1. Income Tax Act

8/6/2019 1. Income Tax Act

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INCOME TAX ACT- 1961


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` According to the Income Tax Act 1961:

The Indian constitution has empowered only the central

govt to levy and collect the income tax.

` The act come into force from 1st April 1962 & extends to whole

of India


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` It consists of 298 sections and 14 schedules

` This act determines which persons are liable to pay tax & in

respect of which income.

` These rates are prescribed by every year by the finance act

known as budget .


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` Tax is charged at the rates applicable for assessment year, on

the Total Income earned during the previous year by an

assessee , who is a person.

` Similarly every person who is an assessee has to pay any other

sum levied on him as per Income tax act.

` Eg. Surcharge, cess, Interest, Penalty, Prosecution

Commutations etc.


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` Income-tax is levied annually.

` It is levied at the tax rates fixed by Finance Acts of every year

for the respective Assessmet Year (Budget presented on 28th of

February, 2010) on the Total Income earned in the previous

year, on every person who is an assessee.


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` ASSESSEE: A person by whom any tax or any other sum of

money(for eg. Interest, penalty, fine) is payable under the

Income tax act.

` ASSESSMENT: the process of determining the income of an

assessee earned during any previous year and finding out the

income tax, interest or the other sum payable under the Act.


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` ASSESSMENT YEAR(AY): the period of 12 months

commencing on the 1st day of April each year.

` PREVIOUS YEAR(PY): The financial year immediately

preceding the assessment year.

In case of business or profession which is newly started, the

previous year commence from the date of commencement of

the new business or profession upto the next 31 day of march,

unless the person is an existing assessee.


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INCOME SLABS TAX RATES

Individual & HUF

below age of 65

yrs.

Women below

age of 65 yrs.

Individual above

age of 65 yrs.

Income up to Rs.

1,60,000

Income up to

Rs.1,90,000

Income up to

Rs.2,40,000

NIL

Rs. 1,60,000 -

5,00,000

Rs. 1,90,000

5,00,000

Rs. 2,40,000

5,00,000

10%

Rs. 5,00,000 -8,00,000

Rs. 5,00,000 8,00,000

Rs. 5,00,000 8,00,000

20%

Above Rs. 8,00,001 Above Rs. 8,00,001 Above Rs.

8,00,001

30%

INCOME TAX RATES FOR ASSESSMENT YEAR 2011-2012(FINANCIAL YEAR 2010-2011)


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` The incomes specifically mentioned as exempt under the

Income-tax Act, 1961 are not subjected to tax.

1. Agriculture income [Sec.10(1)]

2. Sum received by a member from HUF [Sec.10(2)]3. Share of partner in the profit of firms [Sec.10(2A)]

4. Scholarships [Sec.10(16)]

5. Minors income included in parents income [Sec.10(32)]


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It includes:

1. Rent or revenue derived from land situated in india

2. Agricultural operations/ process/ porduce

3. Farm house


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For e.g:-

1. Income from lease of agricultural land

2. Income from land used for agriculture purpose

3. Compensation received from insurance company againstdamage for crop


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` Any sum received by an individual as a member of a Hinduundivided family, where such sum has been paid out of the:-

income of the family, or, in the case of any impartibleestate, where such sum has been paid out of the income ofthe estate belonging to the family.


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` The share of a partner in the income of a firm which is

separately assessed as a firm is exempt from tax.


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` Scholarship granted to meet the cost of education are exempt.

` The entire amount of Scholarship would be exempt,

irrespective of the actual expenditure on education.

` The Scholarship may be for a course not leading to a degree.


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` Cost of Education includes tuition fees and also other

incidental expenses related to education.

` It granted to the children of employees by a company would

be exempt u/s 10(16).


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` S. 64(1A) of the act provides that the income of a minor is to

be included in the income of his parent. Thus, a minors parent

is liable to pay tax on the minors income.

` Such parent can, however, claim Rs. 1,500 or the minors

income whichever is less, in respect of each minor child.


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` An Individual

` Hindu Undivided Family- HUF

` Firm

` Company

` Association Of Person(AOP) Or Body of Individuals(BOI)

` Local Authority

` Artificial Juridical Person


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Salary includes:` Wages

` Pension

` Gratuity

` Fees & commission

` Perquisite

` Profits in lieu of or in addition to salary or wages


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` Advance salary

` Leave Encashment

`

Contribution by employer to pension scheme; etc.

