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Direct & Indirect Taxation (A.Y. 2010-11)

Course : PGDM (2009-11)

Semester : II

Marks : 60+40 Faculty : Prof. Akshay Damani

FCA, MBA (UK),

Mcom, SET.

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DEATH

&

TAXES

ARE UNAVOIDABLE

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Classification of Taxes

Direct and Indirect taxes

Direct taxes directly levied on

source of income and wealth E.g. Income tax and Wealth tax Indirect taxes indirectly levied on

activity/transaction which generatesincome or wealth E.g. sales tax, service tax, etc.

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KINDS OF TAXES

Income-tax

Sales tax

Wealth tax

Service tax Custom duties

Securities transaction tax Excise duties and many

more

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INCOME TAX ACT,1961

(will be replaced by Direct tax codes from 1.4.2011)

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Income tax

INCOME TAX WHENWHO

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U/s 2 (24): Meaning and

CharacteristicsA PERIODICAL

MONETARY

RETURNCOMING IN WITH

OR SOME SORT OF

FROM ADEFINITE SOURCE

REGULARITY

REGULARITY

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Characteristics of Income

Legal or Illegal incomes are taxable

Moral or Immoral incomes are taxable.

Cash or kind

Real and not imaginary. E.g. sales supported by invoice documents

Examples: profits, gains, donations, perquisites, allowances,compensation, export cash assistance, lottery prize, kaun banega

crorepati ?, etc.

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Tax

The outflow

from income

paid to the Government.

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Who is liable to pay TAX?

PERSON U/s 2 ( 31 )

INDIVIDUAL

H U F

COMPANY

FIRM

BOI / AOP

LOCAL AUTHORITY

ANY OTHER ARTIFICIAL JURIDICAL PERSON

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What is the status of the followingperson

Ms. Katrina Mr. Salman a minor Ms. Ruby a person of unsound mind Ram, his wife Sita and two sons

M/s Chip and Dale 2 CAs in partnership Tata limited Mumbai Municipal corporation Roha Gram Panchayat

Joint venture between X ltd and Y ltd Joint venture between Mr. A and Mr. B Mumbai University Tirupathi Devasthanam

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Assessee U/s 2 ( 7 )a) every person in respect of whom

any

proceedings are taken under the actb) every person who is deemed to be

anassesses under the acte.g. a trustee of a trustc) every person who is deemed to be as

assessee in default.e.g. an employer who does not deduct

TDS from employees salaries

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When to pay tax ?

PREVIOUSYEAR - U/S 3

ASSESSMENT YEAR U/S 2 (9 )

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Previous year u/s3

Year in which the income isreceivedAlways ends on 31st march

E.g. P.Y. 2009-2010 begins on1.4.2009 and ends on 31.3.2010

P.Y. 2008-09 begins on 1.4.2008

and ends on 31.3.2008

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ASSESSMENT YEAR u/s2(9)

Year in which final tax is payablerelating

to the previous year.Always for 12 months.

Example:

PY 2008-09 AY 2009-10

PY 2009-10 AY 2010-11 (this is relevant or exam)

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Assessment U/s 2(8)

Assessment 2 (8): Process of

determining and

computing theamount

of income andtax dues

of a person.

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Charge of Income tax u/s 4:

Income tax shall be charged,

At the rates laid down by the financeact,

For that assessment year,

In respect of the total income,

Of the previous year, Of every person.

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Residential status u/s 6

Tax liability is based on theresidential status of a person.

Citizenship is NOTthe maincriteria for tax purposes and isdifferent from residential status

Residential status may changefrom year to year dependingupon the stay in India.

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Kinds of Residential status:

All Assesses

Resident Non-resident

Individual & HUF

R & OR R but not OR

C di i f d i i id i l f i di id l

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Conditions for determining residential status for an individualsec 6(1)

BASIC ADDITIONAL

Stay in Indiafor

At least182 days

in CurrentPY 09-10

( A )

O

R

Stay in Indiafor at least60* days incurrent PY.

