INCOME TAX ACT

BY

C A M A N I S H S O M A N IB. Com, FCA

B A H E T I & S O M A N IChartered Accountants

www.bandsindia.com

basic info

BASIC INFORMATION:

Income Tax Act classifies Income into following Heads:

1 Salary

2 House Property Income

3 Capital Gain

4 Business Income

5 Income from Other Sources

key info

KEY INFORMATION: Income from SalaryKey Points:In certain cases, an employee can claim both HRA as well as Interest on Housing Loan.

Income from House PropertyKey Points:If interest paid for property given on rent is less than taxable rent (after standard deduction – 30%), such loss can be set off against income from other heads including Income from Salary.

Income from Capital GainsKey Points:Surplus/Deficit from Derivative Contracts is non-speculative.

Key info

CAPITAL ASSETS:

From 01-04-2008, personal effects would notinclude:

1 Archaeological collections

2 Drawings

3 Paintings

4 Sculptures

5 Any other work of Art

Thus, now any surplus received from sale of these articles would be liable to tax under the head Capital Gain.

key info

KEY INFORMATION:– SECTION 80C

Following amounts claimed as deduction u/s 80C are included in Income of the assessee:

1 Stamp Duty, Registration Charges, Principal repayment amount, if the property in respect of which these claims were made is transferred before the expiry of 05 years from the end of financial year in which possession is obtained.

2 Insurance amounts paid in respect of single premium policy if the policy is terminated within 02 years from the date of commencement of policy.

3 Insurance amounts paid in respect of insurance policy if the policy is terminated before premiums are paid for 02 years.

4 ULIPs are terminated before contributions in respect of such participations have been paid for 05 years.

COMPLIANCES UNDER

INCOME TAX ACT

Following are the compliances under Income Tax Act

• Deduction of Tax from Certain Payments• Monthly payment of TDS• Monthly filing of Form 17• Quarterly filing of TDS details• Annual filing of TDS returns (Currently Quarterly)• Quarterly payment of Advance Tax and FBT• Annual filing of Income Tax and FBT Return• Payment of Dividend Distribution Tax• Compliances in relation to Assessment Proceedings

importantdue dates

ADVANCE INCOME TAX/FBT DUE DATES

ADVANCE AND FRINGE BENEFITS TAX PAYMENTS

AGGREGATE TAX PAYABLE UP TO

DUE DATEDue Date

   Companies Others  

1 First Installment 15% Nil 15th June

2 Second Installment 45% 30% 15th Sept

3 Third Installment 75% 60% 15th Dec

4 Final Installment 100% 100% 15th Mar

Sec 10aa

Special Provisions in

respect of New Units in

SEZ

Setting up of Unit in an approved SEZ on or after 01/04/2006

Deduction under the Income Tax Act:

For first 05 years 100% of profits of the undertaking (derived from exports

For next 05 years 50% of profits of the undertaking (derived from exports)

For next 05 years 50% of profits of the undertaking (by way of transfer of transfer of profits to SEZ Reinvestment Reserve Account to be later used for acquisition of plant and machinery)

Section 14A Section 14A -

No Deduction is allowed in respect of expenditure in relation to the income which does not form part of Total Income.

Rule 8D – Assessing Officer has power to compute the amount of non-admissible amount. The amount would be aggregate of:

1. Expenditure directly attributable2. Proportionate Interest not attributable to any

particular activity3. 0.5% of the Avg. value of Investment

Sec 32

SPECIAL PROVISIONS

UNDER INCOME TAX ACT

Sec 32 - Depreciation:

Additional Depreciation New machinery or plant (excluding ships and

aircrafts) acquired and installed after March 31, 2005 by an assessee engaged in the business of manufacture or production of any article or thing is entitled to additional depreciation of 20%.

However no such additional deduction will be allowed in respect of —

• Machinery or plant used by any other person in India or outside India before its installation.

• Machinery or plant installed in any office premises or any residential accommodation, including a guest house.

Sec 32

SPECIAL PROVISIONS

UNDER INCOME TAX ACT

• Any office appliances or road transport vehicles. • Any machinery or plant, the whole of actual cost of

which is allowed as deduction in computing income chargeable under the head profit and gain of business or profession of any one previous year.

• It should be noted that Additional Depreciation is allowed only in the year in which the Plant and Machinery is first put to use.

Sec 32

SPECIAL PROVISIONS

UNDER INCOME TAX ACT

Accelerated Depreciation:

• New commercial vehicle which is acquired on or after the 1st day of January, 2009 but before the 30th day of September, 2009 and is put to use before the 30th day of September, 2009 for the purposes of business or profession , will get 50% depreciation.

• It should be noted that Commercial has no relevance to business of hiring of vehicles. “Commercial Vehicle” is a term used from Motor Vehicles Act.

• Commercial vehicle” means “heavy goods vehicle” (12000 kg), “heavy passenger motor vehicle” (12000 kg), “light motor vehicle” (6000 kg), “medium goods vehicle” and “medium passenger motor vehicle” but does not include - “maxi-cab”, “motor-cab”, “tractor ” and “road-roller”.

