2. DIRECT TAX BY CA SWATI GODBOLE CA SWATI GODBOLE

3. MEANING DIRECT TAXDIRECT TAX Charged directly on an individual, firm, company etc.Charged directly on an individual, firm, company etc. Tax on earningTax on earning INDIRECT TAX Charged indirectly on everybody, whether rich or poor Tax on purchases

4. QUESTIONS Whose income is charged to tax?Whose income is charged to tax? What is charged to tax?What is charged to tax? When is liability for tax is computed?When is liability for tax is computed? Income earned during what period is taxed?Income earned during what period is taxed? Who is liable to pay tax?Who is liable to pay tax? How is income & tax computed?How is income & tax computed?

5. PERSON – Section 2(31) IncludesIncludes –An Individual –A H.U.F. –A Company –A Firm –An A.O.P/ B.O.I –A Local Authority –Every other artificial juridical person

6. Problems

7. INCOME – Section 2(24) IncludesIncludes –Profit –Dividends –Perquisites –Allowance such as D.A –Profit on sale of Import License –Export Cash Assistance –Refund of Excise or Customs duty –Remuneration received by partner of a firm

8. Contd. Capital GainCapital Gain Profit of any business of insuranceProfit of any business of insurance Winning from lotteries, crossword puzzles, horse race, card games etc.Winning from lotteries, crossword puzzles, horse race, card games etc.

9. Important Points Periodical ReturnPeriodical Return Illegal IncomeIllegal Income Cash or KindCash or Kind Real Income (Remittance)Real Income (Remittance) Mutual Activity- from outside sourceMutual Activity- from outside source

10. Problems

11. ASSESSMENT YEAR The period of Twelve monthsThe period of Twelve months Commencing on the first day of April every yearCommencing on the first day of April every year Ending on MarchEnding on March Year in which income is taxedYear in which income is taxed

12. PREVIOUS YEAR A Financial yearA Financial year Immediately preceding the assessment yearImmediately preceding the assessment year Newly started businessNewly started business –Period beginning with date of setting up the business till March

13. ASSESSEE A personA person –by whom any tax, interest, penalty is due –Whose assessment of income, loss or refund is pending –A deemed assessee – a representative assessee –An assessee in default

14. Problems

15. ASSESSMENT A PROCESSA PROCESS –Determining, Computing –Amount of Income –Fixing the tax dues

16. Capital and revenue expenditure Not defined under the act, but one has to follow the natural meaning & decided cases.Not defined under the act, but one has to follow the natural meaning & decided cases. Acquisition of fixed asset against routine expenditureAcquisition of fixed asset against routine expenditure –Capital expenditure means expenses incurred while purchasing a fixed assets, as against revenue expenditure is recurring or incurred during the normal course of business

17. Contd. Benefit over several years against one yearBenefit over several years against one year –Capital expenditure benefits us for several years (life of the asset) as against revenue expenditure is consumed within a year. Improvement as against maintenanceImprovement as against maintenance –Capital expenditure leads to increasing the efficiency or earning capacity of the fixed asset. Whereas revenue expenditure helps in running the business smoothly.

18. Contd. Lump sum payment as against periodic paymentsLump sum payment as against periodic payments –To decide whether Capital expenditure or revenue expenditure, whether payment was made in lump sum or periodic cannot be deciding factor.

19. Company Section 2(17) defines Company to meanSection 2(17) defines Company to mean –An Indian company or –A body Corporate incorporated under the laws of a foreign country –Any institution, association or a body, whether incorporated or not and whether Indian or non Indian, which is declared by general or special order of the CBDT to be a Company

20. Indian Company Indian Company – Section 2(26)Indian Company – Section 2(26) –A company formed and registered under the Indian Companies act of 1956 –A company formed and registered under any law in force in the state of Jammu and Kashmir –Any institution, association or body which is declared by the board to be a Company under section 2(17)

21. Dividend Section 2(22) Under Section 2(22) – following payments or distribution by a company to its shareholders are deemed as dividend to the extent of accumulated profits of the companyUnder Section 2(22) – following payments or distribution by a company to its shareholders are deemed as dividend to the extent of accumulated profits of the company –Any distribution entailing the release of company’s assets. –Any distribution of debentures, debenture stock, deposit certificates and bonus to preference share holders –Distribution on liquidation of company

22. Contd. –Distribution on reduction of Capital –Any payment by way of loan or advance by a closely held company to a shareholder, holding substantial interest; provided the loan should not have been made in the ordinary course of business and money lending should not be substantial part of the company’s business

