unit1_2_3pdf direct tax

8/11/2019 Unit1_2_3PDF direct tax

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M.COM.SEMESTERIII

DIRECTTAXES

UNITI:DEFINITIONS

Section2(7):ASSESSEEAssessee means a person by whom any tax or any other sum of money is payable under this act.ThetermAssesseeincludes:

(a) Every person in respect of whom any proceeding under this act has been taken for the

assessment of his income or of the income of any other person in respect of which he is

assessable,

or

of

the

loss

sustained

by

him

or

by

such

person,

or

of

the

amount

of

refund

due

to

himorsuchotherperson;

(b) Everypersonwhoisdeemedtobeanassesseeunderanyprovisionsofthisact;

(c) Everypersonwhoisdeemedtobeanassesseeindefaultunderanyprovisionsofthisact.

ThetermAssesseeincludesthefollowingpersons:

1. A person by whom any amount by way of tax, interest or penalty is payable under this Act.

WhethertheproceedingsunderthisActhasbeentakenornotwillbeimmaterial.

2. A person against whom the proceedings under this Act has been taken. In this case, it will be

immaterialwhethersuchapersonisliableornottopayanyamountbywayoftaxthereon.

3. Apersonwhoisrequiredtofilehisreturnoflossandwhoisnotrequiredtopayanytaxthereon.

4. Apersonwho isnot liabletopaytaxonhisnettaxable income,butsincethetax isdeductedatsource,heisentitledtoclaimforrefund.

5. Apersonwho isdeemedtobeanassesseeandwho isassessable inrespectof incomeor lossof

anothere.g.therepresentativeofnonresident,thetrusteesincaseoftrust.

6. Apersonwhoisdeemedtobeanassesseeindefault.Forinstance,anemployerwhoisrequiredto

deduct tax from salaries paid by him to his employees and fails to deduct such tax or after

deductingtaxdoesnotpayittotheGovernment.

Section 2 (24) : INCOMEIncome includes: -(a) ProfitsandGains,(b) Dividend,

(c) Voluntarycontributionsreceivedby:

1.Acharitableorreligioustrust,or,

2.Anyinstitutionestablishedwhollyorpartlyforcharitableorreligiouspurpose,or

3.Anapprovedscientificresearchassociation,or

4.Anyothernotifiedfundorinstitutionestablishedforcharitablepurposes,


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5.Any notified trust or institution wholly for public religious purposes or wholly for public

religious&charitablepurposes.

(d) Thevalueofanyperquisiteorprofitinlieuofsalarytaxableunderclauses(2)&(3)ofSection17.

(e) Anyspecialallowanceorbenefit,otherthanperquisite includedundersubclause(d)specifically

grantedtotheassesseetomeetexpenseswholly,necessaryandexclusivelyfortheperformance

ofthedutiesofanofficeoremploymentofprofit.

(f) Anyallowancegrantedtotheassesseeeithertomeethispersonalexpensesattheplacewherethe duties of his office or employment of profit are ordinarily performed by him or at a place

whereheordinarilyresidesortocompensatehimfortheincreasedcostofliving.

(g) The value of any benefit or perquisite whether convertible into money or not obtained from a

companyeitherbyadirectororpersonwhohassubstantialinterestinthecompanyorrelativeof

the director or of such person. It also includes any sum which is paid by the company which

otherwisewouldhavebeenpayablebythedirectororsuchotherperson.

(h) The value of any benefit or perquisite whether convertible into money or not obtained by any

representative assessee and any sum paid by the representative assessee in respect of any

obligationofanybeneficiarywhichotherwisewouldhavebeenpayablebysuchbeneficiary.

(i) Anysumchargeabletoincometaxasprofitsandgainsofbusinessorprofessionu/s28(ii)and(iii)

orSection

41

or

Section

59.

(j) AnyprofitsonsaleofalicensegrantedundertheImports(Control)Order,1955,madeunderthe

ImportsandExports(Control)Act,taxableu/s28(iiia).

(k) Any cash assistance (by whatever name called) received or receivable by any person against

exportsunderanyschemeoftheGovernmentofIndia,taxableu/s28(iiib).

(l) Any duty of Customs or excise repaid or repayable as drawback to any person against exports

undertheCustomsandCentralExciseDutiesDrawbackRules,1971,taxableu/s28(iiic).

(m) Thevalueofanybenefitorperquisitetaxableunderclause(iv)ofSection28.

(n) Anysumchargeabletoincometaxunderclause(v)ofsection28,suchasinterest,salary,bonus,

commissionorremunerationreceivedbyapartnerofthepartnershipfirmfromsuchfirm.

(o) Anycapitalgainschargeableu/s45.

(p) Profit

or

gains

of

business

of

insurance

carried

on

by

Mutual

Insurance

Company

or

by

a

co

operativesocietycomputedinaccordancewiththeprovisionsofthisActu/s44.

(q) Theprofits&gainsofanybusinessofbanking(includingprovidingcreditfacilities)carriedbyaco

operativesocietywithitsmembers.

(r) Anywinningfromlottery,crosswordpuzzles,horseraces,cardgamesandothergamesofanysort

orgamblingorbettingofanyformornaturewhatsoever.

(s) Anysumreceivedbytheassessee fromhisemployeesascontributiontoanyprovident fundor

superannuationfundoranyfundsetundertheprovisionsofEmployeesStateInsuranceAct1948

oranyotherfundforthewelfareofsuchemployees.

(t) AnysumreceivedundertheKeymanInsurancePolicy,meansaLifeInsurancePolicytakenbya

persononthelifeofanotherpersonwhoisorwastheemployeeofthefirstmentionedpersonor

isconnectedinanymannerwhatsoeverwiththebusinessofthefirstmentionedperson.

(u) Anysum

received

or

receivable

in

cash

or

in

kind

under

Non

compete

agreements

or

exclusive

rightsagreements.

