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
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. 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 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— z
(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. B. C. D. E.
z
An Individual A Hindu Undivided Family (HUF) A firm OR Association of Persons (AOP) OR a Body of Individuals ( BOI) A company Every Other Person
Assessees are either 1. Resident in India or
z
2. Non Resident in India 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 Resident All income of the previous year wherever accruing or arising or received by him including incomes deemed to have accrued or arisen. Non-Resident All income accruing, arising to or deemed to have accrued or arisen or received in India. 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.
(i)
(ii) (iii)
Tax Rates
Male:
upto Rs. 1,00,000
Rs.1,00,001 to Rs.1,50,000 Rs.1,50,001 to Rs.2,50,000Rs.2,50,000 & above Female: upto Rs. 1,35,000 Rs.1,35,001 to Rs.1,50,000 Rs.1,50,001 to Rs.2,50,000 Rs. 2,50,000 & above Senior Citizens upto Rs. 1,85,000 Rs.1,85,001 to Rs.2,50,000 Rs.2,50,001/ & above
NIL 10 % 20 % 30 % NIL 10 % 20 % 30 % NIL 20 % 30 %
Surcharge @ 10% only if total income is more than Rs. 10,00,000 Education Cess @ 2% for all.
HUF z z z z z z z z z
Tax rate same as individual Husband & wife can form HUF even if no child Mother & son can form HUF even if father is dead Eldest male is karta. others are co-parceners Can be formed by gift from ancestors who are non-members viz. father, grand father or great grand father Married co-parceners of a parent HUF can form new HUF by partition of the parent HUF Partial partition is not allowed Deduction u/s 80c to 80u is available Share paid out of HUF’s income is tax exempt in the hand of the recipient
Partnership Firm z z
z z
Tax rate = 30%+ surcharge 10% + education cess. Firm to be assessed as partnership firm should prepare written deed, specifying profit sharing ratio and remuneration & interest on capital to partners. Interest on capital to partners should not exceed 12%p.a. 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 z z z z z z
Share of profit from firm on which tax has been paid by the firm is exempt in the hands of the partner. Remuneration & interest on capital allowed to the firm is taxable in the hands of partners as business income. Changes in deed regarding remuneration & interest on capital cannot be retrospective. Deduction U/S 80 C to 80 E & 80GG not allowed. Firm has to file return even if loss. Carry forward of loss only if partners are same. TDS & fringe benefit tax applicable.
AOP z z
z z z
No interest on capital or remuneration allowed. When share of profit of members is indeterminate or any of the members have taxable income, then tax rate = 30%+Surcharge10% + Education cess. When none of the members are having taxable income, tax rate is same as individual. When AOP pays tax at 30%, member’s share is exempt from tax. 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 z
z z z z
Tax rate = 30% + Surcharge 10% + Education cess Foreign company tax rate = 40% + surcharge 2 ½% + education cess (foreign co. is which doesn't pay dividend in India). Deduction u/s 80 c to 80 e & 80gg not allowed. Carry forward of loss only if 51% share holding is same. Return has to be filed even if loss. local authority: tax = 30%. no surcharge. but Education cess applicable.
TRUSTS z z
z z z
Tax for private trust @ 30% + Surcharge 10% + Education cess 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. Business income of a trust by will for the exclusive benefit of dependent relative is allowed. Tax rate for public trust is same as individual. Deduction u/s 80C to 80U allowed.
SOCIETIES z z
z z
Deduction u/s 80C to 80E & 80GG not allowed. tax rate = upto Rs. 10,000 10% Rs.10,000 to Rs. 20,000 20% above Rs. 20,000 30% No surcharge but Education cess is applicable. 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 z z z z z z z
Agricultural income from India. Share of profit of HUF & firm. Income from insurance except keyman & when premium is more then 20% of sum assured. Certain interest e.g. PPF, PF Dividend from domestic companies or mutual funds. Long term capital gain on securities on which securities transaction tax is paid. Income of undertakings in free trade zones and 100% export oriented units 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 z z z z z z
Conveyance reimbursement fully exempt. Conveyance allowance, exempt up to Rs. 800 p.m., no proof of spending needed. 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. Medical Allowance fully taxable. Mediclaim of employees & their family paid by employer fully exempt. Children education allowance. (exempt up to Rs. 100 p.m.p.c. max. 2 children) no bills to be attached. Hostel expenditure allowance. (exempt up to Rs. 300 p.m.p.c. max. 2 children) no bills to be attached.
