Module 8Tax for Accounts Class

7/30/2019 Module 8Tax for Accounts Class

1/63

Module 8

Income Tax

Act, 1961(A.Y. 2012-13)


2/63

26/21/2013


3/63

Charge of Income Tax

Income tax is charged in assessment year at rates

specified by the Finance Act applicable on 1st April of

the relevant assessment year.

It is charged on the total income of every person for

the previous year.

Total Income is to be computed as per the provisions

of the Act.

Income tax is to be deducted at source or paid inadvance wherever required under the provision of

the Act.

36/21/2013


4/63

Important Definitions

1. Assessment Year u/s 2(9) means, the period of 12

months commencing on the 1st April every year. It is

the year (just after previous year) in which income

earned is charged to tax.

The current Assessment is 2012-2013.

2. Previous Year u/s (Sec,3) means, the year in

which income is earned.

46/21/2013


5/63

Contd

3. Person u/s 2(31) includes,i. An Individual,

ii. Hindu Undivided Family (HUF),

iii. A Company,

iv. A Firm,

v. An Association of Persons(AOP) or Body of

Individuals (BOI),

vi. A Local Authority,vii. Every other Artificial Juridical Person

56/21/2013


6/63

Contd

4. Gross Total Income (G.T.I) :- The aggregateincome under the 5 heads of income (viz. Salary,

House Property, Business or Profession, Capital

Gains & Other Sources) is termed as Gross Total

Income.

5. Total Income (T.I) :- Total Income of assessee is

gross total income as reduced by the amount

permissible as deduction under sections 80C to

80U.

66/21/2013


7/63

76/21/2013


8/63

Types of Residential Status

The different types of residential status are:-

8

Resident(R)

Not Ordinarily Resident (NOR)

Non-Resident (NR)

6/21/2013


9/63

96/21/2013


10/63

RATES OF INCOME TAX (Assessment Year 2012-13)

1. In case of every Individual/ HUF/ AOP/BOI artificial juridical Person.

10

INCOME

(A.Y. 2012-13

TAX RATE Education

cess

SHEC

Up to 180,000 NIL Nil Nil

180,001

500,000

10% 2% of IT 1% of IT

500,001-

800,000

20% 2% of IT 1% of IT

Above 800,000 30% 2% of IT 1% of IT

6/21/2013


11/63


2. In case of resident women below 60 years of age.

11

INCOME

(A.Y. 2012-13

TAX RATE Education

cess

SHEC


180,001

500,000

10% 2% of IT 1% of IT

500,001-

800,000

20% 2% of IT 1% of IT

Above 800,000 30% 2% of IT 1% of IT

6/21/2013


12/63


3. In case of resident senior citizen i.e. age of 60 years or above

12

INCOME

(A.Y. 2012-13)

TAX RATE Education

cess

SHEC


250,001

500,000

10% 2% of IT 1% of IT

500,001-

800,000

20% 2% of IT 1% of IT

Above 800,000 30% 2% of IT 1% of IT

6/21/2013


13/63


4. In case of resident super senior citizen i.e. age of 80 years or above

13

INCOME

(A.Y. 2012-13)

TAX RATE Education

cess

SHEC


500,001-

800,000

20% 2% of IT 1% of IT

Above 800,000 30% 2% of IT 1% of IT

6/21/2013


14/63

Contd

PERSONS TAX RATE

FIRMS 30%

DOMESTIC COMPANY 30%

FOREIGN COMPANY 40%

LOCAL AUTHORITIES 30%

CO-OPERATIVE SOCIETIES

Up to 1000010000-20000

Above 20000

10%20%

30%

146/21/2013


15/63

Surcharge & Cess

PERSON RATE OF SURCHARGE

Individual / AOP / BOI / HUF /

Artificial Juridical PersonNil

Firm 5% of tax liability, if Income exceeds Rs. 1 Crore

Domestic Company 5% of tax liability, if Income exceeds Rs. 1 Crore

Foreign company 2% of tax liability, if Income exceeds Rs. 1 Crore

156/21/2013


16/63


17/63

176/21/2013


18/63


19/63

Computation of salary income

Salary

Perquisites

{ 17 (2)}

Allowanc-es

{17(3)}

Profit inlieu ofsalary{17(4)}

Salary

{17(1)}


20/63

Meaning

Salary includes [section17(1)] :-i. Wages

ii. Any annuity on pension

iii. Any gratuity

iv.Any fees, commission, bonus, perquisite on profits in lieu ofor in addition to any salary on wages

