Direct & Indirect Taxation (A.Y. 2010-11)

• Course : PGDM (2009-11)• Semester : II• Marks : 60+40• Faculty : Prof. Akshay Damani• FCA, MBA (UK), Mcom, SET.

DEATH

&

TAXES

ARE UNAVOIDABLE

Classification of Taxes

• Direct and Indirect taxes

• Direct taxes – directly levied on source of income and wealth

• E.g. Income tax and Wealth tax• Indirect taxes – indirectly levied on

activity/transaction which generates income or wealth

• E.g. sales tax, service tax, etc.

KINDS OF TAXES• Income-tax• Sales tax • Wealth tax• Service tax • Custom duties• Securities transaction tax • Excise duties…… and many more

INCOME TAX ACT,

1961

(will be replaced by Direct tax codes from 1.4.2011)

Income tax

INCOME TAX WHENWHO

INCOME U/s 2 (24): Meaning and Characteristics

A PERIODICAL MONETARY

RETURN COMING IN WITH

OR SOME SORT OF

FROM A

DEFINITE SOURCE

REGULARITY

REGULARITY

Characteristics of Income

• Legal or Illegal incomes are taxable

• Moral or Immoral incomes are taxable.

• Cash or kind

• Real and not imaginary. E.g. sales supported by invoice documents

• Examples: profits, gains, donations, perquisites, allowances, compensation, export cash assistance, lottery prize, kaun banega crorepati ?, etc…….

Tax

The outflow

from income

paid to the Government.

Who is liable to pay TAX?PERSON – U/s 2 ( 31 )

INDIVIDUAL

H U F

COMPANY

FIRM

BOI / AOP

LOCAL AUTHORITY

ANY OTHER ARTIFICIAL JURIDICAL PERSON

What is the status of the following person

• Ms. Katrina • Mr. Salman – a minor• Ms. Ruby – a person of unsound mind• Ram, his wife Sita and two sons• M/s Chip and Dale – 2 CAs in partnership• Tata limited• Mumbai Municipal corporation• Roha Gram Panchayat• Joint venture between X ltd and Y ltd • Joint venture between Mr. A and Mr. B • Mumbai University• Tirupathi Devasthanam

Assessee U/s 2 ( 7 )a) every person in respect of whom any proceedings are taken under the act

b) every person who is deemed to be an assesses under the act e.g. a trustee of a trust

c) every person who is deemed to be as assessee in default. e.g. an employer who does not deduct TDS from employees salaries

When to pay tax ?

PREVIOUS YEAR - U/S 3

ASSESSMENT YEAR U/S 2 ( 9 )

Previous year u/s 3

Year in which the income is received

Always ends on 31st march

E.g. P.Y. 2009-2010 begins on 1.4.2009 and ends on 31.3.2010

P.Y. 2008-09 begins on 1.4.2008 and ends on 31.3.2009

ASSESSMENT YEAR u/s 2(9)Year in which final tax is payable relating

to the previous year.

Always for 12 months.

Example:

PY 2008-09 AY 2009-10

PY 2009-10 AY 2010-11 (this is relevant or exam)

Assessment U/s 2(8)

• Assessment 2 (8): Process of determining and computing the amount of income and tax dues of a person.

Charge of Income tax u/s 4:

• Income tax shall be charged, • At the rates laid down by the finance act,• For that assessment year,• In respect of the total income,• Of the previous year,• Of every person.

Residential status u/s 6

• Tax liability is based on the residential status of a person.

• Citizenship is NOT the main criteria for tax purposes and is different from residential status

• Residential status may change from year to year depending upon the stay in India.

Kinds of Residential status:

All Assesses

Resident Non-resident

Individual & HUF

R & OR R but not OR

Conditions for determining residential status for an individual sec 6(1)

BASIC ADDITIONAL

Stay in India for

At least 182 days

in Current PY 09-10

( A )

OR

Stay in India for at least 60* days in current PY.

&

Stay in India for at least 365 days in 4 PY preceding current PY.

( B )

AND

Stay in India for 730 days in 7 PY preceding the current PY 09-10

Resident in India for 2# out of 10 PY preceding current PY&

( C )

( D )

If {a or b}+ {c & d} satisfied: RORIf only a or b satisfied: RNORIf a or b NOT satisfied: Non-resident

* exceptions: a) A citizen of India/crew of Indian Ship leaving India for Employment or self-employment OR b) A citizen of India or a persons of Indian origin comes to a visit in India REPLACE 60 by 182 days

Counting of days

• a) the stay need be in the same place• b) the stay need not be continuous• c) the days of entry and exit are both counted• d) a stay in a boat in territorial waters of India is treated as

stay in India• e) For February, where applicable 29 days are considered.