ALLOWANCES z z
Uniform allowance. (fully exempt) bills to be attached. HRA , lowest of following is exempted: z z z
z
Actual HRA paid. Rent paid over 10% of salary. 50% of salary. (40% in case of non metros)
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
z z z 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. Transfer of movable assets to employees is taxable in the hands of employees. For computers the sale value is taken after 50% depreciation on reducing balance method for each year of use by employer. For cars the sale value is taken after 20% depreciation on reducing balance method for each year of use by employer. For other assets the sale value is taken after 10% depreciation on cost for each year of use by employer.
PERQUISTIES z
z
z z 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. 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. ESOP is exempt from tax except when transferred their will be capital gains tax. no FBT as valuation method not given. medical facility provided by employer exempt but subject to FBT. Educational facility owned by employer exempt up to Rs. 1,000 p.m.p.c.
RETIREMENT BENEFITS z
z z z z 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.) PPF (lumpsum you receive with interest is exempt.) Pension.(commuted is exempt upto certain limit, monthly is taxable as salary income) VRS,exempt upto Rs. 5,00,000 leave salary, exempt only on retirement 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 z z z z z
Illegal income taxable but illegal expenditure not deductible. Income tax, interest on income tax, fees for tax filing & wealth tax, FBT is not an expense. Advertisement to political parties or their souvenir is not allowed as deduction. Penalties for not following any law are not deductible except when in the nature of interest. Reserves for anticipated losses not allowed as deduction. 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 z z z z z z
Keyman insurance. (premium paid deductible as expense, but lumpsum received on maturity or surrender taxable) Employers contribution to superannuation fund subject to 27% of salary including contribution to PF Employees family planning expenditure is allowed. A weighted deduction of 150% for in house or approved scientific research. Capital expenditure for the same is allowed 100% in the year of expense except land purchase. A weighted deduction of 125% for donation to scientific research association or for social or statistical research. 100% deduction on eligible projects for social or economic welfare.
Income From Business z
z z
Preliminary expenditure is amortized in 5 years subject to 5% of project cost e.g. issue of shares or debentures. VRS expenditure is allowed to amortized in 5 years. 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
z z z
Audit is compulsory for business with turnover more than Rs. 40,00,000 or profession with turnover more than Rs. 10,00,000 Due date for audit is 31st Oct Turnover of all businesses or professions of a person to be considered for the limit. Penalty for non compliance = ½% of turnover or Rs. 1,00,000 whichever is less.
Depreciation z z z z z z z z z
Asset is owned by the assessee. Asset is used for business during the year. In partnership firm, firm can take depreciation on property of partner. A leasee is not entitled to depreciation. In hire purchase, buyer can claim depreciation. Only reducing balance method is allowed. A separate schedule of fixed assets is to be kept by companies as rates and method is different. Assets in a block are to be kept together. If asset is used for 180 or more than full year depreciation. otherwise, half year depreciation.
Rates Of Depreciation z z z z z z z z z z z z
BUILDING 10% RESIDENTIAL BUILDING 5% FURNITURE 10% PLANT & MACHINERY 20% COMPUTERS 60% BOOKS 60% CAR 15% CAR ON HIRE 30% MOULDS 30% CONTINERS 50% POLLUTION CONTROL EQUIPMENT 100% 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 z z z z z
Sale proceeds in case of real estate transactions. (sale proceeds = stamp duty valuation) Conversion of capital assets into stock in trade. (sale consideration = market value) In ESOP, even if employee gifts it to somebody tax is payable. (sale consideration = market value). In case of partners, asset transferred to firm. (sale consideration = book value) In case of partnership, firm’s asset transferred to partner. (sale consideration = market value). Advance money forfeited. (reduce from cost in case of final sale.)
Capital Gain z z z z z z z z
In case of gift or succession. (cost to previous owner but loss in indexation benefit). Cost of self generated assets like goodwill, tenancy rights. (cost = nil) Depreciable assets. (cost = wdv. no indexation benefit.) Slump sale. (cost = assets – liabilities. no indexation benefit.) Cost of acquisition is to be indexed by multiplying by index no. of year of sale & dividing by index no. of year of pur. If bought before 1/4/1981. (cost = market value as on 1/4/1981). Cost of improvement after 1/4/1981. (indexed cost) 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 z z z
z
No long term capital gain on shares and mutual funds if securities transaction tax (STT) is paid. Short term capital gain on shares and mutual funds if STT is paid is taxed @ 10%. If STT is not paid, STCG = added in total income. LTCG = 20% with indexation or 10% without indexation. 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. 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
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 200708, only NHAI & REC only. 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
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. 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% adhoc deduction.
