MMS PPT I TAX 11-12
-
Upload
varshasawlani -
Category
Documents
-
view
215 -
download
0
Transcript of MMS PPT I TAX 11-12
-
8/2/2019 MMS PPT I TAX 11-12
1/35
INCOME TAX ACT 1961
BASIC CONCEPTS AND DEFINITIONS
ASSESSMENT YEAR :- Sec.2(9)
Assessment year means the period starting from April 1 and Ending on March 31 of
the next year
For example Assessment year 2012-2013 will commence on 1 st April 2012 and will
end on 31 st March 2013.
Income of the Previous Year is taxed during the next following Assessment Year
PREVIOUS YEAR :- sec. 3
previous year is a period of 12 months , which will start from 1st April and will end on
31 st March of the next year
It is a priod of 12 months immediately preceding the Assessment year.It is a Financial immediately preceding the Assessment year
When previous year ends Assessment year starts
For example If Assessment year is 2012-2013 the Previous year is 2011-2012
(1-4-2011 To 31-03-2012)
-
8/2/2019 MMS PPT I TAX 11-12
2/35
Previous Year In case of newly setup Business or Profession-
In case of newly started Business or Profession the period of Previous year will start fromthe date on which the new Business or Profession started and will end on immediatelyfollowing 31 March.
For Example Mr X started new business on 13 th September 2011 then for his first year
of new business the Previous year is a period start from 13 th September 2011 and willend on 31 st March 2012
If Mr Y started new business on 25 th February 2011 the for his new business the firstprevious year is 25 th February 2011 To 31 st March 2012
However from the subsequent year the period will be always 1st April to 31 March.
PERSON :- Sec. 2(31)The Term Person Includes
a. An Individual
b. A Hindu Undivided Family
c. A Company
d. A Firme. An Association of persons or a body of individuals ,whether incorporated or not
f. A Local Authority
g. Every artificial juridical person not falling within any of the preceding catagories
-
8/2/2019 MMS PPT I TAX 11-12
3/35
Explanation :-
An IndividualThe word individual means only a natural person i.e., humanbeing andincludes minor and a person of unsound mind.
A Hindu Undivided Family :-Consists of all persons lineally descended from commonancestor and includes their wives and unmarried doughters.
A Company- As per section 2(17) company is defined to mean the following
a . Any Indian company
b. any Body corporate incorporated under the laws of a foreign country
c. any institution , association or a body which is assessed or was assessable/assessed asa company for any assessment year
d. any institution , association or a body ,whether incorporated or not and whetherIndian or non-Indian, which is declared by general or special order of the Central Boardof Direct Taxes to be a company.
Firm- As defined under sec.4 of The Indian Partnership Act 1932
An Association of persons or a body of individuals Means an association in which two ormore persons join in a common purpose or common action.
Local Authority It means a municipal committee , district board or other authority legally
entitled to or entrusted by the Government with the control and management of amunicipal or local fund
Every Artificial juridical person Any entity having a separate legal existence,not coveredunder any of the above categories , fall under this category
For example: Deity , an idol , A corporation established under a special Act., LIC, University
-
8/2/2019 MMS PPT I TAX 11-12
4/35
Determine the status of the following
Mumbai University
DCM LTD
Thane Municipal Corporation
ABC ENGINEERING PVT.LTDDhanlaxmi commercial Bank
Sahakar Co op housing Soct.ltd
XY AND CO.(PARTNER MR.X AND MR.Y)
JOINT FAMILY MR.X HIS WIFE AND TWO SONS
Income Tax Consultants AssociationShree Siddhivinayak mandir
Artificial Juridical person
A company
A local authority
A COMPANY A COMPANY
An Association Of Persons
A FIRM
A HUF
An Association Of Persons Artificial Juridical person
-
8/2/2019 MMS PPT I TAX 11-12
5/35
ASSESSEE :- Sec.2(7)
Assessee means a person by whom Income Tax or any other sum of money is payableunder the Act . It includes-
a. Every Person in a respect of whom any proceeding under the Act has been taken
for the assessment of his income or loss or the amount of refund due to himb. A person who is assessable in respect of income or loss of another person
c. A person is deemed to be an assessee , or an assessee in default under anyprovision of the Act.