&

Stay inIndia for atleast 365days in 4

PYprecedingcurrent PY.( B )

AND

Stay inIndia for730 daysin 7 PY

precedingthecurrent PY09-10

Resident inIndia for 9 outof 10 PYpreceding

current PY

&

( C )

( D )

If {a or b}+ {c & d}satisfied: RORIf only a or b satisfied:RNORIf a or b NOT satisfied: Non-

resident

ptions:itizen of India/crew of Indian Ship leaving India foryment or self-employment OR b) A citizen of

r a persons of Indian origin comes to a visit in IndiaCE 60 by 182 days

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Counting of days

a) the stay need be in the same place

b) the stay need not be continuous

c) the days of entry and exit are both counted

d) a stay in a boat in territorial waters of India istreated as stay in India

e) For February, where applicable 29 days areconsidered.

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Solution: Mr. George BushForeign Citizen

PY 2009-10 AY 2010-11

Days in India in P.Y. 2009-10

Jan : 6 daysFeb: 28 daysMar: 15 days

Total: 49 days

He does not satisfy any of theconditions.

Therefore he is Non resident.

E.g. Mr. George Bush comes for the first time toIndia on 26.1.2009 and leaves India on 15.3.2010.Determine his residential status for AY 2010-11

on t ons or eterm n ng res ent a

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on t ons or eterm n ng res ent astatus

BASIC ADDITIONAL

Stay in Indiafor

At least182 days

in CurrentPY 05-06

( A )

O

R

Stay in Indiafor at least60 days incurrent PY.

&

Stay inIndia for atleast 365days in 4

PYprecedingcurrent PY.( B )

AND

Stay inIndia for730 daysin 7 PY

precedingthecurrent PY05-06

Resident inIndia for 9 outof 10 PYpreceding

current PY

&

( C )

( D )

If {a or b}+ {c & d} satisfied:RORIf only a or b satisfied: RNOR

If a or b NOT satisfied: Non-resident

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Class exercises

(1) Mr. Sanjay, an Indian citizen went toUSA for the first time for the purpose ofemploymenton 10th May, 2009. He cameback to India on 19th November, 2009.Determine his residential status forAssessment year 2010-11.

Ans: Non resident No. of days in India

173(30+10+12+31+31+28+31)

Employment so replace 60 by 182

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Class exercise 2:

Ishant sharma, an Indian cricketersubmits the following information of stayoutside India for the year ending

31.3.2010Days place

12.4.09 to 27.4.09 Sharjah for Asia cup 2009

2.5.09 to 8.7.09 Summer tour to england

26.8.09 to 9.9.09 triangular series in Sri lanka

10.9.09 to 1.10.09 singapore on tour

3.1.10 to 25.3.10 summer cricket tour to south africa

e made his debut in international cricket on 10th march, 2007. Then inmatch against the West Indies, he suffered a major injury needing two years

f hospitalization in USA. He recovered and returned back to India on 28.3.2009.hereafter, he was employed by China Cricket board as Manager of the team.

etermine his residential status For A.Y. 2010-11.

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Solution

Total no. of days in PY 09-10365

Less: stay out of India:

12.4 to 27.4 16

2.5 to 8.7 68 26.8 to 9.9 15

10.9 to 1.10 22

3.1 to 25.3 82

203 Therefore, stay in India = 365-203 =

162

He has not stayed in India for 182 days from-

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Class exercise

Mr. Bond an Indian citizen leavesIndia for honeymoon with his wife forthe first time on 18.2.2010.

Determine his residential status?

Mr. Khiladi an Indian citizen leaves

India for employment purposes forthe first time on 18.2.2010.Determine his residential status?

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Residential Status for aCompany

Depends on the management andcontrol of affaires, i.e. where is themajority decision making taking

place. Irrespective of the type ofcompany.

For HUF the residential status ofKarta is considered as residentialstatus of HUF.

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Assignment sums:

Please see hand out.

S f t t l i S ti 5

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Scope of total income: Section 5

Nature of Income ROR RNOR N R

Income received in India Taxable Taxable Taxable

Income accruing in India Taxable Taxable Taxable

Foreign Income:a) From business / profession

controlled or set up IN IndiaTaxable Taxable Not-Taxable

b) From business/professioncontrolled or set upOUTSIDE of India

Taxable Not Taxable Not-Taxable

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Items of Income Nature ROR RNOR N R

Salary received in India Received in India T T T

Salary earned in India butreceived in Sri Lanka

Accruing in India T T T

Foreign Income:

Income from business inNepal controlled formDelhi

Foreign Incomecontrolled fromIndia

T T NT

Income from business in SriLanka received there.