v. Any advance of salary

vi.Any earned leave

vii.Employers contribution (taxable) towards recognized

provident fund.

206/21/2013


21/63

BASIS OF CHARGE

Income is taxable under head Salaries, only if there exists Employer -

Employee Relationshipbetween the payer and the payee. The following

incomes shall be chargeable to income-tax under the headSalaries:-

1.Salary Due

2.Advance Salary [u/s 17(1)(v)]3.Arrears of Salary

Note:

(i)Salary is chargeable on due basis or receipt

basis, whichever is earlier.

(ii)Advance salary and Arrears of salary are

chargeable to tax on receipt basis only.

216/21/2013


22/63

Allowances

Allowance is generally defined as a fixed quantity ofmoney or other substance given regularly in additionto salary for the purpose of meeting some particular

requirement connected with the services rendered by

the employee or as compensation for unusualconditions of that service.

1.Dearness Allowance - It is Always Taxable.

2.City Compensatory Allowance - It is Always Taxable.

3. House Rent Allowance

4.Entertainment allowance

5.Special allowances226/21/2013

Contd


23/63

ContdExemption is available on the aforesaid basis in the case of following allowances :-

23

NAME OF ALLOWANCE NATURE OF ALLOWANCE

Travelling

Allowance/

Transfer Allowance

Any allowance granted to meet the cost of travel on tour or on

transfer (including sum paid in connection with transfer, packing

and transportation of personal effects on such transfer).

Conveyance Allowance Conveyance allowance granted to meet the expenditure onconveyance in performance of duties of an office (expenditure for

covering the journey between office and residence is not to be

included).

Daily Allowance Any allowance whether granted on tour or for the period of journeyin connection with transfer, to meet the ordinary daily chargesincurred by an employee on account of absence from this normal

place of duty.

6/21/2013


24/63

Contd

6. When exemption does not depend uponexpenditure - In the cases given below, the

amount of exemption does not depend upon

expenditure incurred by the employee.

Regardless of the amount of expenditure, the

allowances given below are exempt to the

extent of

i. the amount of allowance ; orii. the amount specified in rule 2BB,

Whichever is lower.

246/21/2013


25/63

Contd

Name of allowance Exemption as specifiedin rule 2BB

Special Compensatory

(Hill Areas) Allowance

Amount exempt from tax varies from Rs. 300 per mount to Rs. 7,000 per

month

Border area allowanceThe amount of exemption varies from Rs. 200 Per month to Rs. 1,300 per

month

Tribal areas/ scheduledareas allowance

Rs. 200 Per Month

Allowance for transport

employees

The amount of exemption is-

a.70 per cent of such allowance; or

b.Rs. 6,000 per month, whichever is lower.

Children educationallowance

The amount exempt is limited to Rs. 100 per month per child up to amaximum of two children.

Hostel expenditure

allowance

It is exempt from tax to the extent of Rs. 300 per month per child up to a

maximum of two children.

Compensatory field area

allowanceExemption is limited to Rs. 2,600 per month in some cases.

256/21/2013


26/63

Contd

26

Name of Allowance Exemption as Specified in Rule 2BB

Compensatory modified

area allowanceExemption is limited to Rs.1,000 per month in some cases.

Counter insurgency

allowanceExemption is limited to Rs.3,900 per month in some cases.

Transport allowanceIt is exempt up to Rs. 800 per month (Rs. 1,600 per month in the case of

an employee who is blind or orthopedically handicapped)

Underground allowance Exemption is limited to Rs. 800 per month.

