foreign country
Any institution, association or a body, whether incorporated or not and whether Indian or nonIndian, which is declared by general or specialorder of the CBDT to be a Company
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Indian Company
Indian Company Section 2(26) A company formed and registered under the
Indian Companies act of 1956 A company formed and registered under any
law in force in the state of Jammu andKashmir
Any institution , association or body which isdeclared by the board to be a Company under section 2(17)
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Dividend Section 2(22) Under Section 2(22) following payments
or distribution by a company to itsshareholders are deemed as dividend tothe extent of accumulated profits of the
company Any distribution entailing the release of
companys assets.
Any distribution of debentures, debenturestock, deposit certificates and bonus topreference share holders
Distribution on liquidation of company
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Contd.
Distribution on reduction of Capital Any payment by way of loan or advance by a
closely held company to a shareholder,holding substantial interest; provided the loanshould not have been made in the ordinarycourse of business and money lending shouldnot be substantial part of the companysbusiness
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Total Income & its computation It is-
Gross total Income ***** Less: Permissible deduction u/s.80 *****( section 80 C to 80 U)
Net taxable income ***** Tax is calculated on the Net taxableincome as per the applicable rates.
The net taxable income is rounded off asper the provisions of section 288A and thetax payable is rounded off to as per provisions of section 288B
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RESIDENTIAL STATUSPERSON
ALL ASSESSEE
RESIDENT NON RESIDENT
ONLY
INDIVIDUAL & H.U.F
RESIDENT &
ORDINARY RESIDENT
RESIDENT BUT NOT
NOT
ORDINARY RESIDENT
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BASIC CONDITIONS
STAY IN INDIA IN PREVIOUS YEAR
182 DAYS OR MORE
OR
60 DAYS IN PREVIOUS YEAR & PRECEDINGPREVIOUS 4 YEARS 365 DAYS
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EXCEPTIONS An Individual
Indian citizen, leaves India in previous year,as a crew member of an Indian Ship
OR
For employment An Individual
Who is person of an Indian Origin or Who is
an Indian Citizen Stayed outside India Comes on a visit to India
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CONDITIONS FOR R & OR
Preceding previous 10 years, Resident at-least for two years
AND
Stay in India in preceding previous sevenyears 730 days.
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HUF & RESIDENTIAL STATUS
Resident Control &
Management of
affairs is exercised Either completely
or partially fromIndia
R & OR Status of Karta of
HUF?
R & OR OR
NR or R but NOR
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Control & Management
Refers to Head and Brain which directthe affairs of the business i.e. the policies,finance, disposal of profits, vital thingsconcerning the management of thebusiness
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COMPANY/AOP/BOI/FIRM AND
RESIDENTIAL STATUS AOP/BOI/FIRM/Local
authority/Artificialperson
R & OR Control &
Management of affairs is exercised
Either completelyor partially fromIndia
COMPANY Indian always R & OR Any other company
R & OR Control &
Management of affairs is exercised
Completely in India
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Relationship between residentialstatus & incidence of tax
Incidence of tax on a tax payer depends on his residential status and also on the place & time of accrual or
receipt of income.
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Indian Income & Foreign Income
Indian Income If income is received in
India & also accrues inIndia (deemed toreceived & accrues inIndia)
If Income is receivedin India but accruesoutside India
If Income is receivedoutside India butaccrues in India
Foreign Income Income is not received
in India ( not deemedto receive in India)
Income does notaccrue or arise inIndia.
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INCOME DEEMED TO RECEIVE AND ACCRUE IN INDIA
Examples of Income deemed to receive Contribution by the employer to the EPFaccount in excess of 12% of employeessalary
Annual interest credited to the employees PFaccount in excess of 9.5%
Examples of Income deemed to Accrue All income accruing or arising whether directly
or indirectly through / from Any business connection in India or Property in
India or Asset or source of income in India or Transfer of Capital asset in India
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Contd. Salary payable for services rendered in India
Salary received by Indian national fromGovernment in respect of services renderedoutside India is deemed to accrue or arise inIndia
Any dividend paid by an Indian Companyoutside India
Etc.
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SCOPE OF INCOMEParticulars R & OR R but NOR NRI
Incomereceived inIndia
TAXABLE TAXABLE TAXABLE
Accrues inIndia
TAXABLE TAXABLE TAXABLE
Deemed toreceive or accrue in India
TAXABLE TAXABLE TAXABLE
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Contd.