23. Total Income & its computation It is-It is- –Gross total Income***** –Less: Permissible deduction u/s.80***** ( section 80 C to 80 U) –Net taxable income***** Tax is calculated on the Net taxable income as per the applicable rates.Tax is calculated on the Net taxable income as per the applicable rates. The net taxable income is rounded off as per the provisions of section 288A and the tax payable is rounded off to as per provisions of section 288BThe net taxable income is rounded off as per the provisions of section 288A and the tax payable is rounded off to as per provisions of section 288B

24. RESIDENTIAL STATUS PERSON ALL ASSESSEE RESIDENT ONLY INDIVIDUAL & H.U.F RESIDENT BUT NOT NOT ORDINARY RESIDENT RESIDENT & ORDINARY RESIDENT NON RESIDENT

25. BASIC CONDITIONS STAY IN INDIA IN PREVIOUS YEARSTAY IN INDIA IN PREVIOUS YEAR 182 DAYS OR MORE182 DAYS OR MORE OROR 60 DAYS IN PREVIOUS YEAR & PRECEDING PREVIOUS 4 YEARS 365 DAYS60 DAYS IN PREVIOUS YEAR & PRECEDING PREVIOUS 4 YEARS 365 DAYS

26. EXCEPTIONS An IndividualAn Individual –Indian citizen, leaves India in previous year, as a crew member of an Indian Ship –OR –For employment An IndividualAn Individual –Who is person of an Indian Origin or Who is an Indian Citizen –Stayed outside India –Comes on a visit to India Does not mean leaving India for taking employment outside India, need not be an unemployed person who leaves India

27. CONDITIONS FOR R & OR Preceding previous 10 years, Resident at-least for two yearsPreceding previous 10 years, Resident at-least for two years ANDAND Stay in India in preceding previous seven years 730 days.Stay in India in preceding previous seven years 730 days.

28. Problems

29. HUF & RESIDENTIAL STATUS ResidentResident –Control & Management of affairs is exercised –Either completely or partially from India R & OR –Status of Karta of HUF? –R & OR –OR –NR or R but NOR

30. Control & Management Refers to Head and Brain – which direct the affairs of the business i.e. the policies, finance, disposal of profits, vital things concerning the management of the businessRefers to Head and Brain – which direct the affairs of the business i.e. the policies, finance, disposal of profits, vital things concerning the management of the business

31. Problems

32. COMPANY/AOP/BOI/FIRM AND RESIDENTIAL STATUS AOP/BOI/FIRM/Local authority/Artificial personAOP/BOI/FIRM/Local authority/Artificial person R & ORR & OR –Control & Management of affairs is exercised –Either completely or partially from India COMPANY Indian always R & OR Any other company –R & OR –Control & Management of affairs is exercised –Completely in India

33. Relationship between residential status & incidence of tax Incidence of tax on a tax payer dependsIncidence of tax on a tax payer depends –on his residential status and –also on the place & time of accrual or receipt of income.

34. Indian Income & Foreign Income Indian IncomeIndian Income –If income is received in India & also accrues in India (deemed to received & accrues in India) –If Income is received in India but accrues outside India –If Income is received outside India but accrues in India Foreign Income –Income is not received in India ( not deemed to receive in India) –Income does not accrue or arise in India.

35. INCOME DEEMED TO RECEIVE AND ACCRUE IN INDIA Examples of Income deemed to receiveExamples of Income deemed to receive –Contribution by the employer to the EPF account in excess of 12% of employee’s salary –Annual interest credited to the employee’s PF account in excess of 9.5% Examples of Income deemed to AccrueExamples of Income deemed to Accrue –All income accruing or arising whether directly or indirectly through / from Any business connection in India or Property in India or Asset or source of income in India or Transfer of Capital asset in IndiaAny business connection in India or Property in India or Asset or source of income in India or Transfer of Capital asset in India

36. Contd. –Salary payable for services rendered in India –Salary received by Indian national from Government in respect of services rendered outside India is deemed to accrue or arise in India –Any dividend paid by an Indian Company outside India –Etc.

37. SCOPE OF INCOME Particulars R & OR R but NOR NRI Income received in India TAXABLETAXABLETAXABLE Accrues in India TAXABLETAXABLETAXABLE Deemed to receive or accrue in India TAXABLETAXABLETAXABLE

38. Contd. Business income controlled wholly or partly from India TaxableTaxable Not Taxable Business / Profession controlled from outside of India Taxable Not Taxable

39. Any Other Taxpayer Type of Income Resident in India Non-resident In India Indian Income Taxable in India Foreign Income Taxable in India Not taxable in India

40. Problems

41. HEADS OF INCOME Income from SalaryIncome from Salary Income from House PropertyIncome from House Property Profits & gains from Business & ProfessionProfits & gains from Business & Profession Capital GainCapital Gain Income from other sourcesIncome from other sources

42. INCOME FROM HOUSE PROPERTY Basic ConditionsBasic Conditions –There should be a House Property –Should be owned by the assessee –Should not be used for the business of the assessee, the income from which is taxable

