Ghanshyamdas Saraf College 2013
A PROJECT ON “INCOME FROM SALARY & INCOME FROM OTHER SOURCES” SUBMITTED BY MINAL NAVINCHANDRA RATHOD MCOM PART II ACCOUNT SEMESTER III PROJECT GUIDE PROF.GURUNATHAN PILLAI SUBMITTED TO: UNIVERSITY OF MUMBAI RAJASTHANI SAMMELAN?S Ghanshyamdas Saraf College Affiliated to University of Mumbai REACCREDITED BY NAAC WITH „A? GRADE R. S. Campus, S. V. Road, Malad (W), Mumbai: 400 064 Year: 2013-2014
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Ghanshyamdas Saraf College 2013
RAJASTHANI SAMMELAN?S Ghanshyamdas Saraf College Affiliated to University of Mumbai REACCREDITED BY NAAC WITH „A? GRADE R. S. Campus, S. V. Road, Malad (W), Mumbai: 400 064 Year: 2013-2014 CERTIFICATE
I Prof. Gurunathan Pillai here by certify that Ms.Minal
Navinchandra Rathod a student of Ghanshyamdas Saraf College of MCOM Part II Account (Semester III) has completed Project on “INCOME FROM SALARY & INCOME FROM OTHER SOURCES” in the Academic year 2013-2014. Thus information submitted is true and Original to the best of my Knowledge. External Examiner: Date: Project Co-ordinator: Date: College Seal: Principal:
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ACKNOWLEDGEMENT
I take this opportunity to thank the UNIVERSITY OF MUMBAI for giving me a chance to do this Project. I express my sincere gratitude to the Principal Mrs. Sujata Karmarkar, course co-ordinator Mrs. Lipi Bhattachary, Guide Prof. Gurunathan Pillai, our librarian and other teachers for their constant support and helping me for completing the project. I am also grateful to my friends for giving support in my project. Lastly, I would like to thank each and every person who helped me in completing the project especially MY PARENTS.
Signature of the student
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Ghanshyamdas Saraf College 2013
DECLARATION
I Miss MINAL NAVINCHANDRA RATHOD a student of
Ghanshyamdas Saraf College of Arts and Commerce, Malad (W) MCOM Part II Account (Semester III) hereby declare that I have completed project on “INCOME FROM SALARY & INCOME FROM OTHER SOURCE” in the academic Year 2013-2014. This information Knowledge. submitted is true and original to best of my
Date:
Signature of the student
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INDEX
INDEX
Page No.
INCOME FROM SALARY COMPUTING INCOME FROM SALARY ILLUSTRATION INCOME FROM OTHER SOURCES – SEC 56 PERMISSIBLE DEDUCTIONS FROM INCOME FROM
6 27 28 32
OTHER SOURCES: BIBLIOGRAPHY
36
41
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INCOME FROM SALARY
1)What is meant by the expression, “salary” and what does it imply?
?
There must exist the relationship of an employer and employee between the payer and the payee and it must not be the relationship between a principal and agent.
?
Conceptually, there is no difference between salary and wages except that generally, the term salary is used for the services rendered for nonmanual type of work while wages are paid in connection with manual services.
?
If an individual receives salary from more than one employer during the same previous year either due to change in employment or due to employment with more than one employer simultaneously, salary from each source is taxable under the head “salaries”.
?
Remuneration received or due from former, present or prospective employer is chargeable to tax under the head “salaries”.
? ?
Salary income must be real and not fictitious. Tax is not payable in respect of salary surrendered, in other words, benefit of tax exemption in respect of salary surrendered is available to
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all employees whether they are employed in private sector or public sector.
?
If the employer pays salary tax-free, the employee has to include in his taxable income not only the salary received but also the amount of tax paid by the employer.
?
The act does not make distinction between gratuity payments and contractual payments i.e. salary, perquisite or allowance may come as a gift to an employee and yet it would be taxable.
?
U/S 17(1), salary includes: a. Wages b. Any annuity or pension c. Any fees, commission, perquisite or profits in lieu of or in addition to any salary or wages d. Any advance of salary e. Any payment received in respect of any period of leave not availed by him f. The portion of the annual accretion in any previous year to the balance at the credit of an employee participating in recognized provident fund to the extent it is taxable g. Transferred balance in a recognized provident fund to the extent it is taxable h. The contribution made by the central government in the previous year to the account of an employee under a pension scheme referred to in section 80CCD(applicable from assessment year 2004-05)
2)Explain the basis of charge as per section 15.
?
Any salary due from employer to an assessee in the previous year whether actually paid or not.
?
Any salary paid or allowed to him in the previous year by or on behalf of the employer though not due or before it became due.
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?
Any arrears of salary paid or allowed to him in the previous year by or on behalf of employer if not charged to income tax for any earlier previous year.
? ?
Salary is taxable on “due” or “receipt” basis whichever is earlier. Method of accounting adopted by the employee is not relevant.
3) How does the place of accrual of salary income determine its chargeability to tax? Income, under the head “salaries,” is deemed to accrue or arise at the place where the services are rendered. Salaries, in respect of services rendered in India, are deemed to accrue or arise in India even if it is paid outside India or it is paid or payable after the contract of employment in India comes to an end. 4) Explain the tax treatment of different forms of salary income.
?
ADVANCE SALARY is taxable on receipt basis, irrespective of the tax incidence in the hands of the employee.
?
ARREAR SALARY is taxable on receipt basis if the same is not subjected to tax earlier on due basis.
?
LEAVE SALARY
?
leave encashment during continuity of employment (in case of government/ non- government employee is chargeable to tax however, relief can be taken under section 89.
?
leave encashment at the time of retirement/leaving job(in case of government employee) is fully exempt from tax u/s 10(10AA).
?
leave encashment at the time of retirement/leaving job(in case of non-government employee) is fully or partly exempt from tax in some cases u/s 10(10AA)(ii)
?
SALARY TO PARTNER, paid by a firm, is an appropriation of profits and is not charged under the head “salaries” but is taxable under the head of “profits and gains of business and profession.” Similar treatment
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is given to interest, bonus, commission or remuneration, received by a partner of a firm from such firm.
?
FEES AND COMMISSION are taxable as salary, irrespective of the fact that they are paid in addition to or in lieu of salary.
?
BONUS is taxable in the year of receipt if it has not been taxed earlier on due basis.
? ? ?
GRATUITY[SEC 10(10)] ANNUITY[SEC 17(1)(ii) ANNUAL ACCRETION TO THE CREDIT BALANCE IN PROVIDENT FUND
?
AMOUNT
TRANSFERRED
FROM
UNRECOGNISED
PROVIDENT
FUND TO RECOGNISED PROVIDENT FUND
? ? ? ? ?
RETRENCHMENT COMPENSATION[SEC 10(10B)] PROFITS IN LIEU OF SALARY[SEC 17(3)] REMUNERTAION FOR EXTRA DUTIES VOLUNTARY PAYMENT TO HIS EMPLOYEES SALARY RECEIVED FROM UNITED NATIONS ORGANISATION
(exemption granted)
?
SALARY TO FOREIGN TECHNICIANS, SALARY TO OTHER FOREIGN CITIZENS
?
COMPENSATION
RECEIVED
AT
THE
TIME
OF
VOLUNTARY
RETIREMENT OR SEPARATION[SEC 10(0C)] 5) What is meant by LEAVE SALARY?
?
An employee is entitled to different kinds of leave. Encashment of leave by surrendering leave standing to one?s credit is known as “leave salary”. If leave, standing to his credit, is not taken within a year as per the service rules, it may lapse or it may be encashed or it may be accumulated. This accumulated leave may be availed by the employee during his service time or can be encashed at the time of retirement or leaving the job.
