Income Tax

Index

Contents Page Number

Acknowledgement 2

Introduction to Tax 3

Introduction to Income Tax 4

Residential Status 6

Heads of Income 9

Income from Salaries 10

Income from House Property 15

Capital Gains 19

Profits and Gains of Business or Profession 30

Income from Other Sources 55

Advance Payment of Tax 60

Computation of Total Income 61

Computation of Tax Liability on Total Income 64

TDS Rates for Assessment Year 09 – 10 66

Assessment of Firms 72

Assessment of Companies 74

1

Acknowledgement

I owe a great many thanks to a great many people who helped and supported me during

the writing of this book.

My deepest thanks to Prof. (Professor’s Name), the Guide of the project for guiding me

throughout the project and make necessary correction as and when needed.

My deep sense of gratitude to (Name and Position of the Work Guide) support and

guidance. Thanks and appreciation to the helpful people at (Name of the Office where the

Project was done) for their support.

I would also thank my Institution and my faculty members without whom this project

would have been a distant reality. I also extend my heartfelt thanks to my family and well

wishers.

2

Tax:

Tax is nothing but the Money people have to pay to the government which is used to provide

Public Services.

There are two Types of Taxes. They are

1. Direct Tax and

2. Indirect Tax.

Direct tax is the charge that is paid directly to the government by the persons on whom it is

imposed.

Direct Tax is divided into 3 parts,

1. Income Tax,

2. Wealth Tax and

3. Corporate Tax.

Indirect tax is the charge that is paid by one individual at the beginning, but the burden of which

will be passed over to some other individual, who eventually holds the burden.

Indirect Tax is divided into 3 parts,

1. Sales Tax,

2. Excise Duty and

3. Custom Duty.

3

Income Tax Introduction

The direct tax which is paid by individual to the Central Government of India is known as

Income Tax. It is imposed on our income and plays a vital role in the economic growth &

stability of our country. For years the Government is generating revenue through this tax system.

The word 'Tax' originated from the 'Taxation.' which mean 'Estimate.' Hence, 'Income Tax' mean

'Income Estimate,' which helps the government to know the actual economic strength of a

person. It is also a way to set up an economic standard for general people. It helps the

Government to know the distribution of money among country's people.

Income Tax has been in force in different forms since years. If we go through the history of

India, we get relevant information regarding the taxation system of India. In ancient history, it is

mentioned that at about such system which were imposed on the income, expenditure and other

subject. Even information of such is given Manu Smriti and Arthasatra which confirms its

existence at that time.

In modern India, Income Tax came into existence in 1860 with the implementation of first

Income Tax Act. After implementation of this Act, people became aware of the actual meaning

of Income Tax. This act was in force for first five years. After this, in 1865, second Act came

into force. There were major changes in this Act relative to the first. It proved itself as a good

factor for the growth of our economy. With this Act a new concept of Agriculture Income came

into existence.

After this, different new Act was also implemented. The most important of them is the Income

Tax Act, 1961. According to ruling of Income Tax Act, 1961, any person whose salary from any

source of income is more than the maximum limit of unchargeable amount will be liable to pay

Income Tax. There is also a provision of deduction and exemptions in Income Tax, depending

upon the type of assessee, source of income, residential status and investment in saving schemes.

Income tax rates are a matter of chang, which is declared by Ministry of Finance, Government of

India regularly, usually on annual basis.

4

Assessee [Sec. 2(7)]

Assessee means a person by whom income-tax or any other sum of money is payable under the

Act. It includes every person in respect of whom any proceeding under the Act has been taken

for the assessment of his income or loss and the amount of refund due to him. It also includes a

person who is assessable in respect of the income or loss of another or who is deemed to be an

assessee or an assessee in default under any provision of the Act.

Person [Sec. 2(31)] includes

1. An Individual,

2. A Hindu Undivided Family,

3. A Company,

4. A Firm,

5. An Association of Persons or A Body of Individuals,

6. A Local Authority and

7. Every Artificial Juridicial Person not falling within any of the preceding categories.

Assessment Year [Sec. 2(9)]

Assessment Year may be defined as a year in which the income of the previous year is to be

assessed. In some countries it is called “Tax Year”. It always starts on April 1st and ends on

March 31st of the next year.

Previous Year [Sec. 3]

Income of the previous year is taxed in the immediately following assessment year. In some

countries it is called “Income Year”.

In the case of a newly set up business or profession 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

the business/ profession, or as the case may be, the date on which the source of income newly

comes into existence and ending on the immediately following March 31st.

5

The exceptions to the rule that the income of the previous year, is not taxable in the immediately

following assessment year are

1. Income of a Non-Resident from Shipping,

2. Income of Persons leaving India either Permanently, or for a very long time,

3. Income of Bodies formed for a Short Duration,

4. Income of a Person trying to Alienate his Assets with a view to Avoid Payment of Tax

and

5. Income of a Discontinued Business.

Residential Status – General Norms

Assesses are either

1. Resident in India, or

2. Non-Resident in India

However, Resident Individuals and Hindu Undivided Families have to be

1. Resident and Ordinary Resident, or

2. Resident but Not Ordinary Resident.

The Residential status of each assesse is to be determined for each previous year.

Residential Status of an Individual [Sec. 6]

Basic Conditions [Sec. 6(1)]

1. He is in India in the previous year for a period of 182 days or more

2. He is in India for a period of 60 days or more during the previous year and for a period of

365 days or more during the four years immediately preceding the previous year.

6

Additional Conditions [Sec. 6(6)]

1. He has been a resident of India in at least 2 out of 10 previous years immediately

preceding the relevant previous year.

2. He has been in India for a period of 730 days or more during 7 years immediately

preceding the relevant previous year.

Resident and Ordinary Resident

An Individual is said to be a Resident and Ordinary Resident in India in any previous year, if he

satisfies at least one of the basic conditions, and both the additional conditions.

Resident but not Ordinary Resident

An Individual is said to be a Resident but not Ordinary Resident in India in any previous year, if

he satisfies one or more of the basic conditions, but does not satisfy the two additional

conditions.

Non-Resident

An Individual is said to be a Non-Resident in India in any previous year, if he satisfies none of

the basic conditions.

Residential Status in the case of Other Persons

Residential Status of a Hindu Undivided Family [Sec. 6(2)]

Resident and Ordinary Resident

A Hindu Undivided Family is said to be a Resident and Ordinary Resident in India if the control

and management of its affairs are wholly or partly situated in India and if it satisfies both the

additional conditions.

7

Resident but not Ordinary Resident

A Hindu Undivided Family is said to be a Resident but not Ordinary Resident in India if the

control and management of its affairs are wholly or partly situated in India but does not satisfy

the two additional conditions.

Non-Resident

A Hindu Undivided Family is said to be a Non-Resident in India, if its control and management

is situated wholly outside India.

Residential Status of a Firm or an Association of Persons [Sec. 6(4)]

Resident

A Firm or an Association of Persons is said to be a Resident in India, if its control and

management is situated wholly within India during the relevant previous year.

Non-Resident

A Firm or an Association of Persons is said to be a Non-Resident in India, if its control and

management is situated wholly outside India.

Residential Status of a Company [Sec. 6(3)]

Resident

An Indian Company is always a Resident in India

A Foreign Company is said to be a Resident in India, if its control and management is situated

wholly within India during the relevant previous year.

Non-Resident

8

A Foreign Company is said to be a Non-Resident in India, if its control and management is

situated wholly outside India.

Heads of Income [Sec.14]

Income of a person is Computated under the following Five Heads

1. Income from Salaries,

2. Income from House Property,

3. Profits and Gains from Business or Profession,

4. Capital Gains and

5. Income from Other Sources.

The Aggregate Income under these Heads is Termed as “Gross Total Income”.

9

Income From Salaries

Income under heads of salary is defined as remuneration received by an individual for services

rendered by him to undertake a contract whether it is expressed or implied.

Basis of Charge

According to Income Tax Act there are following conditions where all such remuneration are

chargeable to income tax:

1. When due from the former employer or present employer in the previous year, whether

paid or not.

2. When paid or allowed in the previous year, by or on behalf of a former employer or

present employer, though not due or before it becomes due.

3. When arrears of salary is paid in the previous year by or on behalf of a former employer

or present employer, if not charged to tax in the period to which it relates.

Under section 17 of the Income Tax Act, 1961 the following incomes comes under the head of

salary:

1. Basic Salary

2. Dearness Allowance

3. Advance Salary

4. Arrears of Salary

5. Leave Encashment

6. Salary in Lieu of Notice

7. Salary to Partner

8. Fees and Commissions

9. Bonus

10. Gratuity

11. Pensions

12. Annuity from Employer

10

13. Annual Accretion to the Credit Balance in a Recognised Provident Fund

14. Contribution by Central Government towards Pension Fund

15. Retrenchment Compensiation

16. Remuneration for Extra Work

17. Voluntary Payment

18. Salary from a United Nations Organisatin

19. Salary to a Foreign Citizen

20. Payment Received at the Time of Voluntary Retirement

Basic Salary

It is fully taxable under Sec. 15

Dearness Allowance

It is fully taxable under Sec. 15

Advance Salary

It is Taxable in the Year of Receipt

Arrears of Salary

It is Taxable in the Year of Receipt, if not Taxable on due basis

Leave Encashment

In case of a Government Employee, any amount received is fully Exempted [Sec. 10(10AA)(i)].

In case of a Non-Government Employee, the least of the following is Exempted [Sec. 10(10AA)

(ii)]

1. Cash Equivalent of the Leave Salary in respect of the Period of Earned Leave to the

Credit of an Employee only at the Time of Retirement whether on Superannuation or

Otherwise

11

2. 10 months Average Salary

3. Rs.3,00,000

4. Actual Leave Encashment.

Salary in Lieu of Notice

It is Taxable on Receipt basis

Salary to Partner

Not chargeable under Salaries but Taxable under Profits and Gains from Business or Profession.

