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CFP 5 

Tax and Estate Planning


Income Tax
An understanding of the Income-tax law
require a study of the following:
z Income Tax Act, 1961, enacted by Parliament
and as amended up to date.
z Income Tax Rules 1962, framed by Central
Board of Direct Taxes (CBDT) and as
amended up to date.
z Circulars, clarifications and notifications issued
by CBDT from time to time.
z Judicial decisions.
z Central Act, means the Finance Act, passed
by Parliament every year.
PY and AY
z The year in which income is earned is called the
previous year and the next year in which income is
taxed is called the assessment year.

Assessment Year (AY) [Sec 2(9)]


z Assessment year means the period of 12 months
commencing of the First day of April every year. e.g.,
Assessment year 2007-08 will commence on April 1,
2007 and end on March, 31, 2008

Previous Year (PY) [Sec 3]


z Previous year means the financial year immediately
preceding the assessment year. Income of previous
year 2006-07 will be taxed in the assessment year
2007-08.
PY and AY ..contd
z In the case of business/ profession newly set up, or a
source of income newly coming into existence, the
first previous year will be the period commencing
from the date of setting up of business/ profession, or
on the date on which the source of income coming
into existence and will end on immediately following
March 31.
z in the following cases, income is taxed in the same
year in which it is earned.
(1) Shipping business of Non- Residents (Sec 172)
(2) Assessment of person leaving India (Sec 174)
(3) Assessment of association of persons or body of individuals
or artificial juridical person formed for a particular event or
purpose (Sec 174 A)
(4) Assessment of persons likely to transfer property to avoid
tax (Sec 175)
(5) Discontinued business (Sec. 176)
Person and Assessee
z Under the IT Act, a “person” [(Sec 2(31)] is a unit of taxation and
includes the following
z (i) an individual,
z (ii) a Hindu Undivided Family(HUF),
z (iii) a company,
z (iv) a firm,
z (v) an association of persons or a body of individuals,
whether incorporated or not,
z (vi) a local authority and
z (vii) every artificial juridical person, not falling within any of
the preceding sub-clauses
z Assessee [Sec2 (7)]
z “Assessee” means a person by whom any tax or any other
sum of money is payable under the Income Tax Act.
Income
z The definition of the term ‘Income’ in Sec. 2 (24) is inclusive and not exhaustive. Thus, it can
also include such things which though are not specifically listed u/s 2 (24) but which fall in its
general and natural meaning.
z A partial list of “Income” includes—
(i) profits and gains;
(ii) dividend;
(iv) the value of any perquisite or profit in lieu of salary taxable u/s 17(2) and (3);
(vi) any allowance granted to the assessee either to meet his personal expenses at the place
where the duties of his office or employment of profit are ordinarily performed by him or at a
place where he ordinarily resides or to compensate him for the increased cost of living;
(vii) the value of any benefit or perquisite, whether convertible into money or not, obtained from a
company either by a director or by a person, who has a substantial interest in the company,
or by a relative of the director or such person, and any sum paid by any such company in
respect of any obligation which, but for such payment, would have been payable by the
director or other person aforesaid;
(xiv) Value of any benefit or perquisite, received from any business or profession [ Sec 28(iv) ]
(xv) any capital gains chargeable under section 45;
(xvii) any winnings from lotteries, crossword puzzles, races including horse races, card games
and other games of any sort or from gambling or betting of any form or nature whatsoever;
(xx) any sum, whether received or receivable in cash or kind, under an agreement for—
(a) not carrying out any activity in relation to any business; or
(b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or
any other
Facts about Income
(1) Income may be in cash or kind.
(2) An income is taxable even if there is controversy as regards its title.
(3) Reimbursement of expenses, which are not meant for the personal benefit of the
recipient, is not
an income.
(4) Illegal income is also taxable.
(5) When any income is diverted by an overriding title to another person, such
income is not taxable
in the hands of the person, who originally received the income.
(6) Income need not be permanent. Temporary incomes are also taxed.
(7) Income should be derived from outside.
(8) Income includes loss. While income and profits represent ‘ plus income’, losses
represents ‘
minus income’
(9) Income should be real and not fictional. A person cannot make a profit out of
transfer of funds
from one pocket to another.
(10) A revenue receipt is taxable as income unless it is expressly exempt. On the
other hand, a capital
receipt is generally exempt from tax unless it is expressly taxable.
Income (tax basis)
Gross Total income [Sec. 80 B (5)]
z Gross total income means total income computed in accordance
with the provision of the IT Act before making any deduction
under Chapter VI A (Sec.80CCC to 80U). These deductions
have been discussed in detail in Topic
Total Income [(Sec. 2(45)]
z ‘Total income’ means the total amount of income referred to in
Sec. 5 and computed in the manner laid down in the Act. Sec. 5
defines total income with reference to residential status of an
assessee.
Exempt Incomes [Sec. (10)]
z Income enumerated u/s 10 of the IT Act are totally exempt from
tax.