43. HOUSE PROPERTY MeaningMeaning –Building And / or Land attached to or connected to the building Commercial as well as ResidentialCommercial as well as Residential

44. OWNERSHIP ActualActual DeemedDeemed –Transfer by Husband to wife without adequate consideration (except to leave apart) –Part performance of an agreement

45. TYPES OF H.P FLOPFLOP PLOPPLOP VLOPVLOP DLOPDLOP SOP/UOPSOP/UOP

46. CALCULATION OF INCOME GAVGAV –LESS MUNICIPAL TAX NAVNAV –LESS DEDUCTION U/S. 24 –ADD ADDITION U/S. 25

47. G.A.V FLOP/ PLOP/DLOPFLOP/ PLOP/DLOP R.L.VR.L.V –FAIR RENT –MUNCIPAL VALUTION –STANDARD RENT ACTUAL RENTACTUAL RENT S.O.P/ U. O. P –Nil VLOP –If A.R lower than R.L.V. due to Vacancy

48. EXAMPLE FOR RLV FAIR RENTFAIR RENT –OR MUNCIPAL VALUTIONMUNCIPAL VALUTION WHICH EVER ISWHICH EVER IS HIGHERHIGHER

49. SECTION 24 Standard DeductionStandard Deduction –30% of G.A.V. Interest on Loan borrowed for the H.P.Interest on Loan borrowed for the H.P. –Pre-construction –Post-construction

50. EXAMPLE FOR PRE-CONSTRUCTION INTEREST Loan taken on 1 st April 2000 Rs.10,00,000 @ 12%Loan taken on 1 st April 2000 Rs.10,00,000 @ 12% Construction completed on 2 nd July 2002Construction completed on 2 nd July 2002 Pre construction period=1/4/2000 to 31/3/2002Pre construction period=1/4/2000 to 31/3/2002 Pre construction interest = 2,40,000Pre construction interest = 2,40,000 Deduction over next five years starting from 1/4/2002 to 31/3/2007 (20% each year) in addition of the annual interestDeduction over next five years starting from 1/4/2002 to 31/3/2007 (20% each year) in addition of the annual interest

51. EXAMPLE FOR POST-CONSTRUCTION INTEREST FLOP/PLOP/VLOP/ DLOPFLOP/PLOP/VLOP/ DLOP –Loan taken for construction/ purchase of the property –No Limit SOP/ UOP –Loan taken for construction/purchas e of the property –Rs.1,50,000 (Loan taken after 1-4.99) –Rs.30000 (For prior period) –Limit incl. repair loan repayment

52. SECTION 25 Unrealized RentUnrealized Rent Arrears of RentArrears of Rent

53. CAPITAL GAINS Basic ConditionsBasic Conditions –There must be a Capital Asset. –There must be Transfer of the asset. –Transfer During the previous year. –Due to transfer Gain/ Profit arises.

54. CAPITAL ASSET Meaning Section 2 (14)Meaning Section 2 (14) –Property of any kind Tangible or IntangibleTangible or Intangible –Whether connected to business or not –Held by Assessee Subject to certain exceptionsSubject to certain exceptions

55. Exceptions Stock in trade, consumables or raw material held for business.Stock in trade, consumables or raw material held for business. Agricultural Land in rural areaAgricultural Land in rural area Special bearer bonds 1991Special bearer bonds 1991 6.5 % Gold Bonds 1977, 7% Gold Bonds 1980, National Defence gold bonds6.5 % Gold Bonds 1977, 7% Gold Bonds 1980, National Defence gold bonds

56. Contd. Personal effects of the assessee i.e.Personal effects of the assessee i.e. –Movable property including furniture, wearing apparel, held for personal use of assessee or his dependents –Excluding Gold, Silver, Semi Precious Stone, Real Stone, Metal Jewellery, Ornaments

57. TRANSFER 2(47) Sale or Exchange or RelinquishmentSale or Exchange or Relinquishment Extinguishment (like due to fire, theft etc.)Extinguishment (like due to fire, theft etc.) Compulsory AcquisitionCompulsory Acquisition Conversion into stockConversion into stock Transfer of capital asset by a person to a firm in which he is a partnerTransfer of capital asset by a person to a firm in which he is a partner Distribution of capital assets on dissolution of firmDistribution of capital assets on dissolution of firm

58. PREVIOUS YEAR To decide the previous year Date of Transfer is Important exceptTo decide the previous year Date of Transfer is Important except –In case of receipt of insurance claim – Date of Receipt –In case of conversion of Capital asset into stock – Date of sale of Stock –In case of Compulsory Acquisition – Date of receipt of compensation.