Fees and Commission

It is fully Taxable under Sec. 15

Bonus

It is fully Taxable under Sec. 15

Gratuity

In case of a Government Employee, any amount received is fully Exempted [Sec. 10(10)(i)].

In case of a Non-Government Employee covered under The Payment of Gratuity Act,1972, the

least of the following is Exempted [Sec. 10(10)(ii)]

1. 15 days’ salary.

2. Rs.3,50,000.

3. Actual Gratuity.

In case of a Non-Government Employee, the least of the following is Exempted [Sec. 10(10AA)

(ii)]

1. Half Month Salary for each Completed year of Service.

12

2. Rs.3,50,000.

3. Actual Gratuity.

Pension

Any Uncommuted Pension is Taxable as Salary under Sec. 15 in the hands of a Government as

well as a Non- Government Employee.

Any Commuted Pension received by a Government Employee is wholly Exempted from Tax

Under Sec. 10(10A).

Any Commuted Pension received by a Non-Government Employee

1. In case where the Employee receives Gratuity, the Commuted value of 1/3 of the Pension

he is normally entitled to receive,

2. In any other case, the Commuted value of ½ of such Pension

Is Exempt from Tax.

House Rent Allowance [Sec. 10(13A) and Rule 2A]

Exemption in respect of House rent Allowance is regulated by Rule 2A.

The least of the following is exempt from tax

1. Amount equal to 50% of salary, where the Residential house is situated at Bombay,

Calcutta, Delhi or Madras; and an amount equal to 40% of salary, where the Residential

house is situated at any other place.

2. Actual House Rent Allowance Received.

3. Excess of Rent paid over 10% of Salary.

Entertainment Allowance [Sec. 10(ii)]

Entertainment Allowance is first included in Salary Income and there after a deduction is given.

13

In case of a Government Employee, the least of the following is deducted,

1. Rs. 5,000

2. 20% of Basic Salary or

3. Actual Entertainment Allowance received

In case of a Non-Government Employee, no deduction is available.

Perquisites [Sec. 17(2)]

Perquisites are any casual emolument or benefit attached to an officer or a position in addition to

salary or wages

There are following perquisites which are tax free:

1. Medical facility

2. Medical reimbursement

3. Refreshments

4. Subsidised Lunch/ Dinner provided by employer

5. Facilities For Recreation

6. Telephone Bills

7. Products at concessional rate to employee sold by his/ her employer

8. Insurance premium paid by employer

9. Loans to employees by given by employer

10. Transportation

11. Training

12. House without rent

13. Residence Facility to member of Parliament, judges of High Court/ Supreme Court

14. Conveyance to member of Parliament, judges of High Court/ Supreme Court

15. Contribution of employers to employee's pension, annuity schemes and group insurance

14

Income From House Property

Under the Income Tax Act the owner of a House property is taxed on the income in the form of

its annual value under the head “Income from House Property”.

Owner

It is the Legal Owner of the house property who is chargeable to tax in respect of property

income.

In the following cases enumerated by Sec. 27, persons are deemed to be owners of the house

property for the purpose of computing income from house property,

1. An individual, who transfers house property otherwise than for adequate consideration to

his or her spouse or to his minor child, is treated as deemed owner of the house.

2. The holder of an impartible estate is treated as deemed owner of the house property.

3. A member of a co-operative society, company or other association of persons, to whom a

building or a part thereof is allotted or leased under a house building scheme of the

society, company or association of persons, is treated as deemed owner of such property.

4. A person who comes to have control over the property in part performance of a contract

of the nature referred to in Sec. 53A of the Transfer of Property Act or by virtue of such

transaction are referred to in clause (f) of Sec. 269UA is deemed as owner of such

property.

Basis of computing Income from a let out house property

Income from a let out house property is determined as

Gross Annual Value XXX

Less: Municipal Taxes XXX

Net Annual Value XXX

15

Less: Deductions

Standard Deduction XXX

Interest on Borrowed Capital XXX

Income from House Property XXX

Gross Annual Value [Sec. 23(1)]

Though the tax under the head “Income from House Property” is a tax on income, yet it is not a

tax upon rent but upon inherent capacity of a building to yield income. The standard selected as a

measure of income to be taxed is Annual Value.

Gross Annual Value is determined as

Reasonable Expected Rent of the Property XXX

Actual Rent Received XXX

The above higher value XXX

Loss due to Vacancy XXX

Gross Annual Value XXX

Reasonable Expected Rent of the Property

Reasonable Expected Rent is deemed to be the sum for which the property might reasonably be

expected to be let out from year to year.

Reasonable Expected Rent of the Property can be determined by taking into consideration the

following factors

1. Municipal Value

2. Fair Rent

16

3. The higher value of (1) and (2) is the Expected Rent

Municipal Value

For collecting Municipal Taxes, the Local Authority makes a periodic survey of all buildings in

its jurisdiction. The value estimated is the Municipal Value.

Fair Rent

This is estimated on the basis of the rent collected for a similar property in a similar location.

Standard Rent

If a property is covered under a Rent Control Act, its reasonable expected rent cannot exceed the

standard rent fixed in the Act.

Actual Rent Received

This is the rent collected in the previous year for which the property is available for letting out

less the unrealised rent.

Municipal Taxes

These taxes are deductable only if

1. They are borne by the owner and

2. They are actually paid by him during the previous year.

Deductions under Sec. 24

There are two deductions available under this Section

1. Standard deduction and

2. Interest borrowed on capital

17

Standard deduction

It is 30% of Net Annual Value irrespective of any Expenditure incurred by the Taxpayer.

Interest borrowed on capital

It is deducted if the capital is borrowed for the purpose of purchase, construction, repair, renewal

or reconstruction of the house property.

Interest on Pre-Construction Period

Interest payable by an assessee in respect of funds borrowed for the acquisition or construction

of a house property and pertaining to a period prior to the previous year in which such property

has been acquired or constructed.

18

Capital Gains

Capital Asset is defined to include property of any kind held by assessee whether fixed or

circulating, movable or immovable, tangible or intangible.

The following assets are excluded from Capital Assets.

1. Any stock-in-trade, consumable stores or raw materials held for the purpose of business

or profession;

2. Personal effects of the assessee;

3. Agricultural land in India.

4. 6.5% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Gold Bonds, 1980

issued by the Central Government.

5. Special Bearer Bonds, 1991; and

6. Gold Deposit Bonds, issued under the Gold Deposit Scheme, 1999.

Types of Capital Assets

Short Term Capital Asset means a capital asset held by an assessee for not more than 36 months

immediately prior to its date of Transfer. However, in a few cases, an asset held for not more

than 12 months, is treated as Short Term Capital Asset.

1. Equity or Preference share of a Company,

2. Securities listed in a Recognised Stock Exchange in India,

3. Units of UTI,

4. Units of Mutual Funds specified under Sec. 10(23D)

5. Zero Coupons Bonds

Any Asset other than a Short Term Capital Asset is regarded as a Long Term Capital Asset.

19

Determining the Period of Holding

Different Situations Period of Holding Calculation

Shares held in a Company-in-Liquidation The Period Subsequent to the date on which

the Company goes into Liquidation shall be

Excluded

Capital Assets which becomes the Property of

the Assessee in the circumstances mentioned in

Sec. 49(1)

The Period for which the asset was held by the

Previous Owner should be Included

Allotment of Shares in Amalgamated Indian

Company in Lieu of Shares held in

Amalgamating Company

The Period of holding shall be counted from

the date of Acquisition of shares in the

Amalgamating Company

Right Shares The Period of holding shall be counted from

the date of Allotment

Right Entitlement The Period of holding shall be counted from

the date of offer to Subscribe to Shares to date

when such Right is Renounced by a Person

Bonus Shares The Period of holding shall be counted from

the date of Allotment

Issue of Shares by the Resulting Company in a

Scheme of Demerger to the Share Holders of a

Demerged Company


the date of Acquisition of Shares in the

Demerged Company

Membership Right held by a Member of

Recognised Stock Exchange


the date of becoming a Member of the Stock

Exchange

20

Sweat Equity Shares Allotted by Employer The Period of holding shall be counted from

the date of Allotment or Transfer

Transactions in Shares and Securities not given above

Date of Purchase Date of Purchase by Broker on behalf of

Investor

Date of Transfer Date of Broker’s note provided such

transactions are followed up by Delivery of

Shares and also the Transfer Deeds

Date of Purchase or Transfer Date of Contract of Sale as declared by the

parties provided it is followed up by actual

Delivery of Shares and the Transfer Deeds

Date of Purchase or Sale of Shares and

Securities purchased in several Lots at

different points of time but Delivery taken off

in one lot and subsequently sold in Parts

The First-in-First-out method shall be adopted

to reckon the Period of the holding of the

Security

Transfer of a Security by a Depository The First-in-First-out method shall be adopted

to reckon the Period of the holding

Computation of Capital Gains

Computation of Capital Gains depends upon the Nature of Capital Assets transferred.

Computation of Short Term Capital Gains

Value of Consideration XXX

Less : Expenditure incurred during Transfer XXX

Less : Cost of Acquisition XXX21

Less : Cost of Improvement XXX

XXX

Less : Exceptions [ Sec. 54B, 54D and 54G] XXX

Short Term Capital Gains XXX

Computation of Long Term Capital Gains

Value of Consideration XXX

Less : Expenditure incurred during Transfer XXX

Less : Cost of Acquisition XXX

Less : Cost of Improvement XXX

XXX

Less : Exceptions [ Sec. 54, 54B, 54D ,54EC,

54ED, 54F and 54G] XXX

Long Term Capital Gains XXX

Benefit of Indexation

In the following cases the Benefit of Indexation is not available

1. Bonds or Debentures

2. Shares in or debentures of an Indian Company acquired by utilizing Convertible Foreign

Exchange

3. Depreciable Assets

22

4. Undertaking or Division transferred by way of Slump Sale

5. Units purchased in Foreign Currency

6. Global Depository Receipts purchased in Foreign Currency

Cost of Acquisition

Cost of Acquisition of an asset is the value for which it was acquired by the assessee. Expenses

of the Capital nature for completing or acquiring the title to the property are includible in the

Cost of Acquisition.