(v) Amount exceeding ` 50,000 received without consideration from nonrelated person of the

assessee.

The aforesaid definition does not define the term income but merely describes various receipts as

income. It, therefore, follows that in addition to the aforesaid receipts, any other receipt is taxable

undertheActifitcomeswithinthegeneralandnaturalmeaningofthetermincome.


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EXPLANATION: -

Followingpointsshouldbenotedwhilestudyingthedefinitionofincome:

1. Personal gift is not considered as income, however, gift received for professional skill is to be

consideredasincome.

2. Income

may

be

received

in

cash

or

in

kind.

It

still

remains

income.

3. It is immaterial for income taxpurposewhether income isearned from lawfulmeansorunlawful

means.

4. Incomemaybecalculatedonreceiptoraccrualbasisdependinguponfacts&natureofincome.

5. Incomeincludeslossi.e.lossisconsideredasminusincome.

6. Pinmoneyreceivedbywifeforherpersonalexpensesisnottreatedasincome.

7. Incomeshouldbereal&notfictional.

8. Awardsreceivedbyaprofessionalsportsmanisanincome.

Section2 (31): PERSON

Thetermpersonincludesthefollowing:

i) Anindividual

ii) AHinduUndividedFamily(HUF)

iii) ACompany

iv) Afirm

v) Anassociationofpersons(AOP)orbodyofindividuals(BOI)whetherincorporatedor not.

vi) Alocalauthority.

vii) Everyartificialjuridicalpersonnotfallinginthecategoriesmentionedabove.

These are seven categories of persons chargeable to tax under the Act. The aforesaid

definition

is

inclusive

and

not

exhaustive.

Therefore,

any

person,

not

falling

in

the

above

mentioned

seven categories, may still fall in the four corners of the term person and accordingly may be

liabletotaxundersection4.

EXPLANATION:

1. Individual :Naturalhumanbeinge.g.Mr.X.

2. H.U.F. :ItisthefamilyarisingoutofHindulawconsistingofallmembers

lineally descended from a Hindu ancestor (children & grandchildren),and their

wives&unmarrieddaughters.E.g.Mr.A as Karta and B, C, D & E as family

members.

3. Company

:Under

section

2(17),

company

is

defined

as

a) anyIndiancompany;or

b) anybodycorporateincorporatedunderthelawsofaforeigncountry;or

c) any institution or association or a body which is assessed or was

assessable/assessedasacompanyforanyassessmentyear

commencingonorbeforeApril1,1970;or


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d) any institution, association or a body, whether incorporated or not &

whether IndianornonIndian,which isdeclaredbyspecialorderofthe

CentralBoardofDirectTaxestobeacompany.

Eg.WiproLtd.;RelianceIndiaLtd.

4. Firm : Apartnershipfirme.g.AregisteredpartnershipfirmwithX,Y,Z partners.

5. AOP/BOI

:

It

is

an

Association

of

Persons

for

a

common

cause,

e.g.

XYZ

HousingSociety.

6. LocalAuthority:Itmeansamunicipality,districtboard,grampanchayatorany

bodyentrustedbythegovernmentthecontrolandmanagement

ofamunicipalorlocalfunde.g.ThaneMunicipalCorporation,

B.E.S.T.etc.

7. Artificial :Itincludesanidol,adeity,auniversity,BarCounciletc.e.g.Idolsof

JuridicalPerson Gods&Allah,Balaji,Mumbaiuniversityetc.


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UNIT2:BASISOFCHARGE

Section2 (9): ASSESSMENT YEAR

AssessmentYearmeansaperiodofTwelvemonthscommencingfrom1stDayofAprileveryyear.

EXPLANATION:

Assessmentyear20132014thusbeginson1stApril2013andendson31stMarch2014.Thisistheyearin

whichincomerelatingtoPreviousYear20122013isassessedtotax.

Section 2 (34),Read with Section3 : PREVIOUS YEAR

UnderSection2(34)PreviousYearmeansthePreviousYearasdefinedinSection3.

AsperSection3therewillbeonlyonepreviousyearforalltheassesseesendingon31stMarchforall

sourcesofincome.E.g.Incaseofnewlysetupbusinesspreviousyearwillbeginfromthedateofsetting

upofbusiness&willendwith31stMarchnext.Thus,ifanewbusinessiscommencedon18thDec.2012,

firstpreviousyearwillbefrom18thDec.2012to31stMarch2013andwillcoveraperiodoflessthan12

months.

ForIncomeTaxpurposestatusoftheassesseeisclassifiedas

1. LegalStatusWhichisdecidedonthebasisofdefinitionofperson.Eg.ForaJointStockCompany,

legalstatusiscompany.ForMr.Xlegalstatusisindividual.

LegalStatusofanassesseedecidestherateatwhichheisrequiredtopayincometax.

2. ResidentialStatusOnthebasisoftheseprovisionsresidentialstatusoftheassessee iseithera)

Residentorb)NonResident.

Residentialstatusdecidesincomeonwhichassesseeissupposedtopaytax.Incomeearnedby

assesseeiseitherIndianincomeor/andForeignincome.

Thus, legalstatusdecidesrateoftax,whereas,residentialstatusdecides incomeonwhichtax istobe

paid.


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RESIDENTIAL STATUS

EveryassesseeisEitherResidentorNonResident.

Basedon legalstatusoftheassesseetherearedifferentprovisions,whichdecidewhetheraparticular

assesseeisresidentornonresident.

IfanassesseebecomesResidentaspertheprovisionsoftheactthenitistobedecidedfurther,

whetherheis

1. ResidentandOrdinaryResident

OR

2. ResidentbutNotOrdinaryResident.

RESIDENTIAL STATUS OF AN INDIVIDUAL SEC. 6 (1)

ForanindividualtobecomeResidenthehastosatisfyanyoneofthefollowingtwoconditions:

1. Heshouldhavebeen inIndia intheyearforwhichResidentialStatus istobedecidedforaperiod

amountingto182daysormore.