59. TYPES OF ASSETS Short term assetShort term asset –Asset held for less than 36 months –Subject to exception Long term asset –Asset held for more than 36 months –Subject to exception

60. EXCEPTION –With respect to Equity shares/ Pref. shares any Co.Equity shares/ Pref. shares any Co. Securities such as Deb. & others of Govt. listed on Stock ExchangeSecurities such as Deb. & others of Govt. listed on Stock Exchange Units of Unit Trust of India (Quoted or not)Units of Unit Trust of India (Quoted or not) Units of Mutual Funds specified U/s.10 (23D) (Quoted or not)Units of Mutual Funds specified U/s.10 (23D) (Quoted or not) –Held for a period less than 12 months- Short Term otherwise Long Term

61. Problems

62. Computation of Gain Short Term GainShort Term Gain –Full value of consideration –Less: Transfer Exp. –Less: Cost of Acquisition –Less: Cost of Improvement Long term Gain –Full value of consideration –Less: Transfer Exp. –Less: Indexed Cost of Acquisition –Less: Indexed Cost of Improvement

63. Full Consideration Full = GrossFull = Gross Means Sale consideration / Sale price / Value received or receivable on transfer.Means Sale consideration / Sale price / Value received or receivable on transfer. Special casesSpecial cases –Transfer of asset between firm and partners (amount in firm’s book) –Conversion of capital asset into stock (F.M.V. on date of conversion) –Compulsory acquisition (Amount of compensation)

64. Cost of Acquisition Actual CostActual Cost Deemed CostDeemed Cost –Transfer of asset under will/gift/inheritance holding & subsidiary etc. [49(1)] –Amalgamation of companies- cost for amalgamated company –Conversion of Debentures (Cost of Debentures) –Assets received by a member on liquidation (F.M.V.)

65. Cost of Improvement 55(1)(b) Intangible AssetsIntangible Assets –Nil Tangible Asset –Exp. Which are Capital in nature –Incurred to do additions or alterations to the asset –Allowed only if incurred after1 st April 1981.

66. Indexing FormulaFormula –Cost of acq.* index no. of year of transfer/ index no of year of acquisition No indexing possible –Short term gain –Transfer of Debentures or bonds –Transfer by NRI

67. Problems

68. Shares & Capital Gain Initial SharesInitial Shares Right SharesRight Shares Bonus ShareBonus Share Sale of Right to Right SharesSale of Right to Right Shares

69. Depreciable Assets (Sec.50) Depreciation under Income taxDepreciation under Income tax Previous year last day, W.D.V. of block zero [50(1)]Previous year last day, W.D.V. of block zero [50(1)] Block of the assets is empty on last day of previous year [50(2)]Block of the assets is empty on last day of previous year [50(2)]

70. Problems

71. Conversion of assets into stock Date of sale of Stock = year of taxability of gainDate of sale of Stock = year of taxability of gain Full consideration on conversation = Fair market value as on conversationFull consideration on conversation = Fair market value as on conversation For indexing year of conversation to be consideredFor indexing year of conversation to be considered Actual sale of Stock = Business incomeActual sale of Stock = Business income

72. Income from Salary Basic ConditionsBasic Conditions –Master And servant or employer and employee relationship –Contract of employment is important

73. BASIS OF CHARGE Either accrual or receipt (which ever is earlier)Either accrual or receipt (which ever is earlier) Salary due from an existing and/or former employerSalary due from an existing and/or former employer Salary paid or allowed by the employer though not dueSalary paid or allowed by the employer though not due Arrears of salary paid or allowedArrears of salary paid or allowed

74. SALARY COMPONENTS Basic salaryBasic salary Advance salaryAdvance salary Arrears of salaryArrears of salary BonusBonus AllowancesAllowances Leave encashment on retirementLeave encashment on retirement

75. COMPONENTS Retrenchment compensationRetrenchment compensation PensionPension GratuityGratuity Voluntary retirement paymentsVoluntary retirement payments PerquisitesPerquisites Provident fund paymentsProvident fund payments

76. CONCEPT Gross salaryGross salary Deductions such as G.P.F., P.T.Deductions such as G.P.F., P.T. Net salaryNet salary

77. COMPUTATION Gross salaryGross salary Less:- exemption us. 10Less:- exemption us. 10 Less:-deduction us. 16Less:-deduction us. 16 Net salaryNet salary Deduction under chapter VI-ADeduction under chapter VI-A Net taxable salaryNet taxable salary

78. EXEMPTION UNDER SECTION 10 FOR SALARY LEAVE ENCASHMENT 10(10AA)LEAVE ENCASHMENT 10(10AA) GRATUITY 10(10)GRATUITY 10(10) PENSION 10(10A)PENSION 10(10A) HOUSE RENT PAID 10(13A)HOUSE RENT PAID 10(13A) TRANSPORT ALLOWANCE 10(14) –RULE 2BBTRANSPORT ALLOWANCE 10(14) –RULE 2BB LEAVE TRAVEL CONCESSION 10(5)LEAVE TRAVEL CONCESSION 10(5)