Cost Inflation Index

Cost Inflation Index for any year means such index as the Central Government ma, having regard

to 75% of the average rise in the Consumer Price Index for Urban Non-Manual Employees, for

the immediately preceding previous year to such previous year, by notification in the Official

Gazette, specify in this behalf.

The Central Government has notified the Cost Inflation Index for the purpose of Long-Term

Capital Gain

Financial Year Cost Inflation Index Financial Year Cost Inflation Index

1981 – 82 100 1995 – 96 281

1982 – 83 109 1996 – 97 305

1983 – 84 116 1997 – 98 331

1984 – 85 125 1998 – 99 351

1985 – 86 133 1999 – 2000 389

1986 – 87 140 2000 – 01 406

23

1987 – 88 150 2001 – 02 426

1988 – 89 161 2002 – 03 447

1989 – 90 172 2003 – 04 463

1990 – 91 182 2004 – 05 480

1991 – 92 199 2005 – 06 497

1992 – 93 223 2006 – 07 519

1993 – 94 244 2007 – 08 551

1994 – 95 259 2008 – 09 582

Computation of Indexed Cost of Acquisition and Indexed Cost of Improvement

Indexed Cost may be computed under any of the following Situations

Situation 1:

Capital Asset is Acquired by the Assessee, before 1.4.81

Indexed Cost of Acquisition:

Fair Market Value of the Asset on

1.4.81 X or Cost of Acquisition,

whichever is more

Cost Inflation Index for 1981 – 82

Cost Inflation Index for the year in

which the Asset is Transferred

24

Indexed Cost of Improvement:

Cost of Improvement

X

Cost Inflation Index for the

Improvement Year



Situation 2:

Capital Asset is Acquired by the Assessee on or after 1.4.81


Cost of Acquisition

X


which Assets are Acquired




Cost of Improvement incurred

X


Improvement Year



Situation 3:

Capital Asset is Acquired by the Assessee, before 1.4.81 in one of the

circumstances specified in Sec. 49(1) and originally Acquired by the

Previous Owner before 1.4.81


25


1.4.81 X or Cost of Acquisition

to the Previous Owner, whichever

is more .

Cost Inflation Index for 1981 – 82




Cost of Improvement incurred by

the X Assessee and the

Previous Owner .


Improvement Year



Situation 4:

Capital Asset is Acquired by the Assessee on or after 1.4.81 in one of the


Previous Owner before 1.4.81



1.4.81 or Cost of Acquisition,

whichever is more X


which the asset was first held by

the Assessee




26



Previous Owner .


Improvement Year



Situation 5:

Capital Asset is Acquired by the Assessee on or after 1.4.81 in one of the


Previous Owner on or after 1.4.81


Cost of Acquisition to the

Previous X Owner

.


which the asset was first held by

the Assessee






Previous Owner .


Improvement Year



Computation of Capital Gains for Non-Residents

27

Under the First Provision in Sec. 48, Capital Gain is calculated in Foreign

Currencies in some Cases

Conditions

1. The Taxpayer is a Non-Resident

2. He acquires Shares in an Indian Company utilizing Foreign

Currency

3. The Asset may be a Short Term or Long Term

Special Provisions for Non-Residents

Conditions

1. The Taxpayer is a Non-Resident

2. He has Transferred Specified Asset, Acquired or Purchased with, or

Subscribed to in, Convertible Foreign Exchange

3. Asset is a Long-Term Capital Asset

4. Within Six months of the transfer of the Original Asset, the Taxpayer

has Invested the Whole or Part of Net Consideration in any of the

following

a. Shares in an Indian Company

b. Debentures of an Indian Public Limited Company

c. Deposit with an Indian Public Limited Company

d. Central Government Securities

e. National Savings Certificates VI and VII Issues

Computation of Capital Gain for Self-Generated Assets

Self-Generated Assets Sale

Consi-

deration

Cost of

Acqui-

sition

Cost of

Improve

-ment

Expenses

on Transfer

Capital Gain

Goodwill of a Business, Right Actual Nil Nin Actual Sale Consideration less

28

to Manufacture, Produce or

Process any Article or Right to

Carry on any Business

Expenses on Transfer

Tenancy Rights, Route Permits

and Loom Hours, Trade Mark

or Brand Name associated with

a Business

Actual Nil Actual Actual Sale Consideration less

Cost of Improvement

less Expenses on

Transfer

Cost of Acquisition of Bonus Shares

Sec. 55 has been amended with effect from the Assessment year 1996 – 97

so as to specify that the Cost of Acquisition of any Additional Financial

Asset as Bonus Shares or Security or otherwise which is received without

any payment by the Assessee on the basis of his Holding any financial Asset

shall be taken to be Nil.

The Effect of the Aforesaid Amendment may be summarised as

Cost of Acquisition if Original and bonus

Shares are Transferred after 31.3.95

If Original Shares and Bonus Share are

Acquired before 1.4.81

Original – Actual Cost or Fair Market Value

on 1.4.81, whichever is more

Bonus – Fair Market Value on 1.4.81

If Original Shares are Acquired before 1.4.81,

but bonus Shares are Allotted after 1.4.81

Original – Actual Cost or Fair Market Value

on 1.4.81, whichever is more

Bonus – Nil

If Original and Bonus Shares are Acquired

after 1.4.81

Original – Actual Cost

Bonus – Nil

Capital Gain on Transfer of Right Share and Right Entitlement

29

Cost of Acquisition in Different Situations

Situations Cost of Acquisition

Original Shares Amount actually paid for Acquisition

Rights Entitlement Nil

Rights Shares Acquired by the Taxpayer by

Exercising his Rights Entitlement

Amount actually paid for Acquisition

Rights Shares purchased by the person in

whose Favour the Rights Entitlement has been

Renounced

Purchase Price Paid to Renouncer of rights

Entitlement plus Amount paid to the Company

which has Allotted the Rights Shares.

Tax Charge on Short-term or Long-term Capital Gains

Gross Total Income Excluding Capital Gains XXX

Less: Deductions Permissible under Sec. 80C to 80U XXX

Other Net Income XXX

Income Tax on Other Net Income (A) XXX

Long Term Capital Gain XXX

Income Tax on Long Term Capital Gain Sec. 112 (B) XXX

Short Term Capital Gain XXX

Income Tax for Short Term Capital Gain Sec. 111A (C) XXX

Total Income Tax XXX

Surcharge XXX

Education Cess XXX

Tax Liability XXX

30

Long Term Capital Gain is Taxable at a flat rate of 20%.

In a few cases if Long Term Capital Gain is covered by Sec. 115AB, 115AC,

115AD or 115E, is Taxable at the rate of 10%.

31

Profits and Gains of Business or Profession

The following Incomes are chargeable under the head “Profits and Gains of

Business and Profession.

1. Profits and Gains of any Business or Profession carried on by the

assessee at any time during the previous year. Income earned from

the exercise of any profession or vocation, which involves the idea of

occupation requiring either purely intellectual skill or any manual

skill, is taxable under this head.

2. Any compensation or other payment due to or received by any person

specified by Sec. 28(ii).

3. Income derived by a Trade, Profession or similar Association from

specific services performed for its members.

4. Profit on sale of a licence granted under the Imports (Control) Order,

1955 made under the Imports and Exports (Control) Act, 1947.

5. Cash Assistance received or receivable by any person against Exports

under any Scheme of the Government.

6. Any duty of Customs or Excise repaid or repayable as drawback to

any person against Exports under the Customs and Central Excise

Duties Drawback Rules, 1971.

7. Value of any benefits or perquisites arising from a business or the

Excise of a Profession.

8. Interest, Salary, Bonus, Commission or Remuneration due to or

received by a partner of a firm for such firm.

9. Any sum received for not carrying out any activity in relation to any

business or not to share any Know-how, Patent, Copyright,

Trademark, etc.

10. Any sum received under a Keyman Insurance Policy including the

sum by way of bonus on such policy.

32

11. Any sum received, on account of any capital asset being demolished,

destroyed, discharged or transferred, if the whole of the expenditure

on such capital asses has been allowed as a deduction under Sec.

35AD.

Expenses expressly allowed as deduction

Rent, Rates, Taxes, Repairs and Insurance for Buildings [Sec. 30]

In case of premises taken out in rent, the actual rent paid by the assessee and,

if he has undertaken to bear cost of repairs, the expenditure on repairs are

permissible deductions. In respect of premises owned by the assessee, no

deduction is allowable on account of notional rent; amount spent on current

repairs is however, allowed as deduction. Besides, the amount paid on

account of Land Revenue, Local Rates and Insurance Premium against the

risk of damage or destruction of the business premises are also allowed as

business deduction under this Sec.

Repairs and Insurance of Machinery, Plant and Furniture [Sec. 31]

the Expenditure incurred on Current Repairs, in respect of the Machinery,

Plant and Furniture used for business purpose is allowable as deduction

under this section. If, however, Expenditure is incurred to bring into

existence an advantage of an Enduring nature or a New Capital asset, it

cannot be regarded as an expenditure on current repairs. Similarly the

Premium paid in respect of insurance against risk of damage or destruction

of such asset is an allowable deduction.

Depreciation [Sec. 31]

33

In order to claim Depreciation, an assessee has to fulfil the following

Conditions

1. The asset should be Owned by the assessee. Where, however, an

assessee carries on Business or Profession in a building not owned

but taken on lease, he is entitled to depreciation in respect of the

Capital Expenditure incurred by him after 31.3.70 on the construction

of any structure or any work in relation to the building by way of

Improvement, Renovation or Extension.

2. The asset, in respect of which Depreciation is claimed, must have

been used for the purpose of business. Where, however the asset is

partly used for business or profession and partly used for personal

purposes, a reasonable portion of Depreciation attribute to the

Business user of the asset is allowed.

Disallowance of Depreciation

No Depreciation is allowed under Sec. 37(4)(ii) in respect of a building used

as a Guest House. Any other asset used therein also does not qualify for

Depreciation Allowance.

