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1. Short Notes:
The provisions regarding the entertainment allowance and its deduction from salary
are discussed below –
Entertainment allowance as per Section 16(ii) is first included in salary
income under the head “Salaries” and thereafter a deduction is given on the
basis enumerated in the following points:
A. In the case of a Government employee (i.e., Central Government or a State
Government employee), the least of the following is deductible:
(i). 5,000
(ii). 20 percent of basic salary; or
(iii). Amount of entertainment allowance granted during the previous year.
In order to determine amount of entertainment allowance deductible
from salary Income, the following points need consideration:
(i). For this purpose “salary” excludes any allowance, benefit or other
perquisites.
(ii). Amount actually expended towards entertainment (out of entertainment
allowance received) is not taken into consideration.
B. In the case of a non-Governmental employee (including employees of
statutory corporation and local authority), entertainment allowances is not
deductible, and are completely chargeable to tax.
Exemption for house rent allowance or HRA is divided based on the city
where employee live. Income tax act specifies two types of cities for the
calculation of house rent allowance exemption;
Metro Cities i.e. Mumbai, Calcutta, Chennai and Delhi:
If you have taken a rented accommodation in a metro city i.e. Mumbai, Kolkata,
Chennai and Delhi then your house rent allowance will be exempted to the extent of
following;
Actual house rent allowance or HRA received from the employer
Actual house rent paid minus 10% of your salary due for the relevant period
50% of salary due for the relevant period
So the minimum of the above three will be deducted from your HRA you
receive and the balance will be taxable.
If you are not living in non metro cities i.e. cities other than Chennai, Mumbai,
Kolkata and Delhi then your house rent allowance or HRA exemption calculation will
differ. In this case, the least of followings will be exempted in the case of non metro
cities;
For both cases, Salary means basic salary plus dearness allowance if provided in
terms of employment plus commission as a percentage of turnover. Salary for the
calculation of house rent allowance or HRA exemption is taken on due basis. If you
have received any advance salary then that amount will not be included in house rent
allowance or HRA exemption calculation.
2. State the procedure of computation of income from a let out house property.
Ans.
Donations Eligible for 100% Deduction Subject to 10% of Adjusted Gross Total Income
Donations Eligible for 50% Deduction Subject to 10% of Adjusted Gross Total Income
Any other fund or any institution which satisfies the conditions mentioned in Section 80G(5)
Government or any local authority, to be utilized for any charitable purpose other than the
purpose of promoting family planning
Any authority constituted in India for the purpose of dealing with and satisfying the need for
housing accommodation or for the purpose of planning, development or improvement of
cities, towns, villages or both
Any corporation referred to in Section 10(26BB) for promoting the interest of the minority
community
For repairs or renovation of any notified temple, mosque, gurudwara, church or other
places.
The following are the major differences between Tax Avoidance and Tax Evasion:
1. A planning made to reduce the tax burden without infringement of the legislature is
known as Tax Avoidance. An unlawful act, done to avoid tax payment is known as
Tax Evasion.
2. Tax avoidance refers to hedging of tax, but tax evasion implies the suppression of tax.
3. Tax avoidance is immoral that tends to bend the law without causing any damage to
it. Unlike tax evasion, which is illegal and objectionable both according to law and
morality.
4. Tax avoidance aims at minimising the tax burden by applying the script of law.
However, tax evasion minimises the tax liability by exercising unfair means.
5. Tax Avoidance involves taking benefit of the loopholes in the law. Conversely, Tax
Evasion includes the deliberate concealment of material facts.
6. The arrangement for tax avoidance is made prior to the occurrence of tax liability.
Unlike Tax Evasion, where the arrangements for it, are made after the occurrence of
the tax liability.
7. Tax avoidance is completely legal however Tax Evasion is a criminal activity.
8. The result of tax avoidance is the postponement of the tax, whereas the consequence
of tax evasion if the assessee is found guilty of doing so, is either imprisonment or
penalty or both.