79. Leave Encashment Sec.10(10AA) Meaning – Leave SalaryMeaning – Leave Salary – Salary standing / accumulated to the credit of an employee at the time of retirement is Leave Salary –Encashment of the same at the time of retirement is referred to as leave encashment –Tax treatment for the same – next slide

80. Leave encashment – tax treatment Nature of Leave encashment Status of the employee Tax treatment Leave encashment during continuity of employment Government/ Non- government Taxable Leave encashment at the time of retirement or leaving of job Government Fully Exempt Leave encashment at the time of retirement or leaving of job Non- government Fully or partly exempt

81. Non government Employee exemption - detail In case of non-government employee (including an employee of local authority or public sector undertaking – exemption is least of the followings.In case of non-government employee (including an employee of local authority or public sector undertaking – exemption is least of the followings. 1 Period of earned leave to the credit of the employee * average monthly salary 2 10 * average monthly salary 3 Rs.300000 (specified amount by government) 4 Leave encashment actually received

82. Gratuity – Section 10 (10) It is a retirement benefit.It is a retirement benefit. Payable at the time of cessation of employment & on the duration of service.Payable at the time of cessation of employment & on the duration of service. Government employees i.e. Central Government employees, State government employees, employees of local authority but not of statutory corporationsGovernment employees i.e. Central Government employees, State government employees, employees of local authority but not of statutory corporations Tax treatment - next slideTax treatment - next slide

83. Tax treatment Status of the employee Whether Gratuity is taxable Government employee Fully exempt U/s. 10(10)(i) Non Government employee covered by Payment of Gratuity Act, 1972 Fully or partly exempt from tax U/s. 10(10)(ii) Non Government employee not covered by Payment of Gratuity Act, 1972 Fully or partly exempt from tax U/s. 10(10)(iii)

84. Employees covered by Payment of Gratuity Act, 1972 Any gratuity received is exempt to the least of the following:Any gratuity received is exempt to the least of the following: 1. 15 days salary (7 days in case of seasonal establishment) based on salary last drawn for each year of service.(15 days salary * length of service) (6 months & above = full year) (Salary= last drawn salary =Basic + D.A.) (days in month=26) 2.Rs.350000 3. Gratuity actually received

85. Employees not covered by Payment of Gratuity Act, 1972 In case of other employee gratuity received is exempt to the least of the following:In case of other employee gratuity received is exempt to the least of the following: 1.Rs.350000 2. Half month’s Salary for each completed year of service ( only complete year, part of the year to be ignored; salary based on average salary for last 10 months immediately preceding; Salary=Basic + D.A.) 3. Gratuity actually received

86. Pension Pension received from UNO by an employee or his family members is not chargeable to tax.Pension received from UNO by an employee or his family members is not chargeable to tax. Family pension received by the family members of armed forces is exempt under section 10(19).Family pension received by the family members of armed forces is exempt under section 10(19). Family pension received by others (not covered in 2 above) after the death of the employee is taxable in their hands under section 56 – income from other sources.Family pension received by others (not covered in 2 above) after the death of the employee is taxable in their hands under section 56 – income from other sources.

87. Contd. Un-commuted Pension – It is periodical payment of pension- i.e. monthly pensionUn-commuted Pension – It is periodical payment of pension- i.e. monthly pension Commuted Pension – It is the lump sum payment in lieu of periodical payment.Commuted Pension – It is the lump sum payment in lieu of periodical payment. Pension Status of the employee Is it chargeable to tax? Un-commuted Government / non government It is chargeable to tax CommutedGovernment It is fully exempt from tax under 10(10A)(i) Commuted Non government It is fully or partly exempt from tax under 10(10A)(ii)

88. Commuted pension & non government employee Non government employee Gratuity is received 1/3 rd of the pension received is exempt Non government employee Gratuity is not received ½ of the pension received is exempt.

89. HRA Section 10(13A) & Rule 2A Least of the following is exemptLeast of the following is exempt Salary = Basic + D.A.( if terms of employment so provide)Salary = Basic + D.A.( if terms of employment so provide) 1 An amount equal to 50% of Salary (For Metro cities) and 40% of Salary ( For non- Metro cities) 2 The HRA received by the employee in respect of the period during which rental accommodation is occupied by the employee during the previous year 3 The excess of rent paid over 10% of Salary

90. Transport Allowance –10(14) Rule 2BB Allowance is granted to an employee to meet his expenditure for the purposes of commuting between the place of his residence and the place of his dutyAllowance is granted to an employee to meet his expenditure for the purposes of commuting between the place of his residence and the place of his duty It is exempt up to Rs.800 per monthIt is exempt up to Rs.800 per month In case of blind or orthopaedically handicapped it is Rs.1600 per month.In case of blind or orthopaedically handicapped it is Rs.1600 per month.