Where a car is used otherwise than in a business of running it on hire for

tourists:

1. Depreciation is not allowed on the excess of the actual cost over

Rs.25,000 if the car is acquired after 31.3.67 but before 31.3.75; and

2. Depreciation is wholly disallowed if the car is a Foreign car and has

been acquired after 28.2.75 but before 1.4.01.

Block of Assets [Sec. 2(11)]

34

The term Block of Assets has been defined as a Group of Assets falling

within a class of assets, comprising

1. Tangible Assets – Building, Machinery, Plant or Furniture and

2. Intangible Assets – Know-how, Patents, Copyrights, Trademarks,

Licences, Franchises and any other Business or Commercial Rights

of similar nature.

In respect of which the percentage of Depreciation is prescribed

Number Nature of Asset Depreciation Rate

Block 1 Buildings – Residential buildings other than Hotels and

Boarding Houses

5%

Block 2 Buildings – Office, Factory, Godowns or buildings not used for

Residential Purpose

10%

Block 3Buildings-

1. Buildings acquired on or after 1.9.02 for installing

Machinery and Plant forming part of Water Supply

Project or Water Treatment System and which is put to

use for the purpose of Business of providing

Infrastructure Facilities under Sec. 80-IA(4)(i);

2. Temporary Erections

100%

Block 4 Furniture – Any Furniture or Fittings including Electrical

Fittings

10%

Block 5 Plant and Machinery – Any Plant or Machinery and Motor Cars

acquired or put to use on or after 1.4.90

15%

35

Block 6 Ocean-going Ships, Vessels ordinarily Operating on Inland

waters including Speed Boats

20%

Block 7 Plant and Machinery – Buses, Lorries and Taxies used in the

business of running them on hire, Machinery used in Semi-

Conductor Industries, Moulds used in Rubber and Plastic Goods

Factories

30%

Block 8 Plant and Machinery – Aeroplanes – Besides, it includes

Commercial Vehicles which is acquired after 30.9.98 but before

1.4.99 and it is put to use for any period prior to 1.4.99, Life

Saving Medical Equipment

40%

Block 9Plant and Machinery – Containers made of Glass and Plastics

used as Refills, Plant and Machinery which satisfy Conditions of

rule 5(2) an the following:

1. New Commercial Vehicle acquired during 01 – 02 and

put to use before 31.3.02

2. Machinery or Plant used in Weaving, Processing and

Garment sector of Textile Industry which is purchased

under Technology Upgradation Fund Scheme during

1.4.01 and 31.3.04 and put to use up to 31.3.04

3. New Commercial Vehicle which is acquired during

1.1.09 and 30.9.09 and is put to use before 1.10.09

50%

Block 10 Plant and Machinery – Computers including Computer

Softwares. Besides, it includes new Commercial Vehicles

acquired in Replacement of Condemned Vehicle of 15 years of

age and put to use before 1.4.99 or 2000. It also includes books

owned by a Professional. It also includes Gas Cylinders; Plant

used in Field Operations by Mineral Oil Concerns; Direct Fire

60%

36

Glass Melting Furnaces

Block 11 Plant and Machinery – Energy Saving Devices; Renewal Energy

Devices; Rollers in Flour Mills, Sugar Works and Steel Industry

80%

Block 12 Plant and Machinery – Air Pollution Control Equipments; Water

Pollution Control Equipments; Solid Waste Pollution Control

Equipments; Recycling and Resource Recovery Systems;

Machinery acquired and Installed on or after 1.9.02 in a Water

Supply Project or Water Treatment System or for the purpose of

providing Infrastructure Facility; Wooden parts used in Artificial

Silk Manufacturing Machinery; Cinematograph Films, Bulbs of

Studio Lights; Wooden Match Frames; some plants used in

Mines, Quarries, Salt Works; and Books owned by assessee

carrying on a profession or business in running Lending

Libraries

100%

Block 13 Intangible Assets – Know-how, Patents, Copyrights,

Trademarks, Licences, Franchises and any other Business or

Commercial Rights of similar nature.

25%

Written Down Value [Sec. 43(6)]

Written Down Value for the Assessment Year 09 – 10 will be determined as

under

Depreciated Value of the Block of Assets on 1.4.08

XXX

Add: Actual Cost of the Asset acquired during the Previous Year ending

31.3.09 XXX

37

XXX

Less: Money Received or Receivable in respect of the Asset Sold

XXX

XXX

Investment Allowance [Sec. 32A]

It is provided in respect of Eligible Assets and admissible to any Taxpayer

who carries on any Business the Profits and Gains of which are chargeable to

tax in India.

Development Allowance [Sec. 33A]

An Assessee, who carries on the business of Growing and Manufacturing

Tea in India, is entitled to Development Allowance in respect of expenditure

incurred for plantation of tea bushes on any land in India owned by him.

Tea or Coffee or Rubber Development Account [Sec. 33AB]

An Assessee can claim this deduction if the following Conditions are

Satisfied

1. He must be engaged in the Business of Growing and Manufacturing

Tea or Coffee or Rubber in India.

2. He must make the following Deposits.

A. Deposit with National Bank for Agricultural and Rural

Development in accordance with and for the purpose specified in

a scheme approved by the Tea Board or Coffee Board or Rubber

Board

38

B. Deposit in the Deposit Account opened by the Assessee in

accordance with and for the purpose specified in a scheme framed

by the Tea Board or Coffee Board or Rubber Board with the

Previous approval of the Central Government.

3. The aforesaid amount shall be deposited within 6 months from the

End of the Previous Year or Before the Due Date of furnishing the

Return of Income, whichever is earlier.

4. The Accounts of the Taxpayer should be Audited by a Charted

Accountant and the report of the Auditor in Form No. 3AC is to be

filed along with the Return of relevant Assessment Year.

Site Restoration Fund [Sec. 33ABA]

An Assessee can claim this deduction, if the following Conditions are

Satisfied

1. The Taxpayer is engaged in the Business of the Prospecting for, or

Extraction or Production of, Petroleum or Natural Gas or both in

India.

2. The Central Government has entered into an agreement with the

Taxpayer for such Business

3. It must

A. Deposit with SBI any amount in an account maintained by the

Assessee with that bank in accordance with and for the purpose

specified in, a scheme approved by the Government of India in

the Ministry of Petroleum and Natural Gas.

B. Deposit any amount in an account opened by the Assessee in

accordance with and for the purposes specified in the scheme

framed by the Ministry of Petroleum and Natural Gas.

39

4. The aforesaid amount shall be deposited before the end of the

previous year.

5. The Accounts of the Taxpayer should be Audited by a Charted

Accountant and the report of the Auditor in Form No. 3AD is to be

filed along with the Return of relevant Assessment Year.

Reserve for Shipping Business [Sec. 33AC]

An Indian Public Limited Company engaged in the Business of Operation of

Ship can claim this Deduction.

Expenditure on Scientific Research [Sec. 35]

The deduction in respect of expenditure on scientific research may be

grouped as under:

Revenue Expenditure Incurred by an Assessee who Himself carries on

Scientific Research [Sec. 35(1)(i)]

Where the Assessee himself carries on the Scientific Research and incurs

Revenue Expenditure, deduction is allowed for such expenditure only if such

Research relates to his Business. Further, where Salary has been paid to an

Employee engaged in Scientific Research or any Expenditure has been

incurred on purchase of Materials used in Scientific Research such Salary or

Expenditure, paid or incurred after 31.3.73, but within 3 Years immediately

preceding the Commencement of the Business, is deemed to have been paid

40

or incurred in the previous year in which the Business is commenced to the

Extent it is Certified by the Authority prescribed for the purpose under Rule

6.

Contribution to Outsiders [Sec. 35(1)(ii)/(iii)]

Where the Assessee does not himself carry on Scientific Research but makes

Contribution to other Institutions for this purpose, a Weighted Deduction is

allowed of One and One-Fourth times of Payment if:

1. The Payment is made to an Approved Scientific Research

Association which has, as its Object, undertaking of Scientific

Research related or unrelated to the Business of the Assessee.

2. The Payment is made to an Approved University, College or

Institution for the use of Scientific Research related or unrelated to

the Business of the Assessee.

3. The Payment is made to an Approved University, College or

Institution for the use of Research for Social Science or Statistical

Research related or unrelated to the Business of the Assessee.

Amount Paid to an Approved Scientific Research Company [Sec. 35(1)(iia)]

With a view to Encourage Outsourcing of Scientific Research, particularly

by Small Companies which are Handicapped in making Lumpy Investments

for Building In-House Scientific Facilities, has been included.

Conditions

1. The Taxpayer is any Person.

41

2. The Taxpayer has paid any sum to the Company to be used by the

Payee for Scientific Research.

3. The Scientific Research may or may not be related to the Business of

the Taxpayer.

4. The Payee-Company is registered in India.

5. The Payee-Company has as its Main Object the Scientific Research

and Development.

6. The Payee-Company is for the Time being approved by the

Prescribed Authority. An Application shall be submitted for this

purpose in duplicate in Form No. 3CF-III.

7. The Payee-Company fulfils such other Conditions as may be

prescribed. These Conditions are given in Rule 5F.

Amount of Deduction

If the above Conditions are satisfied, then the Taxpayer can claim a

Weighted deduction of 125% of the Amount paid by him to the Payee-

Company.

Payee-Company cannot claim Weighted Deduction under Sec. 35(2AB)

With a view to Avoid Multiple claims of deduction, it has been provided that

the Payee-Company approved under the Provision of Sec. 35(2)(iia) will not

be entitled to claim Weighted deduction to the extent of 150% under Sec.

35(2AB). However, deduction to the extent of 100% of the sum spent as

Revenue Expenditure or Capital Expenditure on Scientific Research which is

available under Sec. 35(1) will continue to be allowed.