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6) State how the leave salary at the time of retirement to other employees (non-government employees) is determined? In case of such employee (including an employee of a local authority or a public sector undertaking), leave salary is exempt on the basis of the least of the following:
?
Period of earned leave (in number of months) to the credit of the employee at the time of his retirement or leaving the job x average monthly salary
? ?
10 x average monthly salary The amount specified by the government (i.e. Rs 3,00,000 applicable from 1st April,1998)
?
Leave encashment actually received at the time of retirement.
7) What is gratuity and explain its tax treatment? According to the Oxford English Dictionary, gratuity means a gift or a present or a gratuitous payment, made by an employer to his employee, often in return for favours and services rendered. It is paid for meritorious services rendered by an employee. Tax Treatment to Gratuity
?
in case of a government employee, it is fully exempt from tax u/s 10(10)(i)
?
in case of non-government employee, covered by the Payment of Gratuity Act,1970, it is fully or partly exempt from tax u/s 10(10)(ii)
?
in case of non-government employee, not covered by the Payment of Gratuity Act,1970, it is fully or partly exempt from tax u/s 10(10)(iii)
?
In case of government employees - a death-cum retirement gratuity received under any of the following categories is exempt from tax:
? ?
the Revised Pension Rules of the Central Government, or the Central Civil Services(Pension)Rules,1972,or
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?
any similar scheme applicable to members of the civil service of the union, holders of any post connected with defence or of civil post under the union, the members of all India services, members of civil services of the state, holders of civil post under the state, employees of local authority.
?
In case of employees covered by Payment of Gratuity Act, 1972, the least of the following is exempt from tax:
?
15
days
salary
(7 on
days salary
salary last
in
case for
of each
seasonal year of
employment)based
? ? ?
drawn
service(i.e.15 days salary x length of service) Rs 3,50,000 Gratuity actually received
in case of any other employee, the least of the following is exempt from tax:
? ? ?
Rs.3,50,000 Half months average salary for every completed year of service Gratuity actually received.
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?
Gratuity U/S 10 (10)
Gratuity
Govternment
POGA (Gratuity Act)
Others
Fully Exempt
15/26*service p.m*no. of years service
15/30*service p.m*no. of years service
Actual amt. received
Actual amt. received
Max. 10 lac
Note: - for POGA (Gatuity Act) 1. Salary means = basic + D. A. in term + D. A. not in term
2. Number of years service = round off only when more than 6 months. For e.g 26 years & 6 months = 26 years but if, 26 years & 7 months = 27 years
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Note: - for Others 1. Salary means = basic + D. A. in term + commission on turnover 2.average salary for last 10 month number 3. Number of years service =Ignore the number of months. For e.g 26 years & 6 months = 26 years but if, 26 years & 7 months = 26 years. 8) Explain how the retrenchment compensation u/s 10(10B) is determined. The lowest of the following is exempt:
?
an amount calculated in accordance with the provisions of sec25(b) of the Industrial Disputes Act,1947,or
? ?
the amount specified by the government i.e. Rs 5,00,000,or the amount received.
9) Mention the various allowances, given to an employee in addition to salary. What is the tax treatment applicable to and also give the tax treatment to the different Various allowances:
? ?
allowances?
CITY COMPENSATORY ALLOWANCE is taxable HOUSE RENT ALLOWANCE [SEC 10(13A) AND RULE 2]: The least of the following three is exempt from tax: ? An amount equal to 50% of the salary where residential house is situated at Bombay, Calcutta, Delhi or Madras and an amount equal to 40% of the salary where the residential house is situated at any other place. ? House rent allowance, received by the employee in respect of the period during which rental accommodation is occupied by the employee during the previous year.
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? ? The excess of rent paid over 10 per cent of salary. ENTERTAINMENT ALLOWANCE: SEC 16(ii) Entertainment allowance is first included in the income from “salaries” and thereafter a deduction is given on the least of the following: In case of a government employee: ? ? ? Rs 5000, 20% of salary, or, Amount of entertainment allowance granted during the previous year in case of non-government employees, deduction will not be available. ? SPECIAL ALLOWANCE SEC10 (14): GIVEN IN RULE 2BB Allowance or benefit, which is not in the nature of perquisite within the meaning of sec 17(2)and which is granted to meet expenses in performance of duties of an office or employment of profit. ? ? ? ? ? ? ? SERVANT ALLOWANCE is taxable. ALLOWANCE TO HIGH COURT JUDGES is not taxable. ALLOWANCE RECEIVED FROM UNITED NATIONS
ORGANISATION is not taxable. ALLOWANCE TO FOREIGN TECHNICIAN ALLOWANCE TO FOREIGN CITIZEN COMPENSATORY ALLOWANCE, received by a judge under article 222(2) of the constitution, is not taxable. SUMPTUARY ALLOWANCE is not chargeable to tax.
10) Explain Perquisites Perquisite denotes some benefit in addition to the amount that may be legally due by way of contract for services rendered. The following points must be borne in mind while deciding whether the expenses can be called perquisites:
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?
personal benefit does not cover a mere reimbursement of necessary expenses incurred by an employee, it may be provided in cash or in kind.
?
they are included in salary income only if they are received by an employee from his employer.
?
a benefit or advantage would be taxable as perquisite only if it has a legal origin and is an enforceable right.
?
premium, paid by an employer towards personal accident policy of employee, is not taxable as perquisite.
?
payments made by an employer to provide pensionary/deferred annuity benefits to his employees are taxable as perquisites only when a vested interest accrues to the employee.
?
perquisites are taxable only if they are allowed by an employer to his employee, allowed during the continuance of the employment, directly dependant upon service, resulting in the nature of personal advantage to the employee and derived by the virtue of employer?s authority.
11) What is inclusive as perquisites? The value of rent free accommodation. The value of any concession in matter of rent in respect of any accommodation. The value of any benefit or amenity granted or provided at free of cost or at a concessional rate:
? ?
By a company to an employee who is a director thereof, By a company to an employee who has a substantial interest in the company
?
By an employer (including a company) to an employee to whom provisions of the above do not apply.
?
Any sum paid by the employer in respect of any obligation, which but for such payment would have been payable by the assessee.
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?
Any sum, payable by the employer, whether directly or through a fund other than the recognized provident fund or approved superannuation fund or a deposit linked insurance fund, to effect an assurance on the life of the assessee or to effect a contract for an annuity.
?
The value of any other fringe benefit or amenity as may be prescribed. Mention A) various perquisites which are taxable; B) various
12)
perquisites exempt from tax; C) perquisites taxable only in the hands of specified employees A. Perquisites, which are taxable:
? ? ? ?
rent free accommodation accommodation at concessional rate employee?s obligation met by employer amount payable by employer to effect an assurance on the life of employer
?
notified fringe benefits
B. Perquisites, exempt from tax
?
Rent Free House:
?
rent free accommodation, provided to a judge of a high court or of a supreme court or to an official of parliament or a union minister or to a leader of an opposition party in parliament.
?
accommodation, provided in a remote area to an employee working at a mining site or on on-shore oil exploration site, or a project execution site or dam site or power generation site or an accommodation, provided in an offshore site.
?
accommodation, provided on transfer of an employee in a hotel not exceeding 15 days in aggregate.
?
Car facility up to Rs 1,200 per month and conveyance facility, provided to high court as well as Supreme Court judges and
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conveyance expenses, provided to an employee to cover journey between office and residence.
?
EDUCATION FACILITY in an institution, run by the employer, where the value of education per child does not exceed Rs 1,000 per month with no limits on the number of children.
?
Amount, spent on training of employees or fees, paid for refresher management courses.
?
TRANSPORT FACILITY, given to railway employees or airline employees.
? ?