( Pl see slide 20)


Residential Status
z Taxable entities ( sec 6 )
A. An Individual
B. A Hindu Undivided Family (HUF)
C. A firm OR Association of Persons (AOP) OR a Body of
Individuals ( BOI)
D. A company
E. Every Other Person
z Assessees are either
1. Resident in India or
2. Non Resident in India
z Resident Individuals and HUF can be
1. Resident and ordinarily resident or
2. Resident and not ordinarily resident
Residential Status
A person is a resident if: ( Basic Conditions)
1. Person is in India in that year for 182 days.
or
2. In last 4 years, the person is in India for 365 days
and
in that year the person is in India for 60 days.
(60 days is to be substituted with 182 days if Indian citizen comes to visit India for
leaves India for employment abroad)

A person is : ( additional conditions)


resident and ordinarily resident (ROR) in India if:
1. Person is resident in India for 2 out of last 10- years
and
in last 7 years, the Person is in India for 730 or more days
2. Otherwise person is resident but not ordinarily resident (RNOR)
Scope of Taxation

z Based on the residential status of payer, his tax liability will be as given

z Residential status Taxability of Income


(i) Resident All income of the previous year wherever accruing or
arising or received by him including incomes deemed to
have accrued or arisen.
(ii) Non-Resident All income accruing, arising to or deemed to have
accrued or arisen or received in India.
(iii) RNOR All Income accruing or arising or deemed to have
accrued or arisen or received in India. Moreover, all
income earned outside India will also be included if
the same is derived from a business or profession
controlled or set up in India.
Tax Rates

Male: upto Rs. 1,00,000 NIL


Rs.1,00,001 to Rs.1,50,000 10 %
Rs.1,50,001 to Rs.2,50,000- 20 %
Rs.2,50,000 & above 30 %
Female: upto Rs. 1,35,000 NIL
Rs.1,35,001 to Rs.1,50,000 10 %
Rs.1,50,001 to Rs.2,50,000 20 %
Rs. 2,50,000 & above 30 %
Senior Citizens
upto Rs. 1,85,000 NIL
Rs.1,85,001 to Rs.2,50,000 20 %
Rs.2,50,001/ & above 30 %
Surcharge @ 10% only if total income is more than Rs. 10,00,000
Education Cess @ 2% for all.
HUF

z Tax rate same as individual


z Husband & wife can form HUF even if no child
z Mother & son can form HUF even if father is dead
z Eldest male is karta. others are co-parceners
z Can be formed by gift from ancestors who are non-members viz.
father, grand father or great grand father
z Married co-parceners of a parent HUF can form new HUF by
partition of the parent HUF
z Partial partition is not allowed
z Deduction u/s 80c to 80u is available
z Share paid out of HUF’s income is tax exempt in the hand of the
recipient
Partnership Firm
z Tax rate = 30%+ surcharge 10% + education cess.
z Firm to be assessed as partnership firm should
prepare written deed, specifying profit sharing ratio
and remuneration & interest on capital to partners.
z Interest on capital to partners should not exceed
12%p.a.
z Certified copy of deed must be attached to the first
return of income and any changes to be attached to
subsequent returns.
Income From Firm
z Share of profit from firm on which tax has been paid by the firm
is exempt in the hands of the partner.
z Remuneration & interest on capital allowed to the firm is taxable
in the hands of partners as business income.
z Changes in deed regarding remuneration & interest on capital
cannot be retrospective.
z Deduction U/S 80 C to 80 E & 80GG not allowed.
z Firm has to file return even if loss.
z Carry forward of loss only if partners are same.
z TDS & fringe benefit tax applicable.
AOP

z No interest on capital or remuneration allowed.


z When share of profit of members is indeterminate or any of the
members have taxable income, then tax rate =
30%+Surcharge10% + Education cess.
z When none of the members are having taxable income, tax rate
is same as individual.
z When AOP pays tax at 30%, member’s share is exempt from
tax.
z When AOP pays tax at individual rate, member’s share is
taxable as business income subject to rebate u/s 86 which is tax
on total income x share of AOP income / total income.
COMPANY

z Tax rate = 30% + Surcharge 10% + Education cess


z Foreign company tax rate = 40% + surcharge 2 ½% +
education cess (foreign co. is which doesn't pay
dividend in India).
z Deduction u/s 80 c to 80 e & 80gg not allowed.
z Carry forward of loss only if 51% share holding is
same.
z Return has to be filed even if loss.
z local authority: tax = 30%. no surcharge. but
Education cess applicable.
TRUSTS

z Tax for private trust @ 30% + Surcharge 10% +


Education cess
z When trust income don't include business income
and beneficiaries are having definite share then tax
will be paid on the share of each beneficiary at
individual rate.
z Business income of a trust by will for the exclusive
benefit of dependent relative is allowed.
z Tax rate for public trust is same as individual.
z Deduction u/s 80C to 80U allowed.
SOCIETIES

z Deduction u/s 80C to 80E & 80GG not allowed.