Ans. As the name suggests Gross Total Income is the aggregate of all the income
earned by you during a specified period. According to Section 14 of the Income Tax
Act 1961, the income of a person or an assessee can be categorised under these five
heads,
What is the difference between Gross Total Income and Total Income?
Gross Total Income is calculated foremost by adding your income under all five heads
of income. Now, to arrive at the Total income you must subtract from it
the deductions under chapter VI A of the Income Tax Act 1961. I.e. the deduction
ranging from section 80C to 80U. Which means
Ans. Uniform previous year means the previous year for which you are filing return
should remain same for all the sources of income i.e. salary, capital gain, house
property etc.
Ans. Definition of ‘Capital Asset’ is contained under section 2(14) of the Income Tax
Act, 1961. As per the said section, capital assets mean property of any kind held by
the person, whether the same is connected with his business or profession or not
connected with his business or profession.
On the basis of above definition, it can be concluded that capital assets include
property of any kind whether movable or immovable, tangible or intangible, fixed or
circulating. Some of the examples of capital assets are land, building, plant and
machinery, motor car, jewelry, furniture, patent, trademarks, share, debentures etc.
Ans. Net Annual Value of a house property means the Gross Annual Value Less
Municipal taxes actually paid by the owner during the previous year.
10. Write short note on Tax Planning respect to specific management decisions.
2. Whether the present capacity of the undertaking is fully utilised. If not, it can be
utilised in making the required product.
3. If an additional unit is required for manufacture the required product, the concern
possesses adequate funds for establishing the unit and the whole production of the
unit will be consumed by the concern or there is market for the sale of extra
production.
4. Whether the product is available in the market easily and at reasonable terms.
5. If the cost of manufacture of a product/component is lower than the cost of
purchase, it may be manufactured.
6. If the product is not manufactured it has to be imported then import trade control
regulations and foreign exchange control regulations have also a role.
7. If there is change in technology in production of that product, the concern will be in
a position to acquire the new technology without much difficulty. If the product has to
be imported, if not manufactured, and such product may tell upon the security of the
country, it must be manufactured in the country, whatever the cost of manufacture
may be.
TAX CONSIDERATIONS
1. If a concern has surplus capacity and even decide to buy a product it may require to
sell a part of its plant and machinery. In such a case it may be liable to capital gains
tax.
2. If a new industrial undertaking (unit) is established to make the product, which
fulfils the conditions laid down in Section 80IB/80IC/80IE of the Act, a deduction
will be allowed in computing the income of the undertaking (unit) for tax purposes.
3. If the product, either manufactured or purchased, is a capital asset, its cost will not
be allowed as a deduction in computing the income However, if the asset is such on
which depreciation is allowed, it will be allowed in both the cases i.e., manufactured
or purchased.
4. If the product is a consumable one, raw material or required to replace a worn out
part at the time of repair, its cost will be treated as revenue expenses and deductible in
computing the income.
OWN OR LEASE
A lease of property is a transfer of right to enjoy such property, made for certain time,
in consideration of a price payable periodically to the transferor by the transferee.
In other words, leasing is an arrangement that provides a person with the use and
control over an asset, for a price payable periodically, without having a title of
ownership. In case of lease agreement the owner of the asset is called the lessor and
the user is called the lessee.
When a person needs an asset for his business purposes, he has to decide whether the
asset should be purchased or taken on lease. While taking this decision he should keep
in mind the following factors :
1. Cash position. When a person has sufficient cash or he can borrow funds at a
reasonable rate of interest to purchase an asset or can acquire the asset under hire
purchase/instalment system, he may decide to buy it. The cost of own asset is not
deductible in computing the income but the interest on borrowed funds or under hire
purchase/instalment system is deductible in computing the income. If he neither has
sufficient cash nor he can borrow due to stringent credit control, he has to take the
asset on lease. The lease rent is deductible in computing the income.