Businessincomecontrolledwholly or partly fromIndia
Taxable Taxable NotTaxable
Business /
Professioncontrolledfrom outsideof India
Taxable Not
Taxable
Not
Taxable
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HEADS OF INCOME
Income from Salary Income from House Property
Profits & gains from Business &Profession Capital Gain
Income from other sources
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EXAMPLE FORPOST-CONSTRUCTION INTEREST
FLOP/PLOP/VLOP/DLOP Loan taken for
construction/purchase of theproperty
No Limit
SOP/ UOP Loan taken for
construction/purchase of the property
Rs.1,50,000 (Loantaken after 1-4.99)
Rs.30000 (For prior
period) Limit incl. repair loan repayment
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CAPITAL GAINS
Basic Conditions There must be a Capital Asset.
There must be Transfer of the asset.
Transfer During the previous year.
Due to transfer Gain/ Profit arises.
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CAPITAL ASSET
Meaning Section 2 (14) Property of any kind
Tangible or Intangible
Whether connected to business or not Held by Assessee
Subject to certain exceptions
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Exceptions Stock in trade, consumables or raw
material held for business.
Agricultural Land in rural area
Special bearer bonds 1991
6.5 % Gold Bonds 1977, 7% Gold Bonds1980, National Defence gold bonds
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Contd.
Personal effects of the assessee i.e. Movable property including furniture, wearing
apparel , held for personal use of assessee or
his dependents Excluding Gold, Silver, Semi Precious Stone,
Real Stone, Metal Jewellery, Ornaments
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TRANSFER 2(47)
Sale or Exchange or Relinquishment Extinguishment (like due to fire, theft etc.) Compulsory Acquisition
Conversion into stock Transfer of capital asset by a person to a
firm in which he is a partner
Distribution of capital assets on dissolutionof firm
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Income from Salary
Basic Conditions Master And servant or employer and
employee relationship
Contract of employment is important
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BASIS OF CHARGE
Either accrual or receipt (which ever isearlier)
Salary due from an existing and/or former employer
Salary paid or allowed by the employer though not due
Arrears of salary paid or allowed
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SALARY COMPONENTS
Basic salary Advance salary Arrears of salary Bonus Allowances
Leave encashment on retirement
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COMPONENTS
Retrenchment compensation Pension Gratuity Voluntary retirement payments Perquisites
Provident fund payments
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CONCEPT
Gross salary Deductions such as G.P.F., P.T. Net salary
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COMPUTATION
Gross salary Less:- exemption us. 10 Less:-deduction us. 16
Net salary Deduction under chapter VI-A Net taxable salary
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EXEMPTION UNDER SECTION 10FOR SALARY
LEAVE ENCASHMENT 10(10AA) GRATUITY 10(10) PENSION 10(10A) HOUSE RENT PAID 10(13A) TRANSPORT ALLOWANCE 10(14)
RULE 2BB LEAVE TRAVEL CONCESSION 10(5)
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Leave Encashment Sec.10(10AA) Meaning Leave Salary
Salary standing / accumulated to the credit of an employee at the time of retirement isLeave Salary
Encashment of the same at the time of retirement is referred to as leave encashment
Tax treatment for the same next slide
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Leave encashment tax treatment
Nature of Leaveencashment
Status of theemployee
Tax treatment
Leave encashmentduring continuity of
employment
Government/Non-
government
Taxable
Leave encashment atthe time of retirementor leaving of job
Government Fully Exempt
Leave encashment atthe time of retirementor leaving of job
Non-government
Fully or partlyexempt
N E l i
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Non government Employee exemption- detail
In case of non-government employee (including anemployee of local authority or public sector undertaking exemption is least of the followings.
1 Period of earned leave to the credit of theemployee * average monthly salary2 10 * average monthly salary
3 Rs.300000 (specified amount by government)4 Leave encashment actually received
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Gratuity Section 10 (10) It is a retirement benefit. Payable at the time of cessation of
employment & on the duration of service.
Government employees i.e. CentralGovernment employees, Stategovernment employees, employees of local authority but not of statutorycorporations
Tax treatment - next slide
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Tax treatmentStatus of the employee Whether Gratuity is taxable
Government employee Fully exempt U/s. 10(10)(i)
Non Government employeecovered by Payment of Gratuity Act , 1972
Fully or partly exempt fromtax U/s. 10(10)(ii)
Non Government employeenot covered by Payment of Gratuity Act , 1972
Fully or partly exempt fromtax U/s. 10(10)(iii)
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Employees covered by Payment of Gratuity Act, 1972
Any gratuity received is exempt to the least of the following:
1. 15 days salary (7 days in case of seasonalestablishment) based on salary last drawn
for each year of service.(15 days salary *length of service) (6 months & above =full year) (Salary= last drawn salary=Basic + D.A.) (days in month=26)
2. Rs.350000
3. Gratuity actually received
E l d b P f
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Employees not covered by Payment of Gratuity Act, 1972
In case of other employee gratuity received isexempt to the least of the following:
1. Rs.350000
2. Half months Salary for each completed year of service ( only complete year, part of theyear to be ignored; salary based on average
salary for last 10 months immediatelypreceding; Salary=Basic + D.A.)