Explanation :--
Assessee means every person i.e.- person means as defined under sec 2(31)
a. By whom any tax or any other amount is payable under this act. i.e. penolty ,
interest etc.is recoverable from person
Proceedings can be taken for assessment of income of person for his own income orany refund due to him
b. A person can be assessed for the income of another person e.g.-Trustees of thetrust, Directors of the company or Representative Assessee
c. Every person who is deemed to be an assessee e.g.- A representative assessee isdeemed to be an assessee by virtue of section 160(2) Deemed to be meansAssumed to be
Assessee in default means a person who failed to pay advance tax ,or a personwho failed to deduct a tax at source(TDS)
-
8/2/2019 MMS PPT I TAX 11-12
6/35
WHAT IS GROSS TOTAL INCOME
As per sec.14 , income of a person is computed under the following FIVE
heads
1 . Salaries
2. Income from House Property
3. Profits and Gains from Business or Profession
4. Capital Gains
5. Income from Other sources
The aggregate income under the heads is termed as Gross Total Income.i.e.Total of all the above heads of income is Gross Total Income
It is a income before deducting any deductions under sec.80 of the Act.
WHAT IS NET TAXABLE INCOME
GROSS TOTAL INCOME XXX
LESS : DEDUCTIONS UNDER SEC.80 XXX
NET TAXABLE INCOME XXX
* Income Tax is calculated on Net Taxable Income
-
8/2/2019 MMS PPT I TAX 11-12
7/35
RESIDENTIAL STATUS AND ITS EFFECT OF TAX
INCIDENCE
Tax incidence on a assessee depends on his residential statusThere are two types of tax payers: --
Resident in India
Non resident in India
There are further TWO catagories for Resident in IndiaResident and Ordinarily resident in India
Resident but not Ordinarily resident in India
RESIDENTIAL STATUS
Resident in India Non Resident
Resident and Ordinarily Resident Resident but not Ordinarily Resident
-
8/2/2019 MMS PPT I TAX 11-12
8/35
HOW TO FINDOUT RESIDENTIAL STATUS OF AN INDIVIDUAL
SEC.6
Step 1 - Findout whether he is Resident or Non Resident(By applying BasicConditions as per sec 6(1)
Step 2 If he is Resident in India then further findout whether he is OrdinarilyResident or not Ordinarily Resident
Note :---Residential status is to be findout every year. A person can be Resident inone year and can be Non resident in another year.
BASIC CONDITIONS :-(To findout whether he is Resident or Non Resident)An Individual is said to be RESIDENT in India if he satisfies at least ONE of the
following Basic Condition
1 He is in India in the previous year for a period of 182 days or more
OR
2 - He is in India for a period of 60 days or more during the previous year and 365days or more during 4 years immediately preceding the previous year
It means if any individual satisfy any one of the above conditions he will beconsidered as RESIDENT , but however if he does not satisfy any of the aboveconditions he will be considered as NON RESIDENT
-
8/2/2019 MMS PPT I TAX 11-12
9/35
SUMMARY
1 ST CONDITION SATISFY RESIDENT
OR
2 ND CONDITION SATISFY RESIDENT
BOTH CONDITIONS SATISFY RESIDENT
CONDITIONS 1 AND 2 BOTH
NOT SATISFY NON RESIDENT
Note : -
For findingout days it is not necessary he should stay continuously at one
place during the previous
Residential status is to be findout for each previous yeare.g. for assessment year 2012-2013 residential status is to be findout for the
previous year 2011-2012 by applying the abovementioned conditions
-
8/2/2019 MMS PPT I TAX 11-12
10/35
TWO SPECIAL CASES IN RELATION TO DAYS
The period of 60 days in 2 nd basic condition is extended to 182 days in
following TWO SPECIAL CASES
1 - An Indian Citizen who leaves India during the previous year for the
purpose of employment outside India or an Indian citizen who leaves
India during the previous year as a member of the crew of an Indian ship.
2 - An indian Citizen or a person of Indian origin who come on a visit to
India during the previous year
In above TWO SPECIAL CASES the period of 60 days in 2 nd basic condition is
extended to 182 days.
-
8/2/2019 MMS PPT I TAX 11-12
11/35
ONCE IT IS DECIDED THAT AN INDIVIDUAL IS RESIDENT
FINDOUT WHETHER HE IS
ORDINARILY RESIDENT (R and OR)
OR
NOT ORDINARILY RESIDENT (R But NOT OR)
For this there are TWO ADDITIONAL CONDITIONS
If a Resident satisfy BOTH of the ADDITIONAL CONDITIONS he will be
considered as ORDINARILY RESIDENT .