4. Residual Value. When a person purchases an asset, he has full rights to the value of
the asset at the end of any given period. In the case of asset with large residual value it
is better to purchase it rather than taken on lease.
5. Profit margin. Where profit margin is low, it is better to purchase the asset. If the
asset has been purchased by borrowed funds the cash outflow would be equal to loan
instalment, interest payment and slightly higher tax. On the other hand, in case of
leasing the lease rent would be equal to part of the cost of asset to lessor, interest on
investment and profit to the lessor. The cash outflow will be equal to lease rent less
nominal tax saving. In case of lease, the profit of the lessor will be the loss to the
lessee.
5. Consider profit after tax. It is an important consideration in tax planning. The assessee
should follow such a method for obtaining an asset which reduces his tax liability and
the profits after tax are greater. For this purpose some people suggest that own funds
should not be used in purchase of an asset because interest on own funds is not
deductible in computing the income, whereas interest on borrowed funds is
deductible. But one should keep in mind that if own funds are invested outside the
business, the interest earned will offset the interest payment. Further, he must
consider the difficulty involved in raising loans and the cost factors incidental thereto.
11. What do you mean by Gross Total Income? Name the various deductions allowable
from Gross Total Income in case of salaried employee.
Ans. Gross Total Income is a cumulative income which is computed under the five
heads of income, i.e. salary, house property, business or profession, capital gain and
other sources. Gross total income is calculated after the clubbing provisions and
making adjustments of set-off and carry forward of losses. In this article, we look at
transactions covered under Section 68 to 69D of the Income Tax Act, 1961 which
must be included in Gross Total Income.
Salaried employees form the major chunk of the overall taxpayers in the country and
the contribution they make to the tax collection is quite significant. Income tax
deductions offer a gamut of opportunities for saving tax for the salaried class. With
the help of these deductions and exemptions and, one could reduce his/her tax
substantially.
To list some of the major deductions and allowances, available to the salaried persons,
using which one can reduce their income tax liability.
Exemption of House Rent Allowance
Standard Deduction
Leave Travel Allowance (LTA)
Section 80C, 80CCC and 80CCD(1)
Medical Insurance Deduction (Section 80D)
Interest on Home Loan (Section 80C and Section 24)
Deduction for Loan for Higher Studies (Section 80E)
Deduction for Donations (Section 80G)
Deduction on Savings Account Interest (Section 80TTA)
Additional Deduction for Interest on Home Loan (Section 80EE) (Section
80TTA)
Ans. Business or profession newly set up, or a source of income newly coming into
existence, in the said financial year, the previous year shall be the period beginning
with the date of setting up of the business or profession or, as the case may be, the
date on which the source of income newly comes into existence and ending with the
said financial year.
Or
For a new business or for a new source of income which has come into existence,
previous year would start from date of setting up of new business or from date when
new source of income has come into existence
Ans. Tax Planning involves planning in order to avail all exemptions, deductions and
rebates provided in Act. The Income Tax law itself provides for various methods for
Tax Planning, Generally it is provided under exemptions u/s 10, deductions u/s 80C to
80U and rebates and relief’s. Some of the provisions are enumerated below :
For availing benefits, one should resort to bonafide means by complying with the
provisions of law in letter and in spirit.
Or
Tax Planning involves planning in order to avail all exemptions, deductions and
rebates provided in Act. The Income Tax law itself provides for various methods for
Tax Planning, Generally it is provided under exemptions u/s 10, deductions u/s 80C to
80U and rebates and reliefs.
Ans. An assessee is any individual who is liable to pay taxes to the government
against any kind of income earned or any losses incurred by him for a particular
assessment year. Each and every person who has been taxed in the previous years for
income earned by him is treated as an Assessee under the Income Tax Act, 1961.
An Assessee may be any individual liable to pay taxes for himself or to pay tax on
behalf of somebody else. The Income Tax Act, 1961 has classified Assessee in
different categories. An Assessee may either be a normal Assessee, a Representative
Assessee, a Deemed Assessee or an Assessee in Default.