Foreign IncomeNOT controlledfrom India

T NT NT

E.g.:

T- Taxable NT - Not Taxable

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Mr. Tom, a British citizen had the following incomeduring the year ended on 31st March,2010

1. Income from house property in India15000

2. Income from property in Rome received there10000

3. Interest from bank account in India1200

4. Income from business in Bangladesh, beingcontrolled from

India 16000 5. Interest on Bank account in USA

11000

6. Salary earned and received in Tokyo12000 7. Income earned and received in London

13000 8. Dividend from British company received in India

17000

-

NON TAXABLE INCOMES

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NON- TAXABLE INCOMES:(EXEMPTIONS) - Section 10

Section 10 (1) - Agricultural Incomes fromland

situated in India

Section 10 (2) - Sums received by a member ofthe

HUF from a Family income

Section 10 (2A) - Share of partner in profits

out of thepartnership firm

Section 10 (16) -Scholarships granted to meet

the

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Heads of IncomeIncome from Salaries

Income from profits and Gains

of business or profession

Income from House property

Income from capital gains

Income from other sources

C t ti f T t l I

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Computation of Total IncomePY 09-10 AY 10-11

Particulars Rs. Rs.

Income from Salaries XX

Income from House property XX

Income from P & G of Business or profession XX

Income from capital gains (short term) XX

Income from Other sources XX X

Add: Clubbed incomes X

GROSS total Income XX

Less: deductions u/s 80 - X

Net taxable income YY

Add: Long term capital gains GG

Net taxable income MM

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Net taxable income YY

Rates of tax (10 % 20% 30%) or as relevant ----------

Net tax payable 1

Add: Surcharge (tax on tax) 2

Tax payable [ 1 + 2 ] 3

Add: {education cess 3%} [1 x 3 %] 4

FINAL tax payable 5

Less: Tax already paid (T.D.S. / Advance tax) [5-6] 6

Assessed tax payable/refund 7

Computation of Final tax payable :

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Income tax slab for ay 10-11 Income Tax Slabs for ay 10-11 for Resident Senior Citizens (FY 2009-10)

S. No. Income Range Tax percentage 1 Up to Rs 2,40,000 No tax / exempt 2 2,40,001 to 3,00,000 10% 3 3,00,001 to 5,00,000 20% 4 Above 5,00,000 30%

Income Tax Slabs for ay 10-11 for Resident Women (below 65 years) (FY

2009-10) 1 Up to Rs 1,90,000 No tax / exempt 2 1,90,001 to 3,00,000 10% 3 3,00,001 to 5,00,00 20% 4 Above 5,00,000 30%

Income Tax Slabs for ay 10-11 Others & Men (FY 2009-10) 1 Up to Rs 1,60,000 No tax / exempt 2 1,60,001 to 3,00,000 10% 3 3,00,001 to 5,00,000 20% 4 Above 5,00,000 30%

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Levy of surcharge has been withdrawnfor personal income tax payers

Education Cess on Income-tax andSecondary and Higher Education Cess onincome-tax shall continue to be leviedat the rate of two per cent and oneper cent respectively of income-tax.

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For the next class.

Assignment 1 to be submitted andScope of total income and Salaries.

Presentation:

A) Group formation

B) List of topics next slide

Session no Group no Topic

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Session no. Group no. Topic

2 G1 M VAT What is Vat, Procedure, set off, state VAT, CENVAT, rates, 2 sums

3 G2 M vat - turnover tax, tax invoices, registration procedure, payment, 2 sums

4 G3 M VAT, Incidence of tax, dealers liable to tax, Filing of returns and forms, challans.

5 G4 Cenvat act , definitions, duties eligible, when and how much to take credit, cenvat cred

rules , exempted goods, documents and forms, procedure, 2 sums

6 G5 Central excise act, definitions, duties specified under the schedule, valuation , 2 sums

7 G6 Registration process, forms, challans, procedure, remission of duty, interest and penalt

8 G7 Section 10 and 11 of the income tax act and 2 sums

9 G8 Section 44 to Sec 44 AE

10G9 List of wards, departments in M umbai, challans, forms, itr forms, tds forms, challans,