OR

2. Withinthe4yearsprecedingtotheyearforwhichresidentialstatusistobedecided,heshouldhave

beeninIndiaforaperiodamountingto365daysormoreandshouldhavebeeninIndiafor60days

ormoreintheyearforwhichResidentialStatusistobedecided.

Exceptiontocondition2:

An Indian Citizen or an Indian member of a crew of an Indian ship who leaves India in any

previousyear

for

employment

outside

OR

an

Indian

Citizen

or

aperson

of

Indian

origin

who

is

outside

IndiaandcomesonavisittoIndia,inthesecondpartoftheconditionno.2thewords60daysshouldbe

replacedby182days.Itisclearthatconditionno.2becomesnonfunctionalincaseofsuchassesses.

A person is deemed to be of Indian origin if he or either of his parents or any of his grand

parentswasborninundividedIndia.

If an individual becomes a Resident it is to be decided further which type of Resident he is.

TheseprovisionsarediscussedinSection6(6).

For an individual to become Resident and Ordinary Resident he has to satisfy both the

conditionsgivenbelow:

1. HeshouldhavebeenresidentinIndiaatleast2outof10previousyears,precedingtotheprevious

yearinwhichheisresident.

AND

2. HeshouldhavebeeninIndiaforaperiodamountingto730daysormorein7yearsprecedingtothe

previousyearinwhichheisresident.


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Ifassesseedoesnotsatisfyanyoneoftheabovementionedconditions(orboth)hisResidential

StatuswillbeResidentbutNotOrdinaryResident.

PROBLEMS

1. Mr.XleftIndiaon1stAug.2013.Hisstayduringpreceding4yearswasasfollows:

20112012 50

20102011 70

20092010 90

20082009 100

DeterminehisresidentialstatusfortheA.Y.201415.

2. Mr. Suresh Ahire, an Indian citizen left India for London on 1st August 2013 as he was appointed

managerin

U.K.

based

hotel.

Determine

his

Residential

Status

for

A.

Y.

201415.

3. Mr.Advani,anIndiancitizenwhoisworkingasanassistantinatouristcompanyinPakistancameto

Indiaonholidayon15thApril2013andleftforPakistanon30thJune2013.

DeterminehisResidentialStatusforA.Y.201415.

4. Mr.XleftIndiaon15thOct2013.HisstayinIndiaduringprecedingyearswasasfollows:

20122013 220

20112012 185

20102011 90

20092010 320

20082009 100

20072008 200

20062007 75

20052006 55

20042005 365

20032004 200

20022003 320

20012002 300

20002001 120

DeterminehisresidentialstatusfortheA.Y.201415.

5. Mr.Xwasaprivatedetective.Priorto1stDec,2011hehadneverbeenoutsideIndia. On1stDec.

2012heleftIndiaforSouthAfricaashewasaskedbytheGovernmentofIndiatofindcertaindetails


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regardingirregularitiesinIPLcricketmatchesandsubmitareport.HecamebacktoIndiaon1stJune

2013andwasagainaskedtoleaveforSouthAfricaon15thJune2013.Hewastocomebackon10th

Oct.2013,butunfortunatelymetwithanaccidentandwaskilled.

DeterminehisResidentialStatusforA.Y.20142015.

6. Mrs. X came on a visit to India on 10th April 2013 and left India on 1st Sep.2013. Her stay during

precedingyearswasasfollows:

20122013 100

20112012 100

20102011 100

20092010 100

Placesofbirth

Mr.X Bristol,U.K.

Mrs.X

Jamaica

FatherofMr.XDubai

MotherofMr.XHamilton

GrandmotherofMr.X London

GrandfatherofMr.X Nairobi

GrandmotherofMrs.X Karachi

GrandfatherofMrs.XPortofSpain

Mrs.Xcelebratedher70thbirthdayon15thAugust2013.

DetermineherresidentialstatusfortheA.Y.201415.

7. Mr.Tiwari left forSwitzerlandon15thMarch2011afterstaying in India forabout1year from1st

April2010. HecamebacktoIndiaon9thSept2013.

DeterminehisResidentialStatusforAssessmentYear201415.

8. Mr. Harry, an Indian Citizen was born in Germany. He came to India for the first time when he

was 10 and never went outside India till he was 25. He left for Germany again in May 2011 and

againcamebacktoIndiainMarch2014.

Determinehis

Residential

Status

for

A.Y.

201415.

RESIDENTIALSTATUSOFHUF,FIRMANDAOPORBOISEC.6 (2)

HUF, Firm or AOP is said to be Resident in India in any previous year if the control and

managementthereofissituatedeitherpartlyorwhollyinIndia.


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RESIDENTIALSTATUSOFCOMPANYSEC.6 (3)

AcompanyissaidtobeResidentinIndiainanypreviousyearif:

1) ItisanIndiancompanyor

2) DuringthepreviousyearcontrolandmanagementofitsaffairsissituatedwhollyinIndia.

RESIDENTIALSTATUSOFOTHERASSESSEESSec.6(4)

AnyotherassesseeissaidtobeResidentinIndiainanypreviousyearifthecontrol&managementofits

affairsiswhollyorpartlysituatedinIndia.

RESIDENTANDORDINARYRESIDENT:Sec.6(6)

1. H.U.F.: H.U.F.issaidtobeOrdinaryResidentinanypreviousyearifitsKartaisresidentand

OrdinaryResidentinthatpreviousyear.

2. Firm,AOP,

Company

and

All

Other

Assesses:

The

term

Ordinary

Resident

is

not

applicable

to

otherassesses.TheyareeitherResidentorNonResident.