FREE MEALS (subject to certain conditions) CLUB - Initial fees, paid by employer for acquiring corporate membership of a club, use of health club, sports or similar facility, provided uniformly to all employees by the employer.
? ? ?
USE OF MOVEABLE ASSETS, such as computer/laptop etc. MEDICAL FACILITIES OTHERS - Gift-in-kind up to Rs 5,000 in a year, goods manufactured and sold by the employer to his employees at concessional rates, perquisites allowed outside India by
government to its citizen for services, rendered outside India, leave travel concession, employers contribution to staff group insurance scheme, free telephone including mobile phone,
periodicals and journals required for discharge of work etc. C. PERQUISITES,
?
TAXABLE
ONLY
IN
THE
HANDS
OF
SPECIFIED PERSONS Specified persons for the above purpose are a director employee, an employee, who has substantial interest in the employer company or an employee, drawing in excess of Rs 50,000.
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Perquisite
Perquisite
Taxable for All
Taxable for Specific Employee
Fully Exempt
LIC premium paid by Employer
Gas/Water/ Electricity
Telephone/Mobile
Rent free /Concession rent Accomodation
Free car Facility (Personal & Office )
Computer/Laptop
Any liability of Employee paid by Employer
Free Gardener/ Servant
Mediclaim Insurance Premium paid by Employer
Tea/Snacks/Refreshment/ Training
Free / subsidies Lunch , Dinner
Interest free /concession Interest Loan less than Rs. 20,000
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Perquisite Fully Exempt
Reimbursement of Medical Expensess
Treatement taken at Govt./Recognised/Employer Hospital
Other Hospital
Fully Exempt
Exempt Upto Rs. 15,000
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13) What are the various deductions from salary income?
? ?
Entertainment allowance-16(ii) Professional tax-16(iii)
14) Mention the categories of foreign citizen employees who are paid salary?
? ? ? ? ?
Salary of diplomatic personnel Salary of foreign employees Salary received by a ship?s crew Remuneration of a foreign trainee Remuneration out of funds of an international organization
15) What is meant by Employees Provident Fund? The Provident fund scheme is a retirement benefit scheme, where a stipulated sum is deducted from the salary of the employee as his contribution towards the fund. The employer also generally contributes simultaneously an equal amount out of his pocket to the fund. The contributions are then invested in gilt-edged securities. Interest thereon is also credited to the provident fund account of employees. Thus, the credit balance in the provident fund account of an employee consists of employees?s contribution, interest on employee?s contribution, employer?s contribution and interest on employer?s contribution. The accumulated sum is paid to the employee at the time of his retirement or resignation. In case of death of an employee, the accumulated balance is paid to his legal heirs. 16) Please give the details of tax rebate u/s 88
? ?
Tax rebate u/s 88 is available @ 30% of the net qualifying amount If gross total income does not exceed Rs 1,50,000, rebate is available @ 20% of the net qualifying amount
?
If gross total income exceeds Rs 1,50,000 but does not exceed Rs 5,00,000,tax rebate is available @15% of the net qualifying amount.
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?
If gross total income exceeds Rs 5,00,000, tax rebate u/s 88 will not be available.
17) Relief under section 89 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 u/s 89 read with rule 21A:
?
Computation of relief when salary has been received in arrears or in advance-rule21A(2)
? ?
Computation of relief in respect of gratuity-rule21A(3) Computation of relief in respect of compensation on termination of employment-rule 21A(4)
?
Computation of relief in respect of payment in commutation of pensionrule 21A(5)
?
Computation of relief in respect of other payments-rule 21A(6).
18) Mention a few hints to be borne in mind while tax planning under the head of “salaries.”
?
Dearness allowance and dearness pay must form part of basic salary. This will minimize tax incidence on house rent allowance, gratuity and commuted pension. Likewise, incidence of tax on employer?s
contribution to recognized provident fund will be less.
?
If commission is paid at a fixed percentage of turnover achieved by the employee, then tax incidence on house rent allowance, entertainment allowance, gratuity and commuted pension will be less.
?
An uncommuted pension is always taxable. On the other hand, commuted pension is fully exempt from tax in case of government employees and partly exempt from tax in case of non-government employees, therefore employees should get their pension converted.
?
the accumulated balance of the provident fund with the former employer will be exempt from tax, provided the same is transferred to the new employer who also maintains a recognized provident fund.
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?
employees should go in for free medical facilities instead of fixed medical allowance
?
an employee should take the benefit of relief available u/s 89
19) Is salary, payable for the leave period to non-residents, taxable even if the leave is spent outside India? Yes, salary, paid for services rendered in India, is regarded as income earned in India, so as to specifically provide that any salary, payable for rest period or leave period, which is both preceded or succeeded by service in India, forms part of the service contract of employment, will also be regarded as income earned in India and so it will be taxed. 20) Who is specified as an employee and what perquisites are taxable in
his hands? Specified employees include the following:
? ?
director employee, whether full time or part time employee, who is the beneficial owner of equity in the employer?s company, carrying 20% or more voting power.
?
The employees, other than those mentioned above, drawing salary in excess of Rs 24,000(w.e.f.13th april,2002,his limit is 50,000) in monetary terms.
21) If the employer gives option to its employee to buy its shares, is it a taxable perquisite? Prior to 01.04.2001, stock options were taxed at 2 stages i.e as perquisite (on the amount representing the difference between the exercise price and the fair market value, less the date of exercise),and as capital gains. With effect from 01.04.2001 (relevant to assessment year 2001-2002) onward, stock options, issued as per guidelines of the Central Government, are to be taxed only once, at the time of sale, as capital gains. In cases where the perquisite has been assessed with reference to exercise of the option by the
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Ghanshyamdas Saraf College 2013
employee, under Section 17(2), the fair market value at the time of exercise of the option shall be the cost of acquisition of share for working out the capital gains. The relevant guidelines of the Central Government have been issued vide Notification No.l021 (E) dt. 1.10.2001. Stock options, not in conformity with the above guidelines-(non-qualified stock options), shall continue to be taxed at both the stages 22) What is the perquisite with regard to the use of an asset, owned by the employer, by an employee? This perquisite is to be charged at the rate of 10% of the original cost of the asset as reduced by any charges paid for such use. However, computers and laptops are exempt. Further, the value of perquisite for an asset, used for income for more than ten years would be taken as Nil. 23) To qualify for exemption leave travel allowance), is it necessary to perform the actual journey? Yes. In case the L.T.C. is encashed, without actually performing the journey, the entire amount received by the employee would be taxed in his hands. 24) Has the exemption of the amount, received under V.R.S (Voluntary Retirement Scheme), now been extended to central and state government employees? Yes. The exemption of any amount, received under V.R.S., is extended to employees of the Central Government w.e.f. Assessment Year 2002-2003 and State Government Employees w.e.f. Assessment Year 2001-2002. 25) What are the guidelines for exemption from tax of compensation received under voluntary retirement scheme? The guidelines for bestowing the exemption from tax on the voluntary retirement scheme are to be strictly followed:
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1. VRS applies to an employee of the company who has completed 10 years of service or 40 years. 2. It applies to all employees and executives (excluding directors). 3. It has been drawn to result in overall reduction in the existing strength of the employees of the company. 4. Vacancy caused by the VRS is not to be filled up. 5. The retiring employee is not to be employed in any other business, belonging to the same management. 6. The amount should not exceed Rs. 5 lacs. 7. The employee has not availed in the past the benefit of any other voluntary scheme. 26) Is there any relief against higher tax rates when salary is paid in arrears or in advance? Yes. If because of payment of salary in arrears or in advance, or payment of compensation or provident Fund or gratuity etc., an assessee's income becomes assessable at a higher rate in a particular year than at which it would otherwise have been assessed, the Assessing Officer is bound by Section 89(1) to grant relief as prescribed. This enables the assessee to pay the tax at lower rates. 27) Is it necessary that deductions and rebates claimed should have been made out of income, chargeable to tax? Yes, most definitely. It is to be strictly noted that deductions rebates, under Chapter VI-A of the IT Act, 1961, are allowed only if the
investments/payments are made out of the income, chargeable to tax of the financial year relevant to the assessment year under consideration.