Gifts z z z z z z z z z z
Gifts received by individual or HUF only are treated as income. Firm, company , trust, etc. are exempt. Gifts received after 01/09/2004 and if above Rs. 25,000 from a single person are taxable. If gift received from more then one person together above Rs. 25,000 not taxable. If a person donates more than Rs. 25,000 to different persons then not taxable. Gifts in kind are exempt. Gifts received on marriage are exempt. Gift for some consideration exempt. Gift under will or inheritance or death of payer exempt. 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 z z z z z z
80D: mediclaim. Max. Rs. 10,000 EXCEPT Rs. 15,000 if for senior citizens. 80DD: handicapped relative. FIXED BENEFIT OF Rs. 50,000 OR IN CASE OF SEVERE DISABILITY Rs. 75,000 . 80U: self handicapped. FIXED BENEFIT OF Rs. 50,000 OR IN CASE OF SEVERE DISABILITY Rs. 75,000 . 80DDB: medical treatment for specified illness of self or dependent. UPTO Rs. 40,000 EXCEPT FOR SENIOR CITIZEN Rs. 60,000 . 80G: donation allowed 50 & 100% deduction. 80E: interest on education loan for self only (and not children) allowed without limits. 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 z
z z z
80JJA: profits of business of collecting & processing bio degradable waste exempt for 5 years. 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. 80QQB: author of books except text books exempt income upto Rs. 3,00,000 80RRB: royalty received exempt upto Rs. 3,00,000 . Relief u/s 89 in case of arrears or excess gratuity or commuted pension.
Clubbing Of Income z z
z
Transfer of income without transfer of asset is clubbed in the hands of owner of asset. Income from revocable transfer except irrevocable during the lifetime of the transferee is clubbed in the hands of transferor. 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 z z z z z
Business loss is not allowed to adjusted with salary income. Loss from speculation can be setoff only with income from speculation. Loss from owning & maintaining horses will be setoff only against horse racing income. Short term capital loss can be setoff with long term as well as short term capital gain. Long term capital loss cannot be setoff with short term capital gain but only with long term capital gain. Loss from exempted income cannot be setoff against taxable income.
Set-off And Carry Forward z z z z
z
Loss from any head cannot be adjusted with winning from lotteries, betting, etc. All unadjusted losses can be carried forward for 8 years except horse racing loss which can be carried forward for 4 years. Such carried forward loss can be setoff in subsequent years only against same heads. For all losses to be carried forward except loss due to depreciation & house property loss return of income should be filed on time. 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 z
z z z
Tax is payable on payments made for employees and deemed to be made for the employees. Tax payable = 30% + surcharge @ 10% on tax + education cess @ 2% on tax including surcharge = 33.66% of fringe benefit or deemed fringe benefit. No surcharge for co-operative society & local authority. Surcharge @ 2.5% for foreign company. Tax paid by any employer. Exemption to individuals, HUF and charitable trusts registered u/s 12AA or exempt u/s 10(23C). 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
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. 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 z
z
z
Fringe benefit is deemed as given % in the following cases: Entertainment 20% Hospitality is an obligation or courtesy but entertainment is discretionary. Hospitality 20% In case of by hotel business 5% Food in office & non transferable food coupons used only in food joints is exempt. 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 z
z z z
Tax on dividend by domestic company or mutual funds after 01/04/2003. 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. Payable within 14 days of declaration of dividend. If DDTis paid on dividend, it is exempt in the hands of recipients. 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 z z z
z z z
Tax on withdrawal of cash from bank. From 1st June 2005. Applicable to whole India except withdrawals from account in Jammu & Kashmir. 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. Tax @ 0.1% on total cash withdrawn and not only the excess. Withdrawals abroad from Indian account taxable. Withdrawals in India from account abroad exempt.
Banking Cash Transaction Tax (BCCT) z z z z z z z z z
No tax on saving account. No tax on credit card withdrawals. But, debit card withdrawals are taxable except if from a saving account. If multiple withdrawals from same account from different places clubbed. If multiple accounts in same branch not clubbed. All fixed deposits in same branch clubbed. Tax only by scheduled banks. No tax on inter bank transactions. No tax on fixed deposit or recurring deposit transferred to some other account without cash withdrawal.
OTHER TOPICS z z z z z z
FORMS INTESTATE SUCCESSION. WILLS. PRIVATE TRUSTS. PUBLIC TRUSTS. TRANSFER OF IMMOVABLE PROPERTY, BENAMI TRANSACTIONS, ETC.
All the Best
