Income Tax Savita Sawant Ravi Nagrani -83

Indian Income Tax Governed by CBDT. Part of Dept. of Revenue managed by IRS, under ministry of finance, Govt. of India. Levy of tax is governed by Income Tax Act, 1961.

Income tax is a tax payable, at the rate enacted by the Union Budget (Finance Act) for every Assessment Year, on the Total Income earned in the Previous Year by every Person.

Some Key Definitions-Income Tax Law Assessment year refers to the 1 st day of April every year. Income earned during the previous year is charged to tax in the assessment year. Previous year refers to the financial year immediately preceding the Assessment year.

The principle of taxation of income is: -  All revenue incomes are chargeable to tax unless it is specifically exempt (declared as not taxable).  All capital profits are not chargeable to tax unless specifically made chargeable.

Progressive:Tax imposed so that the effective tax rate increases as the economic well being increases. Regressive:The effective tax rate decreases as the economic well being increases. Proportional:The tax rate is fixed as the economic well being increases.

Residential Status Resident & Ordinarily Resident. Resident but not Ordinarily Resident. Non Residents.

Heads Of Income The total income of a person is divided into five heads, viz., Income from Salary. Income from House Property. Income from profits and gains of Business or Profession. Income from Capital Gains. Income from Other sources.

General Gross Components The total income of a person is divided into five heads, viz., Basic. HRA. Conveyance. Children Education Allowance. Allowance in any other name.

 Basic : Taxable  HRA : Taxable. Exemption can be claimed  Required Document – Rent receipt  Computation of exemption - Least of the following : 1) Actual amount of HRA received 2) 50% (Metro) / 40% (Non Metro) of Salary (Basic + DA) 3) Actual Rent paid Less 10% of Salary ( Basic + DA) [The exemption will not be available, if the employee lives in his own house, or in a house for which he does not pay any rent or pays rent which does not exceed 10% of annual basic salary]

 Conveyance : Taxable. Exempted up to Rs.800 per month & up to Rs.1600 per month if the employee is Handicapped.  Children Education Allowance : Taxable. Exempted up to Rs.100 per month per child restricted to 2 children  Other Allowances : All other allowances (except LTA) are Taxable

In arriving at the taxable income certain deductions are allowed being; 1.Deduction for HRA. 2.Deduction for Conveyance allowance up to Rs. 9,600/- per annum. 3.Deduction for Leave Travel Allowance. 4.Deduction for Medical Reimbursement up to Rs. 15,000/- per annum. 5.Deduction for Housing loan interest paid upto Rs. 1,50,000/- per annum. 6.Deduction for eligible investments U/S 80C & 80CCD of the Income Tax Act –not exceeding Rs.1,00,000

Eg: Mrs.X (age 51 yrs) is a part time college lecturer in Delhi owned by A Ltd. During the year she gets basic salary of Rs.52,300 upto june 30,2008 and Rs.62,700 afterwards. Besides, she gets 30 % of basic salary as house rent allowance,Rs.1,6300 per month as dearness allowance (71 % of it forms a part of salary for computation of retirement benefits) and Rs per month as conveyance allowance which is entirely used for personal purposes. On July 10,2008, the employer transfers a music system to Mrs. X on her completing 10 years of service (cost of music system purchased on September 1,2007 :Rs.22,470) for Rs.7,500.She is member of the statutory provident fund to which both the employer and employee of basic salary. Apart from the minimum contribution, she makes an additional contribution of Rs per month to the provident fund. During the previous year , Rs.65,698 is paid to her for checking answer sheets of different universities. Determine the taxable income and tax liability of Mrs.X for the assessment year on the assumption that she pays rent of Rs.14,000 per month.

Rates of Tax and Deductions Income Tax Rates Individuals Tax Rates Men upto Rs. 1,60,000Nil Women upto to Rs. 1,90,000Nil Rs.1,60,001/1,90,001 to Rs. 3,00,00010% Rs. 3,00,001 to 5,00,00020% Rs. 5,00,001 and above30% Educational Cess is payable on tax calculated above at 3%.