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28) If the salary is being paid in foreign currency, what would be its taxable value for the purpose of TDS? For the purpose of TDS on salary, payable in foreign currency, the value in rupees shall be calculated at the prescribed rate of exchange, for each of such payments. 29) If the employer does not issue a TDS certificate, is there a remedy? Yes, As per Section 203, every person, responsible for TDS, must furnish a certificate to the payee that tax has been deducted and to specify the amount so deducted. This TDS certificate must be furnished within one month from the end of the relevant financial year. Even the banks, deducting tax at the time of payment of pension or bank-interest, are required to issue such certificates. This certificate is to be issued on the tax deductor's own stationery. If he fails to issue the TDS certificate to the taxpayer concerned, he will be liable to pay, by way of penalty under section 272A, a sum @ Rs.100 for every day during which the failure continues. However, the penalty shall not exceed the amount of tax deductible. 30) Is the liability of the employer to deduct and pay tax, u/s 192(1), absolute and what if he fails to do so? Yes. Such liability is absolute and any failure would attract interest liability as well as other penal provisions.
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Pension U/S 10 (10A)
Pension
Commuted Uncommuted
Government
Others
Fully Taxable
Gratuity Recieved
Gratuity Not Recieved
Exempt 1/3 rd of 100%
Exempt 1/2 of 100%
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Ghanshyamdas Saraf College 2013
Computing Income from Salary Name of the Asessee:-Mr.__________ Accounting Year: - 1-4-2012 to 31-3-2013 Assessment Year:-2013-14 Individual: - R & OR Particulars Income from Salary 1.Salary 2.Allowances 3.Annuity 4.Pension 5.Gratuity 6.Fees & Commission 7.Perquisites 8.Profit in lieu of Salary 9.Leave encashment 10.Gross taxable Salary (Less) Deduction U/S 16 1.1 Entertainment allowance (A)Govt. employee – least of a.1/5th of Basic Salary b.Rs.5,000 c. Actual Allowance (B) Other Employee 1.2 Profession Tax Net taxable Salary (Gross - Deduction) (xx) Nil xx xx Rs. xx xx xx xx xx xx xx xx xx xx xx
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Illustration
Calculate The Taxable Salary Of Mr. A For Previous Year 2012-13. Particulars 1. 2. Basic Salary Dearness Allowances (40% Are In Term) RS. 25,000p.M. 60% Salary 3. 4. 5. 6. 7. 8. 9. Fixed Commission Commission On Turnover Entertainment Allowances (Amt. Spent 800 P.M) Travelling Allowances (Amt. Spent 1,000 P.M.) Uniform Allowances Research Allowances (Amt Spent 50,000) Children Children) 10. Commutation Allowances (Amt. Spent 600 P.M.) 11. Medical Allowances ( Amt Spent On Doctor 12,000) Education Allowances (He Has 5,000p.M 40,000 1,000 P.M. 1,500p.M. 600 P.M 40,000 Three 200 Child 1,200 Pm 15,000 P.M. Per Of Basic
12. Own Contribution To RPF Employer Also Contribute 2,000 P.M. Equal Amt. 13. Interest Credited To RPF @ 12% 6,000 Value
14. He Was Provided With A Car For Official As Well Perquisite As For Personal Purpose. 15. Mediclaim Insurance Premium Paid By Employer. 16. LIC Premium Paid By Employer. 30,000 7,000 1,000 P.M.
17. Profession Tax Paid (Of That 1,000 Was Paid By 2,500 Employer) 18. Reimbursement Of Medical Expenses (Treatment Was 20,000 Taken At Employer Hospital ) 19. Free Cook Provided By The Employer Perquisite 5,000 20. Telephone Facility Provided By The Employer 10,000 Value
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Ghanshyamdas Saraf College 2013
Solution Name of the Assessee:-Mr. A Accounting Year: - 1-4-2012 to 31-3-2013 Assessment Year:-2013-14 Individual: - R & OR Particular 1. 2. Basic Salary Dearness Allowances Rs. Rs. 3,00,000
(40% Are In Term) (60% Are Not In Term)
72,000 1,08,000 1,80,000
3. 4. 5.
Fixed Commission Commission On Turnover Entertainment Allowances (Amt. Spent 800 P.M)
60,000 40,000 12,000
6.
Travelling Allowances Less: (Amt. Spent 1,000 P.M.)
18,000 (12,000) 6,000
7.
Uniform Allowances Less: (Amt. Spent )
7,200 (7,200) NIL
8.
Research Allowances Less: (Amt Spent 50,000)
40,000 (40,000) NIL
9.
Children Education Allowances (He Has Three Children) 7,200 Less: [Exempt U/S 10 (14)] Allowances (Amt. Spent (2,400) 600 14,400 4,800
10.
Commutation
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Ghanshyamdas Saraf College 2013
P.M.) Less: 11. (Exempt) (9,600) 4,800 15,000
Medical Allowances ( Amt Spent On Doctor 12,000)
12.
Own Contribution To RPF Own Contribution Employers Contribution Less: Exempt Up to 12% NIL Ignore 24,000
[Basic + D.A In Term + Commission On (49,440) Turnover] (3,00,000 + 72,000 + 40,000)*12% 13. Interest Credited To RPF @ 12% Less: 14. Exempt Up to 9.5% 6,000 (4,750)
1,250 He Was Provided With A Car For Official As Well As For Personal Purpose. 15. Mediclaim Employer. Less: 16. 17. Exempt (7,000) NIL 12,000 1,000 Insurance Premium Paid By 7,000 30,000
LIC Premium Paid By Employer. Profession Tax Paid (Of That 1,000 Was Paid By Employer)
18.
Reimbursement Of Medical Expenses Less:
20,000
Exempt Treatment Was Taken At (20,000) NIL
Employer Hospital 19. 20. Free Cook Provided By The Employer Telephone Facility Provided By The Employer Less: Exempt 10,000 (10,000) NIL 5,000
Gross Salary
Less: Deduction U/S 16
6,71,850
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Ghanshyamdas Saraf College 2013
U/S 16 (11) Entertainment Allowances Profession Tax Paid NIL (2,500) 6,69,350
Net Salary
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Ghanshyamdas Saraf College 2013
INCOME FROM OTHER SOURCES – SEC 56
Any income which is not chargeable to tax under Section 15, 22, 28, or 45, will be chargeable to tax as Income from Other Sources (IFOS) i.e. any income not taxable under the head Income from Salary, House Property, Business/Profession or Capital Gains, is chargeable to tax as Income from Other Sources.
Section 56 (2): Under Section 56 (2), the items that are mentioned as taxable under this head are as follows:1. Dividend from shares of a Foreign Company or from shares of a CoOperative Society. [Dividend from shares of an Indian Company is exempt from tax by virtue of section 10 (34.]
2. Winnings from Lotteries, Puzzles, Crosswords, Card games, any other game of any sort, Races including Horse Races or from Betting or Gambling. (Only Winnings from such activities and not business income generated out such activities. For e.g.: Income from Agency Commission on selling of Lottery Tickets will not be taxable as IFOS, but will be separately taxable as income from Business /Profession).Tax rate@30%
3. Interest on Securities if Securities are held as Investment and not as Stock-in-trade. (If they are held as Stock-in-Trade, then interest
therefrom will be chargeable to tax as income from Business or Profession and not as income from Other Sources).
