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Assignment Set- 1

Q.1

Make a study of various exemptions available under section 10.

Ans:

Section 10 of income tax act defines that some income are exempted from income tax means thereis no income tax on these income. Some of these income are fully exempted from income tax andsome are some exemption limit.Like agriculture income is fully exempted from income tax whereas minor income clubbed withindividual has the exemption limit of 1500. So it is neccessary to remember all these exemptionsbefore calculationg somebody income tax.So i am presenting a full view of section 10 of income tax act with all the exemptions andexemptions limit of section 10.

Section Nature of Income Exemption limit, if any

10(1) Agricultural income

10(2) Share from income of HUF

10(2A) Share of profit from firm

10(3)Casual and non-recurringreceipts

Winnings from races Rs.2500/-other receipts Rs.5000/-

10(10D)Receipts from life InsurancePolicy

10(16)Scholarships to meet cost of education

10(17) Allowances of MP and MLA.For MLA not exceeding Rs.

600/- per month10(17A) Awards and rewards

(i) from awards by Central/StateGovernment

(ii) from approved awards byothers

(iii) Approved rewards fromCentral & State Governments

10(26)

Income of Members of scheduled tribes residing incertain areas in North EasternStates or in the Ladakh region.

Only on income arising in those

areas or interest on securities ordividends

10(26A) Income of resident of LadakhOn income arising in Ladakh oroutside India

10(30)(i) Subsidy from Tea Boardunder approved scheme of replantation

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10(31)(ii) Subsidy from concernedBoard under approved Schemeof replantation

10(32)Minors income clubbed with

individualUptoRs. 1,500/-

10(33)

Dividend from IndianCompanies, Income from unitsof Unit Trust of India andMutual Funds, and income fromVenture Capital Company/fund.

10(A)

Profit of newly establishedundertaking in free trade zoneselectronic hardware technologypark on software technologypark for 10 years (net beyond

10 year from 2000-01)

10(B)

Profit of 100% export orientedundertakings manufacturingarticles or things or computersoftware for 10 years (notbeyond 10 years from 2000-01)

10(C)

Profit of newly establishedundertaking in I.I.D.C or I.G.C. inNorth-Eastern Region for 10years

Income From Interest

10(15)(i)(iib)(iic)

Interest, premium onredemption or other paymentsfrom notified securities, bonds,Capital investment bonds, Relief bonds etc.

To the extent mentioned innotification

10(15)(iv)(h)Income from interest payableby a Public Sector Company onnotified bonds or debentures

10(15)(iv)(i)

Interest payable by Governmenton deposits made by employees

of Central or State Governmentor Public Sector Company of money due on retirement undera notified scheme

10(15)(vi)Interest on notified GoldDeposit bonds

10(15)(vii)Interest on notified bonds of local authorities

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Income from Salary

10(5)Leave Travel assistance/concession

Not to exceed the amountpayable by Central Governmentto its employees

10(5B)

Remuneration of technicianshaving specialised knowledgeand experience in specifiedfields (not resident in any of thefour preceding financial years)whose services commence after31.3.93 and tax on whoseremuneration is paid by theemployer

Exemption in respect of incomein the from of tax paid byemployer for a period upto 48months

10(7)Allowances and perquisites bythe government to citizens of

India for services abroad

10(8)

Remuneration from foreigngovernments for duties in Indiaunder Cooperative technicalassistance programmes.Exemption is provided also inrespect of any other incomearising outside India providedtax on such income is payable tothat Government.

10(10) Death-cum-retirement Gratuity-

(i) from Government

(ii) Under payment of GratuityAct 1972

Amount as per Sub-sections (2),(3) and (4) of the Act.

(iii) Any otherUpto one-half months salary foreach year of completed service.

10(10A) Commutation of Pension-

(i) from government, statutoryCorporation etc.