How to Save Tax (or) Claim Exemption Investments under Sec 80C Mediclaim Insurance Policy – Sec 80D Personal Disability under Sec 80U Dependent Disability ie. Handicapped dependent under Sec 80DD Interest on Educational Loan under Sec 80E Donations under Sec 80G ALL THE ABOVE INVESTMENTS / EXEMPTIONS ARE CLASSIFIED AS DEDUCTION UNDER CHAPTER VI-A

Current Proposed Taxable Income Slab (Rs) Rate % Taxable Income Slab (Rs) Rate % Up to 1,60,000 Up to 1,90,000 (for women) Up to 2,40,000 (for resident individual of 65 years or above) NIL Up to 1,60,000 Up to 1,90,000 (for women) Up to 2,40,000 (for resident individual of 65 years or above) NIL 1,60,001 – 3,00,000101,60,001 – 10,00, ,00,001 – 5,00, ,00,001 – 25,00, ,00,001 upwards30*25,00,001 upwards30*

Objectives of the new Code Improve efficiency and equity of the system. Introducing moderate levels of taxation. Expanding the tax-base.

Strategies Adopted Minimise Exemption Remove ambiguity in law Check erosion of tax base

The Goal Consolidate and amend all direct taxes. Simplify language to ensure that the law can be reflected in the return form. Reduce scope for litigation. Flexibility in accommodating changes without need for frequent amendments. Eliminate regulatory functions. Provide Stability.

Key Gains Deductions increased (sec 80C –Rs 3 lakh from 1 lakh). Net Wealth tax rate exemption limit increased (Rs. 50 crore from Rs.30L). Indefinite carry forward of Tax Losses. Agri income stays outside tax net. STT abolished. Cost of inflation adjustment. (1year) Max penalty down to 2 times tax amount. Base date for Capital gains tax shifted to April

Key Pains Re-introduction of capital gains tax on listed shares and MF units Receipt of LIC policy taxable except for pure life insurance policy. Deduction for rent paid restricted to Rs.2,000 per month. No distinction between short term and long term assets. General Anti-Avoidance provisions introduced. Rent free accommodation to govt. employees made taxable.

Key pains ….contd. Income from house property. 1. Presumptive rate calculated at 6% p.a. of rateable value when higher than contractual rent. 2. Repairs and maintenance deduction cut to 20% from 30%. 3. For self-occupied property, no deduction for interest and principal loan repayment. 4. Income from letting of machinery, plant, furniture included if letting of building is inseparablefrom the same. Roll over benefits for capital gains tax exemption trimmed to only one residential house. EET method of taxation for savings introduced.

EET model Fair and Equitable model. Progressive Approach for taxation. May lead to double taxation. EET is going to be the most significant change for investment.

Tax Incentives on Saving Schemes Investment OptionCurrent Code Existing Upper Limit Proposed Change Tax investment on saving schemes1,00,0003,00,000 Pension Scheme80CCC Public Provident Fund80C Life Insurance Premium80C ULIP80C NSC80C Infrastructure Investment80C MF (Specific Scheme)80C ELSS80C Term Deposit80C Pension Fund80C Tuition Fees Paid80C Home Loan Repayment80C

If your annual income is 8,00,000 NowPost Code Max. Investment U/S 80C 1,00,0003,00,000 Income Chargeable 3,00,0001,00,000 Tax Payable Individual14,420NIL Women (below 65 years) 11,330NIL Senior Citizen6,180NIL

If your annual income is 4,00,000 NowPost Code Max. Investment U/S 80C 1,00,0003,00,000 Income Chargeable 7,00,0005,00,000 Tax Payable Individual1,17,42034,000 Women (below 65 years) 1,14,33031,000 Senior Citizen1,09,17926,000

If your annual income is 15,00,000 NowPost Code Max. Investment U/S 80C 1,00,0003,00,000 Income Chargeable 14,00,00012,00,000 Tax Payable Individual3,33,7201,24,000 Women (below 65 years) 3,30,6301,21,000 Senior Citizen3,25,4801,16,000

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