Income tax-ppt

Income Tax (A.Y. 2011-12 & 2011-12)

INDEX Introduction Residential Status Tax Rates Income from Salary Income from House Property Income from Business & Profession Capital Gains Income from Other Sources Clubbing of Income 01/14/12

Contd… Set-off Carry Forward Deductions from Gross Total Income Agricultural Income 01/14/12

Charge of Income Tax Income tax is charged in assessment year at rates specified by the Finance Act applicable on 1 st 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 in advance wherever required under the provision of the Act. 01/14/12

Important Definitions Person u/s 2(31) includes, An Individual, Hindu Undivided Family (HUF), A Company, A Firm, An Association of Persons(AOP) or Body of Individuals (BOI), A Local Authority, Every other Artificial Juridical Person 01/14/12

Contd… Assessment Year u/s 2(9) means, the period of 12 months commencing on the 1 st April every year. It is the year (just after previous year) in which income is earned is charged to tax. The current Assessment is 2011-2012. Previous Year u/s 2(34) means, the year in which income is earned. 01/14/12

Contd… Gross Total Income (G.T.I) :- The aggregate income under the 5 heads of income (viz. Salary, House Property, Business or Profession, Capital Gains & Other Sources) is termed as “Gross Total Income”. 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. Index 01/14/12

Types of Residential Status The different types of residential status are:- 01/14/12 Resident(R) Not Ordinarily Resident (NOR) Non-Resident (NR)

Residential Status of Individual The residential status of individual will be determined as under- 01/14/12 Assessee Basic Condition Additional Condition Resident He must satisfy at one of the basic conditions. Not required. Not Ordinarily Resident He must satisfy at least one of the basic conditions. He must satisfy either one or both the additional conditions given u/s 6(6). Non-Resident Should not satisfy any of the basic conditions. Not required.

Contd… Basic Conditions u/s 6(1): He must be in India for a period of 182 days or more during the previous year; or He must be in India for a period of 60 days or more during the previous year and 365 days or more during the four years immediately preceding the previous year. Additional Conditions u/s 6(6): He must be a non-resident in India in nine out of the ten previous years preceding that year; or He must be in India during 7 preceding previous years for aggregate period of 729 days or less. 01/14/12

Residential Status of HUF The residential status of HUF depends upon the control and management of its affairs. Resident HUF : If the control and management of the affairs of HUF is situated wholly or partly in India then HUF is said to be Resident in India. Non- Resident HUF : If the control and management of the affairs of HUF is situated wholly outside India then HUF is said to be Non- Resident in India. Not Ordinarily Resident HUF : A resident HUF is said to be ‘Not Ordinarily Resident’ in India if Karta or manager thereof, satisfies any of the additional conditions u/s 6(6). 01/14/12

Residential Status According to section 6(3) an Indian Company is always Resident in India. A foreign Company will be resident in India if Control or Management of its affairs is wholly situated in India. Residential Status of a firm or AOP or other person depends upon control and management of its affairs. Resident : If the control and management of the affairs of a firm or AOP or other person is situated wholly or partly in India then such a firm or AOP or other person is said to be resident in India. Non-Resident : If the control and management of the affairs of a firm or AOP or other person is situated outside India then such a firm or AOP or other person is said to be non-resident in India. 01/14/12

Incidence of Tax Particulars Tax Incidence R NOR NR Income received in India by or on behalf of assessee Yes Yes Yes Income deemed to received in India by or on behalf of assessee Yes Yes Yes Income accruing or arising in India Yes Yes Yes Income deemed to accrue or arise in India Yes Yes Yes Income which accrues or arise outside India Yes No No

RATES OF INCOME TAX (Assessment Year 2009-10 ) In case of every Individual/ HUF/ AOP/BOI artificial juridical Person. 01/14/12 S.No INCOME TAX RATE 1 Up to 180000 NIL 2 180010-500000 10% 3 500010-800000 20% 4 Above 800000 30%