Normal Assessee: A normal Assessee is an individual who is liable to pay
taxes for the income earned by him for a particular financial year. Each and
every Individual who has paid taxes in preceding years against the income
earned or losses incurred by him is liable to make payments to the government
in the form of tax. Any individual who is supposed to make payments to the
government in the form of interest or penalty or anybody who is entitled to tax
refund under the IT Act is an Assessee. All such individuals are grouped under
the category of Normal Assessee.
16. Define the term business as per Income Tax Act, 1961.
Ans. The word business has seen a lot of dispute between tax payer and the tax
department , because the income from business is assessed in an exclusive head
“Profit & Gains from Business or Profession ” under section 28 to section 44 of the
Income Tax Act. The computation os the income or loss from business is quite
different . Now section 2(13) of the Income Tax Act defines business as under :
Naturally when the definition of a simple word “Business” can be so complex , the
matter will reach various Tribunals and Courts . So , here is what is the thought of
courts on the meaning of the word “business” .
Sec. [ 10A]: Tax Holiday for newly established undertaking in Free Trade Zone:
First 5 Years – 100 % of profits and gains is allowed as deduction
Next 2 Years: 50% of such Profit and Gains is deductible for further 2 assessment
years.
Next 3 Years: for the next three consecutive assessment years, so much of the amount
not exceeding 50% of the profit as is debited to the profit and loss account year in
respect of which the deduction is to be allowed and credited to a reserve account (to
be called the ''Special Economic Zone Re-investment Allowance Reserve Account'')
to be created and utilised for the purposes of the business of the assessee.
(A)Sole proprietorship:
The most common form of ownership found in the business world is sole
proprietorship. In this form of organization, the proprietor is the only owner of the
business assesed and he is solely responsible for the affairs of the business. — A sole
proprietorship is easy to establish because of little interference of government
regulations. — The cost of adopting this form of organization is small because of
there being no legal requirement. — All the profits of the business go in the hands of
proprietor himself.
(B)Undivided Family:
A joint Hindu family pays tax on its total income at prescribed rates on the basis of
slab system. The family can pay reasonable remuneration to the Karta and other
family members for their services to the business and it is allowed as a deduction in
computing the business income. However, interest on capital contributed by the
family for the business is not deductible in computing business income. The member
of the family, who has received the remuneration from the family will include it in his
income under the head Salaries.
18. What is Gross Total Income? State the procedures for calculation of Gross Total
Income. State four deductions allowable from Gross Total Income u/s 80C to 80U.
Ans. Gross Total Income is a cumulative income which is computed under the five
heads of income, i.e. salary, house property, business or profession, capital gain and
other sources. Gross total income is calculated after the clubbing provisions and
making adjustments of set-off and carry forward of losses. In this article, we look at
transactions covered under Section 68 to 69D of the Income Tax Act, 1961 which
must be included in Gross Total Income.
1. Section 80C
Deductions on Investments
You can claim a deduction of Rs 1.5 lakh your total income under section 80C. In
simple terms, you can reduce up to Rs 1,50,000 from your total taxable income,
and it is available for individuals and HUFs.
Filing your Income Tax Return. The Income Tax Department will refund the
excess money to your bank account.