(ii) from other employers

Where gratuity is payable value

of 1/3 pension. Where gratuityis not payable value of 1/2pension

(iii) from fund set up by LIC u/s10(23AAB)

10(10AA)Encashment of unutilisedearned leave

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(i) from Central or Stategovernment

(ii) from other employersUpto an amount equal to 10months salary or Rs. 1,35,360/-

which ever is less

10(10B) Retrenchment compensation

Amount u/s. 25F(b) of IndustrialDispute Act 1947 or the amountnotified by the government,whichever is less.

10(10C)

Amount received on voluntaryretirement or termination of service or voluntary separationunder the schemes prepared asper Rule 2BA from public sectorcompanies, statutory

authorities, local authorities,Indian Institute of Technology,specified institutes of management or under anyscheme of a company or Co-operative Society

Amount as per the Schemesubject to maximum of Rs. 5lakh

10(11)Payment under Provident FundAct 1925 or other notified fundsof Central Government

10(12)Payment under recognisedprovident funds

To the extent provided in rule 8of Part A of Fourth Schedule

10(13)Payment from approvedSuperannuation Fund

10(13A) House rent allowance least of-

(i) actual allowance

(ii) actual rent in excess of 10%of salary

(iii) 50% of salary in Mumbai,Chennai, Delhi and Calcutta and40% in other places

10(14)

Prescribed [See Rule 2BB (1)]special allowances or benefitsspecifically granted to meetexpenses wholly necessarily andexclusively incurred in theperformance of duties

To the extent such expenses areactually incurred.

10(18)Pension including familypension of recipients of notified

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gallantry awards

Exemptions to Non-citizens only

10(6)(i)(a) and (b)

(i) passage money fromemployer for the employee andhis family for home leaveoutside India

(ii) Passage money for theemployee and his family toHome country afterretirement/termination of service in India.

10(6)(ii)

Remuneration of members of diplomatic missions in India andtheir staff, provided themembers of staff are notengaged in any business orprofession or anotheremployment in India.

10(6)(vi)

Remuneration of employee of foreign enterprise for servicesrendered during his stay in Indiain specified circumstancesprovided the stay does notexceed 90 days in that previousyear.

10(6)(xi)

Remuneration of foreignGovernment employee ontraining in certainestablishments in India.

Exemptions to Non-residentIndians (NRIs) only

11.2

The units purchased by themare out of the amount remittedfrom abroad or from their Non-resident (External) Account

Exemptions to funds,

institutions, etc.Section Nature of Income Exemption limit, if any

10(14A)

Public Financial Institution fromexchange risk premium receivedfrom person borrowing inforeign currency if the amountof such premium is credited to afund specified in section

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10(23E)

10(15)(iii)Central Bank of Ceylon frominterest on securities

10(15)(v)

Securities held by WelfareCommissioners Bhopal GasVictims, Bhopal from Interest onsecurities held in Reserve BanksSGL Account No. SL/DH-048

10(20) any local Authority

(a) Business income derivedfrom Supply of water orelectricity any where. Supply of other commodities or servicewithin its own jurisdictionalarea.

(b) Income from houseproperty, other sources andcapital gains.

10(20A)Housing or other Developmentauthorities

10(21)Approved Scientific ResearchAssociation

10(23)

Notified Sports Association/Institution for control of cricket,hockey, football, tennis or othernotified games.

10(23A)Notified professionalassociation/institution

All income except from houseproperty, interest or dividendson investments and renderingof any specific services

10(23AA)Regimental fund or Non-publicfund

10(23AAA)Fund for welfare of employeesor their dependents.

10(23AAB)Fund set up by LIC of Indiaunder a pension scheme

10(23B)

Public charitable trusts orregistered societies approved byKhadi or Village Industriescommission

10(23BB)Any authority for developmentof khadi or village industries

10(23BBA) Societies for administration of

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public, religious or charitabletrusts or endowments or of registered religious orcharitable Societies.