Solution: Mr. George BushForeign Citizen

PY 2009-10 AY 2010-11

Days in India in P.Y. 2009-10Jan : 6 daysFeb: 28 daysMar: 15 daysTotal: 49 days

He does not satisfy any of the conditions. Therefore he is Non resident.

E.g. Mr. George Bush comes for the first time to India on 26.1.201009 and leaves India on 15.3.2010. Determine his residential status for AY

2010-11

Conditions for determining residential status

BASIC ADDITIONAL

Stay in India for

At least 182 days

in Current PY 05-06

( A )

OR

Stay in India for at least 60 days in current PY.

&

Stay in India for at least 365 days in 4 PY preceding current PY.

( B )

AND

Stay in India for 730 days in 7 PY preceding the current PY 05-06

Resident in India for 9 out of 10 PY preceding current PY&

( C )

( D )

If {a or b}+ {c & d} satisfied: RORIf only a or b satisfied: RNOR

If a or b NOT satisfied: Non-resident

Class exercises

• (1) Mr. Sanjay, an Indian citizen went to USA for the first time for the purpose of employment on 10th May, 2009. He came back to India on 19th November, 2009. Determine his residential status for Assessment year 2010-11.

• • Ans: Non resident• No. of days in India – 173(30+10+12+31+31+28+31)• Employment so replace 60 by 182

Class exercise 2:

• Ishant sharma, an Indian cricketer submits the following information of stay outside India for the year ending 31.3.2010

Days place12.4.09 to 27.4.09 Sharjah for Asia cup 20092.5.09 to 8.7.09 Summer tour to england26.8.09 to 9.9.09 triangular series in Sri lanka10.9.09 to 1.10.09 singapore on tour3.1.10 to 25.3.10 summer cricket tour to south africa

He made his debut in international cricket on 10th march, 2007. Then in a match against the West Indies, he suffered a major injury needing two yearsof hospitalization in USA. He recovered and returned back to India on 28.3.2009. Thereafter, he was employed by China Cricket board as Manager of the team. Determine his residential status For A.Y. 2010-11.

Solution• Total no. of days in PY 09-10 365• Less: stay out of India:• 12.4 to 27.4 16• 2.5 to 8.7 68• 26.8 to 9.9 15• 10.9 to 1.10 22• 3.1 to 25.3 82 203• Therefore, stay in India = 365-203 = 162

• He has not stayed in India for 182 days from employment condition, therefore he is Non-resident.

Class exercise

• Mr. Bond an Indian citizen leaves India for honeymoon with his wife for the first time on 18.2.2010. Determine his residential status?

• Mr. Khiladi an Indian citizen leaves India for employment purposes for the first time on 18.2.2010. Determine his residential status?

Residential Status for a Company

• Depends on the management and control of affaires, i.e. where is the majority decision making taking place. Irrespective of the type of company.

• For HUF – the residential status of Karta is considered as residential status of HUF.

• Assignment sums:

• Please see hand out.

Scope of total income: Section 5

Nature of Income ROR RNOR N RIncome received in India Taxable Taxable Taxable

Income accruing in India Taxable Taxable Taxable

Foreign Income:a) From business /

profession controlled or set up IN India

Taxable Taxable Not-Taxable

b) From business/profession controlled or set up OUTSIDE in India

Taxable Not Taxable Not-Taxable

Items of Income Nature ROR RNOR N R

Salary received in India Received in India

T T T

Salary earned in India but received in Sri Lanka

Accruing in India

T T T

Foreign Income:

Income from business in Nepal controlled form Delhi

Foreign Income controlled from India

T T NT

Income from business in Sri Lanka received there.

Foreign Income NOT controlled from India

T NT NT

E.g.:

T- Taxable NT - Not Taxable

Mr. Tom, a British citizen had the following income during the year ended on 31st March,2010

• 1. Income from house property in India 15000• 2. Income from property in Rome 10000• 3. Interest from bank account in India 1200• 4. Income from business in Bangladesh, being controlled from • India 16000• 5. Interest on Bank account in USA 11000• 6. Salary earned and received in Tokyo 12000• 7. Income earned and received in London 13000• 8. Dividend from British company received in India 17000

• Compute his total income for AY 2010-11 in 3 different cases:• A) ROR, b) RNOR and C) NR.