z tax rate =
upto Rs. 10,000 10%
Rs.10,000 to Rs. 20,000 20%
above Rs. 20,000 30%
z No surcharge but Education cess is applicable.
z special deduction u/s 80P:
consumer society = Rs. 1,00,000
other societies = Rs. 50,000
HEADS OF INCOME

(Income exempt u/s 10 )


Salary
+ Income from house property (House repairs deduction)
+ Income from business or profession ( Depreciation)
+ Capital gain (Indexation)
+ Income from other sources.
= Gross Total Income (GTI).
- deduction u/s 80 C to 80 U
= Total income
compute tax on total income based on income slab. ( slide 12)
+ Surcharge @ 10%( if total income > 10 lacs)
+Education cess.@ 2%
- Advance tax paid and TDS
= Tax payable or claim refund
INCOME EXEMPT U/S 10 (partial list)

z Agricultural income from India.


z Share of profit of HUF & firm.
z Income from insurance except keyman & when premium is more
then 20% of sum assured.
z Certain interest e.g. PPF, PF
z Dividend from domestic companies or mutual funds.
z Long term capital gain on securities on which securities
transaction tax is paid.
z Income of undertakings in free trade zones and 100% export
oriented units
z Income of mutual funds is exempt including long term capital
Gains ( Equity funds)
Agricultural Income

z It includes rental income from Agri land, income from Agri


processing, income from farm house and capital gain from sale
of Agri land in India, income from sale of seeds, income from
land used for grazing cattle, salary or interest on capital of
partners from a firm having Agri. income.
z It excludes poultry farming, potteries, flour mills, sale of forest
trees, rent from crop storing, rent of markets, income from
money lending, commission, dividend, hire charges for shooting.
Agricultural Income (AI)

z In case of dual income sources, Agricultural income is included


for the purpose of tax calculations.
z Find tax on AI + non AI( say, T1)
z Find tax on AI + Min. exempt income(say, T2)
z tax payable = T1 – T2.
z Applicable only where tax is at slab rate, AI more than Rs. 5,000
and non-AI more than exemption limit.
z Partly agricultural income of growing & manufacturing tea &
coffee, then 40% of income is taxable. (rubber = 35%)
Tax on Salary Income

ALLOWANCES
z Conveyance reimbursement fully exempt.
z Conveyance allowance, exempt up to Rs. 800 p.m., no proof of
spending needed.
z Medical reimbursement, exempt up to Rs. 15,000 p.a. if in India
and up to Rs.2,00,000 if abroad, bills to be attached.
z Medical Allowance fully taxable.
z Mediclaim of employees & their family paid by employer fully
exempt.
z Children education allowance. (exempt up to Rs. 100 p.m.p.c.
max. 2 children) no bills to be attached.
z Hostel expenditure allowance. (exempt up to Rs. 300 p.m.p.c.
max. 2 children) no bills to be attached.
ALLOWANCES

z Uniform allowance. (fully exempt) bills to be


attached.
z HRA , lowest of following is exempted:
z Actual HRA paid.
z Rent paid over 10% of salary.
z 50% of salary. (40% in case of non metros)

z Leave travel allowance, exempt for 2 times out of 4


years on actual expenses and lots of conditions.
PERQUISTIES

z Rent free accommodation taxable in the hands of employees


@20% of salary or rent paid by employer whichever is less.
10% of cost of furniture or hire charges paid by the employee as
applicable in case of furnished accommodation.
24% of salary or rent paid by employer in case of hotel
accommodation for more than 15 days.
15% of salary in case of city with population less than 4 lacs.
salary here means basic and doesn't include DA.
z Valuation of motor car used, drivers salary, gifts, free meals,
club & credit card payments and free travel to employees in the
hand of employees is omitted. so, exempt for employees but
subject to FBT.
PERQUISTIES

z Use of movable asset except car, laptop & computers is taxable


in the hands of employees @10% of cost of asset or amount of
hire charges paid by employer.
z Transfer of movable assets to employees is taxable in the hands
of employees.
z For computers the sale value is taken after 50% depreciation on
reducing balance method for each year of use by employer.
z For cars the sale value is taken after 20% depreciation on
reducing balance method for each year of use by employer.
z For other assets the sale value is taken after 10% depreciation
on cost for each year of use by employer.
PERQUISTIES

z Interest free loan taxable in the hands of employees if loan more


than Rs. 20,000 . taxable amount in the concession in interest
calculated as compared to rates of SBI for the same type of loan
as on 1st day of the year in which loan is taken.
z Supply of gas, electricity, water and services of watchman,
sweeper, gardener, maid, etc. will be taxed in the hands of
employees as per cost to employer.
z ESOP is exempt from tax except when transferred their will be
capital gains tax. no FBT as valuation method not given.
z medical facility provided by employer exempt but subject to
FBT.
z Educational facility owned by employer exempt up to Rs. 1,000
p.m.p.c.
RETIREMENT BENEFITS