Capital Expenditure Incurred by an Assessee who Himself Carries on

Scientific Research [Sec. 35(2)]

42

Where the Assessee incurs any Capital Expenditure on Scientific Research

related to his Business, the Whole of such Expenditure incurred in any

previous year is allowable as deduction for that previous year. The following

should also be kept in mind

1. Where any Capital Expenditure has been Incurred before the

Commencement of the Business, the Aggregate of such Expenditure,

incurred within 3 Years immediately preceding the commencement

of business, is deemed to have been incurred in the previous year in

which the business is commenced

2. The aforesaid deduction is not available in respect of Capital

Expenditure incurred in the acquisition of any Land.

3. If the Asset is Sold without having been used for other purpose,

Surplus or Deduction allowed whichever is Less, is Chargeable to

Tax as Business Income of the previous Year in which the Sale took

place [Sec. 41(3)]

4. Deduction by way of Depreciation is not Admissible in respect of an

Asset used in Scientific Research, either in the year in which the

Capital Expenditure is Incurred or in a Subsequent year.

Contribution to National Laboratory [Sec. 35(2AA)]

Conditions to be Satisfied

1. The Payment is made to

a. National Laboratory

b. University

c. Indian Institute of Technology

d. Specified Person as Approved by the Prescribed Authority.

43

2. The above Payment is made under a specific direction that it should

be used by the aforesaid person for undertaking Scientific Research

Programme approved by thr Prescribed Authority.

Amount of Deduction

If the aforesaid Conditions are Satisfied, the Taxpayer is eligible for

Weighted Deduction which is Equal to One and One-Fourth times of Actual

Payment.

Expenses on In-House Research and Development [Sec. 35(2AB)]

This provides for a Weighted Deduction in respect of expenditure on In-

House Research and Development expenses subject to the following

Conditions

1. The Taxpayer is a Company

2. It is engaged in the Business of Bio-Technology or in the Business of

Manufacture or Production of any Drugs, Pharmaceuticals, Electronic

Equipments, Computers, Telecommunication Equipments, Chemicals

or any other Article or Thing Notified by the Board.

3. It incurs any expenditure on Scientific Research and such expenditure

is of Capital Nature or Revenue Nature

4. The Research and Development Facility is Approved by the

Prescribed Authority. Once it is approved, the Entire Expenditure

Incurred during the Previous Year by the Assessee on development of

such Facility has to be allowed as Weighted Deduction.

5. The Taxpayer has entered into an Agreement with the Prescribed

Authority for Cooperation of such Research and Development

Facility and for Audit of the Accounts maintained for that facility.

Amount of Deduction

44

If all the above Conditions are Satisfied, then a Sum Equal to One and One-

Half times of the expenditure so incurred shall be allowed as deduction.

Expenditure on Acquisition of Patent Rights and Copyrights [Sec. 35A]

For Claiming Deduction, the following Conditions should be Satisfied

1. The Know-How, Secret Formula, Designs and Specifications are

either Patent Rights or Copyrights

2. The Expenditure is of Capital Nature

3. The Expenditure is Incurred on Acquisition of the Patent Rights or

Copyrights

4. Patent Rights or Copyrights are used for the purpose of Business or

Profession of the Taxpayer and

5. The Capital Expenditure is Incurred prior to 1.4.98

If all the aforesaid Conditions are not Satisfied, Then

1. In respect of Capital Expenditure Incurred on or after 1.4.98, one can

Claim Depreciation under Sec. 32

2. In respect of any other Capital Expenditure, no Deduction is available

and

3. In respect of Revenue Expenditure, one can Claim Deduction under

Sec. 37(1).

Expenditure on Know-How [Sec. 35AB]

Deduction under Sec. 35AB is not Available if expenditure is incurred after

31.3.98

Amortisation of Telecom Licence Fees [Sec. 35ABB]

45

Conditions

1. The Expenditure is Capital in Nature

2. It is incurred for acquiring any right to Operate Telecommunication

Services

3. The Expenditure may be incurred either before the Commencement

of Business or at any Time thereafter.

4. The Payment for which has actually been made to Obtain Licence

If all the above Conditions are Satisfied one can Claim Deduction under this

Sec.

Amount of Deduction

The Payment will be allowed as deduction in Equal Installments over the

period starting from the year in which such Payment has been made and

ending in the year in which the Licence comes to an end. It may be noted

that the deduction starts from the year in which Actual Payment of

Expenditure is made Irrespective of the Previous year in which the Liability

for the Expenditure is incurred according to the Method of Accounting

Regularly Employed by the Assessee.

Expenditure on Eligible Projects or Scheme [Sec. 35AC]

Deduction is Available, for Promoting Social and Economic Welfare or

Uplift of the Public.

Who Can Claim Deduction

Assessee To Whom the Payment should be Made Direct Expenditure on

Eligible Project

A Company Deduction is available if the Taxpayer incurs any A Company can also

46

expenditure by way of Payment of any sum to a

Public Sector Company or a Local Authority or

to an Association or Institution Approved by the

National Committee for carrying out any

Eligible Project or Scheme

Directly Incur Expenditure

in respect of Eligible

Project and Claim the

same as Deduction

A Person Other

than a Company

Same as Above Direct Expenditure is not

Permitted

Certificate from the Recipient or Charted Accountant

The Claim for Deduction should be supported by an Audit Certificate

obtained from a Public Sector Company or a Local Authority or to an

Association or Institution Approved by the National Committee to whom the

Payment is to be made

Payment to Associations and Institutions for Carrying out Rural

Development Programmes [Sec. 35CCA]

This provides Deduction of Sums paid by an Assessee to

1. Any Association or Institution to be used for carrying out any

Programme of Rural Development [Sec. 35CCA(1)(a)],

2. Any Association or Institution which has as its Object the Training of

Persons for Implementation of a Rural Development [Sec. 35CCA(1)

(b)],

3. The National Fund for Rural Development set up by the Government

[Sec. 35CCA(1)(c)]

4. The National Urban Poverty Eradication Fund

Conditions for Availing Deduction under Sec. 35CCA(1)(a)

47

1. The Association or Institution has as its Object the undertaking of

Programmes of Rural Development

2. The Association or Institution is for the Time Being Approved by the

Prescribed Authority

3. The Programme of Rural Development for which sums are paid has

been Approved by the Prescribed Authority

4. Where payment is made after 28.2.83, such Programmes involves

work by way of Construction of any Building or Other Structure.

Conditions for Availing Deduction under Sec. 35CCA(1)(b)

1. The prescribed Authority had Approved the Association or Institution

before 1.3.83

2. The Training of Persons for Implementing any Programme of Rural

Development had been started by the Association or Institution

before 1.3.83

Amortisation of Preliminary Expenses [Sec. 35D]

Certain Preliminary Expenses incurred by an Indian Company or a Resident

Non-Corporate Assessee before the Commencement of Business Qualify for

Amortisation. Its Benefit is also available if Preliminary Expenses are

incurred after the Commencement of Business in Connection with extension

of an industrial Undertaking or Setting up a New Unit. The Aggregate

Amount of Expenses cannot Exceed 5% of the Cost of the Project. One Fifth

of the Qualifying Expenditure is allowed as Deduction in each of the 5

Successive Years beginning with the year in which extension is Completed

or the New Industrial Unit commences.

Amortisation of Expenditure Incurred under Voluntary Retirement

Scheme [Sec. 35DDA]

48

It provides that where an Assessee incurs any Expenditure in any previous

year by way of payment of any sum to an Employee in connection with his

Voluntary Retirement under any scheme of Voluntary Retirement One Fifth

of the Amount so paid shall be deducted in Computing the Profits and Gains

of the Business for the Previous Year and the Balance shall be Deducted in

Equal Installments for each of the 4 Immediately Succeeding Previous

Years.

Insurance Premium [Sec. 36(1)(i)]

The amount of any Premium paid in respect of insurance against risk of

Damage, or Destruction of Stocks or Stores, used for the purpose of Business

or Profession, is allowable as deduction.

Bonus or Commission to Employees [Sec. 36(1)(ii)]

This is Allowable as a deduction provided it is not payable to him as Profit

or Dividend if it had not been Payable as Bonus or Commission. The

deduction is available in the Payment Year.

Interest on Borrowed Capital [Sec. 36(1)(iii)]

Interest paid on Capital Borrowed for the purpose of Business or Profession

is allowable as deduction. If Capital is borrowed for acquiring a Capital

Asset, then Interest Liability pertaining to the period till the Asset is put to

use cannot be allowed as a deduction.

Discount on Zero Coupon Bonds

Discount on Zero Coupon Bond is deductible on Pro Rata Basis.

49

Employer’s Contribution to Recognised Provident Fund and Approved

Superannuation Fund [Sec. 36(1)(iv)]

Employer’s Contribution to Recognised Provident Fund and Approved

Superannuation Fund is allowable as deduction to the Limits laid down.

Contribution towards Approved Gratuity Fund [Sec. 36(1)(v)]

Employer’s Contribution towards Approved Gratuity Fund created by him

for the Benefit of his Employees under an Irrecoverable Trust is allowable as

deduction.

Employee’s Contribution to Staff Welfare Schemes [Sec. 36(1)(va)]

Deduction in respect to any sum received by the Taxpayer as Contribution

from his Employees towards any Welfare Fund of such Employees is

allowable as deduction only if such sum is credited by the Taxpayer to the

Employee’s Account in the Relevant Fund on or before the Due Date.

Allowance for Animals [Sec. 36(1)(vi)]

In respect of Animals which are used for the purpose of Business or

Profession and have died or have become Permanently useless, the

Difference between the Actual Cost of the Animals to the Assessee and the

Amount Realised in respect of Carcasses or Sale of Animals is Allowed as a

deduction.

Bad Debts [Sec. 36(1)(vii)]

Amount of any Debt or part thereof is allowed as Deduction subject to the

following Conditions

1. The Debt has been taken into account in computing the Income of the

Assessee of the previous year or of an earlier previous year, or

50

represents money lent in Ordinary Course of Business of Banking or

Money-Lending which is carried on by the Assessee.

2. It has been written off as Irrecoverable in the Accounts of the

Assessee of that previous year.