Contd… In case of resident women below 65 years of age. 01/14/12 S.No INCOME TAX RATE 1 Up to 190000 NIL 2 190010-500000 10% 3 500010-800000 20% 4 Above 800000 30%

Contd… In case of resident senior citizen i.e. age of 65 years or above 01/14/12 S.No INCOME (A.Y. 2010-11) TAX RATE 1 Up to 250000 NIL 2 250010-500000 10% 3 500010-800000 20% 4 Above 800000 30%

Contd… 01/14/12 PERSONS TAX RATE FIRMS 30% DOMESTIC COMPANY 30% FOREIGN COMPANY 40% LOCAL AUTHORITIES 30% CO-OPERATIVE SOCIETIES Up to 10000 10000-20000 Above 20000 10% 20% 30%

Surcharge & Cess Index 01/14/12 PERSON RATE OF SURCHARGE Individual / AOP / BOI / HUF / Artificial Juridical Person 10% of tax liability if Income Exceeds Rs 10 Lacs Firm 10% of tax liability, if Income exceeds Rs. 1 Crore Domestic Company 10% of tax liability, if Income exceeds Rs. 1 Crore Foreign company 2.5% of tax liability, if Income exceeds Rs. 1 Crore Co-operative Society N.A. Local Authority N.A. Education Cess and Secondary & Higher Education Cess is applicable on every person @ 2% & 1% respectively on tax liability and surcharge applicable, if any.

Meaning Salary includes [section17(1)] :- Wages Any annuity on pension Any gratuity Any fees, commission, bonus, perquisite on profits in lieu of or in addition to any salary on wages Any advance of salary Any earned leave Employers contribution (taxable) towards recognized provident fund. 01/14/12

BASIS OF CHARGE Income is taxable under head “Salaries”, only if there exists Employer - Employee Relationship between the payer and the payee. The following incomes shall be chargeable to income-tax under the head “Salaries”:- Salary Due Advance Salary [u/s 17(1)(v)] 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. 01/14/12

Allowances Allowance is generally defined as a fixed quantity of money or other substance given regularly in addition to salary for the purpose of meeting some particular requirement connected with the services rendered by the employee or as compensation for unusual conditions of that service. Dearness Allowance - It is Always Taxable . City Compensatory Allowance - It is Always Taxable . 01/14/12

Contd… House Rent Allowance Exemption In Respect Of House Rent allowance is regulated by rule 2A. The least of the three given below is Exempt from Tax. 01/14/12 1 An Amount Equal to 50 % of Salary. Where Residential House in situated at Bombay, Calcutta, Delhi or Madras and An Amount Equal to 40 % of Salary where Residential House is situated at any Other Place. 2 House Rent Allowance Received by The Employee in Respect of The Period during which Rental Accommodation is Occupied by the Employee during the Previous Year. 3 The Excess of Rent Paid over 10 % of Salary.

Contd… Entertainment allowance [sec.169(ii)] - Entertainment allowance is first included in salary in come under the head “salaries” and thereafter a deduction is given on the basis enumerated below: Government Non- Government Least of the Following is deductible : 1. Rs. 5000 2. 20 % of basic salary 3. Amount of entertainment allowance grated during the previous year Nothing is deductible Status of Employee 01/14/12

Contd… Special allowances prescribed as exempt under section 10(14) – In the cases given below the amount of exemption under section 10(14) is :– The amount of the allowance ; or The amount utilized for the specific purpose for which allowance is given. Whichever is lower . 01/14/12

Contd… Exemption is available on the aforesaid basis in the case of following allowances :- 01/14/12 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 on conveyance 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 journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from this normal place of duty.

