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NOTE 1,

1.

TAX BASICS

Tax: Tax means a financial charge or other levy upon a tax payer by the State such that
failure to pay is punishable by Law.

1.1.

Taxing Systems:

Progressive

Regressive

Proportional

Progressive taxation implies where tax rate increases with increase in income, regressive taxation means that tax rate reduces with increase in income, proportion tax means charging tax on a fixed proportion irrespective of level of amount on which tax is to be levied.

1.2.

Income Tax Law

Income Tax Act 1961

Income Tax Rules 1962

Circulars by CBDT & notifications

Judicial Decisions

1.3.

Scheme of taxation :

a) Every person is chargeable to income tax if his total income exceeds the maximum amount which is not chargeable to tax. b) It is charged on income of Previous year but taxable in Assessment year (subject to exceptions) c) Income is chargeable at Normal rates and special rates. d) Total income is determined o n the basis of Residential status. e) Total income is computed as per the provisions of income tax act

Maximum amount which is not chargeable to tax is different for senior citizens ( man or woman having age 65 years or more), woman (below 65 years), and man below 65 years. It is Rs. 240,000, 190,000 and 160,000 respectively.

Income tax becomes due in previous year but it is paid in assessment year.

1.4.

Types of taxes

Direct Taxes Tax paid directly to Government on Income or wealth of a person

Indirect taxes Tax on goods and services, not paid directly to Government but paid to seller or service provider

Example of direct taxes are income tax and wealth tax, while indirect taxes include Excise duty, Customs Duty, Service tax and VAT.

2. Tax Rates:
I. Individual, HUF, AOP, BOI, or artificial person

NIL 10 % 20 % 30 %

Senior Citizen First 2,40,000 Next 60,000 Next 2,00,000 Balance

Women below 65 yrs First 190,000 Next 110,000 Next 2,00,000 Balance

Man below 65 yrs First 160,000 Next 140,000 Next 2,00,000 Balance

In addition to above education cess @ 2 % and Higher education cess @ 1% shall be levied. No surcharge is payable. It has been abolished. Sum total of first two slabs in each is Rs. 3,00,00 2

II.

Tax rate for firm (including limited liability partnership)

30% + 2% EC +1% HEC No surcharge is payable.

The Limited Liability Partnership (LLP) is viewed as an alternative corporate business vehicle that provides the benefits of limited liability but allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement. It is regulated by Limited liability partnership act 2008, but not by partnership act 1932.

I.

Tax rate for companies

Domestic

Foreign

30% +2%EC +1%HSC

40% +2%EC +1%HSC

NOTE There is a surcharge of 10 % on domestic companies and 2.5% on foreign companies where total income exceeds Rs. one crore.

II.

TAX RATE FOR CO-OPERATIVE SOCIETY

Upto Rs. 10,000 of total income Where total income exceeds 10,000 but is upto Rs. 20,000 Where total income income exceeds Rs. 20,000
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10% of total income 1000 plus 20% of the amount by which total income exceeds Rs. 10,000 3000 plus 30% of the amount by which total income exceeds Rs. 20,000

No surcharge is payable by co-operative societies but education cess @ 2% and higher

education cess @ 1% is payable.

PROBLEMS : From following compute tax payable by assessee


1. 2. 3. Mr. X is 30 years old. He has a salary income of Rs. 180,000 Mr. Y is 64 years old. He has a house property income of Rs. 4,00,000 Mr. Z is 40 years old. He has a salary income of Rs. 6,00,000

4. Mrs. Tina is 35 years old. She is having a salary income of Rs. 2,00,000, House property income of Rs.
1,00,000, short term capital gain on sell of jewellery is Rs. 150,000. 5. Mr. Manoj of 25 years age, is having total income of Rs. 450,000, includes lottery income of Rs. 1,00,000, long term capital gain on sale of land Rs.50,000, and Balance from salary income.

6.

Mr. Mogra is 30 Years old. His total income of Rs. 190,000 includes Long term capital gain on sell of land Rs. 40,000 and balance from salary income. Mr. Faraz is 35 years old. His total income of Rs. 190,000 includes Lottery income of Rs. 40,000 and balance from salary income. Mr. Panna is 25 years old. His total income of Rs. 190,000 includes short term capital gain on sell of Equity shares Rs. 40,000 and balance from salary income. Mr. Rana 35 years old. His total income of Rs. 290,000 includes short term capital gain on sell of Equity shares Rs. 40,000 and balance from salary income.

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8.

9.

10. Mr. Hira is 25 years old. His total income of Rs. 2,00,000 includes long term capital gain on sell of Equity shares Rs. 40,000 and balance from salary income.

Related provisions
112. (1) -Tax on long-term capital gains: Where the total income of an assessee,
in the case of an individual or a Hindu undivided family includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head Capital gains, the tax payable by the Assessee on the total income shall be the aggregate of,

(i) the amount of income-tax payable on the total income as reduced by the amount of such long-term capital gains, had the total income as so reduced been his total income ; and (ii) the amount of income-tax calculated on such long-term capital gains at the rate of twenty per cent : Provided that where the total income as reduced by such long-term capital gains is below the maximum amount which is not chargeable to income-tax, then, such long-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax and the tax on the balance of such long-term capital gains shall be computed at the rate of twenty per cent.

115BB - Tax on winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or gambling or betting of any form or nature whatsoever.
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Where the total income of an Assessee includes any income by way of winnings from any lottery or crossword puzzle or race including horse race (not being income from the activity of owning and maintaining race horses) or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, the income-tax payable shall be the aggregate of (i) the amount of income-tax calculated on income by way of winnings from such lottery or crossword puzzle or race including horse race or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, at the rate of 32[thirty] per cent; and (ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i)

111A. Tax on short-term capital gains in certain cases.


(1) Where the total income of an assessee includes any income chargeable under the head Capital gains, arising from the transfer of a short-term capital asset, being an equity share in a company or a unit of an equity oriented fund and (a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force; and (b) such transaction is chargeable to securities transaction tax under that Chapter, the tax payable by the assessee on the total income shall be the aggregate of (i) the amount of income-tax calculated on such short-term capital gains at the rate of
60

[fifteen] per cent; and

(ii) the amount of income-tax payable on the balance amount of the total income as if such balance amount were the total income of the assessee: Provided that in the case of an individual or a Hindu undivided family, being a resident, where the total income as reduced by such short-term capital gains is below the maximum amount which is not chargeable to income-tax, then, such short-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax and the tax on the balance of such short-term capital gains shall be computed at the rate of fifteen per cent.

(2) Where the gross total income of an assessee includes any short term capital gains referred to in sub-section (1), the deduction under Chapter VI-A shall be allowed from the gross total income as reduced by such capital gains. 6

(3) Where the total income of an assessee includes any short-term capital gains referred to in subsection (1), the rebate under section 88 shall be allowed from the income-tax on the total income as reduced by such capital gains. Explanation.For the purposes of this section, the expression equity oriented fund shall have the meaning assigned to it in the Explanation to clause (38) of section 10.]

10(38): Exemptions for long term capital gain:


Any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund where (a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force; and (b) such transaction is chargeable to securities transaction tax under that Chapter