3. Gratuity actually received
P i
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Pension
Pension received from UNO by anemployee or his family members is notchargeable to tax.
Family pension received by the familymembers of armed forces is exempt under section 10(19).
Family pension received by others (notcovered in 2 above) after the death of theemployee is taxable in their hands under section 56 income from other sources.
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Contd. Un-commuted Pension It is periodical payment of pension- i.e.
monthly pension Commuted Pension It is the lump sum payment in lieu of
periodical payment.
Pension Status of theemployee
Is it chargeable to tax?
Un-commuted Government /nongovernment
It is chargeable to tax
Commuted Government It is fully exempt from taxunder 10(10A)(i)
Commuted Nongovernment
It is fully or partly exemptfrom tax under 10(10A)(ii)
C t d i &
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Commuted pension & nongovernment employee
Nongovernment
employee
Gratuity isreceived
1/3 rd of thepension
received isexempt
Non
governmentemployee
Gratuity is not
received
of the
pensionreceived isexempt.
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HRA Section 10(13A) & Rule 2A Least of the following is exempt Salary = Basic + D.A.( if terms of employment so
provide)1 An amount equal to 50% of Salary (For
Metro cities) and 40% of Salary ( For non-Metro cities)
2 The HRA received by the employee inrespect of the period during which rentalaccommodation is occupied by theemployee during the previous year
3 The excess of rent paid over 10% of Salary
Transport Allo ance 10(14) R le
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Transport Allowance 10(14) Rule2BB
Allowance is granted to an employee tomeet his expenditure for the purposes of commuting between the place of his
residence and the place of his duty It is exempt up to Rs.800 per month In case of blind or orthopaedically
handicapped it is Rs.1600 per month.
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Contd
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Contd.Where journey is performed byair
Amount of economy class air fare of thenational carrier by the shortest route or the amount spent whichever is less
Where journey is performed byrail
Amount of air conditioned first class railfare by the shortest route or amountspent whichever is less
Where the places of origin &destination of journey areconnected by rail and the
journey is performed by anyother mode of transport
Amount of air conditioned first class railfare by the shortest route or amountspent whichever is less
Where the places are notconnected by rail & recognizedpublic transport system exist
First class or deluxe class fare by theshortest route or amount spent whichever is less
Perquisites Taxable
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Perquisites - Taxable Any residential accommodation given to
the employee without charging any rent or at a concessional rate
Free supply of gas , electricity or water for
household consumption Wages paid by the employer for the
domestic servants employed by the
employee Value of free boarding & lodging
expenses.
Free educational facilities to the children
Contd
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Contd. Subscription & Bills paid to the club
houses by the employer Vacation at the holiday homes or holiday
trips at the cost of the employer
Income tax due on salary but paid byemployer
Use of motor car with or without a driver at
the cost of the employer for personal use.
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DEDUCTIONS FROM SALARY
ENTERTAINMENT ALLOWANCE [16(2)] If granted by the employer it is included in the
Salary income From A.Y. 2002-03 the allowance deduction is
allowed only to Government employees. The least of the following is exempt
Actual amount received
Rs.5000 per year 1/5 th of the basic salary
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DEDUCTIONS FROM SALARY
PROFESSIONAL TAX [16(3)] Tax deducted from the Salary under
Maharashtra State Tax on professions, trade,
callings and Employment Act 1975.
Income from Business &
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Income from Business &Profession
Basic conditions Any activity carried out with the intention of
profit Not necessary to carry on business
continuously Activity may be in the nature of business i.e
Trade or Commerce or profession or Vocation
An adventure in the nature of Trade ,commerce or manufacture
B i f Ch (S i 28)
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Basis of Charge (Section 28) Deals with the classes of Income to be
included in the profits and gains of business.
For e.g.
Profits and gains of any business or profession Any compensation or other payment received
or due for loss of agency
Any profit on sale of a licence granted under Imports (Control) Order, 1955 etc.
Any interest, salary, bonus, commission or remuneration due to or received by a partner of a firm
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Contd. Any sum received under Key-man Insurance
Policy including the sum allocated by way of bonus on such policy.