4. Rent from Letting out of Plant & Machinery, Furniture.
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Ghanshyamdas Saraf College 2013
5. Composite Rent (Combined Rent) from Letting out of Building, along with Plant & Machinery or other assets. For e.g.: Composite rent from letting out of a Cinema Building together with chairs, projectors and other furniture will be entirely chargeable as income from Other Sources. 6. Any sum received as contribution by assessee from his employee towards any Staff Welfare Scheme. Initially when an employer receives any contribution from his employees towards any Staff Welfare Scheme, it becomes an income in his hand and later on when he deposits such sum in the respective fund, it is allowed as a deduction to him from his income..
7. Any sum received under a „Keyman Insurance Policy (KIP)? including any Bonus therein if not taxed under Profits and Gains of Business and Profession.
8. Any Gift in cash (only cash and no other asset whether moveable or immoveable) exceeding Rs. 50,000/- received by an Individual or a Hindu Undivided Family on or (after 01-06-2006 However, following receipts of cash shall not be regarded as an income: (a.) Cash received from any person on occasion of Marriage (only Marriage and no other function like Birthday Party or Engagement), (b.) Cash received in contemplation death of the donor, (c.) Cash received under a Will or Inheritance, (d.) Cash received from a Relative.
For e.g.: Mr. A received Rs. 51,000/- from his friend Mr. X on 12/09/2006, then entire amount of Rs. 51,000/- (and not only the amount in excess Rs. 50,000/-) will be chargeable to tax in the hands of Mr. A, under the head Income from Other Sources.
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NOTE: (1.) One shall keep it in mind that all the incomes discussed above, will be taken as income from other sources only when the same is not taxable under any of the other four heads of income, except of Dividend income and Winnings from Lotteries, Puzzles, Card Games, Gambling, Betting, etc. Dividend and Winnings are always taxable as Income from Other Sources, irrespective of the business of the assessee.
(2.) All those incomes, which are chargeable to tax as income from Other Sources, are chargeable to tax either on „Due? basis or on „Receipt? basis, depending upon the method of accounting regularly followed by the assessee, except of „Dividend? income. Dividend income is always chargeable to tax on ‘Due’ basis, irrespective of the method of accounting followed by the assessee. OTHER INCOMES CHARGEABLE UNDER THIS HEAD: 1. Interest on Bank Fixed Deposits and Loans given.
2. Royalty income. For e.g.: Royalty received for writing Books. 3. Director?s Sitting fees.
4. Rent from Letting out of a vacant Plot of Land. (Only from a vacant Plot of Land without having any Building constructed thereon, if Building is also present, then such rent would be chargeable to tax as income from House Property and not as income from Other Sources)
5. Ground Rent received.
6. Agricultural income received from an Agricultural Land situated outside India.
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Ghanshyamdas Saraf College 2013
7. Amount received under Family Pension. (Subject to Standard Deduction U/S 57, which will be lower of 1/3rd of such Family Pension or Rs.15,000/-) („Family Pension? is an monthly/periodical pension received by Family Members of a deceased Employee after his/her death)
8. Income from Subletting of a House Property. (Rent received from Letting out of a House Property is chargeable to tax as income from House Property, whereas rent received from Subletting of a House Property is chargeable to tax as income from Other Sources) (‘Subletting’ means letting out of a property by Tenant of that property or by a person who is not an owner of that property) 9. Salary received by Members of Parliament. (Though it is called as „Salary?, such remuneration is not chargeable to tax as „Salary? because Members of Parliament are not treated as Government Servant. They do not have any employer and due to lack of employer-employee relationship, their remuneration can not be charged to tax as „Salary?)
10. Income on any Investment.
11. Interest on Income Tax Refund. However, the Income Tax refund is not an income of the assessee, therefore, it is not taxable.
12. Honorarium received for lecture conducted, received from College, University, Institute, etc.
13. Deemed Dividend u/s 2(22)(a) to section 2(22)(e).
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PERMISSIBLE
DEDUCTIONS
FROM
INCOME FROM OTHER SOURCES:
Section 57: The following Deductions are permissible under the head Income from Other Sources (IFOS): (1.) Section 57(1): Commission or Remuneration paid for realizing Dividend or Interest on Securities/Investments.
(2.) Section 57(1)(a): Deduction in respect of Employees? Contribution towards Staff/Employees? Welfare Scheme, provided that the contribution is credited to the fund before the due date of filing the Income Tax Return by Employer.
(3.) Section 57(2): Repairs and Depreciation in case of letting out of the Plant and Machinery, Furniture, Building. Insurance Premium on the Building, Plant and Machinery and on the Furniture are allowed to be deducted.
(4.) Depreciation as per Section 32: Depreciation as per section 32 of the Act, is allowed to be deducted from Income from Other Sources, provided income generated out of that asset is chargeable to tax as Income from Other Sources.
(5.) Section 57(2)(a): Standard Deduction in case of Family Pension allowed to be deducted at either Rs. 15,000/- or 1/3rd of Family Pension received, whichever is less, in the hands of the person who is in receipt of the amount under Family Pension.
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(6.) Section 57(3): Any other expenses for earning income from Other Sources is allowed to be claimed as deduction if, such: (a.) Expense is incurred wholly and exclusively for earning the income. (b.) Expense is not a Capital Expenditure. (c.) Expense is not a Personal expenditure. (d.) Expense is incurred in the Previous Year. List of incomes exempted from tax under section 10 from this head(IFOS):
1. Section 10(1): Agricultural income from Agricultural Land in India.
2. Section
10(11):
Interest
or
any
Amount
due
from
Public
Provident Fund.
3. Section 10(12): Any amount due from Provident Fund A/C.
4. Section 10(13): Any amount due from an Approved Super annuation Fund.
5. Section 10(15): Any Interest on Post Office Saving A/c or from notified Securities.
6. Section 10(17): Allowances to MLA or MP.
7. Section
10(17A):
Any
Award
received
from
Central/State
Government.
8. Section 10(34): Any Dividend received from an Indian Company.
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Ghanshyamdas Saraf College 2013
9. Section 10(35): Any income(Dividend, Interest) from units of a Mutual Fund.
10. Section 10(10D): An amount received from Life Insurance Policy including any Bonus therein, issued by any Insurance Company in India.
Problem 1: Ramesh received following income during the year 2008-09 :Compute his annual taxable income. a. Bank Interest – 1. ICICI Bank 2. Axis Bank 3. Janata Co-operative Society 5400 3480 6250
b. Interest on Debentures
4200
c. Dividend Income4. XYZ Limited(Indian Company) 5. ABC Company) 36000 d. Family Pension Limited 2500
(Foreign 1400
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Solution 1: Assesse-Ramesh Previous Year-2008-09 Assessement Year-2009-10
Computation of Income from other sources: Rs. Bank Interest – 6. ICICI Bank 7. Axis Bank 8. Janata Co-operative Society 15130 5400 3480 6250
Interest on Debentures 4200 Dividend IncomeXYZ Limited Less:Exempt Nil ABC Limited 1400 1400 2500 2500
Family Pension Less-Deduction =
36000 12000
24000(36000*1/3=12000 or 15000 whichever is lower)
Total Income from other sources
44730
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Ghanshyamdas Saraf College 2013
Problem 2: Mohan earned following income during the year 2008-09 : Compute his annual taxable income.
a. Rental Income – i. Furniture ii. Machinery b. Lottery Winning c. Royalty Income – Books 12000 3480 50000 36000
Solution 2: Assesse- Mohan Previous Year-2008-09 Assessement Year-2009-10
Computation of Income from other sources: Rental Income – i. Furniture ii. Machinery 12000 3480
Rs.