10(23BBB)European Economic Communityfrom Income from interest,dividend or capital gains

10(23BBC) SAARC Fund

10(23C)

Certain funds for relief,charitable and promotionalpurposes, certain educational ormedical institutions

10(23D) Notified Mutual Funds

10(23E)Notified Exchange Risk

Administration Funds

10(23EA)Notified Investors ProtectionFunds set up by recognisedStock Exchanges

10(23FB)

Venture capital Fund/ companyset up to raise funds forinvestment in venture Capitalundertaking

Income from investment inventure capital undertaking

10(23G)Infrastructure capital fund, orinfrastructure capital company

Income from dividend, interestand long term capital gains frominvestment in approvedinfrastructure enterprise

10(24) Registered Trade UnionsIncome from house propertyand other sources

10(25)(i) Provident FundsInterest on securities andcapital gains from transfer of such securities

10(25)(ii) Recognised Provident Funds

10(25)(iii)Approved SuperannuationFunds

10(25)(iv) Approved Gratuity Funds10(25)(v) Deposit linked insurance funds

10(25A) Employees State Insurance Fund

10(26B)(26BB) and (27)

Corporation or any other bodyset up or financed by andgovernment for welfare of scheduled caste/ scheduled

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tribes/backward classes orminorities communities

10(29) Marketing authoritiesIncome from letting of godownand warehouses

10(29A)Certain Boards such as coffeeBoard and others and specifiedAuthorities

Q.2

What are the deductions available from gross salary income?

Ans:

DEDUCTIONS FROM GROSS SALARY INCOME :

1. Entertainment Allowance2. Tax On Employment3. Deduction U/S 80c Out Of Gross Total Income4. Deduction Of Tax From The Salary5. Relief in respect of Salary in Arrears, Advance etc.

a. Computation of relief when salary has been received in arrears or in advanceb. Computation of relief in respect of Gratuityc. Computation of relief in respect of payment in commutation of Pension

DEDUCTION OUT OF GROSS SALARY [ Section 16]

1. Entertainment Allowance [ U/s 16(ii)] Some employees are required to incur expenditure on the entertainment ( tea etc.) of customers,clients etc. who came to meet them in connection with their official or business work. In caseemployee is given a fixed amount every month to meet this type of expenditure then it is fully addedin salary and out of Gross total Salary , a deduction u/s 16(ii) shall be allowed only to Govt.employees.This means that in case this allowance is given to employee working in private sector, it is fullytaxable.But in case any amount is reimbursed against any expenditure incurred by employer , it shall be fullyexempted.Deduction u/s 16(ii) admission to govt. employee shall be an amount equal to least of following :

1. Statutory Limit of Rs.5,000 p.a.2. 1/5 th of Basic Salary3. Actual amount of entertainment allowance received during the previous year.

2. Tax on Employment u/s 16(iii) In case any amount of professional tax is paid by the employee or by his employer on his behalf it isfully allowed as deduction.

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3 . DEDUCTION U/S 80C OUT OF GROSS TOTAL INCOME Savings play a vital role in the fast economic development of nay country . To encourage savings, anincentive in the form of a deduction out of one s taxable income has been allowed . To channelisethose savings, various schemes have been framed and if the assessee deposits those savings in these

approved saving schemes, a deduction shall be allowed.Section 80C has been inserted from the assessment year 2006-2007 onwards. Section 80C providesdeduction i8n respect of specified qualifying amounts paid deposited by the assessee in the previousyear.The following are the main provisions of the newly inserted Section 80C. :

1. Under Section 80C , deduction would be available from Gross Total Income.2. Deduction under section 80C is available only to individual or HUF.3. Deduction is available on the basis of specified qualifying investments / contributions /

deposits / payments made by the taxpayer during the previous year.4. The maximum amount deduction under section 80C , 80CCC, and 80CCD can not exceed

Rs.1 lakh.

Deduction u/s 80C shall be allowed only to the following assessee :1. An Individual2. A Hindu Undivided Family (HUF)

The Deduction is calculated as per the following steps Step-1 : Gross qualifying Amount which is the aggregate of the following

1. Life Insurance Premium2. Payment in respect of non-commutable deferred annuity.3. Any sum deducted form salary payable to Govt. employee for the purpose of

securing him a deferred annuity.4. Contribution towards Statutory Provident Fund and Recognised Provident Fund.

5.