z PF(employer contribution not part of salary upto 12%


of salary, employee contribution part of salary but
deduction u/s 80C available, interest exempt upto
9.5% p.a., lumpsum received on retirement exempt
from tax.)
z PPF (lumpsum you receive with interest is exempt.)
z Pension.(commuted is exempt upto certain limit,
monthly is taxable as salary income)
z VRS,exempt upto Rs. 5,00,000
z leave salary, exempt only on retirement
z Gratuity, exempt upto Rs. 3,50,000
INCOME FROM HOUSE PROPERTY

z The Person should be the owner of the property. subletting is


income from other sources.
z He shouldn't use it for business or profession.
z If he gets composite rent for building and furniture which is
separable then rent for furniture is income from business or
other sources and that for building is income from house
property. but if the composite rent is inseparable then it is
entirely income from business or other sources.
z A resident and ordinarily resident has to pay tax on even foreign
property.
INCOME FROM SELF OCCUPIED PROPERTY

z Income from single self occupied property is exempt from tax.


z In case of one self occupied property, annual value is nil. but,
interest on loan is allowed as deduction subject to Rs. 30,000 if
loan taken before 01/04/1999 or taken for home improvement
and upto Rs. 1,50,000 in other cases.
z Pre construction period interest is allowed as deduction in 5
equal installments from the year in which the house construction
is complete.
z If property is owned by co-owners it is not treated as aop.
respective share of income of each co-owner is treated as
income of each such co-owner.
INCOME FROM LET OUT PROPERTY

z Gross annual value = highest of fair rent or actual rent or


municipal value.
z If property is under rent control act annual value is restricted at
standard rent except when actual rent is more.
z From this gross annual value municipal taxes actually paid are
deducted on cash basis to get net annual value.
z From net annual value we can deduct 30% for repairs without
proof of expenses and interest on loan taken for the property
without any limit.
INCOME FROM DEEMED LET OUT PROPERTY

z In case of more than one vacant properties they are deemed to


be let out and annual value is found in the same way as let out
property except that actual rent is not available.
z House property can be deemed self occupied if there is only one
property from which no rent is received and it couldn't be
occupied as employment or business is at some other place.
z Vacancy allowance is allowed in case of genuine vacancy.
z Unrealised rent is allowed if reasonable steps are taken to
recover the dues.
Income From Business

z Illegal income taxable but illegal expenditure not deductible.


z Income tax, interest on income tax, fees for tax filing & wealth
tax, FBT is not an expense.
z Advertisement to political parties or their souvenir is not allowed
as deduction.
z Penalties for not following any law are not deductible except
when in the nature of interest.
z Reserves for anticipated losses not allowed as deduction.
z Actual bad debts from debtors are allowed if the debt is revenue
in nature and business is continuing even deduction is claimed.
Income From Business
z Keyman insurance. (premium paid deductible as expense, but
lumpsum received on maturity or surrender taxable)
z Employers contribution to superannuation fund subject to 27%
of salary including contribution to PF
z Employees family planning expenditure is allowed.
z A weighted deduction of 150% for in house or approved
scientific research.
z Capital expenditure for the same is allowed 100% in the year of
expense except land purchase.
z A weighted deduction of 125% for donation to scientific research
association or for social or statistical research.
z 100% deduction on eligible projects for social or economic
welfare.
Income From Business

z Preliminary expenditure is amortized in 5 years


subject to 5% of project cost e.g. issue of shares or
debentures.
z VRS expenditure is allowed to amortized in 5 years.
z If TDS is not deducted and paid to the govt. within the
financial year or due date of paying such TDS, than
the expenditure will be allowed in the year in which
the TDS is paid to the govt.
Tax Audit

z Audit is compulsory for business with turnover more


than Rs. 40,00,000 or profession with turnover more
than Rs. 10,00,000
z Due date for audit is 31st Oct
z Turnover of all businesses or professions of a person
to be considered for the limit.
z Penalty for non compliance = ½% of turnover or Rs.
1,00,000 whichever is less.
Depreciation
z Asset is owned by the assessee.
z Asset is used for business during the year.
z In partnership firm, firm can take depreciation on property of
partner.
z A leasee is not entitled to depreciation.
z In hire purchase, buyer can claim depreciation.
z Only reducing balance method is allowed.
z A separate schedule of fixed assets is to be kept by companies
as rates and method is different.
z Assets in a block are to be kept together.
z If asset is used for 180 or more than full year depreciation.
otherwise, half year depreciation.
Rates Of Depreciation
z BUILDING 10%
z RESIDENTIAL BUILDING 5%
z FURNITURE 10%
z PLANT & MACHINERY 20%
z COMPUTERS 60%
z BOOKS 60%
z CAR 15%
z CAR ON HIRE 30%
z MOULDS 30%
z CONTINERS 50%
z POLLUTION CONTROL EQUIPMENT 100%
z ADDITIONAL INITIAL DEPRECIATION FOR 15% (7 1/2 % IF
USED FOR LESS THAN 180 DAYS) IN CASE OF NEW PLANT
& MACHINERY USED FOR MANUFACTURE.
Capital Gain
z Capital asset means any property whether for business or
otherwise except stock in trade, personal effects (except
jewellery & house) & agricultural land in India.
z Long term capital asset is which is held for more than 12 months
for shares & mutual funds and more than 36 months for others.
others are called short term capital assets.
z Transfer includes sale, barter exchange but not gift (except
ESOP) or succession or partition of HUF.
z Conversion of debentures into shares is not transfer. but,
conversion of preference shares into equity shares is transfer.
Capital Gain