` Any salary due during the previous year, whether paid or not

` Arrears of salary, paid or allowed.

` Leave salary


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` C) Where Gratuity Act is not applicable:-a) Half months salary for every completed year ofservice any fraction of the year to be ignored

(b) Rs.3,50,000/- or the(c) gratuity actually received, whichever is lower;

` In the case of B & C, the maximum of Rs.3,50,000/- is fromgratuity received from all the employers put together, during

the life.


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The following amounts of Commuted Pension is exempt.Anything other than the following is taxable:

` Commuted Pension of Government Employees, employees of

local authority or statutory corporation are exempt from tax.

` In the case of others, if gratuity is received/receivable, 1/3 ofpension is exempt.

` If gratuity is not receivable, of pension is exempt


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` House Rent Allowance is generally taxable, the least of the

following is exempt:-

- 50% of Salary in Mumbai, Calcutta, Delhi or Chennai

and 40% elsewhere in India; or

- HRA actually received by the employee; or

- The amount of rent actually paid in excess of 10% of

annual salary.


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` Exemption is not available if the employee resides at his own

residence or house to which he need not pay rent.

` Salary means basic salary + Dearness Allowance and fixed %

commission.


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` Perquisite is a benefit offered by an employer in addition to salary

and allowances, which otherwise would have been an expenditure

of the employee.

` The perquisite value is calculated at specific rates as prescribed in

the Income-tax Rules.


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` Rent free accommodation;

` Concessional accommodation

` Certain benefits or amenities provided to a specifiedemployee;

` Any sum paid by the employer in respect of any obligationwhich but for such payment, would have been payable by theemployee.


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I come from alar :alar ***

Allowa ces ***e sion ***

ratuit ***er uisites ***ross a a le alar ****ess : eductionu/s

ntertainment allow. **

rofessional ta ** ***Net axable alary ***


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The annual value of the property is taxed as House property

income;

Property means building or land appurtenant thereto,

It should be owned by the assessee;

It should not be occupied by him for the purpose of business

or profession


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Net Annual value less the following is the income from house

property.

Standard deduction u/s.24(a) which is fixed 30% of the NetAnnual alue, to meet the expenses of maintenance of the

property.


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Please note, no further deduction is available for insurance,

ground rent, land revenue, repairs, collection charges,

electricity & water charges, salary of liftman,watchman etc.

Interest on borrowed capital u/s.24(b) Interest on capital

borrowed for purchase, construction, repairs, renewal or

reconstruction of house property, allowable on accrual basis.


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House Property income is taxed in the hands of the owner ordeemed owner;

Owner is the person who has the legal title of the property.


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` Deemed Owner:-

a) a person who has transferred the property withoutadequate consideration to the spouse (but not if it is on

agreement to live apart) or to a minor child;

b) a holder of an impartible estate;

c) a member of coop.Society

d) a person who has taken a property on a long lease,say 12 years or more.


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Gross Annual alue

(Reasonable rent/Expected Rent)

Less: Municipal tax

Net Annual value Less: Deduction u/s.24

Interest on borrowed capital

Income from House Property *******


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` Under the Income Tax Act, 'Profits and Gains of Business or

Profession' are also subjected to taxation.

` The term "business" includes any :-

(a) trade,

(b)commerce,

(c)manufacture, or

(d) any adventure or concern.


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Profits and Gains of any business or profession;

Compensation received by management or other agencies;

Income of trade;

Profit on sale of import licenses;


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Cash assistance for exports received from Govt./and Cent.

Excise duty paybacks;

Benefits from exercise of business or profession;

Interest, salary, bonus commission etc. by partner;

Any sum received under Keyman insurance policy including

bonus


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Commission Paid;

Professional tax paid;

Damages paid;

Expenses on special advertisement campaign to launch a newproduct or at the time of opening

Deposit paid on OYT (Own Your Telephone);

Annual Listing fee of Stock Exchange;


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Every assessee whose turnover of business exceeds

Rs.40,00,000/- or turnover of profession exceeds

Rs.10,00,000/- or persons claiming a lower profits

u/s.44AD.44AE, 44AF, 44BB, 44BBB, should get their

books of accounts by a qualified accountant, i.e. a CharteredAccountant and the Audit Report in the prescribed form has

to be furnished by 31st October of AY.

Failure to maintain books of accounts, or get it auditedattracts penalty.


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` Professional Reciept

Less: Payments

Net Income From Proffession


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Net Profit

Add: Unreleated items dr. to P&La/c

Capital exp.