Contd… When exemption does not depend upon expenditure - 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 – the amount of allowance ; or the amount specified in rule 2BB, Whichever is lower. 01/14/12

Contd… 01/14/12 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 allowance The amount of exemption varies from Rs. 200 Per month to Rs. 1,300 per month Tribal areas/ scheduled areas allowance Rs. 200 Per Month Allowance for transport employees The amount of exemption is- 70 per cent of such allowance; or Rs. 6,000 per month, whichever is lower. Children education allowance The amount exempt is limited to Rs. 100 per month per child up to a maximum 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 allowance Exemption is limited to Rs. 2,600 per month in some cases.

Contd… 01/14/12 Name of Allowance Exemption as Specified in Rule 2BB Compensatory modified area allowance Exemption is limited to Rs.1,000 per month in some cases. Counter insurgency allowance Exemption is limited to Rs.3,900 per month in some cases. Transport allowance It 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 allowance It is exempt from tax up to Rs. 4,200 per month. Island duty allowance It is exempt up to Rs. 3,250 per month.

Contd… Allowance to Government employees outside India [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. Tiffin allowance - It is taxable. Fixed medical allowance – It is taxable. Servant allowance - It is taxable. 01/14/12

Contd… Allowance to High Court and Supreme Court Judges - 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. 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. 01/14/12

PERQUISITES Perquisite may be defined as any Casual Emolument or Benefit attached 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. 01/14/12

“ Perquisites” as defined u/s 17 (2) The term “perquisites” is defined by section 17 (2) as including the following items: The value of Rent-free Accommodation provided to the assessee by his employer The value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer 01/14/12

Contd… The value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases : By a company to an employee who is a director thereof ; By a company to an employee, being a person who has substantial interest in the company ; 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 monetary benefits, exceeds Rs. 50,000 01/14/12

Contd… Any sum paid by the employer in respect of any obligation which but for such payment would have been payable by the assessee. Obligation of Employee met by Employer. Any sum payable by the employer, whether directly or through 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 The value of any other fringe benefits or amenity as may be prescribed 01/14/12

TERMINAL BENEFITS Gratuity [Sec.10(10)] – Gratuity is a retirement benefit. It is generally payable at the time of cessation of employment and on the basis of duration of service. Tax treatment of gratuity is given below : 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 01/14/12 It is fully exempt from tax under section 10(10)(i ) Least of following is exempt: “ 15 days’ salary” x “Length of service” Rs. 3, 50, 000 Gratuity actually received . Least of following is exempt: “ ½ month avg. salary” x “Length of service” Rs. 3, 50, 000 Gratuity actually received .

Contd… PENSION [SEC. 17(1)(ii)] - Pension is chargeable tax as follows :- Government Employee Non-Government Employee If Gratuity Received If Gratuity not Received 01/14/12 PENSION Taxable for Government as well as Non-Government employees Entire Commuted Pension is exempt whether or not Gratuity received . UNCOMMUTED COMMUTED 1/3 of commuted pension is exempt 1/2 of commuted pension is exempt

Contd… Annuity [Sec. 17(1)(ii)] – An annuity payable by a present employer is taxable as salary even if it is paid voluntarily without any contractual obligation of the employer. An annuity received from an ex-employer is taxed as profit in lieu of salary. 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: a. an amount calculated in accordance with the provisions of sec. 25F(b) of the Industrial Disputes Act, 1947; or b. such amount as notified by the Government (i.e., Rs, 5, 00, 000); or c. the amount received. 01/14/12

Contd… Compensation received at the time of Voluntary 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. 01/14/12

Provident Fund Provident Fund Scheme is a welfare scheme for the benefit of employees. The employee contributes certain sum to this fund every month and the employer also contributes certain sum to the provident fund in employees A/c. the employers contribution to the extent of 12% is not chargeable to tax. 01/14/12

LEAVE SALARY Encashment of leave by surrendering leave standing to one’s credit is known as “leave salary ”. LEAVE ENCASHMENT During Employment Retirement / Leaving the Job Chargeable to Tax Non-Government Employee Government Employee Fully Exempt Least of following is exempt :- Earned Leave on the basis of Average Salary 10 x Average monthly salary Rs. 300000 Leave Salary Received 01/14/12