The value of any benefit or perquisite whether convertible into money or not, arising frombusiness or the exercise of profession likepresent received by a doctor.
Business income computation
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Business income computation(Section 29)
1. Determine the profit or loss frombusiness & profession
2. Do adjustments related to expenses allowable or not allowable (as per section30 to 43D)
3. Do the adjustments related to income -to be considered separately etc.
Deductions expressly allowable
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Deductions expressly allowable(Section 30 to 43D)
Rent , rates, taxes, repairs & insurance of Building (Section 30) Building or Premises should be used for the
business purposes Only revenue expenditure related to the
premises allowed ( even in case of rentedpremises)
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Contd. Repairs and Insurance of Machinery ,
Plant & Furniture (Section 31) Said Machinery , Plant must be used for the
business
Only revenue expenditure i.e current repairsor Insurance premium paid against risk of damage
No capital expenditure allowed.
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Contd
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Contd. Unabsorbed Depreciation {Section 32(2)}
Profit earned by business or profession is notsufficient to absorb the amount of depreciation allowance then such amount of depreciation is called unabsorbed
depreciation. Can be set off against any other income of theassessee chargeable to tax for the sameassessment year.
Can be carried forward and set off againstfuture taxable income of the assessee. Notime limit for carry forward
Even if the business discontinue the
unabsorbed depreciation belonging to it can
Contd.
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Contd. Expenditure on Scientific Research
(Section 35) Revenue Expenditure incurred on scientific
research related to the business of assessee Any Capital expenditure incurred except on
Land incurred on scientific research related tothe business of the assessee
A weighted deduction of One & one forth
times of the sum paid to any university or college or association or institution approvedby Central government or to a companyregistered in India for scientific researchpurposes.
Contd
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Contd. Amortization of Preliminary Expenses
(Section 35D) An Indian Company & any resident assessee
are allowed to write off the preliminaryexpenses incurred by them in setting up of a
new industrial unit or extension of an existingindustrial unit. For e.g. Expenses incurred for preparation of
feasibility report, Project report, Conducting
Market survey, legal charges for draftingagreements or MOA & AOA etc. Qualifying amount is allowed over a period of
five years from commencement of business
Contd
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Contd.
Insurance (Section 36(1)(i)) Deduction allowed provided paid by cheque
or electronic mode or credit card etc.
Insurance premium paid to cover the risk of damage or destruction of stocks, stores or cattle and on the health of the employeeunder an approved scheme
Contd
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Contd. Bonus or Commission Paid to Employee
(Section 36(1)(ii)) Any amount of bonus or commission paid to
employee for services rendered is allowed
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Contd.
Interest on Borrowed Capital(Section36(1)(iii)) Interest on Borrowed capital for the business
purposes qualifies for deduction Interest paid by Firm to its Partners will be
deductible within the limits of section 40(b)
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Contd.
Contribution to Recognized ProvidentFund or approved Super annuation fund(Section 36 (1)(iv))
Contribution within the limits as specified bythe act is permitted as deduction.
Contribution to an approved Gratuity fund
is also allowed as deduction under section36(1)(v)
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Contd.
Bad Debts are allowed as deduction asper Section 36(1)(vii) and 36(2) Expenditure on Family Planning is also
allowed as deduction under Section36(1)(ix). In case of capital expenditure1/5 th of such expenditure over five years isallowed.
Any amount of Banking Transaction taxpaid on taxable banking transactions isallowed.
Section 37 General Expenditure
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Section 37 General Expenditure Any expenditure other than mentioned in
Section 30 36 = General expenditure Allowed as deduction so long as Revenue
in nature Incurred for the business of the assessee Should not be personal in nature Should not be prohibited by law
E.g. Purchase of raw Material, Wages,Salaries etc.
Expenses expressly disallowed
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pe ses e p ess y d sa owed Donations , Charity , Presents
Income Tax , advance Tax, Wealth Tax,Estate Duty
Legal expenses incurred to defend
criminal liability Fines , penalty resulting from
contravention of law
Drawings by the proprietor Expenses of capital nature Any kind of provision or reserves not
allowed
Contd
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Contd. Any expenditure incurred by an assessee
on the advertisement in any souvenir,brochure, tract, pamphlet etc published byapolitical party will not be allowed as
deduction -Section 37(2B) Payments made to the relatives of the
assessee who is an individual or Director ,
Partner or a person having substantialinterest in the business, which isunreasonable or in excess in the opinionof the I.T.O , will be disallowed.- Section
Contd
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Contd. Payment made in excess of Rs.20000
otherwise than by a crossed cheque or Draft Section 40A(3) & 40A (4) Payment made to a person in a day in excess
of Rs.20000 otherwise than by a crossedcheque or draft than such expenditure is fullydisallowed.