PROBLEMS

1. Duringthepreviousyear201314affairsofaHinduUndividedfamilyarepartlymanagedfromDelhi

andpartlyfromHongKong.Don,aKartaofH.U.F.,isresidentandordinaryresidentinIndiaandTan

whoalsomanagestheaffairsoffamilyisanonresidentinIndiafortheassessmentyear201415.

Determinetheresidentialstatusofthefamilyfortheassessmentyear201415.

2. Afirmhasfivepartnersallofwhomareresident in India.Thefirmownsateaestate inSriLanka,

which ismanagedbyanagentwhostays inSriLanka.Agent looksafterthedaytodayworkingof

the estate. He takes permission of the partners before taking any major decision. Determine the

residentialstatusofthefirm.

3. A company is registered in Dubai, having its head office there. However, the majority of the

directors and managers resided in India. Sales contracts and other important business functions

werecontrolledbydirectorsinIndia.Whatistheresidentialstatusofthecompany?


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SCOPEOFTOTALINCOME

OnwhatincomeanassesseewillpaytaxinIndiadependsuponhisresidentialstatus.Scopeoftotal

incomeisexplainedinthefollowingchart:

INCOME:

A.INDIANINCOME

1.ReceivedordeemedtobereceivedinIndia

2.Accruingorarisingordeemed toaccrueorariseinIndia.

B.FOREIGNINCOME

ACCRUINGORARISINGOUTSIDEINDIA&RECEIVEDOUTSIDEINDIA:

1.FromabusinessControlledfromIndiaorProfessionsetupinIndia.

2.FromabusinesscontrolledfromoutsideIndiaorprofessionsetupoutsideIndia.

Note : - Ifinrespectofanybusiness,operationsarenotcarriedoutinIndiaitwillbetreatedas

ForeignincomeevenifitiscontrolledfromIndia.However,ifsuchanincomeis

receivedinIndiaitwillbetreatedasIndianIncome.

TAXABILITYBASEDONRESIDENTIALSTATUS

1. Residentand

Ordinary

Resident

:Has

to

pay

Income

tax

in

India

on

total

income

earnedbyhim.i.e.IndianaswellasForeignIncome.

2. ResidentbutNotOrdinaryResident :HastopayIncometaxinIndiaontotalincomeearned

byhimexceptincomefrombusinesscontrolledfrom

outsideIndiaorprofessionsetupoutsideIndia.

3. NonResident :HastopayIncometaxinIndiaonlyonIndianincome.

SECTION 7 : INCOMEDEEMEDTOBERECEIVEDININDIA

Income deemed to be received in India in the previous year is also included in the taxable

income

of

the

assessee.

The

following

income

shall

be

deemed

to

be

received

in

India:

(a) Annualaccretiontothecreditbalanceofanemployee inthecaseofrecognisedprovidentfundto

theextentprovidedundertherules.

(b) Excesscontributionofemployerincaseofrecognisedprovidentfundtotheextentprovidedunder

therules.

(c) Transferbalanceinarecognisedprovidentfundtotheextentasprovidedundertherules.


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SECTION 8 : DIVIDENDINCOME

Anydividenddeclaredbyacompanyordistributedorpaidbyitshallbedeemedtobetheincomeof

thepreviousyearinwhichitissodeclared,distributedorpaid,asthecasemaybe;

Any interim dividendshallbedeemed tobe the incomeof thepreviousyear inwhich theamountof

suchdividendisunconditionallymadeavailabletothememberwhoisentitledtoit.

Thefollowingtableillustratesscopeoftotalincomeinrespectofvariousincome:

Particulars R&OR RbutnotOR NR

1) AnyincomereceivedinIndia

ForworkdoneinIndia

ForworkdoneoutsideIndia

2) AnyincomereceivedoutsideIndia

Forwork

done

in

India

ForworkdoneoutsideIndia

3) IncomeaccruedinIndia

ReceivedinIndia

ReceivedoutofIndia

4) IncomeaccruedoutofIndia

ReceivedinIndia

ReceivedoutofIndia

5) SalarypaidbyIndianGovernment

6) DividendorInterestpaidbyIndiancompany.

7) IncomefrompropertyinIndia

ReceivedinIndia

ReceivedoutofIndia

8) ProfitonsaleofassetsinIndia

Receivedin

India

ReceivedoutofIndia

9) IncomefrombusinessinIndiacontrolledfrom

India

10) IncomefrombusinessinIndiacontrolledfrom

Dubai.

11) IncomefrombusinessinDubaicontrolledfrom

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Nottaxable

Taxable

Taxable

Taxable

Not

taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Nottaxable

Taxable

Taxable

Taxable

Not

taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable

Taxable


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SECTION 9: INCOMEDEEMEDTOACCRUEORARISEININDIA

1) Allincomeaccruingorarisingthroughorfrom:

a. AnybusinessconnectioninIndia.

b. AnypropertyinIndia.

c. AnyassetorsourceofincomeinIndia.

d. TransferofcapitalassetsituatedinIndia.

2) SalariespayableforservicesrenderedinIndiawillbecalledIndianincome.

3) Salary received by Indian National from the Government in respect of services rendered outside

Indiais

an

Indian

income.

4) AnydividendpaidbyanIndiancompanyisconsideredasanIndianincome.

PROBLEMS

1. From the following details of income of the assessee find out his gross total income for the A.Y.

201415ifheis:

a)R&OR b)Rbutnot OR c)NonResident

(1) Dividendfrom

Indian

companies

credited

to

bank

account

in

Iraq

` 12,000.

(2) IncomefrombusinessinSriLankacontrolledfromMumbai` 18,000.

(3) IncomeaccruedinAfghanistan&receivedinPakistan` 31,000.

(4) IncomefrompropertyinAustraliareceivedinBhutan` 12,000.