Contribution towards 15-year Public Provident Fund6. Contribution towards an Approved Superannuation Fund.7. Subscription to National Saving Certificates, VIII Issue.8. Contribution for participating in the Unit-linked Insurance Plan (ULIP) of UTI.9. Contribution for participating in the Unit-linked Insurance Plan (ULIP) of LIC Mutual

Fund.10. Payment to notified annuity plan of LIC11. Subscription towards notified Units of Mutual Fund or UTI.12. Contribution to notified Pension Fund set up by Mutual Fund or UTI.13. Any sum paid as subscription to Home Loan Account Scheme of the National

Housing Bank.

14. Any sum paid as Tuition Fees for full time education of any 2 children of anindividual.

15. Any payment towards the cost of purchase / construction of a residential Property.16. Amount invested in approved Debenture of , and equity shares in, public company

engaged in infrastructure.17. Amount deposited in as Term Deposit for a period of 5 years or more in accordance

with a scheme framed by the Government.18. Subscription to any notified Bonds of National Bank for Agriculture and Rural

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Development ( NABARD)19. Amount deposited under Senior Citizens Saving Scheme.20. Amount deposited in 5 Year Time Deposit in Post Office.

Step-2 : Net Qualifying Amount : Deduction u/s 80C is available on the basis of Net Qualifying Amount which is determined as under

1. Gross Qualifying Amount ; or2. Rs. 1,00,000

Whichever is LESS.Step-3 : Amount of Deduction : Amount Deduction u/s 80C is computed as under :

1. Net Qualifying Amount ; or2. Rs. 1,00,000

Whichever is LESS.The aggregate deduction u/s 80C, 80CCC, and 80 CCD can not exceed Rs. 1,00,000. 4 . DEDUCTION OF TAX FROM THE SALARY [SECTION-192] The summarized provisions of Sec. 192 are given below :

Who is the taxpayer Employer

Who is the recipient Employee

Payment covered Taxable salary of the employee

At what time tax has to be deducted at source At the time of payment

Maximum amount which can be paid withoutTax Deduction

The amount of exemption limit ( i.e.Rs.1,80,000 / Rs.2,25,000/Rs.1,50,000 for theassessment year 2009-10.)

Rate of tax deducted at source Normal Rates applicable to an individual

Is it possible to get the payment without taxdeduction or with lower tax deduction

The employee can make an application inForm No.-13 to the Assessing Officer to get acertificate of lower tax deduction or no taxdeduction.

Note: - Rs. 1,80,000 is for Resident Women below 65 years- Rs. 2,25,000 is for Senior Citizen 65 years or more.

H ow to deduct Tax When a Person is employed by more than one Employer :

Where, during the financial year, an assessee is employed simultaneously under more than oneemployer, In such case, Tax will be deducted on the aggregate Salary by one of the employers( being the employer as the employee may choose, having regard to the circumstances of his case,by submitting the information in Form No.12B.

Relief U/s 89 : If the employee furnishes information in Form No- 10E to the employer, relief under section 89should be given to the concerned employee while deducting Tax at Source u/s 192. However, this

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facility is available only if the employer is Government or Public Sector undertaking or company , co-operative society, local authority, University, Institutions or association or Body.C an the Employer Deduct Tax in Respect of Other Incomes of Employee : The Provisions are given below :-

1. The employer may or may not declare his other incomes to the employer.

2.

If the employee wants to declare his othe incomes to the employer, then such informationshould be given on a plain paper to the employer.

3. The employee may declare details of his other incomes ( including loss under the headIncome from House Property but not any other loss ) and tax deducted thereon by others.

If such information is not submitted by the employee to the employer, then employercannot take into consideration other incomes of the employee.

5 . RELIEF IN RESPECT OF SALARY IN ARREARS, ADVANCE, ETC. If an individual receives any portion of his salary in arrears or in advance or receives profit in lieu of salary, he can claim relief in terms of Sec.89 read with rule 2A as under.A. Computation of relief when salary has been received in arrears or in advance : The relief of salary received in arrears or in advance is computed in the manner laid down as under ..