Deductions Admissible in Computing Income under head ‘SALARIES’ Entertainment allowance granted by employer [Sec.16(ii)] : This deduction is available in case of Government employees only. 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. 01/14/12

Relief in respect of Advance or Arrears of Salary u/s 89 When an assessee is in receipt of a sum in the nature 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 an application made by the assessee to the assessing officer. Index 01/14/12

Basis of Charge The basis of charge of income under the head ‘income from house property’ is the Annual Value of the property. Annual Value is inherent capacity of the property to earn an income. It is the amount for which the property might reasonably be expected to let from year to year. Income from house property is charged to tax on Notional Basis , as generally tax is not on receipt of income but on the inherent potential of the house property to generate income. 01/14/12

Conditions to be Satisfied The property must consist of buildings or lands appurtenant to such buildings. The assessee must be the owner of such house property. The property should not be used by the owner thereof for the purpose of any business or profession carried on by him, the profits of which are chargeable to tax. 01/14/12

Computation of Gross Annual Value (GAV) Step 1 : Calculate Expected Rent as follows:- 01/14/12 Particulars Amount Amount (a) Fair Rent of the House xxx (b) Municipal Value of House xxx (c) Whichever is more of (a) and (b) XXX (d) Standard Rent xxx Expected Rent [whichever is less of (c) and (d)] XXX

Contd… Step 2 : Compare Expected Rent & Actual Rent Receivable (ARR). Where the property or any part thereof is let out, If ARR is more than ER referred to in Step 1, then, GAV = ARR If ARR is less than ER and it is due the vacancy of property then, GAV = ARR If ARR is less than ER not owing to vacancy GAV = ER Note: ARR = Rent Received / Receivable less Unrealized Rent 01/14/12

Net Annual Value (NAV) Net Annual Value is the sum computed after deducting from Gross Annual Value, the taxes levied by any local authority in respect of the property. NAV = GAV – Municipal Taxes Paid 01/14/12

Meaning Municipal Valuation :- For collecting municipal taxes, local authorities make a periodical survey of all building in their jurisdiction. Such valuation may be taken as strong evidence representing the earning capacity of a building. Fair Rent of the Property :- Fair rent of the property can be determined on the basis of a rent fetched by a similar property in the same or similar locality. Standard Rent :- Standard rent is the maximum rent which a person can legally recover from his tenant under a Rent Control Act. 01/14/12

Self-occupied Property [Sec. 23(2)] Property is considered to be self – occupied where, the property consisting of house or part thereof is in the occupation of the owner for the purposes of his own residence; or such property cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him. 01/14/12

Contd… In case of Self-occupied House Property Net Annual Value is always Zero. Since NAV is zero, the municipal taxes paid by the owner of the house are not deductible. 01/14/12

Deduction Admissible u/s 24 Statutory deduction :- 30% of Annual Value (i.e. 30% of NAV) Interest payable on capital borrowed for acquisition, construction, repair, renewal or reconstruction of house property :- Actual amount of interest for the year on accrual basis plus 1/5 th of the interest, if any, pertaining to the pre- acquisition or pre-construction period. 01/14/12

Deduction for Interest on Capital Borrowed in case of SOP Maximum limit of deduction in respect of interest on capital borrowed in case of a Self-occupied property whose annual value is assessed at NIL, is Rs. 1,50,000 01/14/12 CASE MAXIMUM DEDUCTION Interest on capital borrowed on or after 1-4-1999 for acquisition or construction of house 1,50,000 In any other case 30,000

Recovery of Unrealized Rent [Section 25AA] Any amount of rent realized by the assessee during the previous year, which he could not realize from a property let to a tenant, shall be deemed to be income chargeable under the head “Income from house property”. 100% of the amount actually received is taxable in the previous year in which it is realized. 01/14/12