But if he does not satisfy BOTH the ADDITIONAL Or satisfy Only One
condition he will be considered as
NOT ORDINARILY RESIDENT
It means He must satisfy BOTH ADDITIONAL CONDITIONS to become
ORDINARILY RESIDENT
-
8/2/2019 MMS PPT I TAX 11-12
12/35
ADDITIONAL CONDITIONS Sec. 6(6)
(a) He has been resident in India in at least 2 out of 10 previous
years immediately preceding the relevant previous year
AND
(b) He has been in India for a period of 730 days or more during
7 years immediately preceding the relevant previous year
SUMMARY
R AND OR Any one of Basic conditions plus Both
the Additional Conditions
R BUT NOT OR Any One Basic condition but None ofAdditional conditions or only One additional conditions
-
8/2/2019 MMS PPT I TAX 11-12
13/35
Residential Status of HUF :- sec 6(2)
A HUF like an Individual is either Resident in India or non Resident in India. A
Resident HUF is ordinarily Resident or Not ordinarily resident.
A HUF is said to be resident in India if control and management of its affairs is wholly
or partly situated in India. A HUF is Non Resident in India if control and
management of its affairs is wholly situated outside India.
Residential Status of Firm and Association of persons :- sec.6(2)
A Firm and AOP can either Resident or Non Resident
R and OR and R But NOT OR are not applicable to A Firm or AOP
A FIRM or AOP are said to be resident in India if control and management of their
affairs are wholly or partly situated in India. A FIRM or AOP is Non Resident in
India if control and management of their affairs are wholly situated outside India.
Residential Status of A COMPANY :- sec.6(3)
An Indian Company is always resident in India.A Foreign company is resident in India only if , during the previous year control and
management of its affairs is situated wholly in India
Residential Status of Every other Person :- sec.6(4)
Every other Person is non resident in India if control and management of its affairs is
wholly situated outside India
-
8/2/2019 MMS PPT I TAX 11-12
14/35
Residential Status and Incidence of Tax
(Scope of Income) : Sec 5
Incidence of Tax on a taxpayer depends on his
residential status.
Income which is Received , Accrued and Deemed to
be received in India is TAXABLE in the hands all
i.e. R AND OR , R BUT NOT OR , NR
Income which is Received , Accrued and Deemed to
be received Outside India is TAXABLE only in thehands of R AND OR , R BUT NOT OR
-
8/2/2019 MMS PPT I TAX 11-12
15/35
SUMMARY OF SEC . 5
R AND OR R BUT NOT OR NR
INCOME RECEIVED IN INDIA TAXABLE TAXABLE TAXABLE
INCOME ACCRUED IN INDIA TAXABLE TAXABLE TAXABLE
INCOME DEEMED TO BE RECEIVED IN
INDIA TAXABLE TAXABLE TAXABLE
INCOME RECEIVED , ACCRUED AND
DEEMED TO BE RECEIVED OUTSIDE
INDIA TAXABLE TAXABLE NOT TAXABLE
-
8/2/2019 MMS PPT I TAX 11-12
16/35
Questions on Scope of Income
Mr. X earns following income during the FY 2011-12
Findout his Total Income if he is R AND OR , R BUT NOT OR AND NR
1 Interest on Fixed Deposits in India Rs 25000
2 Rent of house at Delhi Rs 120000 pa
3 Rent of house at Dubai Rs 200000 pa
4 Lottery prize win at Hongkong but amout received at Mumbai Rs 300000
5 Interest on Fixed Deposits in bank at USA Rs 100000
6 Agriculture income at Japan Rs 200000
7 Business conducted out side India but control and management in India
8 Income which is Taxed Outside India not brought to India Rs.30000/-
9 Lottery prize win at Mumbai but received in France Rs.1,00,000
10 Commission Income at USA received at USA Rs 50,000
-
8/2/2019 MMS PPT I TAX 11-12
17/35
HEADS OF INCOME
In Income Tax Act. There are only FIVE heads of income
Income of a person is to be charged to tax under a particularhead of income after considering the nature of Income
For Example Mr. X is a employee of ABC Ltd. Earning salary
His income will be taxed under the head Income From Salaries
Mr. Y has given his shop on rent basis this rent received will becharged to tax under the head Income from house Property
Income from Business will be taxed under the head Profits and
Gains from Business and profession
Profit from sale of any Capital Asset will be charged to tax underthe head Capital Gains
If any person earns any income which we cannot fit in any of the
above four heads of income will be charged to tax under the
head income From Other Sources
-
8/2/2019 MMS PPT I TAX 11-12
18/35
Interest on fixed Deposits with bank,
Winning from lottery , Cross word puzzle , TV Game shows , KBC,
Awards , winning from Horse Race are examples of Income
From Other Sources
For each head of income there are specific provisions ,Sections,
Rules
Income from a particular head is to be calculated and taxed by
applying these specific provisions of the Act.
