Transcript What is Income Tax?

What is Income Tax?
It is tax on Income.
It is revenue for government &
indicates outflow of cash for a person
who is liable to pay the tax
How the income tax act look like?
• Summary of important sections:
Section:2 definations
Section:3 computation of total income
Section 6: Residential status of a person
Section:10 incomes exempted from Tax
Section 15-17: salary income
Section 24: Income from house property
Section 28 -44: income from business or profession
Section 54 -income from capital gain
Section 56 Income from other sources
Section :80: deductions from gross total income
How the income tax act look like?
• Section 139: Provisions of filing income
tax return.
• Section 194: Tax deducted at source
• Section 210: Provisions of Advance Tax
• Section 234:Provisions of not filing of
income tax return.
• Section 246 onwards: appeals &
provisions
Direct Tax:
• Every person has to pay tax , person
includes following:
• Individuals, Hindu undivided family,
association of persons or body of
individuals, partnership
firm,company,society or charitable trust,
local authority, every artificial person has
to pay tax.
Income Tax liability of a person
• Residential status of a person decides income
tax liability.
• Previous year is the year in which income is
earned .
• Assessment year is the year which consist of 12
months which commences on the1st day of April
immediately after the previous year. for the
previous year ending on 31.03.2006, the
assessment year is 2006-07.
Tax is of two types:
(direct tax vs. indirect tax)
• Direct tax is the tax which is charged &
collected from the same person.
• Indirect tax is that tax which is charged on
one person & collected from other person.
• For example excise duty, value added tax,
service tax, custom duty. It is collected
from final consumer.
Basic concepts under income tax
Act: Sec:2
• Previous Year: The year in which income is
earned is called as previous year.
• Assessment year: the income of the previous
year is charged in the next year called as
assessment year.
Example: X joins an Indian company on January
23,2007.Prior to January 23,2007,he is not in
employment, What is the previous year for the
assessment year 2007-08 &2008-09?
Assessee:
• Assessee means a person by whom any
Tax or any other sum of money(i.e Penalty
or interest) is payable under the
act:sec:2(7)
Who is liable to pay Tax?
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A person is liable to pay Tax.
Sec:2(31) of the act defines the person.
The person includes:
An Individual
A Hindu undivided family
A company
A Firm
An association of persons or body of individuals whether
incorporated or not
 A local Authority
 Every artificial juridical person
Example:
• Determine the status of the following:
Pune university
DCM Ltd
Mumbai municipal corporation
Taxman publications Ltd
Laxmi commercial bank
XY&CO.,Firm of X&Y
Joint family of X,Mrs. X & their sons A &B
Heads of Income:
• There are 5 heads of Income
Income from Salary
Income from house property
Income from profits & gains of business
Income from other sources
Capital gains: short term & long term
capital gain.
What constitutes salary
• There are 3 groups that constitute your salary:
Group 1: Basic salary, advance salary, arrears of
salary, all types of bonus, service award,pension
Group 2:Allowances group: It includes dearness
allowance, conveyance allowance, children
education allowance, overtime allowance, leave
travel allowance, city compensatory allowance
Group 3: Perquisites: It means facilities given by
Employer to Employee: Rent free
accomodation,domestic servant facility,
reimbursement of medical facility,Motar car
facility, benefits derived by stock option scheme.
Income from house property:
• If the house property is self occupied then
value of property is taken as nil for income
tax purpose . However if the loan is taken
for the purpose of purchasing the house
property deduction is available to the
extent of Rs.1,50,000 for interest on
house property. It is treated as negative
income & deducted while calculating gross
total income. For the principal amount,
deduction is available under 80C
Example of Income from house
property
• Mr. X is having house property value of
the same is Rs.10,00,000. Loan taken for
the purchase of house property is
Rs.6,00,000. Mr. X paid interest on loan
Rs.42500, Principal repayment Rs.15,000.
He has salary income Rs.3,00,000 during
the period .Calculate his taxable income
for the assessment year2006-07.
Income from house property
Total income of Mr.X can be calculated as
follows: salary income=Rs.3,00,000
Interest pd on housing loan=Rs.(42,500)
Gross Total Income=Rs.2,57,500
Less: deduction under sec:80C=Rs15,000
Taxable income Rs.2,42,500
Capital Gain: short term & long
term capital gain:
• Capital gain means the gain which arises
because of transfer of capital asset.
• Capital gain on account of transfer of
shares is calculates as follows:
• It is divided into 2 parts: short term gain &
long term gain. short term gain means if
the shares are sold within a period of one
year from the date of purchase. Short term
capital gain tax is 10%
Long Term Capital Gain for shares
• If the shares are transferred not within a period
of one year from its date of purchase in other
words hold by the assessee for a period of more
than a year treated as long term capital gain on
which assessee should not pay any tax Long
Term capital gain arising on transfer of shares
/units on equity mutual fund on or after
1.10.2004 & chargable to security transaction
tax shall be fully exempted from tax u/s 10(38)
Illustration
• Purchase 100 shares of tata tea on
1.10.2006 @723 per share. Sold the same
shares on 21.12.2006@760 per share.
Calculate the capital gain & income tax
liability on transfer of shares.