NON- TAXABLE INCOMES: (EXEMPTIONS) - Section 10

• Section 10 (1) - Agricultural Incomes from land situated in India

• Section 10 (2) - Sums received by a member of the HUF from a Family income

• Section 10 (2A) - Share of partner in profits out of the partnership firm

• Section 10 (16) - Scholarships granted to meet the cost of education – like tuition fees.

• Section 10 (32) - Minors income upto Rs.1500 per child.

See notes for other exemptions

Heads of Income•Income from Salaries

•Income from profits and Gains of business or profession

•Income from House property

•Income from capital gains

•Income from other sources

Computation of Total Income PY 09-10 AY 10-11

Particulars Rs. Rs.

Income from Salaries XX

Income from House property XX

Income from P & G of Business or profession XX

Income from capital gains (short term) XX

Income from Other sources XX X

Add: Clubbed incomes X

GROSS total Income XX

Less: deductions u/s 80 - X

Net taxable income YY

Add: Long term capital gains GG

Net taxable income MM

Net taxable income YY

Rates of tax (10 % 20% 30%) or as relevant ----------

Net tax payable 1

Add: Surcharge (tax on tax) 2

Tax payable [ 1 + 2 ] 3

Add: {education cess 3%} [1 x 3 %] 4

FINAL tax payable 5

Less: Tax already paid (T.D.S. / Advance tax) [5-6] 6

Assessed tax payable/refund 7

Computation of Final tax payable :

• Income tax slab for ay 10-11 • Income Tax Slabs for ay 10-11 for Resident Senior Citizens • (FY 2009-10) • S. No. Income Range Tax percentage • 1 Up to Rs 2,40,000 No tax / exempt • 2 2,40,001 to 3,00,000 10% • 3 3,00,001 to 5,00,000 20% • 4 Above 5,00,000 30%

• Income Tax Slabs for ay 10-11 for Resident Women (below 65 years) (FY 2009-10) • 1 Up to Rs 1,90,000 No tax / exempt • 2 1,90,001 to 3,00,000 10% • 3 3,00,001 to 5,00,00 20% • 4 Above 5,00,000 30%

• Income Tax Slabs for ay 10-11 Others & Men (FY 2009-10) • 1 Up to Rs 1,60,000 No tax / exempt • 2 1,60,001 to 3,00,000 10% • 3 3,00,001 to 5,00,000 20% • 4 Above 5,00,000 30%

• Levy of surcharge has been withdrawn for personal income tax payers

• “Education Cess on Income-tax” and “Secondary and Higher Education Cess on income-tax” shall continue to be levied at the rate of two per cent and one per cent respectively of income-tax.

For the next class….

• Assignment 1 to be submitted – Residential status and Scope of total income

• Presentation: • A) Group formation• B) List of topics next slide

• Session no. Group no. Topic

2 G1 MVAT What is Vat, Procedure, set off, state VAT, CENVAT, rates, 2 sums3 G2 Mvat - turnover tax, tax invoices, registration procedure, payment, 2 sums4 G3 MVAT, Incidence of tax, dealers liable to tax, Filing of returns and forms, challans.5 G4 Cenvat act , definitions, duties eligible, when and how much to take credit, cenvat credit

rules , exempted goods, documents and forms, procedure, 2 sums6 G5 Central excise act, definitions, duties specified under the schedule, valuation , 2 sums7 G6 Registration process, forms, challans, procedure, remission of duty, interest and penalty8 G7 Section 10 and 11 of the income tax act and 2 sums9 G8 Section 44 to Sec 44 AE

10 G9 List of wards, departments in Mumbai, challans, forms, itr forms, tds forms, challans,11 G10 Pan card and TAN card procedure, sec 234 a , b, c , 3 sums

Corporate style Presentation guidelines:a) Max 25 minutes, warning bell at 24 min, wind up in last minuteb) 6 members in a groupc) 12 slides, 1 -topics n members, 12th - referencesd) only 9 bullet pointse) each bullet point - max 15 wordsf) pre approval of ppt compulsory, 2 days prior to presentationg) akshaydamani@gmail.com, 9969772252 h) no sounds but use customer animations and pictures

To do….

Income tax is the price

one pays for Civilization……..