(5) InterestcreditedinBankaccountinSwitzerland` 50,000.

(6) RentfrompropertyinAustraliareceivedinNepal` 24,000.

(7) IncomefrombusinessinMumbaicontrolledfromDubai` 1,00,000.

(8) PastuntaxedprofitbroughttoIndia` 40,000.

2. Mr.Balvinder,anIndiancitizen,furnishesthefollowingparticularsofhisincomeearnedduringthe

previousyear

relevant

to

assessment

year,

2014

15.

(a) PensionfromanIndianemployerreceivedinSudan` 36,000.

(b) ProfitfrombusinessatPuneandmanagedfromBritain` 48,000.

(c) IncomeearnedfrombusinessinKuwaitwhichiscontrolledfromMumbai(` 30,000 receivedin

India)` 54,000.

(d) PastuntaxedprofitbroughttoIndia` 1,00,000.

(e) IncomefromagriculturallandinSriLanka` 10,000receivedinIndia.

U.S.A.

12) IncomefrombusinessinDubaicontrolledfrom

India.

13) Remittanceofpastuntaxedamounts.

Taxable

Taxable

Nottaxable

Nottaxable

Taxable

Nottaxable

Nottaxable

Nottaxable

Nottaxable


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(f) ProfitonsaleofplantatBhopal(1/2receivedinU.S.A.)` 38,000.

(g) DividendfromGermancompanyreceivedinIndia` 5,000.

(h) ProfitfrombusinessinRajasthancontrolledfromMaharashtra` 74,000.

(i) SalaryearnedandreceivedinSaudiArabia` 48,000.

(j) InterestonBhutanDevelopmentBonds(entireamountreceivedinSudan)` 40,000.

DeterminethegrosstotalincomeofMr.Balvinderfortheassessmentyear201415ifheis,(i)

ResidentandordinarilyResident(ii)ResidentbutnotordinarilyResident(iii)NonResident.

3. FollowingistheincomeofMr.Khanforthepreviousyearrelevanttoassessmentyear201415.

i) InterestfromIndiancompaniesreceivedinIraqandcreditedtobankaccountinIraq`12,000.

ii) IncomefrombusinessinSriLankacontrolledfromKerala` 18,000.

iii) IncomeaccruedinNepalandreceivedinPakistan `31,000.

iv) IncomefrompropertyinJapanreceivedinTibet`12,000.

v) InterestcreditedfromBankaccountinSwitzerland`50,000.

vi)

Rentfrom

property

in

Australia

received

in

France

`24,000.

vii)IncomeaccruedinSwitzerlandandnotreceivedinIndia` 10,000.

viii) IncomeearnedinU.S.A.inpastbutbroughtinIndiaduringtheyear` 20,000.

Findouthisgrosstotalincomeresident:

i) Residentandordinarilyresident;

ii) Residentbutnotordinarilyresident;

iii) NonResidentinIndia.

4. The following are the sources of income of Shri Manohar for the assessment year 20132014.Determinehistotaltaxableincomeassumingalternativelythatheis:

i) ResidentandOrdinarilyResident.

ii) NotOrdinarilyResident

iii) NonResident.

(a) Salaryfromacompany(Gross)`52,000.(EarnedinIndia)

(b) IncomefromprofessioncarriedinIndia`57,000.

(c) IncomeaccruedinU.K.andbroughtinIndia` 3,000.

(d) IncomefromabusinessinGermany` 81,000(ThebusinessiscontrolledfromIndia).

(e) ` 10,000receivedfromabankinFrance.Themoneywasdepositedinthebankaccountbyhis

brotherbeingtheinterestanddividendearnedbyMr.ManoharinAmerica.

(f) ` 20,000salaryearnedinIndiadepositedbyhisemployerdirectlyinthebankinSwitzerland.

(g) ` 2000ProfessionalfeesearnedandreceivedinNewYorkbutlaterremittedtoIndia.

(h) ` 10,000incomefrombusiness,whichiscarriedoninHongKongbutcontrolledfromNewYork.


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UNIT3:EXCLUSIONSFROMTOTALINCOME(SECTION10)

UnderSection10of IncomeTaxActof1961certain income isexempted fromtaxeither fullyor

partially.Inotherwordsitisalistoftaxfreeincomeinthehandsoftheassesseeandthoughitis

anincomeoftheyearassesseeisnotrequiredtopaytaxonit.

1. AgriculturalincomeSec.10(1): Foranincometobecalledanagriculturalincomeconditionstobe

satisfiedare

(a) Rentorrevenueshouldbederivedfromland.

(b) Landshouldbeusedforagriculturalpurpose.

(c) ThelandshouldbesituatedinIndia.

Examples:

1. Incomefromleaseofagriculturalland.

2. Incomefromlandusedforagriculturalpurposee.g.producegrownforconsumptionbyman

(grains, vegetables or fruits) or animals (grass or pastures); cash crops (cottonjute etc.),

luxuryitemssuchascoffee,tobacco;cropsgrownforselfconsumptionetc;

3. CompensationreceivedfromInsuranceCompanyfordamagetoteagarden.

4. Incomefromgrowingflowers.

5. Salaryorinterestoncapitalreceivedbyapartnerfromafirmengagedinagriculture(assalary

orinterestisonlyawayofdistributingprofits).

ExamplesofNonagriculturalincome:

1. Income not directly derived from land: Interest on arrears of rent; dairy farming, poultry

farming,

dividend

received

from

a

limited

company

having

only

agricultural

income;

salary

of

amanagerofanagriculturalestate,rentfor landusedforstoringcrops;manufactureofsalt

fromseawater.

2. Income without performing basic agricultural operations: Sale of plants which have grown

spontaneously (on their own without any sowing of seeds e.g. mushrooms); sale of trees

whichwerealreadystandingontheagriculturalestatewhenpurchased.