z Sale proceeds in case of real estate transactions.


(sale proceeds = stamp duty valuation)
z Conversion of capital assets into stock in trade. (sale
consideration = market value)
z In ESOP, even if employee gifts it to somebody tax is
payable. (sale consideration = market value).
z In case of partners, asset transferred to firm. (sale
consideration = book value)
z In case of partnership, firm’s asset transferred to
partner. (sale consideration = market value).
z Advance money forfeited. (reduce from cost in case
of final sale.)
Capital Gain
z In case of gift or succession. (cost to previous owner but loss in
indexation benefit).
z Cost of self generated assets like goodwill, tenancy rights. (cost
= nil)
z Depreciable assets. (cost = wdv. no indexation benefit.)
z Slump sale. (cost = assets – liabilities. no indexation benefit.)
z Cost of acquisition is to be indexed by multiplying by index no.
of year of sale & dividing by index no. of year of pur.
z If bought before 1/4/1981. (cost = market value as on 1/4/1981).
z Cost of improvement after 1/4/1981. (indexed cost)
z Cost of improvement before 1/4/1981. (ignore)
Long Term Capital Gain

z Long term capital gain on assets except shares is 20% with


indexation benefit. no 80c to 80u benefit. minimum exemption
limit available in case of other income lower than exemption
limit.
z Short term capital gain on assets except shares is added in total
income of the assessee.
Capital Gain On Shares

z No long term capital gain on shares and mutual funds if


securities transaction tax (STT) is paid.
z Short term capital gain on shares and mutual funds if STT is
paid is taxed @ 10%.
z If STT is not paid, STCG = added in total income. LTCG = 20%
with indexation or 10% without indexation.
z In case capital gain is taxed at concessional rate tax, no 80c to
80u benefit. but, minimum exemption limit available in case of
other
income lower than exemption limit.
z In case of D-mat, sale is assumed on FIFO basis.
Saving Tax On Long Term Capital Gain

z Sec 54: sale resi house and buy resi house within 1 year before
and 2 year after sale or construct new house within 3 yeas.
capital gain saved = cost of new house. new house should not
be sold for 3 years. capital gain account scheme (CGAS )
available.
z Sec 54F: sale any long term capital asset except resi. house
and buy resi. house within 1 year before and 2 year after sale or
construct new house within 3 years. capital gain saved = cost of
new house x capital gain / net sale consideration. new house
should not be sold for 3 years. CAGS available. he should not
have more than one house before and for next 2 to 3 years.
Saving Tax On Long Term Capital Gain

z Sec 54 EC: sale any long term capital asset and buy
specified bonds like NABARD, NHAI, REC, NHB,
SIDBI within 6 months of sale. capital gain saved =
investment in bonds. no sale or loan on security of
bonds for 3 years. no CGAS available. from AY 2007-
08, only NHAI & REC only.
z Sec 54B: sale agri. land and buy agri land within 3
year of sale. capital gain saved = cost of new land.
new land should not be sold for 3 years. CGAS
available. even short term capital gain can be saved.
Saving Tax On Long Term Capital Gain

z Sec 54D: compulsory acquisition of land & building


by govt. and buy land & building within 3 year of sale.
capital gain saved = cost of new land & bldg. new
land & bldg. should not be sold for 3 years. CGAS
available. even short term capital gain can be saved.
z Sec 54G: sale urban industrial building & land and
buy rural industrial building & land within i year before
or 3 year after sale. capital gain saved = cost of new
land & bldg.. new land & bldg. should not be sold for
3 years. CGAS available. even short term capital gain
can be saved.
Saving Tax On Long Term Capital Gain

z If the new asset is sold before the lock in, the exemption is
revoked and taxable as short term capital gain except in case of
sec 54EC & f it is long term capital gain.
z If a person buys any shares within 3 months before record date
of dividend and sells within 3 months after record date then loss
to the extent of such dividend is ignored.
z If a person buys any units of mf within 3 months before record
date of dividend or bonus and sells within 9 months after record
date then loss to the extent of such dividend is ignored and loss
on such original units ex bonus is ignored and taken as cost of
the bonus units.
Income From Other Sources