19. Define the term “Block of Assets” under Income Tax Act, 1961.
Ans. Section 2(11) of Income Tax has defined ‘Block of Assets’ as a ‘group of assets’
falling within a ‘class of assets’ comprising-
Block 1: Buildings - Residential buildings other than hotels and boarding houses: 5%
Block 2: Buildings - Factory, Offices, godowns or buildings which are not mainly
used for residential purpose: 10%
a) Buildings acquired on or after September 1st 2002 for installing machinery and
plant forming part of water supply project or water treatment system and which is put
to use for the purpose of business of providing infrastructure facilities
Block 5: Plant and machinery - Any plant or machinery and motors cars acquired or
put to use on or after April 1st 1990: 15%
Block 6: Oceans - going ships, vessels ordinarily operating on inland waters including
speed boats: %20
Block 7: Plant and Machinery - Buses, lorries and taxies used in the business of
running them on hire, machinery used in semi conductor industry, moulds used in
rubber and plastic goods factories: 30%
Block 9: Plant and Machinery - containers made of glass or plastic used as refills,
plant and machinery which satisfy condition
a) New commercial vehicle acquired during 2001-02 and put to use before March
31st 2002 for the purpose of business or profession
b) Machinery or plant used in weaving, processing and garment sector of textile
industry which is purchased under Technology up gradation fund scheme during April
1st 2001
c) New commercial vehicle which is acquired during January 1st 2009 and
September 30th 2009 and is put to use before October 1st 2009 for the purpose of
business or profession: 50%
Block 10: Plant and machinery - Computers including computer software besides it
includes new commercial vehicle required in replacement of condemned vehicle of 15
years of age and put to use before April 1st 1990: 60%
Block 11: Plant and Machinery - Energy saving devices renewal energy devices wind
mills, electric generators or pumps running on wind energy, rollers in flour mills,
sugar works and steel industry: 80%
Block 12: Plant and machinery - Air pollution control equipment, water pollution
control equipment, solid waste control equipment, recycling and resource recovery
systems, machinery acquired and installed on or after September 1st 2002 in a water
supply project or water treatment system or for purpose of providing infrastructure
facility, wooden parts used in artificial silk manufacturing machinery: 100%
Block 13: Intangible assets like know how patents, copy rights, trade marks, license,
franchise and any other business rights: 25%
20. State five incomes taxable under the head income from other sources.
Ans. Annual Value is the amount for which the property might be let out on a yearly
basis. You can also say that it is the estimated rent that you could get if the property
was rented out.
In order to calculate any income from house property, you need to know the annual
value of house property. As per Section 23(1)(a) of the Income Tax Act, Annual
Value of a home is the sum for which the property might reasonably be expected to be
let out from year to year. So it is the notional rent which could be got if the property
were to be rented.
To determine Annual Value of a house property you need to consider four factors
such as its Municipal Value, Fair Rental Value, Standard Rent and Actual Rent
Received or Receivable.
Fair Rental Value: The rent which a similar property in the same or similar
locality would have fetched is the fair rental value of the property. This is
nothing but notional rent a property can get if it has been let out for a year. e.g.
In case of apartment, one can assume approx rent of other similar flat which is
already let out with some addition or reduction in rent with reference to
facilities of both flats.
Standard Rent: Where a rent is fixed under prevailing Rent Control Act, it
would be considered as standard rent and owner cannot expect to get higher
rent than fixed as per rent control act. Standard Rent is important factor in
deciding annual value.
Actual Rent Received or Receivable: For any rent out property, Actual rent
received or receivable is important for annual value. Actual rent paid or
payable is always subject to agreement entered by owner and tenant or matter
of negotiable between them whereby if tenant agree to pay for municipal taxes
on behalf of owner then these taxes should be added in actual rent
receive/receivable to derive annual value. There could be vice versa case,
where owner has agreed to pay some obligation of tenant, in that case rent will
be reduced by that amount.
Calculation:
a) Fair Rent___________________________________________xxx
b) Municipal Value_____________________________________xxx
c) Higher of (a) and (b)__________________________________xxx
d) Standard Rent________________________________________xxx
e) Expected Rent (Lower of (c) and (d))_____________________xxx
f) Actual Rent__________________________________________xxx
22. Explain the tax treatment of interest on loan taken for purchase or construction of a
house property.
Ans. Homeowners can claim a deduction of up to Rs.2 lakh (Rs 1.5 lakh if you are
filing returns for FY 2013-14) on their home loan interest, if the owner or his family
reside in the house property. The same treatment applies when the house is vacant. If
you have rented out the property, the entire interest on the home loan is allowed as a
deduction.