Arrears of Rent [Section 25B] Arrears of rent shall be deemed to be income chargeable under the head “Income from house property”. It shall be charged to income tax as income of previous year in which it is received. Taxable amount is computed as under :- Index 01/14/12 PARTICULARS AMOUNT The amount received as arrears of rent XXX Less: 30% of such amount xxx Amount taxable as arrears of rent XXX

Basis of Charge [sec. 28] The following income is chargeable to tax under the head “Profits and gains of business or profession”: Profits and gains of any business or profession; Any compensation or other payments due to or received by any person specified in section 28(ii); Income derived by a trade, professional or similar association from specific services performed for its members; The value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; 01/14/12

Contd… any profit on transfer of the Duty Entitlement Pass Book Scheme. Any profit on the transfer of the duty free replenishment certificate; Export incentive available to exporters; Any interest, salary, bonus, commission or remuneration received by a partner from firm; 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. 01/14/12

Contd… Any sum received under a Keyman insurance policy including bonus; Profits and gains of managing agency; and Income from speculative transaction. Income from the aforesaid activities is computed in accordance with the provisions laid down in section 29 to 44D. 01/14/12

Expenses Expressly Allowed Rent, rates, taxes, repairs and insurance for building [Sec. 30] Repairs and insurance of machinery, plant and furniture [Sec. 31] Depreciation allowance [Sec. 32] Tea/coffee/rubber development account [Sec. 33AB] Expenditure on acquisition of patent rights and copyrights [Sec. 35A] Insurance premium [Sec. 36 (1) (i)] Premier for insurance on health of employees [Sec. 36(1) (ib)] 01/14/12

Contd… Bonus or commission to employees [Sec. 36(1)(ii)] Interest on borrowed capital [Sec. 36(1)(iii)] Employer’s contribution to recognized provident fund and approved superannuation fund [Sec. 36(1)(iv)] Contribution towards approved gratuity fund [Sec. 36(1)(v)] Employee’s contribution towards staff welfare schemes Bad debts [Sec. 36(1)(vii)] Family planning expenditure [Sec. 36(1) (ix)] 01/14/12

Contd… Banking cash transaction tax, securities transaction tax and commodities transaction tax. Advertisement expenses [Sec. 37(2B)]. General Deduction [Sec. 37(1)]. 01/14/12

EXPENSES NOT DEDUCTIBLE [Section 37(1)] Damages and penalty paid for transgressing the terms of agreement with the State. Penalty and damages paid in connection with infringement of law. Litigation expenditure incurred for curing any defect in the title of assets or completing that title. Litigation expenses for registration of shares. Fees paid for increase of authorized capital. 01/14/12

Contd… Expenditure on raising equity share capital and preference share capital. However, expenditure on issue of bonus shares id deductible. Amount paid for acquiring technical know-how which is to be utilized for the purpose of manufacturing any new article and such know-how is to become the property of the assessee at the end of the stipulated period. Amount expended for acquiring a business or a right of permanent character or an asset which generates income or for avoiding compensation in business. 01/14/12

Contd… Payments made for acquisition of good will. Expenditure incurred for acquiring right over or in land to win minerals. Fees paid to obtain license to investigate and search minerals. Payment made in consideration of acquiring a monopoly right to manufacturer a producer (royalty payable on the basis of goods produced under the same arrangement is, however, deductible). 01/14/12

Contd… Tax paid by the assessee (who is defaulter by not deducting tax at source under section 195) on behalf of non-resident. Compensation paid to contracting party with the object of avoiding an unnecessary investment in capital assets. Expenditure on shifting of registered office. Insurance premia paid by a firm on life insurance policies of its partners. Amount paid by liquor contractor to police staff and other officer to enable it to make unauthorized purchases and sales of liquor. 01/14/12

Contd… Amount paid by a company to the Registrar of Companies as filing fee for enhancement of capital base of the company. Payment made by assessee company which was partner in a firm, to outgoing partners of firm on account of their agreeing to restrain from carrying on similar business for a period of 15 years. 01/14/12