High altitude allowance

It is exempt from tax up to Rs. 1,060 per month (for altitude of 9,000 to

15,000 feet) or Rs. 1,600 per month (for altitude above 15,000 feet).

Highly active field area

allowanceIt is exempt from tax up to Rs. 4,200 per month.

Island duty allowance It is exempt up to Rs. 3,250 per month.

6/21/2013


27/63

Contd

7. Allowance to Government employees outsideIndia [Sec. 10( 7)] - Any allowance paid or

allowed outside India by the Government to an

Indian citizen for rendering service outside India

is wholly exempt from tax.

8. Tiffin allowance - It is taxable.

9. Fixed medical allowance It is taxable.

10.Servant allowance - It is taxable.

276/21/2013


28/63

Contd

11.Allowance to High Court and Supreme CourtJudges - Any allowance paid to High Court

Judges under section & 22C of the High Court

Judges (Conditions of Service) Act, 1954 is not

chargeable to tax.12.Allowance received from a United Nations

Organization - Allowance paid by a United

Nations Organization to its employees is not

taxable by virtue of section 2 of the UN (Privileges

and Immunities) Act, 1974.

286/21/2013


29/63

PERQUISITES

Perquisite may be defined as any Casual EmolumentorBenefitattached to an office or position in Addition to

Salary or Wages.

It also denotes something that benefits a man by going

in to his own pocket. Perquisites may be provided in

cash or in kind. Perquisites are included in salary

income only if they are received by an employee from

his employer.

296/21/2013


30/63

Perquisites as defined u/s 17 (2)

The term perquisites is defined by section 17 (2)as including the following items:

1.The value of Rent-free Accommodation provided to

the assessee by his employer

2.The value of any concession in the matter of rent

respecting any accommodation provided to the

assessee by his employer

306/21/2013


31/63

Contd

3. The value of any benefit or amenity grantedor providedfree of cost or at concessional rate in any of the

following cases :

i. By a company to an employee who is a director thereof ;

ii. By a company to an employee, being a person who hassubstantial interest in the company ;

iii. By any employer (including a company) to an employee to

whom provisions of (i) and (ii) above do not apply and whose

income under the head salaries exclusive of the value of all

benefits or amenities not provided for by way of monetarybenefits, exceeds Rs. 50,000

316/21/2013


32/63

Contd

4. Any sum paid by the employer in respect of anyobligation which but for such payment would have been

payable by the assessee. Obligation of Employee met

by Employer.

5. Any sum payable by the employer, whether directly orthrough a fund other than a recognized provident fund

or approved superannuation fund or a deposit-linked

insurance fund, to effect an assurance on the life of the

assessee or to effect a contract for an annuity

6. The value of any other fringe benefits or amenity as

may be prescribed

326/21/2013

PROFIT IN LIEU OF


33/63

PROFIT IN LIEU OF

SALARY[Sec17(4)

a) Any compensation received from present or pastemployer during relevant previous year on terminationof service or on modification of terms of services.

b) Any other payment received from present or pastemployer except given u/s 10(10) 10(10A) , 10(AA) ,

10(10B) , 10(11) , 10(13) , 10(13A) and any paymentout of provident fund to the extent it is taxable .

c) Any amount due to or received whether in lump sum orotherwise by any assessee from any person :

A) Before his joining any employment with that person

; orB) After cessation of his employment with that person.

All above payments are fully taxable unless exemptedu/s 10


34/63

TERMINAL BENEFITS

1. Gratuity [Sec.10(10)] Gratuity is a retirement benefit. It isgenerally payable at the time of cessation of employment and on thebasis of duration of service. Tax treatment of gratuity is given below:

34

Status of Employee

Government Employee Non-government employee

covered by the payment of

Gratuity Act, 1972

Non-government employee not

covered by the payment of

Gratuity Act, 1972

It is fully exempt fromtax under section

10(10)(i) Least of following is exempt:1) 15 days salary x Length of

service

2) Rs. 3, 50, 000

3) Gratuity actually received.