Your deduction on interest is limited to Rs.30,000 if you fail to meet any of the
conditions given below for the Rs.2 lakh rebate. -
iii. The purchase or construction must be completed within 5 years from the end of the
financial year in which the loan was taken.
23. Mention any five items of income which are fully exempted from tax.
Under the provisions of Section 10(1) of the Income Tax Act, agricultural income is
frilly exempt from income tax. However, for individuals or HUFs when agricultural
income is in excess of 5,000, it is aggregated with the total income for the purposes of
computing tax on the total income in a manner which results into “no” tax on
agricultural income but an increased income tax on the other income.
“Agricultural income” as per Section 2(1 A) means : (A) any rent or revenue derived
from land which is situated in India and is used for agricultural purposes; (B) any
income derived from such land by (i) agriculture i.e., by actual cultivation of land and
by means of certain basic operations in agriculture; or (ii) by the performance of some
agricultural process ordinarily employed by the cultivator, etc. to render the produce
fit to be taken to market; or (iii) by the sale of the produce in respect of which no
other process other than the one mentioned above has been employed; and (C) any
income derived from any building owned and occupied by the receiver of the rent or
revenue of any such land or kept by the cultivator or the receiver of rent-in-kind, of
any land in respect of which, any process as mentioned above is carried on, subject to
certain conditions about the building being on or in the vicinity of the land, etc.
In the case of an individual who is not a citizen of India, i.e. a foreigner, the passage
money or value of any free or concessional passage received by or due to such an
individual from his employer for himself, his spouse, or children, in connection with
his proceeding on home leave out of India or after retirement or termination of
service, is fully exempt from tax. Similarly, the remuneration received by a foreigner
as an official of an embassy, etc. or as a member of staff of the aforesaid office, etc.,
is completely exempt from tax u/s 10(6).
(D) GRATUITIES
Any kind of scholarship granted to meet the cost of education is exempt from tax
under Section 10(16). Similarly, certain awards and rewards, etc. are completely
exempt from tax under Section 10(17A)
As per the Finance (No.2) Act, 2004 capital gains received on transfer of agricultural
land (used in the past 2 years for agricultural purposes) by way of compulsory
acquisition would be fully exempt from tax.
24. State the procedure for computation of long-term capital gain.
NOTE: In certain cases where the capital asset becomes the property of the taxpayer
otherwise than by an outright purchase by the taxpayer, the cost of acquisition and
cost of improvement incurred by the previous owner would also be included.
Short term capital gain = Full value consideration Less expenses incurred exclusively
for such transfer Less cost of acquisition Less cost of improvement.
25. Mention five items of general incomes which are chargeable to tax under the head
“Income from other sources”.
Interest from both fixed deposit and recurring deposits is taxable while interest from
savings bank account and post office deposits are tax-deductible to a certain extent.
But they are shown under income from other sources.
Interest income from a savings bank account or a fixed deposit or from a post office
savings account are all shown under this head.
Example: The bank will deduct TDS on interest accrued each year on a FD for 5
years. Therefore, it is advisable to pay your taxes on an annual basis instead of doing
it only when the FD matures.
Senior citizens, with effect from 1 April 2018, will enjoy an income tax exemption
upto Rs 50,000 on the interest income they receive from fixed deposits with banks,
post offices etc under Section 80TTB.
4. Exempt Income
The PPF and EPF amount you withdraw after maturity is exempt from tax and must
be declared as exempt income from income from other sources.
Note that: The EPF is only tax exempt after five years of continuous service.
5. Family Pension
If you are collecting pension on behalf of someone who is deceased, then you must
show this income under income from other sources. There is a deduction of Rs 15,000
or one-third of the family pension received whichever is lower from the Family
Pension Income. This will be added to the taxpayer’s income and tax must be paid at
the tax rate that is applicable.
26. Give a brief account of the provisions of IT Act, 1961 regarding tax planning with
reference to setting up of a new business.