Transfer of Special Reserve [Sec. 36(1)(viii)]

Amount of Deduction

The Lowest of the following Amounts is Deductable

1. The Amount Transferred to the Special Reserve Account during the

previous year.

2. 20% of the Profits derived from the Business Activities computed

before claiming Deductions.

3. 200% of Paid Up Share Capital and General Reserve as on the last

day of the previous year minus the Balance of the Special Reserve

Account on the First Day of the previous year.

Family Planning Expenditure [Sec. 36(1)(ix)]

Any Bona Fide expenditure Incurred by the Company for the purpose of

promoting Family Planning among its Employees is allowable as deduction.

Contribution towards Exchange Risk Administration Fund [Sec. 36(1)

(x)]

Contribution made by a Public Financial Institution towards Exchange Risk

Administration Fund is allowable as deduction.

Deduction of Y2K Expenses [Sec. 36(1)(xi)]

This is applicable only if expenditure is incurred by an Assessee during 99 –

2000.

51

Expenditure Incurred by Entitles Established under Statutory Act [Sec.

36(1)(xii)]

Any expenditure incurred by a Corporation or a Body Corporate constituted

or established by a Central, State or Provincial Act for the Objects and

purposes Authorised by the Act under which such Corporation was

Constituted or established shall be allowed as deduction.

Contribution to Credit Guarantee Trust Fund [Sec. 36(1)(xiv)]

A Public Financial Institution can claim deduction in respect of to a Notified

Credit Guarantee Trust Fund for Small Industries.

Advertisement Expenditure [Sec. 37(2B)]

No Allowance is available in respect of expenditure incurred by an Assessee

on Advertisement.

General Deductions [Sec. 37]

Any expenditure not Covered by Sec. 30 – 36 is deductible under Sec. 37,

provided the following Conditions are Satisfied

1. It should be in respect of a Business carried on by the Assessee

2. It should have been Laid Out or Expended Wholly and Exclusively

for the purpose of the Business

3. It must have been incurred during the Previous Year

4. It should not be in the Nature of Capital Expenditure or Personnel

Expenditure of the Assessee and

5. The Expenditure should not have been incurred for any purpose

which is an Offence or is Prohibited by any Law.

52

Amounts expressly disallowed under the Act

The following expenses are disallowed by the act while computing income

chargeable under the head “Profits and Gains of business or profession”.

Besides these provisions, no deduction is permissible in respect of any

expenditure or allowance under section 28 to 44C in respect of income

referred to in sections 115A, 115AB, 115AC, 115BBA and 115D.

Amounts not deductible under section 40

In the case of any assessee, the following expenses are expressly disallowed

Interest, Royalty, Fees for Technical Services Payable Outside India

[SEC. 40(a)(i)]

If the following three conditions are satisfied the assessee is supposed to

deduct tax at source (TDS) under section 195

1. The amount paid is interest, royalty, fees for technical services or

other sum

2. The aforesaid amount is chargeable to tax under the Act in the hands

of the recipient

3. The aforesaid amount is paid or payable

a. Outside India to any person

b. In India to a non-resident.

Fringe Benefits Tax

Any sum paid on account of fringe benefits tax is not deductible.

Income Tax [Sec. 40(a)(ii)]

53

Any sum paid on account of income tax is not deductible. Similarly, any

interest or penalty or fine for non-payment or late payment of income-tax is

not deductible. This rule is applicable whether income-tax is payable in India

or outside India.

Wealth –Tax [Sec. 40(a)(iia)]

Any sum paid on account of Wealth-Tax under the Wealth Tax -Act, 1957,

or tax of a similar nature chargeable under any law outside India is not

deductible.

Salary Payable Outside India Without Tax Deduction [Sec. 40(a)(iia)]

Conditions

1. The payment is chargeable under the head “Salary” in the hands of

the recipient

2. It is payable

a. Outside India to any person resident or non-resident

b. In India to a non-resident

3. Tax has not been paid to the Government nor deducted at source

under the Income –Tax Act

If the aforesaid conditions are satisfied, then the payment is not allowed as

deduction.

Provident Fund Payment Without Tax Deduction at Source [Sec. 40(a)

(iv)]

Any payment to a provident fund is not deductible if the assessee has not

made effective arrangements to secure that tax shall be deducted at source

54

from any payments made from the fund which are chargeable to tax under

the head Salaries.

Tax on Perquisite paid by the Employer [Sec. 40(a)(v)]

Provisions

1. The employer provides non-monetary perquisites to employees

2. Tax on non-monetary perquisites is paid by the employer

3. The tax so paid by the employer is not taxable in the hands of

employees by virtue of section 10 (10CC)

4. While calculating income of the employer, the tax paid by the

employer on non-monetary perquisites is not deductible under section

40(a)(v)

Amounts not deductible in respect of payment to relatives [Sec. 40A(2)]

Any expenditure incurred by an assessee in respect of which payment has

been made to the persons mentioned is liable to be disallowed in computing

business profit to the extent such expenditure is considered to be excessive or

unreasonable, having regard to the fair market value of the goods or services

or facilities, etc.

Amounts Not Deductible in respect of Expenditure Exceeding Rs.20,000

[Sec.40A(3)]

If an assessee incurs any expenditure in respect of which payment in excess

of Rest.20,000 is made otherwise than by an account payee cheque or an

account payee bank draft, 100 percent of such expenditure will not be

allowable as deduction. Rule 6DD, however prescribes the case and

circumstances in which payment in excess of Rs.20,000 may be made

otherwise than by an account payee cheque or an account payee bank draft

55

without attracting the disallowance. Even payment made for purchase of

goods falls with in the expression expenditure occurring in this section

Exceptions

1. Payments made to banking and other credit institutions, such as the

Reserve Bank of India , commercial banks in the public and private

sectors, co-operative banks or land mortgage bank, primary

credit/agricultural credit societies, Life Insurance Corporation of

India

2. Payment made to government if under the rules framed by it such

payment is required to be made in legal tender, such as a payment of

direct taxes, customs duty, excise, railway freight, sales tax, etc

3. Payment through the banking system, e.g. letters of credit, mail or

telegraphic transfer, book adjustment in the same bank or between

one bank and another and bills of exchange payable to a bank, use of

electronic clearing system through a bank account , credit card and

debit card

4. Payment made by book adjustment by an assessee in the account of

the payee against money due to the assessee for any goods supplied

or services renderd by him to the payee

5. Payment to cultivator, grower, or producer in respect of the purchase

of agricultural or forest produce or product of animal husbandry or

dairy or poultry farming or fish or fish products or products of

horticulture or apiculture.

Provision for payment of gratuity under section 40A(7)

No deduction is allowed in computing business income in respect of a mere

provision made by the assessee in his books of account for the payment of

gratuity to his employees on retirement or termination of employment or fro

any other reason. The provision made for the payment of sums by way of

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contribution towards an approved gratuity fund or for the purpose of making

any payment on account of gratuity that has become payable during the

previous year is, however eligible for deduction

Contribution to non-statutory funds under section 40A (9)

No deduction is allowed in the computation of taxable profits in respect of

any sum paid by the assessee as an employer towards the setting up or

formation of or as contribution to any fund, trust, company , association of

persons , body of individuals, society registered under the Societies

Registration Act or other institution for any purpose except where such sum

is paid or contributed to a recognized provident fund or an approved gratuity

fund or an approved superannuation fund or for the purposes and to the

extent required by or under any other law

Deemed profits chargeable to tax as business income

By virtue of section 41, the following receipts are chargeable to tax as

business income not withstanding that the business or profession to which

the receipts relate ceased to be in existence in the year in which they are

received

Recovery against any deduction [Sec. 41(1)]

Recovery against any deduction is applicable if the following conditions are

satisfied

1. In any of the earlier years a deduction was allowed to the taxpayer in

respect of loss, expenditure or trading liability incurred by the

assessee.

2. During the current previous year, the taxpayer

a. Has obtained a refund of such trading liability

57

b. Has obtained some benefit in respect of such trading liability by

way of remission or cessation thereof

If the above two conditions are satisfied the amount obtained by such

persons shall be deemed to be profits and gains of business or profession

accordingly chargeable to tax as income of that previous year.

Balancing charges [Sec. 41(2)]

If the Sale Consideration is more than the Written Down Value, then the Tax

Treatment of Surplus is as follows

1. The Surplus Amount which is Equal to the Amount of Depreciation

already Claimed, is Taxable as Balancing Charge as Business Income

2. The Remaining Surplus is Taxable under “Capital Gains”.

Sale of assets used for scientific research [Sec .41(3)]

Where any capital asset used in scientific research is sold without having

been used for other purpose and the sale proceeds, together with the amount

of deduction allowed under section 35, exceeds the amount of the capital

expenditure, such surplus or the amount, whichever is less, is chargeable to

tax as income in the year in which the sale took place.

Recovery of bad debts [Sec. 41(4)]

Where any bad debt has been allowed as deduction under section and the

amount subsequently recovered on such debt is greater than the difference

between the debt and the deduction so allowed, the excess realisation is

chargeable to tax as business income of the year in which the debt is

recovered.

Amount withdrawn from special reserve [Sec. 41(5)]

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Where any amount is withdrawn from any reserve, it will be chargeable to in

the year in which the amount is withdrawn, regardless of the fact whether the

business is in existence in that year or not.

Maintenance of accounts by persons [sec.44aa]

Specified Profession

Legal, medical, engineering, architectural, accountancy, technical

consultancy, or interior decoration or any other notified profession are

specified professions for this purpose “authorised representative” means a

person , who represents any other person, on payment of any fee of

remuneration, before any tribunal or authority constituted or appointed by or

under any law for the time being in force, but does not include an employee

of the person so represented or a person carrying on legal profession or a

person carrying on profession of accountancy.

Non-Specified Profession

A non specified profession is a profession other than a specified profession

mentioned above.