15480
Lottery Winning Royalty Income – Books Total Incmoe from other sources
50000 36000
50000 36000 101480
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Ghanshyamdas Saraf College 2013
Bibliography
Varsha Ainapure, Mukund Ainapure Direct and Indirect taxes. Mumbai: Manan Prakashan, 2013. A.M. Sharma Understanding Wage System. Delhi: Himalaya Publication House.http://www.onlinesbi.com/ Income Tax Departmenthttp://www.incometaxindia.gov.in/ Googlehttp://www.google.co.in/
41
doc_492317482.docx
A PROJECT ON “INCOME FROM SALARY & INCOME FROM OTHER SOURCES” SUBMITTED BY MINAL NAVINCHANDRA RATHOD MCOM PART II ACCOUNT SEMESTER III PROJECT GUIDE PROF.GURUNATHAN PILLAI SUBMITTED TO: UNIVERSITY OF MUMBAI RAJASTHANI SAMMELAN?S Ghanshyamdas Saraf College Affiliated to University of Mumbai REACCREDITED BY NAAC WITH „A? GRADE R. S. Campus, S. V. Road, Malad (W), Mumbai: 400 064 Year: 2013-2014
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Ghanshyamdas Saraf College 2013
RAJASTHANI SAMMELAN?S Ghanshyamdas Saraf College Affiliated to University of Mumbai REACCREDITED BY NAAC WITH „A? GRADE R. S. Campus, S. V. Road, Malad (W), Mumbai: 400 064 Year: 2013-2014 CERTIFICATE
I Prof. Gurunathan Pillai here by certify that Ms.Minal
Navinchandra Rathod a student of Ghanshyamdas Saraf College of MCOM Part II Account (Semester III) has completed Project on “INCOME FROM SALARY & INCOME FROM OTHER SOURCES” in the Academic year 2013-2014. Thus information submitted is true and Original to the best of my Knowledge. External Examiner: Date: Project Co-ordinator: Date: College Seal: Principal:
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Ghanshyamdas Saraf College 2013
ACKNOWLEDGEMENT
I take this opportunity to thank the UNIVERSITY OF MUMBAI for giving me a chance to do this Project. I express my sincere gratitude to the Principal Mrs. Sujata Karmarkar, course co-ordinator Mrs. Lipi Bhattachary, Guide Prof. Gurunathan Pillai, our librarian and other teachers for their constant support and helping me for completing the project. I am also grateful to my friends for giving support in my project. Lastly, I would like to thank each and every person who helped me in completing the project especially MY PARENTS.
Signature of the student
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Ghanshyamdas Saraf College 2013
DECLARATION
I Miss MINAL NAVINCHANDRA RATHOD a student of
Ghanshyamdas Saraf College of Arts and Commerce, Malad (W) MCOM Part II Account (Semester III) hereby declare that I have completed project on “INCOME FROM SALARY & INCOME FROM OTHER SOURCE” in the academic Year 2013-2014. This information Knowledge. submitted is true and original to best of my
Date:
Signature of the student
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Ghanshyamdas Saraf College 2013
INDEX
INDEX
Page No.
INCOME FROM SALARY COMPUTING INCOME FROM SALARY ILLUSTRATION INCOME FROM OTHER SOURCES – SEC 56 PERMISSIBLE DEDUCTIONS FROM INCOME FROM
6 27 28 32
OTHER SOURCES: BIBLIOGRAPHY
36
41
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INCOME FROM SALARY
1)What is meant by the expression, “salary” and what does it imply?
?
There must exist the relationship of an employer and employee between the payer and the payee and it must not be the relationship between a principal and agent.
?
Conceptually, there is no difference between salary and wages except that generally, the term salary is used for the services rendered for nonmanual type of work while wages are paid in connection with manual services.
?
If an individual receives salary from more than one employer during the same previous year either due to change in employment or due to employment with more than one employer simultaneously, salary from each source is taxable under the head “salaries”.
?
Remuneration received or due from former, present or prospective employer is chargeable to tax under the head “salaries”.
? ?
Salary income must be real and not fictitious. Tax is not payable in respect of salary surrendered, in other words, benefit of tax exemption in respect of salary surrendered is available to
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Ghanshyamdas Saraf College 2013
all employees whether they are employed in private sector or public sector.
?
If the employer pays salary tax-free, the employee has to include in his taxable income not only the salary received but also the amount of tax paid by the employer.
?
The act does not make distinction between gratuity payments and contractual payments i.e. salary, perquisite or allowance may come as a gift to an employee and yet it would be taxable.
?
U/S 17(1), salary includes: a. Wages b. Any annuity or pension c. Any fees, commission, perquisite or profits in lieu of or in addition to any salary or wages d. Any advance of salary e. Any payment received in respect of any period of leave not availed by him f. The portion of the annual accretion in any previous year to the balance at the credit of an employee participating in recognized provident fund to the extent it is taxable g. Transferred balance in a recognized provident fund to the extent it is taxable h. The contribution made by the central government in the previous year to the account of an employee under a pension scheme referred to in section 80CCD(applicable from assessment year 2004-05)
2)Explain the basis of charge as per section 15.
?
Any salary due from employer to an assessee in the previous year whether actually paid or not.
?
Any salary paid or allowed to him in the previous year by or on behalf of the employer though not due or before it became due.
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Ghanshyamdas Saraf College 2013
?
Any arrears of salary paid or allowed to him in the previous year by or on behalf of employer if not charged to income tax for any earlier previous year.
? ?
Salary is taxable on “due” or “receipt” basis whichever is earlier. Method of accounting adopted by the employee is not relevant.
3) How does the place of accrual of salary income determine its chargeability to tax? Income, under the head “salaries,” is deemed to accrue or arise at the place where the services are rendered. Salaries, in respect of services rendered in India, are deemed to accrue or arise in India even if it is paid outside India or it is paid or payable after the contract of employment in India comes to an end. 4) Explain the tax treatment of different forms of salary income.
?
ADVANCE SALARY is taxable on receipt basis, irrespective of the tax incidence in the hands of the employee.
?
ARREAR SALARY is taxable on receipt basis if the same is not subjected to tax earlier on due basis.
?
LEAVE SALARY
?
leave encashment during continuity of employment (in case of government/ non- government employee is chargeable to tax however, relief can be taken under section 89.
?
leave encashment at the time of retirement/leaving job(in case of government employee) is fully exempt from tax u/s 10(10AA).
?
leave encashment at the time of retirement/leaving job(in case of non-government employee) is fully or partly exempt from tax in some cases u/s 10(10AA)(ii)
?
SALARY TO PARTNER, paid by a firm, is an appropriation of profits and is not charged under the head “salaries” but is taxable under the head of “profits and gains of business and profession.” Similar treatment
8
Ghanshyamdas Saraf College 2013
is given to interest, bonus, commission or remuneration, received by a partner of a firm from such firm.
?
FEES AND COMMISSION are taxable as salary, irrespective of the fact that they are paid in addition to or in lieu of salary.
?
BONUS is taxable in the year of receipt if it has not been taxed earlier on due basis.
? ? ?
GRATUITY[SEC 10(10)] ANNUITY[SEC 17(1)(ii) ANNUAL ACCRETION TO THE CREDIT BALANCE IN PROVIDENT FUND
?
AMOUNT
TRANSFERRED
FROM
UNRECOGNISED
PROVIDENT
FUND TO RECOGNISED PROVIDENT FUND
? ? ? ? ?
RETRENCHMENT COMPENSATION[SEC 10(10B)] PROFITS IN LIEU OF SALARY[SEC 17(3)] REMUNERTAION FOR EXTRA DUTIES VOLUNTARY PAYMENT TO HIS EMPLOYEES SALARY RECEIVED FROM UNITED NATIONS ORGANISATION
(exemption granted)
?