91. Leave Travel Concession 10(5) Leave Travel assistance extended by an employer for going anywhere in India along with his family is exempt on the basis of the provisions given in table.Leave Travel assistance extended by an employer for going anywhere in India along with his family is exempt on the basis of the provisions given in table. Family includes spouse, children, parents, brothers and sisters (who are dependent on the employee)Family includes spouse, children, parents, brothers and sisters (who are dependent on the employee) Only two journeys in a Block of Four years is exempt.Only two journeys in a Block of Four years is exempt. Amount of exemption is limited to the actual expenditureAmount of exemption is limited to the actual expenditure

92. Contd. Where journey is performed by air Amount of economy class air fare of the national carrier by the shortest route or the amount spent whichever is less Where journey is performed by rail Amount of air conditioned first class rail fare by the shortest route or amount spent whichever is less Where the places of origin & destination of journey are connected by rail and the journey is performed by any other mode of transport Amount of air conditioned first class rail fare by the shortest route or amount spent whichever is less Where the places are not connected by rail & recognized public transport system exist First class or deluxe class fare by the shortest route or amount spent which ever is less

93. Perquisites - Taxable Any residential accommodation given to the employee without charging any rent or at a concessional rateAny residential accommodation given to the employee without charging any rent or at a concessional rate Free supply of gas, electricity or water for household consumptionFree supply of gas, electricity or water for household consumption Wages paid by the employer for the domestic servants employed by the employeeWages paid by the employer for the domestic servants employed by the employee Value of free boarding & lodging expenses.Value of free boarding & lodging expenses. Free educational facilities to the childrenFree educational facilities to the children

94. Contd. Subscription & Bills paid to the club houses by the employerSubscription & Bills paid to the club houses by the employer Vacation at the holiday homes or holiday trips at the cost of the employerVacation at the holiday homes or holiday trips at the cost of the employer Income tax due on salary but paid by employerIncome tax due on salary but paid by employer Use of motor car with or without a driver at the cost of the employer for personal use.Use of motor car with or without a driver at the cost of the employer for personal use.

95. DEDUCTIONS FROM SALARY ENTERTAINMENT ALLOWANCE [16(2)]ENTERTAINMENT ALLOWANCE [16(2)] –If granted by the employer it is included in the Salary income –From A.Y. 2002-03 the allowance deduction is allowed only to Government employees. –The least of the following is exempt Actual amount receivedActual amount received Rs.5000 per yearRs.5000 per year 1/5 th of the basic salary1/5 th of the basic salary

96. DEDUCTIONS FROM SALARY PROFESSIONAL TAX [16(3)]PROFESSIONAL TAX [16(3)] –Tax deducted from the Salary under Maharashtra State Tax on professions, trade, callings and Employment Act 1975.

97. Income from Business & Profession Basic conditionsBasic conditions –Any activity carried out with the intention of profit –Not necessary to carry on business continuously –Activity may be in the nature of business i.e Trade or Commerce or profession or Vocation –An adventure in the nature of Trade, commerce or manufacture

98. Basis of Charge (Section 28) Deals with the classes of Income to be included in the profits and gains of business.Deals with the classes of Income to be included in the profits and gains of business. For e.g.For e.g. –Profits and gains of any business or profession –Any compensation or other payment received or due for loss of agency –Any profit on sale of a license granted under Imports (Control) Order, 1955 etc. –Any interest, salary, bonus, commission or remuneration due to or received by a partner of a firm

99. Contd. –Any sum received under Key-man Insurance Policy including the sum allocated by way of bonus on such policy. –The value of any benefit or perquisite whether convertible into money or not, arising from business or the exercise of profession like present received by a doctor.

100. Business income – computation (Section 29) 1. Determine the profit or loss from business & profession1. Determine the profit or loss from business & profession 2. Do adjustments related to expenses – allowable or not allowable (as per section 30 to 43D)2. Do adjustments related to expenses – allowable or not allowable (as per section 30 to 43D) 3. Do the adjustments related to income - to be considered separately etc.3. Do the adjustments related to income - to be considered separately etc.