Requirement of compulsory maintenance of books of account

The requirement of section44aa and the rule 6f for compulsory maintenance

of books of account may be summarised by grouping different taxpayers in

the following group

Category A

Persons carrying on a specified profession whose gross receipts in the

profession do not exceed rs 150000 in any of the three years immediately

preceding the previous year.

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Persons coming under this category are required to maintain such books of

account and other documents as may enable the assessing officer to compute

their taxable income under the income tax act.

Category B

Persons carrying on a specified profession whose gross receipts in the

profession exceed rs150000 in all the three years immediately preceding the

previous year.

Persons coming in this category are required to maintain such books of

account.

Category C

Persons carrying on s non specified profession or a business whose income

from such business or profession does not exceed rs 120000 or the total

sales, turnover or gross receipts thereof are not in excess of rs 1000000 in all

the three years immediately preceding the previous year.

Persons coming under this category are not required to maintain any books

of account.

Category D

Persons carrying on a non specified profession or a business whose income

from such business or profession exceeds rs120000 or the total sales,

turnover, or gross receipts thereof are in excess of rs1000000 in any of the

three years immediately preceding the previous year.

Persons falling under this Category are required to maintain such Books of

Account and Other Documents as may enable the Assessing Officer to

compute their Taxable Income.

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Specified Books of Account

1. a cash book

2. a journal, if the accounts are maintained according to the mercantile

system of accounting

3. a ledger

4. carbon copies of copies of bills exceeding rs 25, issued by the person

and carbon copies or counterfoils of machine numbered or otherwise

serially numbered receipts issued by the person

5. original bills whenever issued to the person and receipts in respect or

expenditure incurred by the person or, where such bills and receipts

are not issued and the expenditure incurred does not exceed fifty

rupees, payment vouchers prepared and signed by the person.

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Income From Other Sources

Basis of Charge [Sec. 56]

This is the residual head of charge of income. Where a source of income

does not specifically fall under any one of the other heads of income viz.

Salaries, Income from House Property, Profits and Gains of Business or

Profession, Capital gains, such income is to be brought to charge under sec.

56 under the head ‘Income from other sources’.

This residuary head of income would be invoked only if all the following

conditions are fulfilled

1. There is a taxable income.

2. The income is not exempt from tax.

3. Income should not fall under any of the heads of income viz. salaries,

income from House Property, Profits and gains of Business or

Profession and capital gains.

Chargeable Income [Sec. 56(2) ]

As per Sec. 56(2), the following incomes are expressly stated to be

chargeable to tax under the head “Income from other sources”—

1. Dividend [Sec. 56 (2) (i)]

2. Any winnings from lotteries, crossword puzzles, races including

horse races, card games and other games of any sort or form,

gambling or betting of any form or nature whatsoever [ Sec.56(2)(ib)]

3. Any sum received by assessee from his employees as contributions to

any provident fund or superannuation fund or any fund set up under

the provisions of the Employees’ State Insurance Act, 1948 or any

other fund for the welfare of the employees, if such income is not

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chargeable under the head “Profits and gains of Business or

Profession”- [Sec. 56(2)(ic)].

4. Income by way of interest on securities, if it is not chargeable as

Profits and gains of business i.e. where securities are held as

investments- Sec. 56(2)(id).

5. Income from machinery, plant or furniture belonging to the assessee

let on hire, if the income is not chargeable to income-tax under the

head, Profits and gains of Business or Profession - Sec. 56(2)(ii).

6. Income from letting of machinery, plant or furniture, if such income

is not chargeable under the head “Profits and gains of Business or

Profession”- Sec. 56(iii)

7. Any sum received under “Key man insurance policy including bonus,

if not charged under the head “Profits and gains of Business or

Profession”- Sec. 56(iv)

8. Gifts aggregating to more than Rs. 50,000 in a year on or after 1st

Day of April, 2006 - Sec. 56(vi)

Some important items of income stated above are hereunder discussed:

Dividend [Sec. 56(2)(I)]

Dividend means the sum paid to or received by a shareholder proportionate

to his shareholding in a company out of the total sum distributed.

The term “Dividends” includes deemed dividends of the following nature :

1. Any distribution of accumulated profits entailing the release of

company’s assets- Sec. 2(22)(a).

2. Any distribution of debenture stock, deposit certificates to

shareholders and bonus to preference shareholder- Sec. 2(22)(b).

3. Any distribution to shareholders on liquidation of company to the

extent to which the distribution is attributable to the accumulated

profits of the company, other than distribution in respect of any share 63

issued for full cash consideration where the shareholder is not entitled

to participate in the surplus assets in the event of liquidation- Sec.

2(22)(c).

4. Any distribution on reduction of share capital to the extent to which

the company possesses accumulated profit except a distribution in

respect of any share issued for full cash consideration where the

shareholder is not entitled to participate in the surplus asset in the

event of liquidation — Sec. 2(22)(d).

5. Any payment by way of advance or loan by a closely held company

following :

a. a shareholder, being a person who is the beneficial owner of

shares (other than shares entitled to a fixed rate of dividend)

holding not less than 10% of voting power ; or

b. any concern in which such shareholder is a member or partner

and in which he has a substantial interest; or

c. a person acting on behalf or for the individual benefit of any

such shareholder - Sec. 2(22)(e)]

Employee’s Contributions to Provident Fund [Sec. 56(2)(ic)]

It has to be remembered that any sum received by the assessee from his

employees as contributions to any provident fund or superannuation fund or

any fund set up under the provisions of the Employees’ State Insurance Act,

1948 or any other fund for the welfare of such employees is income in the

hands of the assessee and is chargeable as income from other sources if not

chargeable as Profits and gains on Business or Profession [Sec. 2(24)(x)]

However, the tax payer is entitled to deduction of the sum of such

contributions received from his employees if such sum is credited by the

taxpayer to the employee’s account in the relevant fund on or before the due

date. Here, the due date means the date by which the assessee is required as

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an employer to credit an employees’ contribution to the employees’ account

in the relevant fund under an Act, rule, etc. issued in that behalf [Sec. 36(1)

(va)].

Therefore, any sum received by the assessee from his employees as

contributions to any fund as aforesaid and is not deposited or deposited

belatedly to the employee’s account, it becomes income of the assessee.

Interest on Securities

Interest on securities is chargeable as income from other sources if it is not

chargeable as Profits and gains of Business or Profession, i.e. when the

securities are held as investment.

Basis of Charge

If the books of account are maintained on cash basis the interest on securities

will be chargeable on receipt basis. However, where books of account are

maintained on mercantile system or where no method of accounting is

regularly employed by the assessee, such interest will be chargeable on

“accrual basis” i.e. as the income of the Previous Year in which such interest

is due to the assessee – second proviso to sec. 145(1).

Interest on securities exempt

The interest on securities of the following description is exempt from tax –

1. Interest on notified securities, bonds or certificates issued by the

Central Govt.

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2. Interest to an individual or a HUF on 7% Capital investment Bond or

on notified Relief Bonds.

3. Interest to non-resident Indians on notified bonds.

4. Interest on securities held by issue Department of the Central Bank of

Ceylon.

5. Tax planning - Taxpayer is entitled to the deduction of any

reasonable sum paid as commission or remuneration to a banker or

any other person for the purpose of realizing interest on securities.

Similarly, he will also be entitled to the deduction of interest on

capital borrowed for investing in securities.

Income from Inseparable Letting of Machinery, Plant or Furniture with

Building

If an assessee lets on hire machinery, plant or furniture and also buildings

and the letting of building is inseparable from the letting of machinery, plant

or furniture, the income from such letting would be chargeable to tax under

the residuary head where it is not chargeable under the ‘Profits and gains of

Business or Profession”.

Gift

Now gift received during the previous year shall be included in the income if

the aggregate of the gifts received exceeds Rs. 50,000.

However, the following gifts are not included in taxable income, viz.

1. From any relative; or

2. on the occasion of the marriage of the individual; or

3. under a will or by way of inheritance; or

4. in contemplation of death of the payer; or

5. from any local authority as defined in the Explanation to clause (20)

of section 10; or

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6. from any fund or foundation or university or other educational

institution or hospital or other medical institution or any trust or

institution referred to in clause (23C) of section 10; or

7. from any trust or institution registered under section 12AA.

For this purposes of this clause, “relative” means—

1. spouse of the individual;

2. brother or sister of the individual;

3. brother or sister of the spouse of the individual;

4. brother or sister of either of the parents of the individual;

5. any lineal ascendant or descendant of the individual;

6. any lineal ascendant or descendant of the spouse of the individual;

7. spouse of the person referred to in clauses (ii) to (vi).

In respect of gifts from relatives, although exempt from tax, in respect of

income earned from such a gift, provisions relating to clubbing of income

apply in certain cases e.g. gift received from spouse and father-in-law.

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Advance Payment of Tax

Advance Tax is Payable as follows

A Corporate Assessee A Non-Corporate Assessee

On or Before June 15 of the

Previous Year

Up to 15% of Advance Tax

Payable

-

On or Before September 15 of

the Previous Year


Payable


Payable

On or Before December 15 of

the Previous Year


Payable


Payable

On or Before March 15 of the

Previous Year


Payable


Payable

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Computation of Total Income

Income from Salary

Basic Salary

XXX

Allowances

XXX

Perquisites

XXX

Profits

XXX

Gross Salary

XXX

Less : Deductions u/s 16

Entertainment Allowances

XXX

Professional Tax

XXX XXX

Income from House Property

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Gross Annual Value

XXX

Less: Municipal Taxes

XXX

Net Annual Value

XXX

Less: Deductions u/s 24

Standard Deduction (30% on N.A.V.)