• Short term capital gain=100*37=3700
• Tax on Rs.3700 is 10%=Rs.370
Income exempted from Tax:
Section 10 of income tax act, gives the list of
income which are exempted from Tax.
Some of the examples are as follows:
• Agricultural income
• Dividend on shares
• Gratuity (limits given u/s 10(10)
• Pension & leave salary to the extent given
under section (10A), (10AA)
• Share of a partner in the partnership firm.
Tax rates applicable for resident woman
(below 65 years)
are as follows:
Net Income
Range
Income tax Rate
Surcharge
Education cess
Upto
Rs.1,35,000
Nil
Nil
Nil
Rs.1,35,000 1,50,000
10% of total
Income-1,35,000
Nil
2% of I.T.
Rs.1,50,000 2,50,000
1500+20% of T.I1,50,000
Nil
2% of I.T.
Rs.2,50,000 10,00,000
21500+30%0f
T.I-2,50,000
Nil
2% of I.T.
Above
rs.10,00,000
2,46,000+30%0f
T.I.-10,00,000
10% 0f I.T.
2% of I.T.
Illustration
Calculate income tax liability for assessment
year 2007-08 in case of following:
• Income of Mrs. X(age 40 years)=1,95,000
• Income of Miss Priya (age 26
years)=2,90,000
• Income of Mrs.Y(age-54) =10,50,000
Tax Rates applicable for senior
citizen above 65 years
Net Income
Range
Upto
Rs.1,85,000
Income tax Rate
Nil
Surcharge
Education cess
Nil
Nil
Rs.1,85,000 2,50,000
20% of total Income1,85,000
Nil
2% of I.T.
Rs.2,50,000 10,00,000
13,000+30%0f T.I2,50,000
Nil
2% of I.T.
Above
rs.10,00,000
2,38,000+30%0f T.I.10,00,000
10% 0f I.T.
2% of I.T.
Examples:
• Calculate income tax liability in case of
following:
• Mr.X (age 66 years) income Rs.175000
per year
• Mr. Z(age 70 years) income Rs.2,10,000
• Mr. S (age 68 years) income Rs.2,75,000
• Mr. B (age 66 years) income Rs.10,50,000
For any other individual-Tax rates
Income
Upto
Rs.1,00,000
I.Tax
surchg
Nil
Edu.cess
Nil
Nil
Rs.1,00,000 1,50,000
10% of total Income1,00,000
Nil
2% of I.T.
Rs.1,50,000 2,50,000
5000+20% of T.I1,50,000
Nil
2% of I.T.
Rs.2,50,000 10,00,000
25000+30%0f T.I2,50,000
Nil
2% of I.T.
Above
rs.10,00,000
2,50,000+30%0f T.I.10,00,000
10% 0f I.T.
2% of I.T.
Example:
Calculate income tax liability in the following
cases:
Mr.X income Rs.2,10,000 (age 29 years)
Mr.Y(age 36 years) income Rs.3,50,000
Mr.P (age 40 years) income of Rs.10,10,000
Deductions from gross total income
to Individuals
Deduction under sec:80C:
contribution for life insurance premium
 contribution towards Provident Fund
 contribution towards public provident fund
 Payment of loan (principal amount) taken
for the purchase of house property
Amount of term deposit for a period of 5
years or more in accordance with a
scheme framed by government
Deductions:
• Contribution towards National saving
certificates
• Any sum paid as tuition fees whether at
the time of admission to any university,
college, educational institution in India for
full time education.
Deduction under this section is available to
the maximum of Rs.1,00,000
Deduction under section 80CCC &
80CCD
• This deduction is available for the amount
which is paid for pension fund. The
maximum amount deductible under
sections 80C,80CCC & 80CCD cannot
exceed Rs.1,00,000.
Deduction for Medical insurance policy(80D)
This deduction is available to the extent of
Rs.10,000 or the actual amount of
premium whichever is less.
Illustration
• X is employed by the central government in the
ministry of labour. During the previous year
2006-07 basic salary Rs.16,000 per month plus
D.A=10% of basic salary. He annually
contributes Rs.70,000 for PPF,Rs.20,000 or life
insurance premium & Rs.20,000 for notified
pension policy. His income from other sources
Rs.16,000.Mediclaim paid Rs.8000.compute the
income tax liability for assessment year 2007-08
Illustration……
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Basic salary=1,92,000(16000*12)
Plus D.A=
19,200
Gross salary=2,11,200
Income from other sources=16,000
Gross Total Income=2,27,200
Deduction u/s 80C & 80CCC=1,00,000
Deduction u/s 80D= 16,000
Net Income=1,19,200
Tax on Rs.1,19,200=Rs.2,304
Tax Deducted at Source:
• Payment on which Tax is deducted at source are as
follows:( some of the examples)
Payment of salary: Employer will deduct tax.
Interest on time deposits if it exceeds Rs.5,000 Bank will
deduct tax @10.2%
T.D.S on fees for professional & technical services @5.1%
Winning from Lotteries & cross word puzzles if it exceeds
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Winning from horse races if exceeds Rs.2,[email protected]%
Payment of brokerage @5.1% if amount of brokerage
exceeds Rs.2,500