101. 3 Statements for Profitability Calculation Income and Expenditure Account {Income and Expenditure Format.xlsx}Income and Expenditure Account {Income and Expenditure Format.xlsx}Income and Expenditure Format.xlsxIncome and Expenditure Format.xlsx Profit & Loss Account {Profit and Loss account format.xlsx}Profit & Loss Account {Profit and Loss account format.xlsx}Profit and Loss account format.xlsxProfit and Loss account format.xlsx Receipts and Payment Account {Receipt and Payment Format.xlsx}Receipts and Payment Account {Receipt and Payment Format.xlsx}Receipt and Payment Format.xlsxReceipt and Payment Format.xlsx

102. Section 37 – General Expenditure Any expenditure other than mentioned in Section 30 – 36 = General expenditureAny expenditure other than mentioned in Section 30 – 36 = General expenditure Allowed as deduction so long as Revenue in natureAllowed as deduction so long as Revenue in nature Incurred for the business of the assesseeIncurred for the business of the assessee Should not be personal in natureShould not be personal in nature Should not be prohibited by lawShould not be prohibited by law E.g. Purchase of raw Material, Wages, Salaries etc.E.g. Purchase of raw Material, Wages, Salaries etc.

103. Expenses expressly disallowed Donations, Charity, PresentsDonations, Charity, Presents Income Tax, advance Tax, Wealth Tax, Estate DutyIncome Tax, advance Tax, Wealth Tax, Estate Duty Legal expenses incurred to defend criminal liabilityLegal expenses incurred to defend criminal liability Fines, penalty resulting from contravention of lawFines, penalty resulting from contravention of law Drawings by the proprietorDrawings by the proprietor Expenses of capital natureExpenses of capital nature Any kind of provision or reserves not allowedAny kind of provision or reserves not allowed

104. Contd. Any expenditure incurred by an assessee on the advertisement in any souvenir, brochure, tract, pamphlet etc published by apolitical party will not be allowed as deduction -Section 37(2B)Any expenditure incurred by an assessee on the advertisement in any souvenir, brochure, tract, pamphlet etc published by apolitical party will not be allowed as deduction -Section 37(2B) Payments made to the relatives of the assessee who is an individual or Director, Partner or a person having substantial interest in the business, which is unreasonable or in excess in the opinion of the I.T.O, will be disallowed.- Section 40A(2)Payments made to the relatives of the assessee who is an individual or Director, Partner or a person having substantial interest in the business, which is unreasonable or in excess in the opinion of the I.T.O, will be disallowed.- Section 40A(2)

105. Contd. Payment made in excess of Rs.20000 otherwise than by a crossed cheque or Draft – Section 40A(3) & 40A (4)Payment made in excess of Rs.20000 otherwise than by a crossed cheque or Draft – Section 40A(3) & 40A (4) –Payment made to a person in a day in excess of Rs.20000 otherwise than by a crossed cheque or draft than such expenditure is fully disallowed. Any provision made for the future liability towards Gratuity is disallowed, however any gratuity that becomes payable during the previous year is allowedAny provision made for the future liability towards Gratuity is disallowed, however any gratuity that becomes payable during the previous year is allowed

106. Deductions allowed only on payment Section 43B Any sum payable by way of Tax, Cess, Duty or fee under any law for the time being in force.Any sum payable by way of Tax, Cess, Duty or fee under any law for the time being in force. Any sum payable by way of contribution to any provident fund or superannuation fund for the welfare of the employee.Any sum payable by way of contribution to any provident fund or superannuation fund for the welfare of the employee. Any sum payable as bonus or commission to employee for services rendered.Any sum payable as bonus or commission to employee for services rendered. Any sum payable as interest on loans & advances taken from a schedule Bank, Public financial institution, State financial corporationAny sum payable as interest on loans & advances taken from a schedule Bank, Public financial institution, State financial corporation

107. Contd. Any sum payable by an employer in lieu of leave at the credit of his employee.Any sum payable by an employer in lieu of leave at the credit of his employee.

108. Approach to solve the problem Which statement of account is given ?Which statement of account is given ? If Profit and Loss account OR Income & Expenditure AccountIf Profit and Loss account OR Income & Expenditure Account –Reverse Approach – Start from Net Profit / Surplus –Add: Disallowed Expenditure –Less: Income to be considered separately –Less: Depreciation as per Income Tax

109. Contd. If Receipt and Payment Statement givenIf Receipt and Payment Statement given –Then Pick Up Approach – –Pick Up Business Income from Receipts side – –Pick Up Business Expenses from Payment side – –Business Receipt Minus Business Expenses – Depreciation as per Income Tax

110. INCOME FROM OTHER SOURCES (SECTION 56 TO 59) Basis of chargesBasis of charges –Income of any kind which is not to be excluded from total income & not chargeable under any of the specified heads = income from other sources – Section 56(1)

111. Section 56 (2) Income chargeable to tax – example:Income chargeable to tax – example: –Dividend (except exempt u/s.10(34) & 10(35) –Winnings from lotteries, crossword puzzles, races including horse races, card games & other games of any sort –Income by way of interest on securities –Any sum of money exceeding Rs.50000 received without consideration i.e. Gift by an individual or HUF from any person on or after 1.4.2006 but before 1.10.2009 the whole of the amount = income from other sources