z Loan by a private company to the extent of accumulated profit to


an equity shareholder who is owner of more than 10% shares is
deemed dividend. this deemed dividend & dividend by foreign
company shall be taxed in the hands of shareholder as DDTis
not paid by companies.
z Interest on money borrowed to purchase the investment is
allowed as expenses against the income.
z Interest stripping is not allowed u/s 94.
z Lottery income including gambling, horse races is taxed @ 30%
+ Surcharge + Education cess flat and no expenses are allowed
except for owning & maintaining horse races. moreover,
deduction u/s 80 C to 80 U is not allowed.
Income From Other Sources
z Depreciation is allowed in case of income form other sources
also.
z In case of deep discount bonds, the difference between market
value as on beginning or end of the year of the year is interest
income.
z Family pension still has std. ded. of 33 1/3% or Rs. 15,000
whichever is less.
z LIC agents having total commission below Rs. 60,000 can claim
ad hoc deduction of 50% on 1st year commission & 15% on
renewal commission and if no separate record is available 33
1/3% on entire commission. max. deduction is Rs. 20,000.
similarly post office & mutual fund agents are allowed 50% ad-
hoc deduction.
Gifts
z Gifts received by individual or HUF only are treated as income.
z Firm, company , trust, etc. are exempt.
z Gifts received after 01/09/2004 and if above Rs. 25,000 from a
single person are taxable.
z If gift received from more then one person together above Rs.
25,000 not taxable.
z If a person donates more than Rs. 25,000 to different persons
then not taxable.
z Gifts in kind are exempt.
z Gifts received on marriage are exempt.
z Gift for some consideration exempt.
z Gift under will or inheritance or death of payer exempt.
z Gift to non-resident is taxable if received in India.
Deductions
z 80C: Insurance, PPF ( up to 70 000), PF, Infrastructure bonds,
ELSS, NSC, Tuition fees, Principal amount of housing loan ,
Fixed deposit for more than 5 years with scheduled banks upto
Rs. 1,00,000 with 80ccc.

z 80CCC: pension plans. Max. Rs. 1,00,000

z deduction u/s 80 C & 80 CCC combined shouldn't be more than


Rs.1,00,000 .
Deductions
z 80D: mediclaim. Max. Rs. 10,000 EXCEPT Rs. 15,000 if for senior
citizens.
z 80DD: handicapped relative. FIXED BENEFIT OF Rs. 50,000 OR IN
CASE OF SEVERE DISABILITY Rs. 75,000 .
z 80U: self handicapped. FIXED BENEFIT OF Rs. 50,000 OR IN CASE
OF SEVERE DISABILITY Rs. 75,000 .
z 80DDB: medical treatment for specified illness of self or dependent.
UPTO Rs. 40,000 EXCEPT FOR SENIOR CITIZEN Rs. 60,000 .
z 80G: donation allowed 50 & 100% deduction.
z 80E: interest on education loan for self only (and not children) allowed
without limits.
z 80GG: for non HRA earners. Lowest of
1. Rs. 2,000 P.M.
2. Excess of rent paid over 10% of Gross Total Income.
3. 25% of GTI.
Deductions

z 80JJA: profits of business of collecting & processing bio


degradable waste exempt for 5 years.
z 80JJAA: 30% of additional wages of new employees for 3 years
only when the addition is more than 10% of existing force and
the no. Employed is more than 100.
z 80QQB: author of books except text books exempt income upto
Rs. 3,00,000
z 80RRB: royalty received exempt upto Rs. 3,00,000 .
z Relief u/s 89 in case of arrears or excess gratuity or commuted
pension.
Clubbing Of Income

z Transfer of income without transfer of asset is


clubbed in the hands of owner of asset.
z Income from revocable transfer except irrevocable
during the lifetime of the transferee is clubbed in the
hands of transferor.
z Income from asset transferred without adequate
consideration or unreasonable remuneration to
spouse is clubbed except if there is technical or
professional qualification. Even indirect transfer is
clubbed. One self occupied property is allowed.
Clubbing of Income
z Income from asset transferred to son’s wife is also clubbed.
z Income of minor child is clubbed with higher income earning
parent except if the child is physically or mentally handicapped
or the child is using his own skill.
z In all the above cases tax can be recovered from the owner as
well as from the person receiving the income but the liability of
the recipient is limited to average rate of tax on the income
received.
z Income from accretion to the assets transferred is taxable in the
hands of the transferee and is not clubbed.
Set-off And Carry Forward

z Business loss is not allowed to adjusted with salary income.