3. Income from produce sold byothers andnot by thecultivator: Sale of agricultural produce

receivedas interestonloan;receivedaspriceforwatersuppliedtoagricultural land;saleof

agriculturalproducebyabroker.

2. ReceiptfromH.U.F.Sec.10(2):AnyamountreceivedbymemberofH.U.F.outofthefamilyincome

isexempt

from

tax.

3. PartnersShareintheprofitsofthefirmSec.10(2A):Partnerofthefirmisnotrequiredtopaytaxin

individualcapacityonhisshareinprofitsofthefirm.

4. LeaveTravelConcessionSec.10(5): It istheamountgivenbytheemployertotheemployeefor

travelingwhileonleaveortosettleatanyplaceinIndiaafterretirement.


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15

Subject to certain restrictions this income is exempt from tax in respect of travel concession

receivedbyanassesseefromhisemployerorformeremployer:

(a) Forhimself&hisfamilyinconnectionwithhisproceedingtoanyplaceinIndia.

(b) For himself & his family in connection with his proceeding to any place in India after

retirementfromserviceorafterterminationofhisservice.

However,

exemption

under

this

section

is

restricted

to

amount

actually

spent

by

the

assessee.

ForthepurposeofthissectionFamilyinrelationtoanyindividualmeans:

i. Thespouseandchildrenoftheindividual.

ii. Theparents,brothers&sistersoftheindividualoranyofthemwhollyormainlydependent

ontheindividual.

Exemption under this section is available in respect of 2journeys performed in a block of 4 calendar

yearscommencingfrom1986.

Leavetravel

Actual

amount

spent Exemption

Taxable

amount

allowancesreceived byemployee

10,000 Nil 10,000

10,000 2,000 2,000 8,000

10,000 9,000 9,000 1,000

10,000 10,000 10,000 Nil

10,000 15,000 10,000 Nil

5. Foreignallowances&perquisitestoGovernmentemployeesoutsideIndiaSec.10(7).

6. Section 10 (10) Gratuity: Gratuity is the lump sum payment made by the employer, to the

employeeatthetimeofhisretirement,ortothefamilymembersofemployeeincaseofhisdeath.

Forincometaxpurpose,Gratuityisconsideredsalaryincome.However,entireamountreceivedas

gratuityisnottaxable.Amountthatisexemptfromtaxiscoveredbyfollowingprovisions:

(a) Gratuityreceivedbygovernmentemployees:Itisfullyexemptfromtax.

(b) IncaseofemployeescoveredbythePaymentofGratuityAct,1972: Anygratuity receivedby

anemployeecoveredbythepaymentofGratuityAct,1972isexemptfromtaxtotheextentof

leastofthefollowing:

i) 15 dayssalary (7 days in the case of employees of aseasonal establishment) based on

salary last drawn for every completed year of service or part thereof in excess of six

months;


16/22

16

ii) `10,00,000w.e.ffrom24/05/2010

iii) Gratuityactuallyreceived

(c) For employees not covered by the Payment of Gratuity Act, 1972: For other employees,

Gratuityreceivedisexemptasperthefollowing:

i) Halfmonthssalaryforeachcompletedyearofservicecalculatedonthebasisofaverage

salarydrawnfor10monthsimmediatelyprecedingthemonthofretirementordeath,OR.

ii) Actualamountreceivedasgratuity,OR

iii) Amount fixed by the government from time to time which at present is increased to`

10,00,000w.e.ffrom24/05/2010whicheverisless.

Followingpointsshouldbenoted:

1. SalaryforthispurposemeansBasic+D.A.for(b)above&Basic+D.A.+Commissionatfixed

percentagefor

(c)

above.

2. 26days refertoworkingdayspermonth.This is important tocalculate15days (or7days)

salary.

PROBLEMS

1. Mr.X,nongovernmentemployeenotcoveredbyPaymentGratuityAct1972retiredfromservices

ofKedarAutomobileson31stAugust2013andreceived` 96,000asGratuityafteraserviceof40

yearsand

3months.

His

average

salary

during

last

10

months

immediately

preceding

his

retirement

was` 4,500permonth.Computehistaxablegratuityifany.

2. Mr.YwasanongovernmentemployeenotcoveredbyPaymentofGratuityAct.Heretiredon1st

May2013afteraserviceof35yearsand11months.Since1stJan.2013hewasdrawingamonthly

salary of` 5,500. Salary was due for increment on 1st Jan. every year @ 10%. On retirement he

received` 60,000asgratuity.ComputetaxableGratuityifany.

3. Mr. A, Income tax officer receives` 2,00,000as gratuity while he is still working. Is this gratuity

taxable?

4. Mr.A,Incometaxofficerreceivesgratuityof` 2,00,000atthetimeofretirement.Isthisgratuity

taxable?


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17

5. Mr. D who is working in Reliance Industries Ltd. received Gratuity worth ` 5,00,000 while in

service.Isthisgratuitytaxable?

6. Mr.FretiredfromXLtd.towhomgratuityactisnotapplicable.Receivedgratuityof` 6,00,000.

Hisservice

period

is

35

years

11

months

and

average

salary

is

` 10,000.

Is

this

gratuity

taxable?

7. Section10 (10A)CommutationofPension: Pension isa periodical payment made byemployer to

theemployeeafterretirement.Thissectionisalsoapplicableinrespectofanypaymentreceivedby

wayofcommutation of pension receivedby an individualout ofannuityplanof the L.I.C. froma

fundsetupbythecorporation.

Therearetwooptionsregardingthispayment:

(a) UncommutedPension:Itisthepensionthatistobereceivedperiodically.Itisfullytaxableassalary

income

in

case

of

all

the

employees.

(b) Commuted Pension: It is amount received in lump sum in lieu of periodical pension. Regarding

commutation,optionsavailableare: a)Commutationoffullpension,wherenoperiodicalpayment

will be made, entire pension will be paid in lump sum. b) Part of the pension can be commuted

whereinrespectofuncommutedpensionperiodicalpaymentwillbemade.