Personal exp.

Add: Expenses separately allowable

Deprc dr. to P&L a/c

Add: Expenses disallowed

Provision for gratuity

Interest paid to partner


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` Capital Gain is a part of the taxable income. Capital Gain is

the profit earned on sale of capital asset or an investment.


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` Thus to invoke the provisions of capital gains there should be:-

1. Existence of capital asset

2. Transfer of such asset

3. Profits and gains from transfer of such asset.


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It can be movable or immovable, tangible or intangible.

For instance: land, buildings, goodwill, machinary.

Following assets are excluded : any stock in trade, consumables or raw materials for the

purpose of business or profession


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7% Gold bonds ,National defense gold bonds 1980 issued

by the central government

Special bearer bonds, 1991

Gold deposit bonds under Gold deposit scheme, 1999


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` There re twotypes ofc pital assets:-

1) Longterm capital gains [sec.2(29B)]:-

Asset held by an assessee for mare than 36 months ; but

the Shares/ Securities/Units of UTI , Mutual fund held for

12 months are called as long term assets.

Any losses arising from transfer of a long term capital

asset is called as long term capital loss.


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2)Shortterm capital gains [sec.2(42B)]:

Assets held by an assessee for less than 36 months; but the

Shares/ Securities/Units of UTI , Mutual fund held for not

more than12 months are treated as long term assets.

Any loss arising from transfer of a short term capital asset

is a called short capital loss.


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Full alue of consideration

Less: Transfer expenses ( )

Less: Cost of acquisition ( )

Less: Cost of improvement ( )

Short Term Capital Gain


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Less: Index Cost of acquisition ( )

Less: Index Cost of improvement ( )

Long Term Capital Gain


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` Indexation means the increase in the cost or improvement, on

account of inflation.

`

Indexation is not applicable to shares, debentures, bonds andUnits.

` Cost of acquisition Index for the year of transfer

` /improvement x

Index on date of acquisition/improvement


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YEAR INDEXRATE YEAR INDEXRATE YEAR INDEXRATE

1981-82 100 1991-92 199 2001-02 426

1982-83 109 1992-93 223 2002-03 447

1983-84 116 1993-94 244 2003-04 4631984-85 125 1994-95 259 2004-05 480

1985-86 133 1995-96 281 2005-06 497

1986-87 140 1996-97 305 2006-07 519

1987-88 150 1997-98 331 2007-08 5561988-89 161 1998-99 351 2008-09 582

1989-90 172 1999-00 389 2009-10 632

1990-91 182 2000-01 406 2010-11 711


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Less: Opening Written Down alue ( )

Less: Cost of additions ( )

Short Term Capital Gain ****


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` All residual income, which do not fall in any other heads.

` Some of the examples are-

` Dividends u/s.2(22),

` Interest on securities, interest on bank deposits and loans

` Winning from lotteries, crossword puzzles, horse races, cardgames etc,


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`

Income from hire of machinery, plant or furniture.

` Gifts,

`

Income from royalty, directors fees, examination feereceived, rent of a plot of land, insurance

commission, mining rent and royalties, interest on

foreign Govt. Securities, KVP, casual income,

annuity under will, etc.


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` Tax charged at flat rate of 30%

` Conditions in case of Gifts-

1. The recipient is an Individual or HUF.

2. Any sum of money or property is received without consideration on orafter Oct. 1 2009.

3. An Individual or HUF receives gift (any amount withoutconsideration) during financial year over Rs.50,000/- (aggregate)entire amount is taxable.


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` Exceptions to sec.56(2):

` Money received

(i) from a relative,

(ii) on the occasion of marriage,

(iii) on will or inheritance

(iv) in contemplation of the death of the payer,

(v) from a local authority,

(vi) from any fund, foundation, university, hospital, etc.

(vii) registered charitable institute.


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Mr. X receives the following gifts:1. 01.04.07 Rs.25,000/- from a friend;

2. 01.05.07 Rs.500/- from another friend;

3. 01.06.07 Rs.26,000/- from a cousin of father;

4. 18.07.07 Rs.5000/- from brother of grandfather;

5. 20.07.07 Rs.41,000/- from grandmother;

6. 31.07.07 Rs.1,39,000/- on marriage out of which Rs.1,00,000/-are from relatives of Mr.X & Mrs.X

7. 01.05.07 A computer worth Rs.40,000/- from employer;

8. 01.10.07 Rs.80,000/- from a registered Public CharitableTrust;

9.01.10.07 Rs.5,40,000/- under a will from a distant relative


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Sr.No. Taxable

Rs.