Least of following is exempt:

1) month avg. salary x Length

of service

2) Rs. 3, 50, 000

3) Gratuity actually received.

6/21/2013


35/63

Contd

2. PENSION [SEC. 17(1)(ii)]- Pension is chargeable tax asfollows :-

35

PENSION

Taxable for

Government as wellas Non-Government

employeesEntire Commuted

Pension is exempt

whether or not Gratuity

received.

UNCOMMUTEDCOMMUTED

Government

Employee

Non-Government

Employee

1/3 of commuted

pension is

exempt

If GratuityReceived

If Gratuity notReceived

1/2 of commuted

pension is

exempt

6/21/2013


36/63

Contd

3.Annuity [Sec. 17(1)(ii)] An annuity payable by a presentemployer is taxable as salary even if it is paid voluntarilywithout any contractual obligation of the employer. An annuity

received from an ex-employer is taxed as profit in lieu of

salary.

4.Retrenchment compensation [Sec. 10(10B)] Compensation received by a workman at the time of

retrenchment is exempt from tax to the extent of the lower of

the following:

366/21/2013


37/63

Contd

5. Compensation received at the time ofVoluntary Retirement [sec.10 (10C)] -

Compensation received at the time of

voluntary retirement is exempt from tax,subject to certain conditions. Maximum

amount of exemption is Rs. 500000.

376/21/2013


38/63

Provident Fund

Provident Fund Scheme is a welfare schemefor the benefit of employees. The employee

contributes certain sum to this fund every

month and the employer also contributescertain sum to the provident fund in

employees A/c. the employers contribution to

the extent of 12% is not chargeable to tax.

386/21/2013


39/63

LEAVE SALARY

Encashment of leave by surrendering leave standing to ones credit is

known as leave salary.

39

LEAVE ENCASHMENT

During EmploymentRetirement / Leaving the Job

Chargeable to

Tax

Non-Government

Employee

Government

Employee

Fully Exempt

Least of following is exempt :-

1) Earned Leave on the basis of

Average Salary

2) 10 x Average monthly salary

3) Rs. 300000

4) Leave Salary Received

6/21/2013

Deductions Admissible in Computing


40/63

Deductions Admissible in Computing

Income under head SALARIES

1. Entertainment allowance granted by employer[Sec.16(ii)]: This deduction is available in case of

Government employees only.

2. Employment Tax / Professional Tax [Sec.16(iii)]:

Any sum paid by assessee on account of a tax on

employment within the meaning of Article 276(2).

Under the said article employment tax cannot

exceed Rs. 2500 p.a.

406/21/2013

Relief in respect of


41/63

Relief in respect of

Advance or Arrears of Salary u/s 89

When an assessee is in receipt of a sum in thenature of salary, being paid in arrears or in advance,

due to which his total income is assessed at a rate

higher than that at which it would otherwise have

been assessed, Relief is granted on anapplication made by the assessee to the assessing

officer.

416/21/2013


42/63

Eligible Amount u/s 80C


43/63

Any sums paid or deposited by the assessee 1.As Life Insurance premiumto effect or keep in force

insurance on life of

(a) self, spouse and any child in case of individual and(b) any member, in case of HUF.

Insurance premium should not exceed 20% of the actualcapital sum assured.

2.To effect or keep in force a Non Commutable deferredannuity contract on life of self, spouse and any child in

case of individual



44/63


3.By way ofdeduction from salary payable by oronbehalf of the Government to any individual forthe purpose of securing to him a deferredannuity or making provision for his spouse orchildren.

The sum so deducted does not exceed 1/5th ofthe salary.

4.As contribution (not being repayment of loan)by an individual to Statutory Provident Fund


45/63


5.As contribution to PPF scheme, 1968 in thename of self, spouse & any child in case ofindividual and any member in case of HUF.

6.As contribution by an employee to arecognized provident fund.

7.As contribution by an employee to an

approved superannuation fund.


