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INCOME TAX ACT

Provisions related to Income Tax Act in respect of Individual

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INCOME TAX TERMINOLOGY

• 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 1 and ends on March 31 of the next year.

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Heads of Income

• Salaries

• Income from House property

• Profits from Business or profession

• Capital Gains

• Income from Other sources

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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”

• From the assessment year 1989-90 onwards all assesses are required to follow the financial year.

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Previous Year in the case of newly set up business or

profession• In case of a newly set up business or

profession or source of income newly coming in to existence , the first previous year will be the period commencing from the date of setting of the business / profession or as the case may be the date on which the source of income newly comes in to existence and ending on the immediately following March 31.

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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 the provisions of the act.

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Residential status – General Norms

• Assesses are either

• Resident in India

--- Resident and ordinarily resident

---- Resident but not ordinarily resident

• Non Resident In India

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Income from salaries

Salary Income

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Salary means and Includes

• Wages

• Any Annuity or pension

• Any gratuity

• Any fees , commissions, perquisites or profit in lieu or in addition to any salary or wages

• Any advance salary

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Salary – cont..

• Any payment received by the employee in respect of any period of leave not availed by him

• Transferred balance in a recognized provident fund to the extent it is taxable

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Leave salary

• Taxability in case of Government employee

• Taxability in case of non- government employee

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• In case of employee of Central Government or state government , any amount received as cash equivalent of leave salary in respect of the period of earned leave at his credit at the time of retirement/ superannuation is exempt from tax.

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Taxability in case of non- government employee

• Leave salary is exempt to the extent of least of the following

• Cash equivalent of leave salary in respect of earned leave to the credit of employee only at the time of retirement ( earned leave can not exceed 30ndays for every year)

• 10 months “average salary”• Rs. 3,00,000.00• Actual leave salary received

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Taxability of Gratuity

• Gratuity to government employee

• In case of employee covered by payment of gratuity act , 1972

• In case of other employee

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Gratuity to government employee

• Any death cum retirement gratuity received by employee of central government , state government or local authority is wholly exempt from tax

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Employee covered by payment of gratuity act, 1972

• Exemption = least of the following

• 15 days salary ( 7 days in case of employees of seasonal employment) for every completed year of service based on salary last drawn in excess of six months

• Rs.3,50,000.00

• Actual amount of gratuity.

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In case of other employees

• ½ months salary for each completed year of service

• Rs. 3,50,000.00

• Actual amount of Gratuity

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Pension

• Uncommuted pension is taxable as salary in the hands of government as well as non government employee

• Commuted pension received by government employee , state government employee or local authority employee is tax free

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Payment in commutation of pension received by other

• In case employee receives gratuity , commuted value of 1/3 of pension

• In other case ½ of such pension

is exempt from tax.

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Particulars Statutory Recognised Unrecognised Public

Constitued under

P.F act, 1925

E.P.F and Misc. Provisions act , 1952 & recognised by commissioner of P.F and CIT

Not Recognised by Commissioner of Income Tax

Public PF Act 1968

Contribution byEmployer & Employee

Employer & Employee

Employer & Employee

All assessee independently

Assessee's contribution

Deduction U/S 80-C

Deduction U/S 80-C

No income tax benefit

Deduction U/S 80-C

Employer's Contribution

Not Taxable exceeding 12% of salary is taxable

Not taxable Not APPLICABLE

Interest Credited

Fully Exempt Exempt up to 9.5% P.A

Only Employee's contribution is taxable under other sources

Fully Exempt

Witdrawal at the time of retirement

Not Taxable Not Taxable Only Employer's contribution & Interest is taxable under salaries

Not Taxable

Provident Fund

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ESOP Taxable ESOPS Not Taxable1. When the stock option plan is not in conformity with central government guidelines, it is taxable

1. When the stock option confirms with central government guidelines , ESOP is not taxable

2.Taxable as - Perquisits at the time of Receipts and Capital Gain at the time of transfer of such shares or stock

2. Any shares or security alloted under notified ESOP are not taxable as a perquisits, provided the conditions prescribed under the scheme are satisfied