-
8/2/2019 MMS PPT I TAX 11-12
19/35
INCOME FROM SALARIES
Following are Important norms for charging income under the
head Income From Salaries
Relationship between payer and payee
Employer and employee relationship
Master and Servent
Employer may be
Individual,firm,Company,Government,Trust,corporation etc.
Employee working part time or full time is not important
Payment received by an individual from a person other than
his employer cannot be termed as Salary
Salary and Wages Conceptually not different
Perquisites,allowances,overtime,awards etc. received from
employer are taxable under the head Salaries
-
8/2/2019 MMS PPT I TAX 11-12
20/35
From the following which income are taxable under the head
Salaries
Bonus form Employer
Mr. X working with ABC LTD on a salary Rs.30000 pm , receivedan award from Thane municipal Corporation Rs 5000
Mr. Y Lecturer of Mumbai University , received some amount
from Pune University for assessing MBA exam papers
Mr Y Lecturer of Mumbai University , received some amountfrom Mumbai University for assessing TY Bcom exam papers
Mr Z working part time with PQR LTD and also working part
time with AB Enterprises
Car Perquisite provided to Mr C by his employer
Remuneration to partner by a partnership firm ?????
Remuneration to Directors of Company
-
8/2/2019 MMS PPT I TAX 11-12
21/35
-
8/2/2019 MMS PPT I TAX 11-12
22/35
-
8/2/2019 MMS PPT I TAX 11-12
23/35
Important points
1. Gratuity , Perquisites , amount in lieu of salary , Bonus ,allowances are
also taxable as salary
2. Amounts received from two employers are also taxable under a singlehead salaries .Only employer employee relationship is important
3. Value of Perquisites provided to employee by employer are taxable under
the head salaries. The value of the perquisite is to be findout as per the
rules of Income Tax Act.
4. What is Perquisite ?
Any casual emolument or benefit attached to an office or position in
addition to salary or wages
Perquisite may be provided in cash or in kind
Even a casual and non recurring receipt can be perquisitePerquisites are included in salary income only if they are received by
an employee from his employer
It must be from legal origin. An unauthorised advantage taken by an
employee without employers authority would not amount to perquisite
-
8/2/2019 MMS PPT I TAX 11-12
24/35
Examples of Perquisites
Furnished / unfurnished house without rent or at concessional rent
Supply of gas , Electricity , Water for household purpose
Service of a sweeper , watchman , gardener or personal attendent Education facility to employees family members
Interest free / concessional loan
Car or any other automotive conveyance
Transport facility by a transport undertaking other than for the purpose
of official work
Free food and beverage - other than working hours/ other than official
work
Credit card
Club Gift or gift voucher more than Rs 5000
-
8/2/2019 MMS PPT I TAX 11-12
25/35
Allowances
Allowance is generally defined as a
fixed quantity of money or other substance given regularly or in addition
to salary for the purpose of meeting some particular requirementconnected with the service or as compensation for unusual conditions of
that service
It is fixed , pre- determined and given irrespective of actual expenditure
It is taxable on due or receipt basis , whichever comes earlier
Examples : -
House Rent allowance
Children Education Allowance
Medical Allowance Tiffin allowance
Transport allowance
Entertainment allowance
City compensatory allowance
D d ti f S l i
-
8/2/2019 MMS PPT I TAX 11-12
26/35
Deductions from Salaries
Sec.16
After Calculating Gross Salary Deductions under sec.16 are allowed
There are Two Deductions under sec 16If Net Salary is given in question then find out Gross Salary after adding back
All the amounts which are deducted earlier
Eg- if Net Salary is given in question after deducting profession Tax,Income Tax etc.then
add back all the amounts in net salary and find out gross Salary
Net Salary = Rs.24600 pmAmounted already deducted = Profession Tax Rs.200 pm and Income Tax Rs1000 p.m
Gross Salary is =
24600
Add back Profession Tax Deducted 200
Add back Income Tax 1000
Gross Salary = 25800
-
8/2/2019 MMS PPT I TAX 11-12
27/35
Deductions under sec. 16
Sec 16(ii) Entertainment Allowance
(Only for Govt. Employees)
Amount to be deducted is lowest of the following
a) Rs 5000/-
b) 20 % of basic Salary
c) Actual Amount of Entertainment allowance
Note : Amount actually spent on entertainment is not
to be considered for allowing deduction
Sec 16 (ii) Profession Tax (Tax on employment)
-
8/2/2019 MMS PPT I TAX 11-12
28/35
Calculation of Income under the head Salaries
Gross Salary
It is a total of all amounts received from employer during the course of employmentPlus all allowances and value of perquisites to the extent taxable
Total of the above is a Gross Salary
Allow Deductions under Sec.16
The Balance amount is Income Taxable under the head Salaries
Basic Salary xxx
Add : Taxable Allowances xxx
Add: Value of Perquisites xxxGross Salary xxx
Less : Deductions under Sec 16 xxx
Taxable income under the head Salaries xxx
-
8/2/2019 MMS PPT I TAX 11-12
29/35
INCOME FROM HOUSE PROPERTY
BASIS OF CHARGE
Annual value is chargeable to tax
WHAT IS ANNUAL VALUE ?