Any provision made for the future liabilitytowards Gratuity is disallowed , however any gratuity that becomes payable duringthe previous year is allowed
Deductions allowed only on
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payment Section 43B Any sum payable by way of Tax, Cess,
Duty or fee under any law for the timebeing in force.
Any sum payable by way of contribution toany provident fund or superannuation fundfor the welfare of the employee.
Any sum payable as bonus or commission
to employee for services rendered. Any sum payable as interest on loans &advances taken from a schedule Bank,Public financial institution, State financialcor oration
Contd.
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Contd. Any sum payable by an employer in lieu of
leave at the credit of his employee.
INCOME FROM OTHER
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SOURCES (SECTION 56 TO 59)
Basis of charges Income of any kind which is not to be
excluded from total income & notchargeable under any of the specifiedheads = income from other sources Section 56(1)
Section 56 (2)
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Section 56 (2) Income chargeable to tax example:
Dividend (except exempt u/s.10(34) & 10(35) Winnings from lotteries, crossword puzzles,
races including horse races, card games &
other games of any sort Income by way of interest on securities Any sum of money exceeding Rs.50000
received without consideration i.e. Gift by anindividual or HUF from any person on or after 1.4.2006 but before 1.10.2009 the whole of the amount = income from other sources
Contd.
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A sum of money/ property is received byan individual or HUF without considerationon after 1.10.2009 (i.e. Gift) then Any sum of money in cash/ cheque/ draft from
one or more persons exceeding Rs.50000
then the entire total value will be chargeableto tax Immovable Property without consideration
and the stamp duty value of which exceed
Rs.50000, then Stamp duty value will bechargeable to tax. Movable property received without
consideration Fair Market value of which is
exceeding Rs.50000 whole FMV of the
Contd.
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Interest on Bank deposit, NSC, Loans,
deposits with companies Income from Royalty Directors fees
Income from sub letting of property Examination remuneration received by a
teacher or lecturer from an university
Rent of Plot of Land Income from undisclosed sources.
CHAPTER VI-A
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CHAPTER VI A SECTION 80 C , 80CCC & 80CCD (Limit
of Rs.1,00,000) Life insurance Premium Payment , Pension
Funds Contribution to statutory PF, PPF, Recognized
PF Post office Term Deposit 10 to 15 years
account
NSS, NSC- VIII Issue , ULIP of UTI or LIC Annuity Plan Jeevan Dhara & Jeevan
Akshay
Equity linked saving scheme of any mutual
80-D Mediclaim
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80 D Mediclaim Medical Insurance Premium paid by
cheque or any mode other than Cash isallowed as deduction The premium is for the policy covering
spouse, dependent childern . Even thepremium of the policy of parents is alsocovered.
In case of HUF policy taken for the
members of the HUF is allowedMaximum allowed is Rs.15000 for Assesseeother than Senior citizen
For senior citizen it is Rs.20000
80 DD Deduction in respect of
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maintenance including medicaltreatment
Deduction available to Resident Individual& HUF
Deduction for expenditure incurred for medical treatment of a dependent personof disability
A fixed amount of Rs.50000 / Rs.100000 (
Severe disability = 80% & above) isallowed
A copy of certificate issued by medical
authority along with return of income a
80 E -Deduction for interest on
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loan taken for higher education Deduction available to an individual Loan is taken for the purpose of his
education or his relatives Amount of deduction = interest paid out of
income chargeable to tax Period of deduction = from the start of the
previous year + 7 assessment year or tillinterest is paid in full whichever is earlier.
80 G Donations
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80 G Donations Donations made to notified bodies or institute or
funds qualifies for deductions. Four categories A, B, C, D For A categories 100 % of amount as
deduction without any limit For B categories 50 % of amount as
deduction without any limit
For C categories 100 % of amount asdeduction subject to qualifying limit
For D categories 50 % of amount as
deduction subject to qualifying limit
80 U Disable Assessee
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80 U Disable Assessee Deduction for individual resident in India Individual suffering from disability action,
cerebral palsy, multiple disability blindnessetc
Deduction = Rs. 50000 / Rs. 100000 (for severe disability = 80% and abovedisability) to the assessee
Computation of Total Income
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Computation of Total Income
Income
1st source - salary2nd source - HP
3rd source - B&P
4th source - CG
5th source - OS
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THANK
YOU
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