1. Calculate the tax payable on the total income, including the additional salary , of therelevant previous year in which the same is received.

2. Calculate the tax payable on the total income, excluding the additional salary, of therelevant previous year in which the additional salary is received.

3. Find out the difference between the tax at (1) and (2)4. Compute the tax on the total income after including the additional salary in the

previous year to which such salary relates.5. Compute the tax on the total income after excluding the additional salary in the

previous year to which such salary relates.6. Find out the difference between tax at (4) and (5)

7.

The excess of tax computed at (3) over tax computed at (6) is the amount of relief admissible u/s 89. No relief is, however, admissible if tax computed at (3) is less thantax computed at (6). In such case, the assessee-employee need not apply for relief

B . Computation of relief in respect of Gratuity : U/s 89, a relief can be claimed if Gratuity is received in excess of limits specified in Sec.10(10).However, no relied is admissible if taxable gratuity is in respect of services rendered for less than 5years.

Case in which the relief is admissible may be divided into tow categories namely (a) where the Gratuity payable in respect of past service of 15 years or more, and(b) Where such period is 5 years or more but less than 15 years. Relief in a case belonging to the

first category is worked out as under :

1. Computer the average rate of tax on the total income including the gratuity in the year of receipt

2. Find out the tax on gratuity at the average rate of tax computed at (1) above.3. Computer the average rate of tax by adding 1/3 rd. of the gratuity to the other income of

each of three preceding years.4. Find out the average of the three average rates computed in the manner specified in (3)

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above and compute the tax on gratuity at that rate.5. The difference between the tax on gratuity computed at (2) and that at (4) will be the relief

admissible u/s 89.C. Computation of relief in respect of payment in commutation of Pension A relief can be claimed in respect of payment in commutation of Pension received in excess of the

limits specified in Sec. 10(10A). Such relief in computed in the same manner as if the Gratuity waspaid to the employee in respect of service rendered for a period of 15 years or more.

Q. 3

Find out GAV from the following details

A B C

Municipal Value 8,000 16,000 19,000

Fair rent 10,000 18,000 1 4 ,000

Standard rent 12,000 20,000 1 5 ,000

Rent per month 1 5 00 1800 1200

Vacancy period 1 2 4

Ans:

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Q.2

Enumerate at least 10 items which can be included under the head income from other sources .

Ans:

Income from other sources All income other than income from salary, house property, business and profession orcapital gains is covered under Income from other sources . Provisions in respect of someimportant sources of other income are summarised below.

1. Dividends - Dividends on shares of domestic companies or units of UTI or mutualfund received from a company on or after 1 -4-2003 will not be taxable at the handsof the assessee [section 10(34) and 10(35)]. [The dividend distribution tax (DDT) willbe payable by company/mutual fund u/s 115-O] However, deemed dividend asdefined in section 2(22) of Income Tax Act will be considered as income from othersources .

2. Winning from lotteries, races etc. - Winning from lotteries, card games, horse races

are taxable as other income. This is taxable @ 30.3% without claiming any allowanceor expenditure.

3. Interest on securities, bank deposits and loans - Interest on bank deposits and loansis treated as other income , if not taxable u/s 28.

4. Gifts - Gifts in a year exceeding Rs 50,000, except gifts from certain relatives and giftson certain specified occasions will be taxable [section 56(2)(vi) of Income Tax Act]

5. Income from letting - Income from letting of furniture, machinery, plant and buildingwhich is not separable fro, composite letting with machineries is taxable as otherincome. Current repairs, insurance and depreciation are allowed as deductions[section 56(2)(ii) and (iii) of Income Tax Act] .

6. Any annuity due or commuted value of any annuity paid under section 280D.

7.