IT MEANS :- THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE
EXPECTED TO BE LET FROM YEAR TO YEAR ( ie . REASONABLE LETTING
VALUE)OR
ANNUAL RENT (WHETHER RECEIVED OR RECEIVEABLE)
WHICH EVER IS MORE IS KNOWN AS GROSS ANNUAL VALUE
-
8/2/2019 MMS PPT I TAX 11-12
30/35
IMPORTANT POINTS
PROPERTY MUST CONSIST OF BUILDING OR LANDATTACHED TO OR CONNECTED WITH THE BUILDING
ASSESSEE MUST BE THE OWNER OF THE PROPERTY
IT SHOULD NOT BE OCCUPIED BY THE OWNER FOR HIS
BUSINESS/PROFESSION PROPERTY CAN BE RESIDENTIAL OR COMMERCIAL
ONLY FOUR WALLS AND ONE ROOF IS SUFFICIENT TO CALL IT
AS A PROPERTY
-
8/2/2019 MMS PPT I TAX 11-12
31/35
WHAT IS NET ANNUAL VALUE ?
GROSS ANNUAL VALUE XXX
LESS : MUNICIPAL TAXES XXXNET ANNUAL VALUE XXX
IMPORTANT POINTS :--
MUNICIPAL TAX IS TO BE DEDUCTED
IT MUST BE PAID BY THE OWNER & NOT BY THE TANENT
IT IS DEDUCTED ONLY IN CASE OF RENTED PROPERTY ANDNOT IN CASE OF SELF OCCUPIED PROPERTY (SOPMUNICIPALTAX WHICH IS DUE BUT NOT PAID IS NOT TO BE DEDUCTED
MUNICIPAL TAX OF LAST YEAR IF PAID IN CURRENT YEAR CANBE DEDUCTED
IF PROPERTY IS PARTLY LET OUT THE PROPERNATE MUNICIPALTAX IS RELATED TO LET OUT PART ONLY )
-
8/2/2019 MMS PPT I TAX 11-12
32/35
-
8/2/2019 MMS PPT I TAX 11-12
33/35
WHAT IS SELF OCCUPIED PROPERTY(SOP)
IF OWNER HIMSELF IS STAYING IN HIS OWN
RESIDENTIAL HOUSE ,IT IS A SELF OCCUPIED
PROPERTY(SOP)
ANNUAL VALUE OF SOP IS NIL
-
8/2/2019 MMS PPT I TAX 11-12
34/35
CALCULATION OF INCOME FROM HOUSE
PROPERTY IN CASE OF SOP
GROSS ANNUAL VALUE NIL
LESS : DEDUCTION U/S 24
* INTEREST ON BORROWED FUNDS XXX
(MAXIMUM RS.1,50,000)
TAXABLE INCOME FROM SOP XXX
-
8/2/2019 MMS PPT I TAX 11-12
35/35
IN CASE OF TWO SOP AT A SAME TIME
ONLY ONE HOUSE AS PER THE CHOICE OF THEOWNER WILL BE CONSIDERED AS SOP
OTHER HOUSE IS CONSIDERED AS DEEMED
TO BE LET OUT (ASSUMED TO BE LET OUT) INCOME OF THE DEEMED TO BE LET OUT
PROPERTY IS CALCULATED AS IF IT IS LET OUT