SALARY TO FOREIGN TECHNICIANS, SALARY TO OTHER FOREIGN CITIZENS
?
COMPENSATION
RECEIVED
AT
THE
TIME
OF
VOLUNTARY
RETIREMENT OR SEPARATION[SEC 10(0C)] 5) What is meant by LEAVE SALARY?
?
An employee is entitled to different kinds of leave. Encashment of leave by surrendering leave standing to one?s credit is known as “leave salary”. If leave, standing to his credit, is not taken within a year as per the service rules, it may lapse or it may be encashed or it may be accumulated. This accumulated leave may be availed by the employee during his service time or can be encashed at the time of retirement or leaving the job.
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Ghanshyamdas Saraf College 2013
6) State how the leave salary at the time of retirement to other employees (non-government employees) is determined? In case of such employee (including an employee of a local authority or a public sector undertaking), leave salary is exempt on the basis of the least of the following:
?
Period of earned leave (in number of months) to the credit of the employee at the time of his retirement or leaving the job x average monthly salary
? ?
10 x average monthly salary The amount specified by the government (i.e. Rs 3,00,000 applicable from 1st April,1998)
?
Leave encashment actually received at the time of retirement.
7) What is gratuity and explain its tax treatment? According to the Oxford English Dictionary, gratuity means a gift or a present or a gratuitous payment, made by an employer to his employee, often in return for favours and services rendered. It is paid for meritorious services rendered by an employee. Tax Treatment to Gratuity
?
in case of a government employee, it is fully exempt from tax u/s 10(10)(i)
?
in case of non-government employee, covered by the Payment of Gratuity Act,1970, it is fully or partly exempt from tax u/s 10(10)(ii)
?
in case of non-government employee, not covered by the Payment of Gratuity Act,1970, it is fully or partly exempt from tax u/s 10(10)(iii)
?
In case of government employees - a death-cum retirement gratuity received under any of the following categories is exempt from tax:
? ?
the Revised Pension Rules of the Central Government, or the Central Civil Services(Pension)Rules,1972,or
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Ghanshyamdas Saraf College 2013
?
any similar scheme applicable to members of the civil service of the union, holders of any post connected with defence or of civil post under the union, the members of all India services, members of civil services of the state, holders of civil post under the state, employees of local authority.
?
In case of employees covered by Payment of Gratuity Act, 1972, the least of the following is exempt from tax:
?
15
days
salary
(7 on
days salary
salary last
in
case for
of each
seasonal year of
employment)based
? ? ?
drawn
service(i.e.15 days salary x length of service) Rs 3,50,000 Gratuity actually received
in case of any other employee, the least of the following is exempt from tax:
? ? ?
Rs.3,50,000 Half months average salary for every completed year of service Gratuity actually received.
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?
Gratuity U/S 10 (10)
Gratuity
Govternment
POGA (Gratuity Act)
Others
Fully Exempt
15/26*service p.m*no. of years service
15/30*service p.m*no. of years service
Actual amt. received
Actual amt. received
Max. 10 lac
Note: - for POGA (Gatuity Act) 1. Salary means = basic + D. A. in term + D. A. not in term
2. Number of years service = round off only when more than 6 months. For e.g 26 years & 6 months = 26 years but if, 26 years & 7 months = 27 years
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Note: - for Others 1. Salary means = basic + D. A. in term + commission on turnover 2.average salary for last 10 month number 3. Number of years service =Ignore the number of months. For e.g 26 years & 6 months = 26 years but if, 26 years & 7 months = 26 years. 8) Explain how the retrenchment compensation u/s 10(10B) is determined. The lowest of the following is exempt:
?
an amount calculated in accordance with the provisions of sec25(b) of the Industrial Disputes Act,1947,or
? ?
the amount specified by the government i.e. Rs 5,00,000,or the amount received.
9) Mention the various allowances, given to an employee in addition to salary. What is the tax treatment applicable to and also give the tax treatment to the different Various allowances:
? ?
allowances?
CITY COMPENSATORY ALLOWANCE is taxable HOUSE RENT ALLOWANCE [SEC 10(13A) AND RULE 2]: The least of the following three is exempt from tax: ? An amount equal to 50% of the salary where residential house is situated at Bombay, Calcutta, Delhi or Madras and an amount equal to 40% of the salary where the residential house is situated at any other place. ? House rent allowance, received by the employee in respect of the period during which rental accommodation is occupied by the employee during the previous year.
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? ? The excess of rent paid over 10 per cent of salary. ENTERTAINMENT ALLOWANCE: SEC 16(ii) Entertainment allowance is first included in the income from “salaries” and thereafter a deduction is given on the least of the following: In case of a government employee: ? ? ? Rs 5000, 20% of salary, or, Amount of entertainment allowance granted during the previous year in case of non-government employees, deduction will not be available. ? SPECIAL ALLOWANCE SEC10 (14): GIVEN IN RULE 2BB Allowance or benefit, which is not in the nature of perquisite within the meaning of sec 17(2)and which is granted to meet expenses in performance of duties of an office or employment of profit. ? ? ? ? ? ? ? SERVANT ALLOWANCE is taxable. ALLOWANCE TO HIGH COURT JUDGES is not taxable. ALLOWANCE RECEIVED FROM UNITED NATIONS
ORGANISATION is not taxable. ALLOWANCE TO FOREIGN TECHNICIAN ALLOWANCE TO FOREIGN CITIZEN COMPENSATORY ALLOWANCE, received by a judge under article 222(2) of the constitution, is not taxable. SUMPTUARY ALLOWANCE is not chargeable to tax.
10) Explain Perquisites Perquisite denotes some benefit in addition to the amount that may be legally due by way of contract for services rendered. The following points must be borne in mind while deciding whether the expenses can be called perquisites:
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Ghanshyamdas Saraf College 2013
?
personal benefit does not cover a mere reimbursement of necessary expenses incurred by an employee, it may be provided in cash or in kind.
?
they are included in salary income only if they are received by an employee from his employer.
?
a benefit or advantage would be taxable as perquisite only if it has a legal origin and is an enforceable right.
?
premium, paid by an employer towards personal accident policy of employee, is not taxable as perquisite.
?
payments made by an employer to provide pensionary/deferred annuity benefits to his employees are taxable as perquisites only when a vested interest accrues to the employee.
?
perquisites are taxable only if they are allowed by an employer to his employee, allowed during the continuance of the employment, directly dependant upon service, resulting in the nature of personal advantage to the employee and derived by the virtue of employer?s authority.
11) What is inclusive as perquisites? The value of rent free accommodation. The value of any concession in matter of rent in respect of any accommodation. The value of any benefit or amenity granted or provided at free of cost or at a concessional rate:
? ?
By a company to an employee who is a director thereof, By a company to an employee who has a substantial interest in the company
?
By an employer (including a company) to an employee to whom provisions of the above do not apply.
?
Any sum paid by the employer in respect of any obligation, which but for such payment would have been payable by the assessee.
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Ghanshyamdas Saraf College 2013
?
Any sum, payable by the employer, whether directly or through a fund other than the recognized provident fund or approved superannuation fund or a deposit linked insurance fund, to effect an assurance on the life of the assessee or to effect a contract for an annuity.
?
The value of any other fringe benefit or amenity as may be prescribed. Mention A) various perquisites which are taxable; B) various
12)
perquisites exempt from tax; C) perquisites taxable only in the hands of specified employees A. Perquisites, which are taxable:
? ? ? ?
rent free accommodation accommodation at concessional rate employee?s obligation met by employer amount payable by employer to effect an assurance on the life of employer
?
notified fringe benefits
B. Perquisites, exempt from tax
?