Any sum, received by the assessee from his employees as contributions to anyprovident fund or Superannuation fund or any fund set up under the provisions of the Employees State Insurance Act, 1948 (34 of 1948), or any officer fund for thewelfare of such employees, if such income is not chargeable to income -tax under thehead "Profits and gains of business or profession";

8. Income from machinery, plant or furniture belonging to the assessee and let on hire,if the income is not chargeable to income -- tax under the head "Profits and gains of business or profession"

9. Any sum received under a Keyman insurance policy, including the sum allocated byway of bonus on such policy, if such incom e is not chargeable to income tax under

the heads "Profits and gains of business and profession" or under the head"Salaries". (Keyman insurance policy means a life insurance policy taken by a personon the life of another person who is/ was the employee o f the 1st mentioned personor who is/was connected in any manner whatsoever with the business of the 1st

mentioned person.)10. Income from Welfare Funds11. Amount Received from Family Pension12. Salary Income of MPs, MLAs &MoCs.

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Q.3

How is tax liability of a company is computed?

Ans:

Income Tax Liability The legal position discussed is as applicable for financial year 2009-10 (Assessment Year 2010-11) unlessspecified otherwise. Provisions as applicable for financial year 2008-09 (Assessment Year 2009-10) arealso given, where these are different from provisions applicable to AY 2009-10.Income tax is levied under Entry No. 82 of List I of Seventh Schedule to Constitution (Union List), whichreads, Tax on income other than agricultural income . Entry No. 46 of List II of Seventh Schedule toConstitution (State List) reads, Taxes on agricultural income .Income Tax Act, 1961 imposes tax on income other than agricultural income. Tax on agricultural incomcan be imposed only by State Governments.Section 4 of Income Tax Act, which is the charging section, states that where any Central Act enacts thatincome tax shall be charged for any assessment year at any rate or rates, income tax at that rate o

those rates shall be charged for that year in accordance with, and subject to the provisions (includinprovisions for the levy of additional income tax) of this Act (i.e. Income Tax Act) in respect of the totalincome of the previous year of every person.Income tax Rates fixed under Finance Act every year The Central Act as referred to in section 4 of Income Tax Act is the Finance Act enacted every year.Income Tax is payable by every assessee at the rates prescribed by Finance Act every year. The FinanceBill is presented at the time of presenting Budget, usually on last day of February every year. Threlation between Finance Act and Budget is so close that often people associate budget only withtaxation. Really, taxation is only one of the aspects of the Budget.Who is assessee ? Assessee means a person by whom any tax or any other sum of money is payable under Income tax Act.It includes deemed assessee [section 2(7) of Income Tax Act]Person

Person includes * Individual * HUF * Company * Partnership Firm * Association of Persons (AOP) obody of individuals whether incorporated or not * Local Authority like Municipality etc. * ArtificiaJudicial person not falling in any of the aforesaid categories e.g. a Hindu deity [section 2(31) of IncomeTax Act]Previous Year and Assessment Year One very confusing aspect of Income Tax for a common man is the difference between Previous Yeaand Assessment Year.Assessment year means the period of twelve months commencing on the 1st day of April every year

[section 2(9) of Income Tax Act]Previous year means the financial year immediately preceding the assessment year. If business/profession is newly set up, previous year is the period from date of setting up that business orprofession and ending with the financial year [section 3 of Income Tax Act]The Financial Year for income tax purposes (called Previous Year ) is always the year ending 31st MarchThe assessment year is next to the Financial Year or Previous Year e.g. for Financial Year (FY) 2007-08(1st April 07 to 31st March 2008), the Assessment Year (AY) is 2008-09.It may be noted that an assessee can have separate accounting year for his own purposes e.g.

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Company can close its accounts on any day of the year, an individual may start his year on Diwali or anyother auspicious day. However, for income tax purposes, the accounts must be closed only on 31sMarch.Residential status Income tax liability depends on residential status of a person.

A firm, an association of persons, a company and every other person can be either a resident or a non-resident.An assessee can have different residential status for different assessment years. It is possible thatperson who is resident in India for income tax purposes, may be resident in any other country for thesame assessment year.Residential status of a company A company incorporated in India is an Indian company. It will always be resident in India . A foreigcompany (i.e. company incorporated abroad), is resident in India only if, during the previous year,control and management of its affairs is situated wholly in India. [Sec. 6(3) of Income Tax Act]1-4 Tax liability depending on residential statusIncome can be broadly classified as Indian Income and Foreign Income .