z Loss from speculation can be setoff only with income from
speculation.
z Loss from owning & maintaining horses will be setoff only
against horse racing income.
z Short term capital loss can be setoff with long term as well as
short term capital gain.
z Long term capital loss cannot be setoff with short term capital
gain but only with long term capital gain.
z Loss from exempted income cannot be setoff against taxable
income.
Set-off And Carry Forward

z Loss from any head cannot be adjusted with winning from


lotteries, betting, etc.
z All unadjusted losses can be carried forward for 8 years except
horse racing loss which can be carried forward for 4 years.
z Such carried forward loss can be setoff in subsequent years
only against same heads.
z For all losses to be carried forward except loss due to
depreciation & house property loss return of income should be
filed on time.
z If business is succeeded except by inheritance loss is not
carried forward.
Tax Deducted At Source (TDS)
z Salary: all have to deduct if employee has taxable income.
Employee should show his other income in form 12B or C.
TDS certificate in form 16 & 16A and perquisites calculation in
form 12BA.
z Interest:
all not being individual or HUF not under audit, have to deduct.
TDS = 10% for non corporate and 20% for corporate if interest is
more than Rs. 5,000 P.A.
Application for no TDS in form 15Gor 15H to the deductor.
Tax Deducted At Source (TDS)
z Contractor & sub contractor:
all not being individual or HUF not under audit, have to deduct.
TDS = 2% except 1% in case of sub contract or advertisement
contract, if amount is more than Rs. 20,000 one time and more
than Rs. 50,000 P.A.
z Commission or brokerage:
all not being individual or HUF not under audit, have to deduct.
TDS = 5% on above Rs. 2,500 P.A.
Insurance commission: 10% in case of non corporate & 20% in
case of corporate on above Rs. 5,000 P.A.
Lottery commission: 10% above Rs. 1,000.
Tax Deducted At Source (TDS)
z Professional fees:
all not being individual or HUF not under audit have to deduct.
TDS = 5% for above Rs. 20,000 P.A.
z Rent: all not being individual or HUF not under audit have to
deduct. TDS = 15% for individual & HUF and 20% for others for
above Rs. 1,20,00 P.A.
z Lottery winnings:
TDS = 30% above Rs. 5,000 at a time.
If prize in kind cash has to be deposited by the winning person.
Advance Tax

z Corporates:
z 15% before 15th June
z 45% before 15th Sept
z 75% before 15th Dec
z 100% before 15th Mar
z Non-corporates:
z 30% before 15th Sept
z 60% before 15th Dec
z 100% before 15th Mar
z Applicable only if tax liability is more than Rs. 5,000
Fringe Benefit Tax (FBT)
z Tax is payable on payments made for employees and deemed
to be made for the employees.
z Tax payable = 30% + surcharge @ 10% on tax + education cess
@ 2% on tax including surcharge
= 33.66% of fringe benefit or deemed fringe benefit.
z No surcharge for co-operative society & local authority.
Surcharge @ 2.5% for foreign company.
z Tax paid by any employer. Exemption to individuals, HUF and
charitable trusts registered u/s 12AA or exempt u/s 10(23C).
z Tax paid even if no income tax payable e.g. Agricultural income.
The only condition is that the employer should have at least one
employee based in India.
Fringe Benefit Tax (FBT)

z Even capital expenditure is subjected to FBT except


purchase of cars which is exempt from FBT. But,
depreciation on cars is liable to FBT.
z No FBT on salary and allowances paid to employees
and perquisites taxable in the hands of employees
even if they may be ultimately exempt. Exception is
that FBT is payable on medical expenditure
reimbursed by employer up to Rs. 15,000 which is
exempt from tax in the hands of employees.
Deemed FBT
z Fringe benefit is deemed as given % in the following cases:
z Entertainment 20%
Hospitality is an obligation or courtesy but entertainment is
discretionary.
z Hospitality 20%
In case of by hotel business 5%
Food in office & non transferable food coupons used only in
food joints is exempt.
z Conference except fees of employees for participating in
conference 20%
If conference fees includes travel or accommodation only
bifurcated fees is exempt.
No bifurcation no exemption.
Deemed FBT
z Sales promotion including publicity 20%
Advertisements, exhibition, sponsorship of sports event, market
research, call centre charges, after sales service cost, selling
commission, special discount, brokerage, target incentives are
exempt.
But, freebies & offers to consumers are taxable.
Free samples to doctors and payments to brand ambassadors
are exempt from AY 2007-08.
z Employee welfare except statutory obligation like PF, ESIC,
gratuity, first aid, etc. 20%
In house training of employees is exempt.
Group health or life insurance, medical facilities, books &
periodicals to employees is taxable.
Deemed FBT
z Conveyance, tour & travel 20%
In case of construction, pharma & computer software 5%
Free & concessional tickets provided by employer for private
journey of employees or their family. 100%
z Conveyance from residence to office & back is exempt.
z Expenses are taxable even if reimbursement received from
clients. Similarly expenses reimbursed to suppliers are taxable
in the hands of suppliers.
Tour & travel expenses is deemed @ 5% from AY 2007-08.
Deemed FBT
z Hotel, lodging & boarding 20%
In case of pharma & computer software 5%
in case of passenger or goods carriage
or ship or aircraft from AY 2007-08 5%
z Repair, running, maintenance and depreciation of motor car &
aircraft 20%
In case of goods or passenger carrier 5%
salary of driver, rent for garage & interest on loan taken is
taxable.
Depreciation is as per income tax act.
Lorry, crane, etc. Is not motor car but motor cycle is.
z Use of telephone including mobile except leased lines & fax
20%
Cost or depreciation on instruments is exempt.
Deemed FBT
z Maintenance of guest house except used for training.
20%
Capital expenditure or deprecation is exempt.
But, interest on loan taken is taxable.
z Festival celebrations 50%
Annual day is entertainment.
Independence day & republic day are not festivals and so
exempt.
z Gifts 50%
Gift in cash to employees is taxable as salary of employees.
Gift to customers cannot be called sales promotion.
Deemed FBT