XXX

Interest on Capital Borrowed

XXX XXX

Profits from Business or Profession

Business

Net Profit as per Profit and Loss A/c

XXX

Add: Debit Side Disallowed Expenses

XXX

Income Allowed but not Included

XXX

Less: Credit Side Disallowed Income

XXX

Expenses Allowed but not Included

XXX

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Depreciation According to Income Tax Act

XXX XXX

Profession

Professional Receipts

XXX

Less: Professional Payments

XXX XXX

Income from Capital Gains

Short Term

Sale Value

XXX

Less: Expenses on Sale

XXX

Net Consideration

XXX

Less: Cost of Acquisition

XXX

Cost of Implantation

XXX

Short Term Capital Gain

XXX

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Less: Exemption u/s 54B, 54D, 54G

XXX XXX

Long Term

Sale Value

XXX

Less: Expenses on Sale

XXX

Net Consideration

XXX

Less: Cost of Acquisition

XXX

Cost of Implantation

XXX

Long Term Capital Gain

XXX

Less: Exemption u/s 54, 54B, 54D, 54ED, 54F 54G

XXX XXX

Income from Other Sources

General Income

XXX

Special Income

XXX

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Less: Deductions

XXX XXX

Gross Total Income

XXX

Less: Deductions u/s 80C, 80CC, 80CCD, 80G, 80GG.….80U

XXX

Total Taxable Income

XXX

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Computation of Tax Liability on Total Income

Individuals

Up to Rs. 150000

Nil

Rs. 150000 to Rs. 300000

10%

Rs. 300000 to Rs. 500000

20%

Rs. 500000 and Above

30%

Women

Up to Rs. 180000

Nil

Rs. 180000 to Rs. 300000

10%

Rs. 300000 to Rs. 500000

20%


30%

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Senior Citizen

Up to Rs. 225000

Nil

Rs. 225000 to Rs. 300000

10%

Rs. 300000 to Rs. 500000

20%


30%

Note

For the next assessment year 2010-11 income tax slabs have been increased

slightly (by Rs. 10,000 for men & women and Rs. 15,000 for Senior

Citizens).

Surcharge of 10%, if Total Income is 10,00,000 or more

Cess (on Surcharge and Tax)

Education

2%

Secondary and Higher Education

1%

Long Term Capital Gain

20%

75

Casual Income

30%

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TDS Rates for Assessment Year 2009-10:

Section 192 Payment of Salary and Wages

Criterion of

Deduction

Deducted if the estimated income of the employee is

taxable.

Employer must not deduct tax on non-taxable

allowances like conveyance allowance, rent

allowance, medical allowance and deductible

investments under sections like 80C, 80CC, 80D,

80DD, 80DDB, 80E, 80GG and 80U.

No tax is required to be deducted at source if the

estimated total income of the employee is less than the

minimum taxable income.

Applicable TDS

Rate

Income Tax, Surcharge and Education Cess at the

applicable rate on the estimated income of employee

for the year.

Section 193 Payment of Interest on Securities

Criterion of Deduction Deductible if payment exceeds Rs. 5,000/-

per annum.

Applicable TDS Rate Income

Tax

Surcha

rge

Education

Cess

Total

If the recipient is a

Company, Firm or

Cooperative Society *

20.00% 2.00% 0.66% 22.66

%

If the recipient is an 10.00% 1.00% 0.33% 11.33

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Individual or HUF and

payment exceeds Rs. 10

lac per annum.

%

If the recipient is an


payment does not exceed

Rs. 10 lac per annum.

10.00% 0.00% 0.30% 10.30

%

Section 194 B Winnings from Lotteries or Cross Word

Puzzle or Card Game or any other Game

Criterion of Deduction Deductible if payment exceeds Rs. 5,000/-.


Tax

Surcha

rge

Education

Cess

Total




lac per annum.

30.00% 3.00% 0.99 33.99

%





30.00% 0.00% 0.90 30.90

%

Section 194 BB Winnings from Horse Race


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per annum.


Tax

Surcha

rge

Education

Cess

Total




lac per annum.

30.00% 3.00% 0.99 33.99

%





30.00% 0.00% 0.90 30.90

%

Section 194 A Payment of Interest


per annum.


Tax

Surcha

rge

Education

Cess

Total


Company, Firm or


20.00% 2.00% 0.66% 22.66

%




lac per annum.

10.00% 1.00% 0.33% 11.33

%




10.00% 0.00% 0.30% 10.30

%

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Section 194 C Payment to Contractors (In case of

Advertising Contracts)

Criterion of Deduction Deductible if Payment exceeds Rs. 20,000/-

per contract or Rs. 50,000/- per annum.


Tax

Surcha

rge

Education

Cess

Total


Company, Firm or


1.00% 0.10% 0.033% 1.133

%




lac per annum.

1.00% 0.10% 0.033% 1.133

%





1.00% 0.00% 0.03% 1.03%

Section 194 C Payment to Contractors / Sub-contractors

(In case of Other than Advertising

Contracts)

Criterion of Deduction Deductible if Payment exceeds Rs. 20,000/-

per contract or Rs. 50,000/- per annum.


Tax

Surcha

rge

Education

Cess

Total


Company, Firm or

2.00% 0.20% 0.066% 2.266

%

80





lac per annum.

2.00% 0.20% 0.066% 2.266

%





2.00% 0.00% 0.060% 2.06%

Section 194 H Payment of Commission or Brokerage


per annum.


Tax

Surcha

rge

Education

Cess

Total


Company, Firm or


10.00% 1.00% 0.33% 11.33

%




lac per annum.

10.00% 1.00% 0.33% 11.33

%





10.00% 0.00% 0.30% 10.30

%

Section 194 I Payment of Rent of Land, Building or 81

Furniture

Criterion of Deduction Deductible if payment exceeds Rs. 1,20,000/-

per annum.

Individuals and HUFs whose sales/gross

receipts in business is less than Rs 40 lac or

professional receipts is less than Rs 10 lac are

not required to deduct TDS


Tax

Surcha

rge

Education

Cess

Total


Company, Firm or


20.00% 2.00% 0.66% 22.66

%




lac per annum.

15.00% 1.50% 0.495% 16.995

%





15.00% 0.00% 0.45% 15.45

%

Section 194 I Payment of Rent of Plant & Machinery

Criterion of Deduction Deductible if payment exceeds Rs. 1,20,000/-

per annum.


Tax

Surcha

rge

Education

Cess

Total


Company, Firm or


10.00% 1.00% 0.33% 11.33

%

82




lac per annum.

10.00% 1.00% 0.33% 11.33

%





10.00% 0.00% 0.30% 10.30

%

Section 194 J Payment of Professional Charges


per annum.


Tax

Surcha

rge

Education

Cess

Total


Company, Firm or


10.00% 1.00% 0.33% 11.33

%




lac per annum.

10.00% 1.00% 0.33% 11.33

%





10.00% 0.00% 0.30% 10.30

%

(*) Surcharge is deductible if total payments to the payee during the financial

year exceed Rs. 1 Crore.

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TDS deducted is required to be deposited within one week from the

last day of the month of deduction.

If TDS amount is not deposited by the due date, then for each month

a penalty of interest equal to 1% of the TDS amount is to be paid.

If the quarterly TDS return is not filed by the due date, a penalty of

Rs. 100 per day subject to maximum limit equal to the TDS amount

is chargeable.

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Assessment of Firms

Kinds of Partnership Firms For Taxation Purpose

According to the new schemes of taxation of firms, there will be two types of

firms, namely,

1. A firm assessed as such

2. A firm assessed as an association of person

A partnership shall be assessed as a firm, if the following conditions are

satisfied [sec. 184]:

1. A firm must be Evidenced by an Instrument Sec. 184(1)(I)

2. Individual Share of Partners must be Specified in ‘Instrument’

3. Submission of Certified Instrument:

Revised instrument should be submitted whenever there is change in the

constitution of firm.

Computation Of Total Income Of A Firm:

Total income of a partnership firm will be ascertained as a separate entity.

Income under various heads:

Income of a firm will be computed under various heads of income in the

same manner as in the case of any other assessee. However, a firm will have

income under four heads only i.e., income from house property, profits and

gain of business or profession, capital gains and other sources. There is a

material difference in respect of computation of income under head profits

and gains of business or profession.

Profits and Gains of Business or Profession

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Section 40(b) deals with the amounts, which are not deductible in the case of

a firm assessable as such. Hence, deduction on account of interest and

remuneration to the partners is allowed to be claimed under section 36 and

37, but it will be subject to the condition prescribed by section 40(b) as

under:

Payment to non-working partners:

Any payment of salary, bonus, commission, remuneration by whatever

name called, to a non-working partner is disallowed.

i. Payment to working partners: Payment of interest and

remuneration to partners will be allowed as deduction only when

it is authorized by and in accordance with partnership deed.

ii. Payment to partners for a period prior to the date of deed:

Remuneration and interest authorized by the deed but relates to

the period prior to date of such deed, shall be disallowed.

iii. Payment of remuneration as per section 40(b): Payment of

remuneration authorized by and in accordance with the

partnership deed relating to any period falling after date of

partnership deed to any working partner exceeding the specified

limit is disallowed.

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Assessment of Companies

A company has to pay tax on every rupee of its total income at a flat rate,

without any exemption limit. It is essential to understand the meaning of a

company for the assessment of companies.

Computation of gross total income of a company:

The procedure for computation of total income in the case of a company is

the same as in regard to other assesses, such as classification and

computation of income under each head, computation of gross total income

etc.

Deduction under section 80:

From the gross total income a company is allowed the following deduction

under deduction 80:80G, 80GGA, 80GGB, 80-IA, 80-IAB, 80-IB, 80-IC,

80JJA, 80JJAA, 80LA.

Assessment of companies

A company is required to file the return of total income of the company on or

before 31st October of the assessment year. A company is assessed like any

other assessee. However, its liability differs in two respects:

1. No exemption limit: A company does not enjoy any exemption limit.

2. Flat rate of tax:

A company pays income tax at a flat rate instead of slab rate.

For the assessment year 2009-10 the following rates of income tax are

applicable:

Domestic company Foreign company

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Short term capital gain on Sale of listed securities 15% 15%

Long term capital gain 20% 20%

Casual income 30% 30%

Other income 30% 40%

Surcharge: 10% of tax (If income exceeds Rs.1 Crore)

Education cess: 2% of tax and surcharge

SHEC: 1% of tax and surcharge

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Income Tax

Documents

Transcript of Income Tax