Specific Disallowances Interest, Royalty, fees for Technical Services payable outside India,if on such amount tax is deductible but tax has not been deducted or deposited with Government. [Sec. 40(a)(i)] Fringe Benefit Tax [Sec. 40(a)(ic)] Income-Tax [Sec. 40(a)(ii)] Salary Payable Outside India without Tax Deduction [sec. 40(a)(iii)] Provident Fund Payment without tax Deduction at Source [Sec. 40(a)(iv)] Certain specified expenses in case of Partnership Firm 01/14/12

Contd… Interest paid by an AOP/ BOI to its members is not allowed as deduction by virtue of sec. 40(ba) Payment to relatives in excess of fair value – not deductible [Section 40A(2)] Expenditure in excess of Rs. 20,000 in aggregate in a day paid otherwise than by account payee cheque drawn on a bank or account payee bank draft – Not allowable [Section 40A(3))] Amount not deductible in respect of certain unpaid liabilities [Sec.43B] 01/14/12

Books of Accounts to be maintained [Section 44AA] The persons carrying on specified professions are required to maintain specified books of account only if the gross receipts of their profession have exceeded Rs. 1,50,000 Every other person carrying on business or profession shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act. If his income from business or profession exceeds Rs. 1,20,000; Total sales/turnover/gross receipts thereof exceeds Rs.10,00,000 the assessee has claimed his income lower than deemed profits 01/14/12

Tax Audit u/s 44AB This section applies to following :- The assessee is required to get his accounts of such previous year audited by a Chartered Accountant before 30 th September of the assessment year. 01/14/12 Person carrying on - Accounts are to be audited for previous year in which - Business Total sales, turnover or gross receipts exceed Rs. 40,00,000 Profession Gross receipts exceed Rs. 10,00,000 Business covered u/s 44AB, 44AE, 44AF, 4BB and 44BBB He has claimed his income to be lower than the profits or gains so deemed under the respective section.

Special Provisions for Computing Income on Estimated Basis 44AD, 44AE & 44AF Not withstanding anything contained in Sections 28 to 43C, the following provisions will apply . Sec. 44 AD Sec. 44 AE Sec. 44AF Business of Assessee Civil construction or supply of labour for it. Plying, hiring or leasing goods carriages owned by him. Retail trade in any goods or merchandise. This Section applies if Gross receipts of such business during the previous year do not exceed Rs. 40 lacs. Goods carriages owned by assessee at any time during previous year doesn’t exceed 10 lacs Total business turnover in that previous year doesn’t exceed Rs. 40 lacs. Deemed Profits 8% of Gross receipts (No. of heavy goods vehicle x Rs. 3500 x NM) + (No. of other vehicles x Rs. 3150 x NM) NM = No. of months 5% of Gross receipts or such higher sum as declared by him in his Return of Income.

DEPRICIATION [Sec. 32] Depreciation allowance [Sec. 32] - Depreciation shall be determined according to the provisions of section 32. Conditions for claiming Depreciation - In order to avail depreciation, one should satisfy the following conditions: Asset must be owned by the assessee. It must be used for the purpose of business or profession. It should be used during the relevant previous year. Depreciation is available on tangible as well as intangible assets. 01/14/12

Contd… Block of Assets [Sec. 2(11)] - The term “block of assets” means a group of assets falling within a class of assets comprising – tangible assets, being buildings, machinery, plant or furniture; intangible assets, being know-how, patents, copyrights, trade marks, licenses, franchises or any other business or commercial rights of similar nature. In respect of which the same percentage of depreciation is prescribed. 01/14/12

Contd… Written Down Value [Sec. 43(6)] - Written down value for the assessment year 2009-10 will be determined as under: 01/14/12 Step 1 Find out the depreciated value of the block on the April 1, 2008. Step 2 To this value, add “actual cost” of the asset (falling in the block) acquired during the previous year 2008-09. Step 3 From the resultant figure, deduct money received/receivable (together with scrap value) in respect of that asset (falling within the block of assets) which is sold, discarded demolished or destroyed during the previous year 2008-09.