TAXABILITY OF COMMUTED PENSION1. Any payment on commutation of pension received by all Central and State Government

Employeesisfullyexemptfromtax.

2. Incaseofotheremployeestaxabilitydependsonwhetheremployeereceivedgratuityalsoon

retirement.

Exemptionis

restricted

to

the

following:

1. Incasewhereemployeereceivedanygratuity,commutedvalueof1/3rdpensionisexempt.

2. Incasewhereemployeedidnotreceivegratuity(i.e.hereceivedonlypension)commuted value

ofhalfofpensionisexempt.

Anypaymentreceivedbywayofcommutationofpensionfromafundunderclauses23AAB(i.e.

fund set up by LIC of India viz Jeevan Suraksha) under pension scheme approved by controller of

Insuranceisfullyexemptfromtax.

NewPensionSchemeforCentralGovt.Employees

New pension scheme is applicable to new entrants to Government service. As per the scheme it is

mandatoryforpersonsenteringtheserviceoftheCentralGovernmentonorafterJanuary1,2004,to

contribute10percentofsalaryeverymonthtowardstheirpensionaccount.Amatchingcontributionis

requiredtobemadebytheGovernmenttothesaidaccount.


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18

Thetaxtreatmentunderthenewschemeisasfollows

1. Contribution by the Central Government to the pension scheme is first included under the head

Salariesinhandsoftheemployee.

2. Suchcontribution isdeductible(totheextentof10percentofthesalaryoftheemployee)under

section80CCD.

3. Employeescontribution

to

the

pension

scheme

(to

the

extent

of

10

per

cent

of

the

salary

of

the

employee)isalsodeductibleundersection80CCD.

4. Whenpension isreceivedoutoftheaforesaidamount, itwillbechargeabletotax inthehandsof

therecipient.

5. Theaggregateamountofdeductionundersections80C,80CCC&80CCDcannotexceed`1,00,000.

6. Salaryforthepurposeofpoints2and3(supra)includesbasicsalaryanddearnessallowances(if

thetermsofemploymentsoprovide)butexcludesallotherallowancesandperquisites.

7. Nodeductionwillbeallowedundersection80Cinrespectofamountsonwhichdeductionhasbeen

claimedundersection80CCD.

PROBLEMS

1. Mr. A retired from the department of Sales Tax on 1st April 2013. He was entitled to Monthly

pension`3000 & received gratuity worth ` 2,00,000. On 1st Oct 2013 he commuted 50% of the

pensionfor`2,00,000.Findouthistaxablepensionforpreviousyear201314.

2. Mr.D retired from the department of Central Exciseon 1stDec.2013.Monthlypension` 10,000

30%ofthepensionhecommutedfor` 4,00,000.Healsoreceivedgratuityof`5,00,000.

Findout

his

taxable

pension,

if

any.

3.Mr.AretiredfromGaneshLtd.on1stApril2013.Monthlypension` 6,000.70%ofthepensionhe

commutedfor` 4,20,000on1stOct.2013.Hehasreceivedgratuityalso.Findouttaxablepension

4. Mr.XretiredfromParagLtd.on1stMay2013.Hedidnotreceivegratuity.MonthlyPension` 6,000.

On1stSep.30%ofthepensionwascommutedfor` 3,00,000.

Findout

taxable

pension.

5. Mr.AretiredfromKBCLtd.on1stJan.2014.Hewasentitledtoamonthlypensionof`6,000butgot

80%pensioncommutedfor` 2,10,000.Hewasalsoentitledtoreceivegratuityasperthetermsof

hisemployment.FindouttaxablepensionforA.Y.201415.


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19

6 Mr.AretiredfromChiragLtd.on1stApril2013.Serviceperiod40years,6months.Averagesalaryat

thetimeofretirement` 10,000.p.m.Gratuityreceived` 3,00,000.Pensionpermonth` 7,500.On

1st April 2013 he commuted 50% of the pension for ` 3,00,000. Find out his taxable pension &

gratuityforthepreviousyear201314.HeisnotcoveredbyGratuityAct.

8 Leave SalarySection10 (10AA): Leave salary is taxable under the head Income from Salary.

However,incertaincasesLeaveSalaryisexemptfromincometax.Detailsofthisexemptionare

givenbelow:

a. Leave Salary received by an employee of Central or State Government at the time of

retirementistotallyexemptfromtax.

b. For other employees, if leave salary is received at the time of retirement, least of the

followingisexempt:

1. Periodofearnedleave(inmonths)tothecreditofemployeeatthetimeofleavingthejobbut

notexceeding30dayspereachcompletedyearofserviceAveragemonthlysalary

2. Leave salary for the period 10 months based on average salary drawn in last 10 months

precedingtothedateofretirementor

3. AmountasspecifiedbyCentralGovernmentfromtimetotimewhichatpresentis` 3,00,000.

4. Actualamountreceivedasleaveencashment.

SalaryforthispurposeisBasic+DA+Commissionatfixedpercentage.

Notifiedlimitof `3,00,000appliestoallsuchamountreceivedfromoneormoreemployers/current

orearlieryears.Therefore,forsubsequentclaimsamountexemptedearlierwillbedeductedfrom

thelimit.

9

RetrenchmentCompensationSection10(10B):Retrenchmentcompensationreceivedbyaworker

underIndustrialDisputesActof1947oranyotheractisexemptonthefollowingbasis:

a. AmountascalculatedaccordingtotheprovisionsoftheActor

b. Amountasspecified(notlessthan50,000)bytheCentralGovernment.Foraworkerretrenched

after31.12.1996amountspecifiedis` 5,00,000or

c. Amountreceived.Whicheverisless.