Indian income is always taxable in India in case of all tax payers, whether resident or non-resident.Foreign income is taxable in India if the assessee is ( a) resident (in the case of a firm, AOP company and

every other person) or ( b) resident and ordinarily resident (in the case of an individual or a Hindundivided family) in India.If an individual or a HUF is resident but not ordinarily resident, foreign income is taxable only if it is ( a)business income and business is controlled from India, or ( b) professional income from a professionwhich is set up in India. Otherwise, foreign income is not taxable in the hands of resident but noordinarily resident taxpayers [section 5(1) of Income Tax Act]Foreign income is not taxable if the assessee is non-resident in India [section 5(2) of Income Tax Act]Section 9 of Income Tax Act defines income deemed to accrue or arise in India . It will be IndianIncome and taxable in all the cases.Different heads of income All income is classified under following heads of income - * Salaries * Income from House property *Profits and gains of business or profession * Capital Gains * Income from other sources (e.g. interest onsecurities, lotteries, races) [section 14 of Income Tax Act]C alculation of income tax - Income from each of these sources is first calculated. All this income isadded to find out total income of the assessee. Permissible deductions are reduced and then income-taxpayable is calculated at the prescribed rates.Income from one head can be set off against loss from other head, unless specifically prohibited. InRajasthan State Wa r eh ou sing C orpor ati on v. CIT 2000 AIR SCW 629, it was held that if income is derivedfrom various heads, assessee is entitled to claim deduction permissible under respective head whether

or not computation under each head results in taxable income. If income to assessee arises under any othe heads of income but from different items e.g. different house properties or different securities etc.,and income from one or more items alone is taxable whereas income from the other item is exemptunder the Act, the entire permissible expenditure in earning the income from that head is deductible. - .- If assessee carries business in various ventures, entire expenditure incurred on all ventures isdeductible if all ventures constitute one business

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B road mode of computation of Income

Rs.1 Income from salaries, allowances and perquisites2. Less : Deduction under section 16, entertainment allowance and professional tax:

3. Taxable income under the head Salaries (1-2) . 4. Income from house property - Adjusted net annual value5. Less : Deductions under section 246 Taxable income under the head Income from house property (5-6)7. Profits and gains of business or profession - Profit/loss as per P&L account after

deducting amounts not allowable as deduction, adding amounts which areallowable as deduction and adding income taxable under this head, though notcredited/debited to P&L account

8. Less : Incomes which are credited to P & L A/c but are exempt under sections 10 to13A or are taxable under other heads of income

9. Taxable income under the head Profits and gains of business or profession (7-8)

10. Capital gains11. Less : Amount exempt under sections 54, 54B, 54D, 54EC, 54ED, 54F, 54G and 54GA12 Taxable income under the head Capital gains (10-11)13 Income from other sources14. Less : Deductions under section 5715 Taxable income under the head Income from other sources (13-14)16. Total Income (3+6+9+12+15)17 Less : Adjustment on account of set-off and carry forward of losses18. Less : Deductions under sections 80C to 80U19 Total income or net income liable to tax (16-17-18)20 Income subject to special rate of tax (e.g. capital gains)21 Balance income subject to normal rate (20+21 = 19)

Computation of tax liabilityA1. Tax on net income at special ratesA2 Tax on income at normal ratesB Less : Rebate under section 88E in respect of STT (available for AY 2008-09 but not

available for AY 2009-10)C Add : SurchargeD Add: Education cess and secondary and higher education cessE Less : Rebate under sections 86, 89, 90, 90A and 91F Net Tax payable (A1+A2-B+C+D-E)

G Tax paid on self-assessmentH Tax deducted or collected at sourceI Tax paid in advanceJ Balance Tax payable (F-G-H-I)