46/63


8.Subscription to the NSC (VIII issue). 9.As a contribution to Unit-linked Insurance Plan

(ULIP) of UTI or LIC Mutual Fund (Dhanraksha plan)in the name of self, spouse and child in case ofindividual and any member in case of HUF.

10.To effect or to keep in force a contract for suchannuity plan of the LIC (i.e. Jeevan Dhara, JeevanAkshay and their upgradations) or any other insurer

11.As subscription to any units of any Mutual Fundnotified u/s 10(23D) (Equity Linked SavingSchemes).


47/63


12.As a contribution by an individual to anypension fund set up by any Mutual Fundnotified u/s 10(23D).

13.As subscription to any such deposit schemeofNational Housing Bank (NHB), or as acontribution to any such pension fund set up byNHB as notified by Central Government


48/63


14.As subscription to notified deposit schemesof (a) Public sector company providing long termfinance for purchase/construction of residentialhouses in India or (b) any authority constituted inIndia for the purposes of housing or planning,development or improvement of cities, towns andvillages.


49/63


15.As tuition fees(excluding any payment towards anydevelopment fees or donation or payment of similarnature), to any university, college, school or othereducational institution situated within India for thepurpose of full-time education of any two children ofchildren of Individuals

16.Towards the cost ofpurchase or construction of aresidential house property (including the repayment of loanstaken from Government, Bank, LIC, NHB, assesseesemployer etc., and also the stamp duty, registration fees andother expenses for transfer of such house property to the

assessee


50/63


17.As subscription to equity shares or debenturesforming part of any eligible issue of capital of publiccompany or any public financial institution approved

by Board. 18 Bank Fixed Deposit with 5 Years Lock inPeriod

19 Subscription to Notified Bonds of NABARD

20 Deposit with Senior Citizen Saving Scheme 21 Time Deposit with Post Office of 5 Years

Contribution To Certain Pension Funds


51/63

Contribution To Certain Pension Funds[Section 80CCC]

Amount paid or deposited by individual in the previousyear

out of his income chargeable to tax

to effect or keep in force a contract for any annuity plan of LIC

or any other insurer

for receiving pension from the fund referred to in section

10(23AAB).

Quantum of Deduction: Deduction shall be allowed to

the extent of lower of the following

Amount so paid or deposited; or

Rs. 1,00,000

516/21/2013

Contribution to Pension Scheme of Central


52/63

Contribution to Pension Scheme of Central

Government or any Other Employer [Sec. 80CCD]

Deduction in respect of: Deduction is available inrespect of both of the following

Sum deposited by assessee in his account in notified pension

scheme; and

Contribution made by Central Govt. or any other employer toassesses A/c.

Quantum of Deduction: Deduction shall be allowed to

the extent of aggregate of the following -

52

Sum paid/deposited by assessee to the credit of his a/c or 10% of salary,whichever is lower

Sum contributed by the employer in assesses A/c or 10% of salary, whichever is

lower

6/21/2013


53/63

Aggregate Limit u/s 80C, 80CCC & 80CCD

The aggregate amount ofdeductions under section 80C,

section 80CCC and section

80CCD shall not, in any case,exceed Rs.1,00,000.

536/21/2013

Deduction In Respect Of


54/63

pHealth Insurance Premia [Sec. 80D]

Deduction is available in respect of the amount paid toeffect or to keep in force health insurance under a

scheme

made by General Insurance Corporation of India (GIC) and

approved by Central Government; or

made by any other insurer and approved by Insurance Regulatory

and Development Authority.

Deduction shall be to the extent of lower of

Health insurance premia paid in respect of health of any member

of that HUF; or Rs. 15,000 (Rs. 20,000 in case the insured

is a senior citizen).

546/21/2013

Maintenance of A Dependant Being


55/63

p gPerson With Disability [Section 80DD]

Deduction is available in respect of expenditure incurred for medical / treatment / nursing / training/

rehabilitation, or

amount paid under scheme LIC / UTI other insurer approved by

CBDT for maintenance, of a dependant, being a person with

disability.