10.CompensationonretirementofanemployeeofapublicsectorcompanySection10(10C):

Paymentreceivedbyanemployeeof:

1. AnauthorityestablishedunderCentral/State/ProvincialAct.

2. Localauthority.


20/22

20

3. University(underUGCAct)

4. IIT.

5. AnyStateorCentralGovernment

6. PublicSectorCompany

7. AnyotherCompany

8.

Cooperative

society

9. AnyInstitutespecifiedbytheGovernmentforthispurpose.

10. AnyinstituteofmanagementastheCentralGovernmentmaynotify.

UndervoluntaryretirementorterminationofserviceschemeapprovedbytheGovernmentamount

isexemptfromincometaxupto` 5,00,000.

11

Taxonperquisitespaidbyemployer.Section10(10CC)

12

AmountreceivedunderaLifeInsurancePolicySection10(10D):Policyamountaswellasbonusis

fully

exempt

from

tax

except

amount

received

under

Keyman

Insurance

Policy

and

under

section

80DDor80DDA(3)andanysumreceivedunderpolicy issuedonorafter1.4.2003wherepremium

payableinanyyearexceeds20%ofsumassured.Howeverinsuchcasessumreceivedondeathofa

personshallcontinuetobeexempt.

13

PaymentfromProvidentFundSection10(11).FordetailsreferchapterSalary.

14

AccumulatedbalancefromarecognisedProvidentFundSec.10(12).

15 PaymentfromanapprovedSuperAnnuationFundSection10(13).

16 HouseRentAllowance(Section10(13A)andrule2A):

Theleastofthefollowingisexemptfromtax:

(a) Anamountequalto50percentofsalary,whereresidentialhouseissituatedatMumbai,Kolkata,

DelhiorChennaiandanamountequalto40percentofsalarywhereresidentialhouseissituated

atanyotherplace;OR

(b) House rent allowance received by the employee in respect of the period during which rental

accommodationisoccupiedbytheemployeeduringthepreviousyear;OR

(c) Theexcessofrentpaidover10percentofsalary.Salaryfortheaforesaidpurposesmeansbasic

salary

and

includes

dearness

allowance

if

terms

of

employment

so

provide.

It

also

includes

commission based on a fixed percentage of turnover achieved by an employee as per terms of

contractofemployment,butexcludesallotherallowancesandperquisites.

17

SpecialAllowanceforexpensesSection10(14):

Anyspecialallowancegrantedbyemployertoemployeetomeettheexpensesshallbeexemptfrom

tax to the extent spent by an employee on expenses or to the extent specified in the Act. e.g.


21/22

21

EducationAllowanceisexempt@` 100permonthperchildUpto2children,TransportAllowance

isexemptupto` 800permonth.ChildrenshostelAllowance@` 300Permonthupto2children.

18 CertainincomebywayofinterestSection10(15):

e.g. a) InterestonP.P.F.

b) InterestonPostOfficeSavingsAccount.

c) InterestonNotifiedGovernmentSecurities&Debentures.

d) InterestonTaxfreeRBIbondsetc.

19

ScholarshipsgrantedtomeetthecostofeducationSection10(16).

20

AllowancereceivedbythemembersofparliamentorstatelegislatureSection10(17).

a) Dailyallowancefullyexempt.

b) Allowancereceivedundermembersofparliament(constituencyallowance)Rulesof1986fully

exempt.

c) Anyconstituencyallowanceisfullyexempt.

21 Section10(17A)Awards:

Awardsreceived(incashorkind)areexemptinrespectofAwardinstitutedinthepublic interest

byCentralorStateGovernmentoranybodyapprovedbytheGovernment.

22

Section10(18):Anyincomebywayof

a.

Pension

received

by

an

individual

who

has

been

in

the

service

of

the

Central

or

StateGovernmentandhasbeenawardedParamVirChakraorMahaVirChakraorVirChakra

orsuchothergallantryawardastheCentralGovernmentmay,bynotification intheOfficial

Gazette,specifyinthisbehalf;

b. Familypensionreceivedbyanymemberofthefamilyofanindividualreferredtoin

subclause(i)

23

Incomeofamemberofascheduledtriberesiding inareaspecified in theconstitutionor inthe

statesofNagaland,Manipur&Tripura&intheUnionTerritoriesofArunachalPradesh&Mizoram

orareascoveredbyNotificationissuedbyGovernorofAssam.Section10(26).

24 Income of resident of Ladakh District. Section 10(26A). This exemption is available subject to

certainrestrictions.

25 ClubbedincomeofaminorchildSection10(32): Incaseincomeofaminorchildisclubbedwith

that of the parent under section 64(1A) such income is exempt from tax up to maximum of `

1,500inrespectofeachminorchild.


22/22

22

26 Section10(33):AnyincomearisingfromtransferofunitsoftheUS64wheretransfertakesplace

onorafter1.4.2002.

27 Section10(34):DividendAnyincomebywayofdividendreferredtoinsection115O.

28 Section10(35):AnyincomeinrespectofMutualFundspecifiedunderclause23D.

29 Section10(36):Any income from transfer of long termcapital asset being eligibleequity shares

purchasedonorafter1.3.2003butbefore1.3.2004.

30

Section10(37):Capitalgainoncompulsoryacquisitionofurbanagriculturallandif compensationis

receivedafter31.3.2004& landwasusedbytheassessee(oranyofhisparents)foragricultural

purposeduring2yearsimmediatelyprecedingtotransfer.

31

Section10(38): Long Term Capital Gain on transfer of equity shares/units covered by Securities

TransactionTax(STT).

32

Section10(39): Income arising from international sporting event held in India where in two or

morecountriesareparticipating.

33

Section10(44):AnyincomereceivedbyanypersonfororonbehalfoftheNewPension

SystemTrust.

unit1_2_3pdf direct tax

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