Contd… Meaning of “Actual Cost” [Sec. 43(1)] - It means the actual cost to the assessee as reduced by the proportion of the cost thereof, if any, as has been met, directly or indirectly, by any other person or authority. If written down value of the block of asset is reduced to zero, though the block is not empty - No depreciation is admissible. If the block of assets is empty or ceases to exist on the last day of the previous year though the written down value is not zero - No depreciation is admissible. 01/14/12

Contd… Additional depreciation @ 20% is available on new plant or machinery acquired & installed after 31.03.05, if used in production or manufacturing. If asset is used for less than 180 days during the previous year, in which its purchased, then deprecation & additional depreciation is restricted to 50% of actual depreciation. However in subsequent year full depreciation is allowed irrespective of use. When a depreciable asset(on which depreciation is claimed on straight line basis) of a power generating unit is disposed in a previous year, then terminal depreciation (loss) is deductible or balancing charge (gain) is taxable. 01/14/12

Partnership Deductibility of interest paid to partners by firm depends upon following :- Payment of interest should be authorized by the partnership deed Payment of interest should pertain to the period after the partnership deed. Rate of interest should not exceed 12 percent Deduction of Remuneration to Partners can be claimed if paid :- to a Working Partner According to the Partnership Deed Does not exceed the Permissible Limits. 01/14/12

Contd… The maximum amount of salary paid to all the partners during the previous year should not exceed the limits given below :- In case of a firm carrying of a profession referred to in section 44AA On the first Rs. 1,00,000 of the book profit or in case of a loss Rs. 50,000 or at the rate of 90 percent of the book profit, whichever is more On the next Rs. 1,00,000 of the book profit At the rate of 60 percent On the balance of the book profit At the rate of 40 percent In the case of any other firm On the first Rs. 75,000 of the book profit or in case of a loss Rs. 50,000 or at the rate of 90 percent of the book profit, whichever is more On the next Rs. 75,000 of the book profit At the rate of 60 percent On the balance of the book profit At the rate of 40 percent

Minimum Alternate Tax (MAT) Applicability of Minimum alternate tax (MAT) sec. 115JB :- Minimum alternate tax (MAT) sec. 115 JB MAT is applicable in case of companies only. If tax liability of a company under normal provision is lower than 10% of book profit. In such case, book profit shall be deemed as total income & 10% of book profits should be deemed as tax liability. Up to assessment year 2001-02 these provisions were covered by sec. 115 JA. 01/14/12

Contd… A company is allowed credit of tax paid u/s 115-JB for the assessment year 2006-07 and onwards in accordance with the provisions of section 115-JAA. MAT credit can be carried forward for a period of seven years. Index 01/14/12

Basis of Charge Capital Gain’s tax liability arises only when the following conditions are satisfied: There should be a capital asset. The capital asset is transferred by the assessee Such transfer takes place during the previous year. Any profit or gains arises as a result of transfer. Such profit or gains is not exempt from tax under section 54, 54B, 54D, 54EC, 54F, 54G, and 54GA 01/14/12

Capital Assets “ Capital asset” is defined to include property of any kind, whether fixed or circulating, movable or immovable, tangible or intangible. However, following are excluded from the definition of “capital assets”: Any stock-in-trade, consumable stores or raw material held for the purposes of business or profession. Personal effects of the assessee, that is to say, movable property including wearing apparel and furniture held for his personal use or for the use of any member of his family dependent upon him. However, Jewellery, Archaeological Collections, Drawings, Paintings, Sculptures, or Art Work will not be considered as “personal effects”. 01/14/12

