1

Chapter XII

Ascertainment of Taxable Income

• Taxable Income: Assessable Income – Entitled Aggregated Allowances

• Entitled Aggregate Allowances

1. Resident Individual/Charitable Institution

• Statutory Allowance (Rs. 300,000/-)

• Allowance for Qualifying Payments

2. For Others:

• Allowance for Qualifying Payments

2

Chapter XII

Ascertainment of Taxable Income

• Order of Priority for Deductions

• Statutory Allowance

• QPs not eligible to be CFd

• QPs eligible to be CFd

• Qualifying Payment Allowance

• Payment enumerated in Section 31(2) of the Act. Reduces the tax payable

• Are two groups of QPs

(Applicable to Individuals & to Companies)

3

Chapter XII

Ascertainment of Taxable Income

• Qualifying Payments

12.08 Approved Charity & Specified Institutions

12.09 Donation to Government or Specified Funds

12.10 Expenditure on Projects in a Development Plan of the Government

12.11 Provident Fund Contributions

12.12 Insurance Premium

12.13 Cost of Film Production

12.15 Construction/ Purchase of a House

12.16 Shares in Venture Capital Companies

12.17 Expenditure on Housing (Repayment of Loan – Capital Portion)

4

Chapter XII

Ascertainment of Taxable Income

• Limitations of QP – Individuals

Description Ability to CF

1

1/3 of AI or Rs. 25,000/- which ever is lower

No

- Cash donations to specified institutions

2Up to Rs. 25,000/- Yes

- Expenses on Govt approved project

3

1/3 of AI or Rs. 25,000/- which ever is lower

No

Insurance Premium (Life/ Medical)

5

Chapter XII

Ascertainment of Taxable Income

• Limitations of QP – Individuals (Contd…)

4

1/3 of AI or Rs. 25,000/- which ever is lower

No

EPF Contribution

5

1/3 of AI or Rs. 25,000/- which ever is lower

No

Money donation to approved charity

3, 4 & 5 in aggregate cannot exceed Rs. 75,000/- or 1/3 of AI

6

• Limitations of QP – Individuals (Contd…)

6

1/3 of AI or Rs. 100,000/- which ever is lower

No

Repayment of (capital portion) of an approved housing loan

71/3 of AI No

Investment in Venture Capital Companies

8Up to Rs. 10 Million Yes (2 Years)

Cost of Film Production

9

100% Yes

Donation to the Government (If non monitory it is limited to Rs. 2 million – excess not allowed)

7

Chapter XII

Ascertainment of Taxable Income

• Limitations of QP – Companies

Description Ability to CF

1/5 of AI

1- Cash donation to approved charity

No

2- Cash donation to Specified Institution

No

3- Exp on government development project

Yes

4- Investment in Venture Capital Companies

No

8

Chapter XII

Ascertainment of Taxable Income

• Limitations of QP – Companies

5Up to Rs. 10 Million Yes (for 2

Years)- Cost of film production

6

100% Yes

Donation to Govt.

(If non monitory it is limited to Rs. 2 million – excess not allowed)

9

Chapter

Computation of Income Tax

• Tax Rates for Individuals (Pg. 370)

• First 240,000/- - 10%

• Next 240,000/- - 20%

• Balance - 30%

• Tax Rates for Companies (Pg. 372)

• Tax Payable/ Balance Tax Payable

• Taxable Income * Rate = Gross Tax

• Less - Tax Credits

Balance Tax Payable

(Tax Credits: PAYE & WHT)