FORMS OF ORGANIZATION
The selection of particular form of organisation depends not only on the magnitude of
financial requirements and owner’s liability, but also on the tax considerations. In the
case of a company the law interferes with the corporate planning process from the
moment it comes into existence. At times, tax laws affect even the periods prior to the
existence of a company and it can also extend upto the point of time when the
company ceases to exist.
A)Sole proprietorship:
The most common form of ownership found in the business world is sole
proprietorship. In this form of organization, the proprietor is the only owner of the
business assesed and he is solely responsible for the affairs of the business. — A sole
proprietorship is easy to establish because of little interference of government
regulations. — The cost of adopting this form of organization is small because of
there being no legal requirement. — All the profits of the business go in the hands of
proprietor himself.
(B)Undivided Family:
A joint Hindu family pays tax on its total income at prescribed rates on the basis of
slab system. The family can pay reasonable remuneration to the Karta and other
family members for their services to the business and it is allowed as a deduction in
computing the business income. However, interest on capital contributed by the
family for the business is not deductible in computing business income. The member
of the family, who has received the remuneration from the family will include it in his
income under the head Salaries.
LOCATION ASPECT
1. Sec. [ 10A] : Tax Holiday for newly established undertaking in Free Trade
Zone:
First 5 Years – 100 % of profits and gains is allowed as deduction
Next 2 Years : 50% of such Profit and Gains is deductible for further 2 assessment
years.
Next 3 Years : for the next three consecutive assessment years, so much of the
amount not exceeding 50% of the profit as is debited to the profit and loss account
year in respect of which the deduction is to be allowed and credited to a reserve
account (to be called the ''Special Economic Zone Re-investment Allowance Reserve
Account'') to be created and utilised for the purposes of the business of the assessee
6. Sec.[ 80 LA] : Where the gross total income of an assessee,— (i) being a
scheduled bank, or, any bank incorporated by or under the laws of a country outside
India; and having an Offshore Banking Unit in a Special Economic Zone; or (ii)
being a Unit of an International Financial Services Centre , there shall be allowed a
deduction from such income, of an amount equal to— 100% of such income for five
consecutive assessment years beginning with the assessment year.
NATURE OF BUSINESS
Income taxes deducted from the salary of the employees, and you need to deduct the
TDS, professional tax and income tax from your employees.
But you need to deposit the income tax deducted from the employee’s salary in the
income tax department as TDS.
So that, your employees can file their personal income tax file and claim the deposited
tax on their PAN number.
TAX PLANNING IN RESPECT OF SPECIFIC MANAGERIAL DECISIONS
1. Making the most by investing in tax saving investments under Section 80C,
80CCC and 80CCD
The National Pension Scheme, managed by the Pension Fund Regulatory and
Development Authority (PFRDA) is a generic pension scheme for all such that
you have an option of investing in both equity and debt while building your
retirement corpus according to your current age. This also provides as
additional tax benefit of Rs 50,000 per year, over and above the Rs 1.5 lakhs
of 80C limit.
Repayment made towards the principal amount of your housing loan can be
claimed as deduction under Section 80C upto the maximum permissible limit
i.e. Rs 1,50,000. Additionally, you can claim a deduction of Rs. 2 lakh on the
interest component as well under Section 24(b).
If you take an educational loan for yourself, spouse or children then under
Section 80E the interest paid on such education loan is exempt from tax and
can be claimed as deduction. There is no maximum limit on the amount that
can be claimed as deduction. However, the deduction is only for the interest
component and not the principal.
You are liable to pay capital gains tax on the capital gains made by you from
your investments. However, the Income Tax Department also allows you to
carry forward your capital losses for a period of 8 consecutive years. Such
losses can be set off against the capital gains made by you. However, long-
term capital losses can only be set off against long-term capital gains.
You will be liable to pay taxes for any long-term capital gains arising from the
sale of property. However, if you invest such gains in specific instruments like
another property from the sale proceeds or 54EC Bonds then you will be able
to claim an exemption on your capital gain.