z Clubs 50%
Capital expenditure and depreciation on clubs exempt.
z Scholarship 50%
Donations are gifts if deductible as business expenditure.
Donations deducted u/s 80G are exempt.
Scholarships cannot be called staff welfare.
Securities Transaction Tax (STT)
z Tax on purchase or sale of shares or derivatives or units of
equity oriented mutual fund in recognized stock exchange or
sale of units to mutual fund.
z Taxable service is price of securities traded or futures traded or
in case of option, total of strike price & option premium.
z Rate of tax, From 1/06/06:
Delivery based sale or purchase of securities from stock
exchange 0.125%
Non delivery based 0.025%
Derivatives 0.017%
Sale of units to mutual funds 0.25%
No surcharge or education cess
Securities Transaction Tax (STT)
z If STT is paid,
long term capital gains tax is exempt &
short term capital gain tax is @ 10% + surcharge + education
cess.
z If income from securities is taxable as business income, one can
claim rebate of the STT paid u/s 88e.
z STT is not paid on off market transactions of shares or sale &
purchase of debt oriented mutual funds.
z For such transactions,
Long term capital gains tax is @ 10% + surcharge + education
cess without indexation or 20% + surcharge + education cess
with indexation benefit whichever is lower.
Short term capital gains tax is taxable at normal rate of tax with
other heads of income.
Securities Transaction Tax (STT)

z If long term or short capital gain is taxable at concessional rates,


no deduction u/s 80c to 80u is available
but the minimum exemption limit from taxation is available.
z Equity oriented mutual fund
From AY 2007-08 meant which invests more than 65% in equity
shares and includes closed ended funds also.
Dividend Distribution Tax (DDT)

z Tax on dividend by domestic company or mutual funds after


01/04/2003.
z Tax @ 12.5% + surcharge + education cess.
For dividend by mutual fund from 09/07/2005 to persons except
individuals & HUF tax @ 20%.
For dividend from equity oriented mutual funds, DDT is exempt.
z Payable within 14 days of declaration of dividend.
z If DDTis paid on dividend, it is exempt in the hands of recipients.
z Domestic company is Indian company (company whose
registered office is in India) or company liable to income tax is
India.
Minimum Alternative Tax ( MAT)

z EVERY COMPANY WHO HAS TO PAY TAX IN INDIA HAS TO


PAY MINIMUM TAX @ 10% + SURCHARGE + EDUCATION
CESS ON BOOK PROFIT ALTHOUGH THEIR TAX PAYABLE
IS LESS THAN IT.
z BOOK PROFIT IS NET PROFIT AS COMPANIES ACT
ADJUSTED AS PER SECTION 115JB.
Banking Cash Transaction Tax (BCCT)

z Tax on withdrawal of cash from bank.


z From 1st June 2005.
z Applicable to whole India except withdrawals from account in
Jammu & Kashmir.
z Tax on cash withdrawals of more than Rs. 25,000 BY
INDIVIDUAL & HUF AND Rs. 1,00,000 by others on a single
day from a single account.
z Tax @ 0.1% on total cash withdrawn and not only the excess.
z Withdrawals abroad from Indian account taxable.
z Withdrawals in India from account abroad exempt.
Banking Cash Transaction Tax (BCCT)
z No tax on saving account.
z No tax on credit card withdrawals.
z But, debit card withdrawals are taxable except if from a saving
account.
z If multiple withdrawals from same account from different places
clubbed.
z If multiple accounts in same branch not clubbed.
z All fixed deposits in same branch clubbed.
z Tax only by scheduled banks.
z No tax on inter bank transactions.
z No tax on fixed deposit or recurring deposit transferred to some
other account without cash withdrawal.
OTHER TOPICS

z FORMS
z INTESTATE SUCCESSION.
z WILLS.
z PRIVATE TRUSTS.
z PUBLIC TRUSTS.
z TRANSFER OF IMMOVABLE PROPERTY, BENAMI
TRANSACTIONS, ETC.
All the Best