Contd… Agricultural land in India provided it is not situated – in any area within the territorial jurisdiction of a municipality or cantonment board, having a population of 10,000 or more; or in any notified area. 6½ percent Gold Bonds, 1977 or 7 percent Gold Bonds, 1980 or National Defense Gold Bonds, 1980 issued by the Central Government. Special Bearer Bonds, 1991. Gold Deposit Bonds issued under Gold Deposit Scheme, 1999. 01/14/12

Short-term / Long-term 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. In other words, if a capital asset is held by an assessee for more than 36 months, then it is known as “long term capital asset.” However in following cases 36 months will be replaced by 12 months :- Equity or preference shares in a company Listed Securities Units of UTI Units of a mutual fund specified under section 10(23D) Zero coupon bonds 01/14/12

Important Terms Transfer of Capital Asset :- Transfer, in relation to capital asset, includes sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law [sec. 2(47)]. Full Value of Consideration :- The expression “full value” means the whole price without any deduction whatsoever. Expenditure on Transfer :- The expression “expenditure on transfer” means expenditure incurred which is necessary to effect the transfer. 01/14/12

Contd… Cost of Acquisition :- Cost of acquisition of an asset is the value for which it was acquired by the assessee. In case of Depreciable Asset COA is the WDV of asset in the beginning of the year. In case of Slump Sale COA is the Net Worth of the undertaking. Cost of improvement :- Cost of improvement is capital expenditure incurred by an assessee in making any additions/ improvement to the capital asset. 01/14/12

Contd… Indexed Cost of Acquisition :- the amount which bears to the COA, the same proportion as CII for the year in which the asset is transferred bears to the CII for the first year in which the asset was held by the assessee or on 01.04.1981, whichever is later. Indexed Cost of Improvement :- an amount which bears to the COI, the same proportion as CII for the year in which the asset is transferred bears to the CII for the year of improvement. 01/14/12

Capital Gain Exemption Profit on sale of property used for residence [S. 54] :- Available to Individual & HUF on transfer of Long-term Residential Property and new residential House property is purchased or constructed. Capital gains on transfer of agricultural land [S.54B] :- Available to Individual on transfer of Agricultural land used by individual or his parent for agricultural purposes during 2 year preceding date of transfer and Agricultural land (urban or rural) is purchased. 01/14/12

Contd… Investment in certain bonds [S.54EC] :- Available to all assesses on transfer of any long-term capital asset for purchase of Bonds, redeemable after 3 years issued by (a) National Highway authority of India; or (b) Rural Electrification Corporation, 01/14/12

Contd… Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house [S. 54F] :- Available to Individual & HUF on transfer of Long-term Asset other than Residential house Property and residential House property is purchased or constructed. 01/14/12

Contd… Compulsory acquisition of land & building [S.54D] :- Available to all assesses on Compulsory acquisition of land or building which was used in the business of industrial undertaking during 2 years prior to date of transfer, if New land or building for the industrial undertaking is purchased or constructed. 01/14/12

Contd… Shifting of undertaking to rural area [Sec.54G] :- Available to all assesses on Transfer of plant, machinery or land or building for shifting industrial undertaking from under area to rural area, if (a) Purchase/ Construction of plant, machinery, land or building in such rural area or, (b) Shifting original assets to that area or, (c) Incurring notified expenses. 01/14/12

Contd… Shifting of undertaking to SEZ [Sec.54GA] :- Available to all assesses on Transfer of plant, machinery or land or building for shifting industrial undertaking from urban area to special Economic Zone, if (a) Purchase/ Construction of plant, machinery, land or building in such SEZ or (b) Shifting the original asset to SEZ or, (c) Incurring notified expenses. 01/14/12

Computation of Short-term Capital Gains 01/14/12 Particulars Amount Full Value of Consideration XXX Less: Expenses incurred wholly and exclusively for such transfer xxx Net Consideration XXX Less: Cost of Acquisition xxx Less: Cost of Improvement xxx Less: Exemption u/s 54B, 54D, 54G, 54GA xxx Taxable Short -term Capital gains XXX

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