112. Contd. A sum of money/ property is received by an individual or HUF without consideration on after 1.10.2009 (i.e. Gift) then—A sum of money/ property is received by an individual or HUF without consideration on after 1.10.2009 (i.e. Gift) then— –Any sum of money in cash/ cheque/ draft from one or more persons exceeding Rs.50000 then the entire total value will be chargeable to tax –Immovable Property without consideration and the stamp duty value of which exceed Rs.50000, then Stamp duty value will be chargeable to tax. –Movable property received without consideration Fair Market value of which is exceeding Rs.50000 – whole FMV of the Property = Income

113. Contd. Interest on Bank deposit, NSC, Loans, deposits with companiesInterest on Bank deposit, NSC, Loans, deposits with companies Income from RoyaltyIncome from Royalty Director’s feesDirector’s fees Income from sub letting of propertyIncome from sub letting of property Examination remuneration received by a teacher or lecturer from an universityExamination remuneration received by a teacher or lecturer from an university Rent of Plot of LandRent of Plot of Land Income from undisclosed sources.Income from undisclosed sources.

114. CHAPTER VI-A SECTION 80 C, 80CCC & 80CCD (Limit of Rs.1,00,000)SECTION 80 C, 80CCC & 80CCD (Limit of Rs.1,00,000) –Life insurance Premium Payment, Pension Funds –Contribution to statutory PF, PPF, Recognized PF –Post office Term Deposit – 10 to 15 years account –NSS, NSC- VIII Issue, ULIP of UTI or LIC –Annuity Plan – Jeevan Dhara & Jeevan Akshay –Equity linked saving scheme of any mutual fund –Tuition fees of any 2 children –Principal Repayment in case of housing loan

115. 80-D – Mediclaim Medical Insurance Premium paid by cheque or any mode other than Cash is allowed as deductionMedical Insurance Premium paid by cheque or any mode other than Cash is allowed as deduction The premium is for the policy covering spouse, dependent childern. Even the premium of the policy of parents is also covered.The premium is for the policy covering spouse, dependent childern. Even the premium of the policy of parents is also covered. In case of HUF – policy taken for the members of the HUF is allowedIn case of HUF – policy taken for the members of the HUF is allowed Maximum allowed is Rs.15000 – for Assessee other than Senior citizen For senior citizen it is Rs.20000

116. 80 DD – Deduction in respect of maintenance including medical treatment Deduction available to Resident Individual & HUFDeduction available to Resident Individual & HUF Deduction for expenditure incurred for medical treatment of a dependent person of disabilityDeduction for expenditure incurred for medical treatment of a dependent person of disability A fixed amount of Rs.50000 / Rs.100000 ( Severe disability = 80% & above) is allowedA fixed amount of Rs.50000 / Rs.100000 ( Severe disability = 80% & above) is allowed A copy of certificate issued by medical authority along with return of income a must to claim.A copy of certificate issued by medical authority along with return of income a must to claim.

117. 80 E -Deduction for interest on loan taken for higher education Deduction available to an individualDeduction available to an individual Loan is taken for the purpose of his education or his relativesLoan is taken for the purpose of his education or his relatives Amount of deduction = interest paid out of income chargeable to taxAmount of deduction = interest paid out of income chargeable to tax Period of deduction = from the start of the previous year + 7 assessment year or till interest is paid in full whichever is earlier.Period of deduction = from the start of the previous year + 7 assessment year or till interest is paid in full whichever is earlier.

118. 80 G – Donations Donations made to notified bodies or institute or funds qualifies for deductions.Donations made to notified bodies or institute or funds qualifies for deductions. Four categories – A, B, C, DFour categories – A, B, C, D For A categories – 100 % of amount as deduction without any limitFor A categories – 100 % of amount as deduction without any limit For B categories – 50 % of amount as deduction without any limitFor B categories – 50 % of amount as deduction without any limit For C categories – 100 % of amount as deduction subject to qualifying limitFor C categories – 100 % of amount as deduction subject to qualifying limit For D categories – 50 % of amount as deduction subject to qualifying limitFor D categories – 50 % of amount as deduction subject to qualifying limit

119. 80 U Disable Assessee Deduction for individual – resident in IndiaDeduction for individual – resident in India Individual suffering from disability – action, cerebral palsy, multiple disability blindness etcIndividual suffering from disability – action, cerebral palsy, multiple disability blindness etc Deduction = Rs. 50000 / Rs. 100000 (for severe disability = 80% and above disability) to the assesseeDeduction = Rs. 50000 / Rs. 100000 (for severe disability = 80% and above disability) to the assessee

120. Computation of Total Income

121. THANK YOU