Sec 40A(3) Payment in

excess of Rs. 20,000/-

by Cash

Sec 40A(3) – Cash Payments

From 01-04-2009, even aggregate payments made during a day in excess of Rs. 20,000/- would be disallowed.

Expenditure incurred in excess of Rs. 20,000/- by Cash

No Deduction (Earlier 20%

Disallowance) Cash payment made againstany liability of previous year in excess of Rs. 20,000/-

The payment made is deemed to be income

Sec 41 (1) &

Sec 59

Section 41(1) and Sec 59:

Where an allowance or deduction has been made in the assessment year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year any benefit is derived by the assessee, then that benefit is chargeable to Income Tax as income from business or profession.

Also, if any amount is received in excess of WDV of Block of Asset, then so much of the excess as does not exceed the difference between the actual cost and the written down value shall be chargeable to income-tax as income of the business.

Sec 41(1) &

Sec 59

Where an asset representing expenditure of a capital nature on scientific research (Sec 35) is sold, the amount received to an extent of deduction claimed is charged as business Income.

Bad Debts recovered are business income.

However, remission of Capital Liability is not business income.

80IC

Deduction of Income of

undertakings from Special

Category States

Sec 80IC – Deduction of Income of Undertakings from Special Category States:

Business of Manufacturing of Articles except as specified in XIII Schedule

Commences production between the period – 07/01/ 2003 and 01/04/ 2012

Notified areas of the State of Himachal Pradesh or the State of Uttaranchal

Deduction under the Income Tax Act:

For first 05 years 100% of profits of the undertakingFor next 05 years 30% of profits of the undertaking

Sec 145A

Valuation of Closing Stock

Sec 145A – Valuation of Closing Stock As per Accounting Standards - Para 6 and 7 of AS-2 " Valuation on Inventories"

implies that "Cost of Purchases" includes only those taxes, which are not subsequently recoverable by the enterprise from the taxing authorities."

As per Income Tax (Section 145A) – Notwithstanding anything to the contrary contained in

section 145, the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head “Profits and gains of business or profession” shall be—(a) in accordance with the method of accounting regularly employed by the assessee; and

Sec 145A

Valuation of Closing Stock

(b) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation

Reporting RequirementsEffect needs to be quantified in the Tax Audit Report.

Mum ITAT – Dy. CIT v/s Hitech Plast Containers Pvt. Ltd., it was held that irrespective of the method followed by the assessee for accounting excise duty, adjustments as specified u/s 145A are to be made.

ISSUE

MSMED Act, 2006:

Interest inadmissible under Sec 23 of MEMED Act, 2006:

Notwithstanding anything contained in the Income-tax Act, 1961, the amount of interest payable or paid by any buyer, under or in accordance with the provisions of this Act, shall not, for the purposes of computation of income under the Income-tax Act, 1961, be allowed as deduction.

Due Date of Payment• Due date as agreed by the buyer and seller in

writing• If not agreed in writing, due date is 15 days from

the date of acceptance• In no case, the period agreed in writing shall

exceed 45 days

ISSUE

MSMED Act, 2006:

Interest Payable• Compound interest with monthly rests at 03 times

of the Bank Rate.

Disclosure Requirements• Principal & Interest Due (Separately) to supplier

at year end• Amount of Interest Paid u/s 16 & amounts paid

beyond appointed date.• Amount of interest due and payable for the period

of delay in making payment.• Amount of interest accrued and remaining

unpaid.• Amount of further interest remaining due and

payable even in the succeeding years, until such date when the interest dues as above are actually paid.

Issue –

Warranty Claims

Provision For Warranty Claims:

In a recent judgment by Supreme Court of India in “Rotork Controls India Pvt. Ltd., it was held that:

For a provision to qualify for recognition there must be a present obligation arising from past events, settlement of which is expected to result in an outflow of resources and in respect of which a reliable estimate of amount of obligation is possible. Thus, if historical trend from the data maintained by the assessee suggests that defects exist in some of the items manufactured and sold, then provision made for warranty in respect of goods sold during the year would be entitled as allowable expenditure.

Issue

SEC -43 B

CERTAIN DEDUCTIONS – PAYMENT BASIS:

G Ltd borrowed a certain sum of money from a public financial institution for 10 years. In the first year itself, it restructured the loan by paying a sum of Rs. 8 Crs. to the institution. The Company claimed the amount as revenue expenditure. AO is of the view that the amount has to be amortized over the period of 10 years.

Sec 37(1) and Sec 43B / Delhi High Court Commissioner of Income Tax v/s Gujarat Guardian Ltd.

New procedure

forex payments

New Procedure for Remittance w.e.f. 01-07-2009 (Notification No. 30/2009):

Current Procedure: Instructions are given to Bank for payment along

with a Certificate obtained from Chartered Accountant regarding applicability of TDS and payment thereof.

New Procedure:

Certificate to be obtained from Chartered Accountant in Form 15CB

Form 15 CA to be filled in and upload on designated Income Tax site for which an Online Acknowledgement would be generated

Instructions to be given to Bank along with the Acknowledgement.

QUESTIONS?

THANK YOU