11G10 Pan card and TAN card procedure, sec 234 a , b, c , 3 sums

Corporate style Presentation guidelines:

a) Max 25 minutes, warning bell at 24 min, wind up in last minute

b) 6 members in a group

c) 12 slides, 1 -topics n members, 12th - references

d) only 9 bullet points

e) each bullet point - max 15 words

f) pre approval of ppt compulsory, 2 days prior to presentation

g) [email protected], 9969772252

h) no sounds but use customer animations and pictures

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To do.

Income tax is

the priceone pays for

Civilization

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Session 2

Points:

Employer-employee relationship

Receiver and giver different

In cash or in kind

Taxable on accrual basis

Taxable from past, present or future

employer. Arrears of salary taxable in year of receipt

Bonus taxable when received

Salary includes wages

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Particulars Rs. Rs.

Salary

Basic salary/wages (accrual) X X

Arrears of salaries (actually received) X X

Advance salaries (actually received) X X

Bonus (actually received) X X

Leave salary (taxable portion) X x

Commission X X

Pension (taxableportion) X X

Gratuity (taxable portion) X X

Allowances:

Entertainment allowance X X

Dearness allowance X x

HRA (taxable portion) X X

Other allowances X X

Perquisites (taxable portion) X X

Profits in Lieu of salary X X

GROSS SALARY X X

Less: deductions u/s 16

a) entertainment allowance X X

b) profess ion tax(annual Rs. 2500) X X

NET taxable salary Zzzzzz

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Entertainment Allowance deduction(only for Government employees) isthe Lowest of: 5000

1/5 of basic salary

Actual sum of entertainment allowance

received

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Q1) Smt. Tejal is the managing director of Natural perfumes ltd... From thefollowing particulars relating to the year ending 31.3.2010, compute herincome from Salaries.

Salary Rs. 15,000 p.m.

Dearness allowances Rs. 1500 p.m.

Directors meeting fees Rs. 600

Value of perquisites on account of free personal use of car Rs. 2800

The company had paid Rs. 8000 directly for the servant`s salaries in herhouse

House rent allowance of Rs. 7200 of which Rs. 4800 is exempt u/s 10(13A)

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Exercise 2.

Compute the income of Mr. Sushant under the head Salaries for AY 2010-11

Salaries received during the year Rs. 13,500 per month

Arrears of salary for the earlier year received during the year as per Labour TribunalAward Rs. 7,500

Took advance salary Rs. 7,500 on account of marriage in the family and loan of Rs.

10,000 Received bonus during the year, in respect of an earlier year Rs. 4,500

Took loan from employer for purchasing a scooter Rs. 20,000

Mr. Sushant is provided with a car for office use as well as personal use. Theperquisite value of the same is determined at Rs. 3800

Mr. Suhas received Rs. 12000 from his employer for meeting expenses in travelingfor office purposes. Of the same he spent only Rs. 9000

He has incurred the following expenses for employment purposes: - Books and periodicals required for employment purposes 1500

- Profession tax paid 1600

- Fees paid for membership of a professional body 300

- The employer has paid during the year the life insurance premium of Mr. Suhasamounting to Rs. 5500 and Medical insurance premium amounting to Rs. 2700

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Q3) Mr. Dharawat who is a part time lecturer in a college atMumbai gives you the following details of his salary incomefor the financial year 2009-10

Salary for the year Rs. 80,000

Arrears of Salary received for the year 2006-07, this year,Rs. 25,000

Bonus received by him during the year is 25% of salary

He received LTA of Rs. 20,000 (his air fare from Mumbai toAhmadabad came to Rs.15,000

He has received Rs. 13,500 for setting and correcting theexamination papers of the college

He has encashed leave salary Rs.16,500

Profession tax Rs. 16500

Compute his income from salaries for AY 2009-10

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For next class

Assignment 2 Presentation