3. Taxable Value = Fair Market Value Less Price at which alloted

3. Normal Provisions of acapital gain are applicable

Employees stock option Plan

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Specified Employee

An Individual will be considered as specified employee if-

Director- He is director employee of the company

Voting Power- He holds 20% or more voting power in company

Monthly salary in excess of Rs. 50000.00

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Perquisits Taxable in the hands of Specified and non- specified EmployeeNature of Perquisit Specified Employee Non- specified Employee

Rent free / concessional accomodation Taxable TaxableWatchman, Gardner, Sweeper, engaged by employee and expenses are met by employer Taxable TaxableAbove servents provided in any other manner Taxable Not TaxableGas, Electricity, Water etc. connection in the name of employee but expenses are met by employer Taxable TaxableAbove servents provided in any other manner Taxable TaxableEduction expenses , if bills are in the name of employee , but met by employer Taxable TaxableAbove servents provided in any other manner TaxableTransport Facility Taxable TaxableInterest free Loans Taxable TaxableHoliday Homes facility provided Taxable TaxableClub Facility provided Taxable TaxableComputer / Laptop provided by employer Not Taxable Not TaxableOther Movable assets are provided by employer Taxable TaxableMedical Facilities provided by employer Taxable Taxable

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INCOME FROM HOUSE PROPERTY

• Types of house property

• Self occupied

• Let out

• Deemed to be let out

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Conditions for taxation

• Basis of chargeability is annual value

• The property must be building or land appurtenant thereto

• The assessee must be owner of property

• The property may be used for any purpose other than business or profession

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Self Occupied House property Computation

Particulars Rs

Annual value u/s 23 (2) NIL

Less- Dedcution U/s 24Special SituationLoan taken for acquisition or construction on or after 01.04.1999 and the same is completed with in 3 years from the end of financial year in which capital was borrowed , interest paid or payable subject to maximum of Rs. 1,50,000.00 or xxxxxxxxxGenaral LoanTaken prior to 01.04.1999 for acquisition or construction or loan taken for repair , renovation or reconstruction at any point of time , interest paid or payable subject to a maximum of Rs. 30,0000.00 xxxxxxxxx

Income from House Property xxxxxxxxx

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Property Let out for the whole yearParticulars Rs

Determination of Annual Valuestep 1- Compare Fair rent and Municipal Rent and select whichever is higherstep- 2 Compare step 1 with standard rent, if applicable a) Step 1 > standard rent , then select standard rent b) Step 2 < Standard rent, then select step 1 c) The selected figure is called selected rent step 3 compare the selected rent with actual rent received or receivable ( excluding unrealised rent) the higher in step 3 = Annual value xxxxxxxxxLess - Municipal Taxes paid xxxxxxxxxNet Annual Value xxxxxxxxxLess - Deduction u/s 24a) 30% of the net annual valueb) Interest ( no celling limit)

INCOME FROM HOUSE PROPERTY XXXXXXXXX

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MORE THAN ONE HOUSE PROPERTY S.OParticulars Rs

Determination of Annual Valuestep 1- Compare Fair rent and Municipal Rent and select whichever is higherstep- 2 Compare step 1 with standard rent, if applicable a) Step 1 > standard rent , then select standard rent b) Step 2 < Standard rent, then select step 1 c) The selected figure is called selected rent xxxxxxxxxLess - Municipal Taxes paid xxxxxxxxxNet Annual Value xxxxxxxxxLess - Deduction u/s 24a) 30% of the net annual valueb) Interest ( no celling limit)

INCOME FROM HOUSE PROPERTY XXXXXXXXX

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CAPITAL GAINS

• Definition and chargeability

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Includes ExcludesProperty of any kind , whether or not connected with business or profession

a) Stock in tradeb) Personal effectsc) Rural Agriculture lands inindia d) 6 1/2% gold bonds, 7% goldbonds & National defence bonds 1980 f) Special Bearer bonds , 1991g) Gold deposit bonds , 1999

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Short term capital assets

• A) for all capital assets other than financial assets -

• Capital asset held by assessee for not more than 36 months immediately the date of transfer are treated as short term capital assets.