All the partners can saves on taxes by distributing the profits of the
partnership firms amongst themselves. As the partnership firm already
pays taxes so the profit which is distributed will not be taxed in the hands
of the partner.
As a businessman you can claim expenses for the amount spent by you on
travel for business purposes. Such expenses made from one’s own pocket
can be shown as expenses incurred on business and claimed for deduction
from the income.
Ans. RESIDENT
A taxpayer would qualify as a resident of India if he satisfies one of the following 2
conditions:
2. Stay in India for the immediately 4 preceding years is 365 days or more and 60
days or more in the relevant financial year
In the event an individual leaves India for employment during an FY, he will qualify
as a resident of India only if he stays in India for 182 days or more. This otherwise
means, condition (b) above of 60 days would not apply to him
2. Has stayed in India for at least 730 days in 7 immediately preceding years
Therefore, if any individual fails to satisfy even one of the above conditions, he would
be an RNOR.
NON-RESIDENT
An individual satisfying neither of the conditions stated in (a) or (b) above would be
an NR for the year.
TAXABILITY
Resident: A resident will be charged to tax in India on his global income i.e. income
earned in India as well as income earned outside India.
NR and RNOR: Their tax liability in India is restricted to the income they earn in
India. They need not pay any tax in India on their foreign income.
Also note that in a case of double taxation of income where the same income is
getting taxed in India as well as abroad, one may resort to the Double Taxation
Avoidance Agreement (DTAA) that India would have entered into with the other
country in order to eliminate the possibility of paying taxes twice.
29. State the deductions which are allowed from annual value while computing taxable
income from house property.
For a self occupied house property, since the Annual Value is Nil, the
standard deduction is also zero on such a property.
iii) The purchase or construction must be completed within 5 years from the end
of the financial year in which the loan was taken.
30. Describe the techniques of tax planning with respect to geographical location and
financial management decisions.
1. Sec. [ 10A] : Tax Holiday for newly established undertaking in Free Trade
Zone:
First 5 Years – 100 % of profits and gains is allowed as deduction
Next 2 Years : 50% of such Profit and Gains is deductible for further 2 assessment
years.
Next 3 Years : for the next three consecutive assessment years, so much of the
amount not exceeding 50% of the profit as is debited to the profit and loss account
year in respect of which the deduction is to be allowed and credited to a reserve
account (to be called the ''Special Economic Zone Re-investment Allowance Reserve
Account'') to be created and utilised for the purposes of the business of the assessee
6. Sec.[ 80 LA] : Where the gross total income of an assessee,— (i) being a
scheduled bank, or, any bank incorporated by or under the laws of a country outside
India; and having an Offshore Banking Unit in a Special Economic Zone; or (ii)
being a Unit of an International Financial Services Centre , there shall be allowed a
deduction from such income, of an amount equal to— 100% of such income for five
consecutive assessment years beginning with the assessment year.
31. Write a note on the deductions available under Section 80C of the Income Tax Act,
1961.
Ans. The following investments and payments are eligible for deduction under
Section 80C of the Income Tax Act, 1961:
LIFE INSURANCE: Premiums paid toward all life insurance policies are eligible for
tax benefits under Section 80C. This deduction can be claimed for premiums paid
towards insuring self, spouse, dependent children and any member of Hindu
Undivided Family. An important point to be noted is that if the policy is issued on or
prior to March 31, 2012, annual premium up to a maximum of 20% of the sum
assured becomes tax deductible. For insurance policies issued on or after April 1,
2012, annual premium up to a maximum of 10% of the sum assured is tax deductible.
HOME LOAN PRINCIPAL REPAYMENT: The amount that goes into repaying
the principal on a home loan is eligible for deduction under Section 80C. To claim
this tax benefit, construction of the property should be complete. If you transfer the
property before the end of 5 years from the year you had taken its possession, no tax
benefits will be awarded. Additionally, the amount claimed as deduction in the earlier
years shall become taxable in the year that the property is transferred.