Exempt

Rs.

Reason

1 25,000 Gift from friend is not exempt

2 500 Gift from friend is not exempt

3 26,000 Cousin of father is not a relative.

4 5,000 Brother of grandfather is not relative

5 41,000 Grandmother is relative

6 1,90,000 Gifts on marriage is exempt

7 40,000 Gifts in kind is not taxable

8 80,000 Gifts from Recognized Charitable

Institution is exempt.

9 5,40,000 Gift on will not taxable

Total 56,500 Since the total taxable gift is more than

Rs.50,000/- , Rs.56,500/- taxable


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Deductionallowed from the Gross Total Income laid down in

Section 80A to 80U falling under Chapter I A deduction.

This are allowed on certain payment.

E emptionlaid down u/s10 of the Act are the items of income

specifically excluded from taxable income. Exempt income

are to be totally ignored while computing income. This are

allowed on certain income.


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` Investment in pension Plans

` Investment in Equity Linked Savings schemes (ELSS) of

mutual funds

` Investment in National Savings Certificates (interest of past

NSCs is reinvested every year and can be added to the Section

80 limit)


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` Pa ments towards principal repa ment of ousing loans.Alsoany registration fee or stampdutypaid.

` Payments towards tuition fees forchildren to any school or

college oruni ersityor similar institution. ( nly for

children) or towards coaching fee of arious competiti e

e ams.


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Contribution ToPension Funds:-Conditions:-

Deduction is

1. Available to an Individual

2. Who has in th P.Y3. Paid or deposited any amount

4. Out of his taxable income

5. For receving pension from a fund referred u/s 10(23AAB)


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Maximum Claim u/s 80 CCC is Rs. 100,000/- Actual paymentor 1,00,000 whichever is lower.

However , the total deduction u/s 80C + 80CCC cannot

e ceed Rs. 1,00,000/-


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From April, 1 2010, a maximum of Rs. 20,000 is deductible if

that amount is invested in infrastructure bonds.


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DEDUCTION

INDIVIDUAL HUF

Self,Spouse,Depen

dent Children

Parents Member

General Rs.15,000 Rs. 15,000 Rs. 15,000

Additional, on health

of resident in India

aged 65 years ormore.

Rs. 5,000 Rs. 5,000 Rs. 5,000

Total Rs.20,000 Rs.20,000 Rs.20,000


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Condition to be satisfied :-

1. Loan should be from the financial institution or an

approved charitable institution

2. The purpose should be to pursue higher education


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3. It should be taken by an assessee or spouse or a child for

whom individual is a legal guide

4. Amt. is paid by individual during the P.Y. by way of

payment of interest on such loan.

5. Such amt is paid out of his income chargeable totax


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AMOUNTDEDUCTION :-

The amount deductible is the amount paid during the year

by way of interest thereon (without any limit)

PERIOD :

The deduction is available for a maximum period of 8 years

or till the loan is paid in full, whichever is earlier


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It allow the deduction in respect of donation made for

charitable purpose to specific fund or association etc. This

deduction is allowable to all the assessee (who pays the tax).

Based on limits, we can broadly divide all eligible donations

under section 80G into four categories:


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`

a) 100% deduction without any qualifyinglimit (e.g., Prime

Ministers National Relief Fund).

b) 50% deduction without any qualifying

limit (e.g., Indira

Gandhi Memorial Trust).


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Eligible Persons :-1. Individual

2. Resident in India

3. With Disability (person suffering from

not less than 40% of the prescribeddisability)

D d i


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Deducti :

ixeddeducti of s.5 , /- is

a aila le.Ahigherdeductionof s.

, , /- is allowed in respect of a

personwithserve

disability (i:e 8 %)


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` A] INCOME FROM SALARY :XXX

` B] INCOME FROM HOUSE PROPERTY :XXX

` C] INCOME FROM BUSINESS PROFFESION :

XXX` D] INCOME FROM CAPITAL GAIN :

XXX

` E] INCOME FROM OTHER SOURCES :XXX

` F] GROSS TOTAL INCOME (A+B+C+D+E)XXX

` G] LESS : DEDUCTION u/s 80 XX

` Chapter VI A

` H] NET TOTAL INCOME (F-G) ____XXX

`


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1. Income Tax Act

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