Deduction shall be allowed to the extent of

Rs. 50,000 (Rs. 75,000 in case of dependant suffering with severe

disability), irrespective of expenditure incurred or sum paid.

556/21/2013

Deduction in respect of


56/63

pMedical Treatment, etc. [Sec. 80DDB]

Deduction is available in respect of sum actually paidduring previous year for medical treatment of prescribed

disease or ailment for the following

In case of individual: himself or his spouse, children, parents,

brothers and sisters,

In case of HUF: its member(s),

dependant mainly on such individual or HUF for his support and

maintenance.

Deduction shall be available to the extent of lower of the

following sum actually paid; or

Rs. 40,000 (Rs. 60,000 in case of a senior

citizen).

566/21/2013

Deduction in respect of Interest on Loan


57/63

ptaken for Higher Education [Sec.80E]

Deduction in available in respect of sum

paid by the assessee in the previous year,

out of his income chargeable to tax, by

way of interest on loan taken for his higher education, or

for the higher education of his relative.

100% of the amount of interest on such

loan Deduction will be admissible.

576/21/2013

Deduction in respect of Donations


58/63

Deduction in respect of Donations[Section 80G]

Deduction is allowed under this section to all assessesin respect of donations of sum of money in the

following manner

100% deduction will be allowed if donations are given to any

of the 19 specified funds.

50% deduction will be allowed if donations made to any of the

5 specified funds.

100% deduction shall be allowed subject to the qualifying

amount if donations are made for promoting family planning.

50% deduction shall be allowed subjectto the qualifying amount if donations are

made towards any of the 5 specified

purposes.

586/21/2013

Deductions in respect of Rents Paid


59/63

educt o s espect o e ts a d[Sec.80GG]

Rent actually paid for any furnished orunfurnished residential accommodation occupied

by the Individual, who is not in receipt of any

House Rent Allowance (HRA).

The deduction shall be allowed to the extent ofleast of the following

Rs. 2,000 per month;

25% of adjusted total income; Rent paid less 10% of adjusted Total Income.

596/21/2013

Deduction in respect of person with


60/63

p pDisability [Section 80U]

Eligible Assessee: Individual resident inIndia, who, at any time during the previous

year, is certified by the medical authority to

be a person with disability Deduction: Rs. 50,000 (Rs. 75,000 for

severe disability). Severe disability means

80% or more of disability.

606/21/2013

Oth D d ti


61/63

Other Deductions

Deduction in respect of certain Donations for Scientific

Research or Rural Development [Sec.80GGA]

Deduction in respect of Contribution to Political Parties

[Sec. 80GGB & 80GGC]

Profits & Gains from Industrial Undertaking engaged inInfrastructure Development [Sec. 80 IA]

Profits & Gains from Undertaking engaged in

Development of SEZs [Sec. 80IAB]

Profits & Gains from IndustrialUndertaking engaged in other than in

Infrastructure Development [Sec.80IB]

616/21/2013

C td


62/63

Contd

Deduction available to certain Undertakings in certainSpecial category States [Sec.80IC]

Profits & Gains from business of Hotels & Convention

Centre in Specified Areas [Sec. 80ID]

Special provisions in respect of certain Undertakings inNorth-Eastern States [Sec. 80IE]

Deduction available to assessee in the business of

Collecting & Processing Bio-Degradable Waste

[Sec.80JJA]Deduction in respect of Employment of New Workmen

[Sec. 80JJAA]

626/21/2013

C td


63/63

Contd

Deduction from incomes of Off-shore Banking Units& International Financial Services Centre [Sec.80LA]

Deduction in respect of income of Co-operative

Society [Sec. 80P]

Deduction in respect of Royalty Income, etc. ofAuthor of certain Books other than Text Books

[Sec.80QQB]

Deduction in respect of Royalty Income of Patents

[Sec. 80 RRB]

Module 8Tax for Accounts Class

Documents

Transcript of Module 8Tax for Accounts Class