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For financial assets

• Equity ( or) preference shares of the company

• Securities listed in a recognized stock exchange

• Zero coupon bonds

• Treated as STCA if they are not held for more than 12 months

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Long term capital asset

• Not a short term capital asset

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Computation of short term capital gain Computation of Long term capital gain

Consideration received xxxxxxxx Consideration received xxxxxxxxLess - Expenses of transfer xxxxxxxx Less - Expenses of transfer xxxxxxxx

Net Consideration Net Consideration

Less- Cost of acquisition xxxxxxxx Less- Cost of acquisition xxxxxxxxLess Cost of improvement xxxxxxxx Less Cost of improvement xxxxxxxx

Short term capital gain xxxxxxxx Long term capital gain xxxxxxxx

Less- exemption u/s 54 xxxxxxxx Less- exemption u/s 54 xxxxxxxx B, D, G to 54 G

Taxable STCG xxxxxxxx Taxable LTCG xxxxxxxx

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Exemption U/s 54 Transfer of Residential House property

Applicability Individual / HUFAsset Transferred Residential House PropertyNature of Asset Long term assetNew Asset Aquired Residential House PropertyAmount to be invested Long Term gain on transferExemption amount Least of 1. Amount invested in house

2. Capital GainTime limit for Investment For Purchase - 1 year before or 2 years after

For Construction - with in 3 yaers of transferHolding period of asset 3 Years from date of acquisitionSale of asset with inHolding period of asset Short term capital Gain

Less - cost of acquisition reduced by Capial gains exempted u/s 54

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Exemption U/s 54 EC

Applicability All assesseeAsset Transferred Any Long Term Capital AssetNature of Asset Long term asset

New Asset Aquired

Bonds

redeema

ble after

3 years

by NAHI,

RECL,

such investment will not be eligible for deduction u/s 80- C

Amount to be invested Long term Capital gain on transferExemption amount Least of 1 Amount invested in bonds

2 Capital GainTime limit for Investment with in 6 months from the date of transfer

Holding period of asset 3 Years from date of acquisitionSale of asset with in LTCG exempted shall be deemed to be Holding period of asset income under LTCG of the assessee

in the year of sale of asset

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Exemption U/s 54 FLTCG on transfer of any long term capital asset other than a residential House Property

Applicability Individual / HUF

Asset TransferredAny long term capital asset other than Residential house property

Nature of Asset Long term asset

Conditionon the date of transfer of LTCA assessee should not own more than one residential house property

New Asset Aquired Residential House Property

Amount to be invested Net consideration

Exemption amount

Long term capital gain* amount invested in residential house

Net considerationTime limit for Investment For Purchase - 1 year before or 2 years after

For Construction - with in 3 years of transferHolding period of asset 3 Years from date of acquisition

Sale of asset with in1 Short Term capital Gain on new asset shall be taxed separetely

Holding period of asset

2 Long Term Capital Gain exempted U/s 54 F shall be chargeable to tax as LTCG

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Income from other Sources

• Dividends

• Winning from Lotteries, crossword puzzles, horse races, card games, gambling , betting income

• Income from sub –letting of house property

• Casual and non – recurring income

• Family pension

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Cont –

• Directors sitting fees

• Interest on Loans

• Income from undisclosed sources

• Remuneration received by members of parliament

• Rent from vacant piece of plot

• Interest on income tax refund

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Following will be income from other sources

• If its is not considered as income from business

• Interest on securities

• Income from machinery, furniture –let out

• Sum recd. on keyman insurance policy

• Insurance commission

• Interest from bank deposits

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Admissible expenditure from income

• Reasonable sum paid by way of commission for realizing dividend

• Repairs , insurance and depreciation on building, plant & machinery,and furniture

• 33.33% of family pension or Rs.15000/- whichever is less

• Any other expenditure for earning of income

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Computation of Total Income and tax Liability

Step -1 Determine tge residential status of individualStep -2 Determine the chargeble income on the basis

of residetial statusStep -3 Compute the toal incomeas follows

Rsa) Income from salaryb) Income from House propertyc) Profit and Gains of Businessd) Capital Gains ( Including Loanf Term)e) Income from other sources