_______

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Rates of Income TaxThe tax on income is as follows -In case of domestic company, income tax is @ 30% for assessment year 2008-09, 2009-10 and 2010-11. Surcharge @ 10 per cent of income-tax [ i.e. , income-tax after rebate under section 88E], if netincome exceeds Rs. 1 crore. Rebate u/s 88E is not available for Assessment Year 2009-10.In case of foreign company, income tax is @ 40% for assessment year 2008-09, 2009-10 and 2010-11. Surcharge @ 2.5% of income-tax [ i.e. , income-tax after rebate under section 88E], if net incomeexceeds Rs. 1 crore. Rebate u/s 88E is not available for Assessment Year 2009-10.Marginal relief is available where net income exceeds Rs. 1 crore. In addition, Education cess is 2 percent of income-tax (after rebate under section 88E) and surcharge. Secondary and higher educationcess is 1 per cent of income-tax (after tax rebate under section 88E) and surcharge.Dividend Distribution Tax A domestic company paying dividend will have to pay dividend distribution tax u/s 115-O. The rateapplicable w.e.f. 1-4-2007 is 15% plus surcharge @ 1.5% plus education cess @ 2% plus SAHeducation cess of 1% of income tax. Total 16.995%.

Dividend distribution tax is payable within 14 days from date of declaration/distribution/payment of dividend whichever is earlier. The dividend will be tax free at the hands of assessees.Mutual funds have to pay dividend distribution tax u/s 115R of Income Tax Act. The rate asapplicable w.e.f. 1-4-2007 is 12.5% on income distributed to any individual or HUF and 20% onincome distributed to any other person. In addition, surcharge, education cess @ 2% and SAHeducation cess @ 1% will be payable. Total is 14.1625% in case of individual or HUF unit holder and22.66% in other cases.In case of money market mutual fund or a liquid fund, rate is 25%. Including surcharge andeducation cess, it is 28.325%.The dividend will be tax free at the hands of assessees.Income distributed to unit holders of open ended equity oriented funds or US 64 is exempt fromdividend distribution tax.

Minimum Alternate Tax

Many companies charge depreciation in their books on straight line method. Thus, the profit shownis higher in the accounts maintained for company law purposes and they can declare dividend.However, for income tax purposes, they charge depreciation on WDV which is higher. Thus, forincome tax purposes, they may show low profit or even loss, while in balance sheet prepared forcompany law purposes, they will show high profits, which is called book profits. Hence, suchcompanies have to pay minimum income tax [section 115JB]. This tax is termed as MinimumAlternate Tax (MAT).In A pollo Ty r es v. CIT (2002) 122 Taxman 562 (SC 3 member bench), it was held that the assessingofficer cannot reopen the accounts certified by auditors and adopted in general meeting. He haslimited powers of making additions and reductions as provided in the section. [In this case, it washeld that assessing officer cannot add back the depreciation for earlier years provided in accounts].Rate of minimum alternate tax, as % of book profit is as follows, for Assessment Year 2010-11 -

8/8/2019 MF0003 Set 1&2

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If book pro fit d oes n ot exceed R s. 1 c ror e

If book pro fit exceeds Rs. 1 c ror e

IT % EC and SAHC %

T ota l IT SC EC and SAHC

T ota l

Domestic company 15 0.3 15.45 15 1.5 0.495 16.995

Foreign company 15 0.3 15.45 15 0.375 0.46125 15.83625Ma r gina l Re l ief - If book profit of a company exceeds Rs. 1 crore, the minimum alternate tax cannotexceed the following : (Rs. 15 lakh + Book profit Rs. 1 crore) + EC + SAHC.

Rate of minimum alternate tax, as % of book profit were as follows, for Assessment Year 2008-09and 2009-10.

If book pro fit d oes n ot exceed R s. 1 c ror e If book pro fit exceeds R s. 1 c ror e IT % EC and SAHC % T ota l IT SC EC and SAHC T ota l

Domestic company 10 0.3 10.30 10 1 0.33 11.33Foreign company 10 0.3 10.30 10 0.25 0.3075 10.5575

Ma r gina l Re l ief - If book profit of a company for the assessment year 2008-09 exceeds Rs. 1 crore,the minimum alternate tax cannot exceed the following : (Rs. 10 lakh + Book profit Rs. 1 crore) + EC+ SAHC.

mf0003 set 1&2

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