Gross Total Income

Less - Deductions Under Chapter VI A ( Not available for LTCG)

Total Income

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Step -4 Compute tax liability on total income as follows

Toal Income as above RsLess - Income chargeble at special rte of taxLong term capital Gains - on taxable asset 20%Short term capital gains - on securities 10%Transferred which are subject to STT ActIncome from Races, card games, gambling etc 30%

Total Income chargeble at normal rate of tax

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Step -5 Compute net tax after surcharge and education cess and relief

Tax on Total income chargeble at normal rate of tax RsTax on total income chargeble at special rate of tax( on long term capital Gains )

Less - Rebate u/s 88 - E ( Payment of security Transaction tax)Tax PayableAdd- Surcharge @ 10% if total income > 10,00,000Tax and Surcharge PayableAdd - Education Cess @ 3%

Toatl Tax PayableLess- Rebate U/s 89

Balance Tax Payable

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Deductions available to individuals

Section Applicability Nature of PaymentAmount of deduction

80-CIndividual

Prescribed Investments

Maximum of Rs.100000.00

80-CCC IndividualLIC or other insurance plans

Maximum of Rs.100000.00

80-CCDCentral Govt. employees

Contribution to Approved pension funds

Maximum of Rs.10000.00

80-D Individual Mediclaim Policy

Maximum - General -10000.00, Senior citizens - 150000.00

80-DD Resident individualExpenditure on handicaped dependents

General Rs. 50000.00 , Severe Disability Rs. 75,000.00

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80- DDB Resident individualExpenditure on Specified Dieseases

General - Actual or Rs.40000.00 whichever is less. Senior citizens - Actual or Rs.60000.00 whichever is less

80- E IndividualInterest on Loan taken for Higher Eucation

Any amount paid

80-G All Individuals1. Donations to notified Funds 2. Other donations

100% or 50% depend on fund,Maximum limit - donation should not exceed 10% of adjusted total income, Deduction - Family Planning 100% , others 50%

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Tax Rates for IndividualsFOR RESIDENT INDIVIDUALS

Taxable Income (Rs)

Tax rate

Tax rate

Tax rate

Income tax after rebate

IT SC EC

Up to 1,00,000 Nil Nil Nil Nil1,00,000 - 1,50,000 10% Nil 2% IT=(TI - 100000)* 10%1,50,000 - 2,50,000 20% Nil 2% IT=5,000+ [( TI - 1,50,000)* 20%]2,50,000 - 10,00,000 30% Nil 2% IT=25,000+ [( TI - 2,50,000)* 30%]above 10,00,000 30% 10% 2% IT=2,50,000+ [( TI - 10,00,000)* 30%]

Tax Rates for IndividualsFOR RESIDENT WOMANS BELOW 65 YEARS

Taxable Income (Rs)

Tax rate

Tax rate

Tax rate

Income tax after rebate

IT SC EC

Up to 1,35,000 Nil Nil Nil Nil1,35,000 - 1,50,000 10% Nil 2% IT=(TI - 1,35,000)* 10%1,50,000 - 2,50,000 20% Nil 2% IT=1500+ [( TI - 1,50,000)* 20%]2,50,000 - 10,00,000 30% Nil 2% IT=21,500+ [( TI - 2,50,000)* 30%]above 10,00,000 30% 10% 2% IT=2,46,500+ [( TI - 10,00,000)* 30%]

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Tax Rates for IndividualsFOR RESIDENT SENIOR CITIZENS

Taxable Income (Rs)

Tax rate

Tax rate

Tax rate

Income tax after rebate

IT SC EC

Up to 1,85,000 Nil Nil Nil Nil1,85,000 - 2,50,000 20% Nil 2% IT=(TI - 1,85,000)* 20%2,50,000 - 10,00,000 30% Nil 2% IT=13,000+ [( TI - 2,50,000)* 30%]above 10,00,000 30% 10% 2% IT=2,38,000+ [( TI - 10,00,000)* 30%]