Rent Free House:
?
rent free accommodation, provided to a judge of a high court or of a supreme court or to an official of parliament or a union minister or to a leader of an opposition party in parliament.
?
accommodation, provided in a remote area to an employee working at a mining site or on on-shore oil exploration site, or a project execution site or dam site or power generation site or an accommodation, provided in an offshore site.
?
accommodation, provided on transfer of an employee in a hotel not exceeding 15 days in aggregate.
?
Car facility up to Rs 1,200 per month and conveyance facility, provided to high court as well as Supreme Court judges and
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conveyance expenses, provided to an employee to cover journey between office and residence.
?
EDUCATION FACILITY in an institution, run by the employer, where the value of education per child does not exceed Rs 1,000 per month with no limits on the number of children.
?
Amount, spent on training of employees or fees, paid for refresher management courses.
?
TRANSPORT FACILITY, given to railway employees or airline employees.
? ?
FREE MEALS (subject to certain conditions) CLUB - Initial fees, paid by employer for acquiring corporate membership of a club, use of health club, sports or similar facility, provided uniformly to all employees by the employer.
? ? ?
USE OF MOVEABLE ASSETS, such as computer/laptop etc. MEDICAL FACILITIES OTHERS - Gift-in-kind up to Rs 5,000 in a year, goods manufactured and sold by the employer to his employees at concessional rates, perquisites allowed outside India by
government to its citizen for services, rendered outside India, leave travel concession, employers contribution to staff group insurance scheme, free telephone including mobile phone,
periodicals and journals required for discharge of work etc. C. PERQUISITES,
?
TAXABLE
ONLY
IN
THE
HANDS
OF
SPECIFIED PERSONS Specified persons for the above purpose are a director employee, an employee, who has substantial interest in the employer company or an employee, drawing in excess of Rs 50,000.
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Perquisite
Perquisite
Taxable for All
Taxable for Specific Employee
Fully Exempt
LIC premium paid by Employer
Gas/Water/ Electricity
Telephone/Mobile
Rent free /Concession rent Accomodation
Free car Facility (Personal & Office )
Computer/Laptop
Any liability of Employee paid by Employer
Free Gardener/ Servant
Mediclaim Insurance Premium paid by Employer
Tea/Snacks/Refreshment/ Training
Free / subsidies Lunch , Dinner
Interest free /concession Interest Loan less than Rs. 20,000
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Perquisite Fully Exempt
Reimbursement of Medical Expensess
Treatement taken at Govt./Recognised/Employer Hospital
Other Hospital
Fully Exempt
Exempt Upto Rs. 15,000
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13) What are the various deductions from salary income?
? ?
Entertainment allowance-16(ii) Professional tax-16(iii)
14) Mention the categories of foreign citizen employees who are paid salary?
? ? ? ? ?
Salary of diplomatic personnel Salary of foreign employees Salary received by a ship?s crew Remuneration of a foreign trainee Remuneration out of funds of an international organization
15) What is meant by Employees Provident Fund? The Provident fund scheme is a retirement benefit scheme, where a stipulated sum is deducted from the salary of the employee as his contribution towards the fund. The employer also generally contributes simultaneously an equal amount out of his pocket to the fund. The contributions are then invested in gilt-edged securities. Interest thereon is also credited to the provident fund account of employees. Thus, the credit balance in the provident fund account of an employee consists of employees?s contribution, interest on employee?s contribution, employer?s contribution and interest on employer?s contribution. The accumulated sum is paid to the employee at the time of his retirement or resignation. In case of death of an employee, the accumulated balance is paid to his legal heirs. 16) Please give the details of tax rebate u/s 88
? ?
Tax rebate u/s 88 is available @ 30% of the net qualifying amount If gross total income does not exceed Rs 1,50,000, rebate is available @ 20% of the net qualifying amount
?
If gross total income exceeds Rs 1,50,000 but does not exceed Rs 5,00,000,tax rebate is available @15% of the net qualifying amount.
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Ghanshyamdas Saraf College 2013
?
If gross total income exceeds Rs 5,00,000, tax rebate u/s 88 will not be available.
17) Relief under section 89 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 u/s 89 read with rule 21A:
?
Computation of relief when salary has been received in arrears or in advance-rule21A(2)
? ?
Computation of relief in respect of gratuity-rule21A(3) Computation of relief in respect of compensation on termination of employment-rule 21A(4)
?
Computation of relief in respect of payment in commutation of pensionrule 21A(5)
?
Computation of relief in respect of other payments-rule 21A(6).
18) Mention a few hints to be borne in mind while tax planning under the head of “salaries.”
?
Dearness allowance and dearness pay must form part of basic salary. This will minimize tax incidence on house rent allowance, gratuity and commuted pension. Likewise, incidence of tax on employer?s
contribution to recognized provident fund will be less.
?
If commission is paid at a fixed percentage of turnover achieved by the employee, then tax incidence on house rent allowance, entertainment allowance, gratuity and commuted pension will be less.
?
An uncommuted pension is always taxable. On the other hand, commuted pension is fully exempt from tax in case of government employees and partly exempt from tax in case of non-government employees, therefore employees should get their pension converted.
?
the accumulated balance of the provident fund with the former employer will be exempt from tax, provided the same is transferred to the new employer who also maintains a recognized provident fund.
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?
employees should go in for free medical facilities instead of fixed medical allowance
?
an employee should take the benefit of relief available u/s 89
19) Is salary, payable for the leave period to non-residents, taxable even if the leave is spent outside India? Yes, salary, paid for services rendered in India, is regarded as income earned in India, so as to specifically provide that any salary, payable for rest period or leave period, which is both preceded or succeeded by service in India, forms part of the service contract of employment, will also be regarded as income earned in India and so it will be taxed. 20) Who is specified as an employee and what perquisites are taxable in
his hands? Specified employees include the following:
? ?
director employee, whether full time or part time employee, who is the beneficial owner of equity in the employer?s company, carrying 20% or more voting power.
?
The employees, other than those mentioned above, drawing salary in excess of Rs 24,000(w.e.f.13th april,2002,his limit is 50,000) in monetary terms.
21) If the employer gives option to its employee to buy its shares, is it a taxable perquisite? Prior to 01.04.2001, stock options were taxed at 2 stages i.e as perquisite (on the amount representing the difference between the exercise price and the fair market value, less the date of exercise),and as capital gains. With effect from 01.04.2001 (relevant to assessment year 2001-2002) onward, stock options, issued as per guidelines of the Central Government, are to be taxed only once, at the time of sale, as capital gains. In cases where the perquisite has been assessed with reference to exercise of the option by the
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Ghanshyamdas Saraf College 2013
employee, under Section 17(2), the fair market value at the time of exercise of the option shall be the cost of acquisition of share for working out the capital gains. The relevant guidelines of the Central Government have been issued vide Notification No.l021 (E) dt. 1.10.2001. Stock options, not in conformity with the above guidelines-(non-qualified stock options), shall continue to be taxed at both the stages 22) What is the perquisite with regard to the use of an asset, owned by the employer, by an employee? This perquisite is to be charged at the rate of 10% of the original cost of the asset as reduced by any charges paid for such use. However, computers and laptops are exempt. Further, the value of perquisite for an asset, used for income for more than ten years would be taken as Nil. 23) To qualify for exemption leave travel allowance), is it necessary to perform the actual journey? Yes. In case the L.T.C. is encashed, without actually performing the journey, the entire amount received by the employee would be taxed in his hands. 24) Has the exemption of the amount, received under V.R.S (Voluntary Retirement Scheme), now been extended to central and state government employees? Yes. The exemption of any amount, received under V.R.S., is extended to employees of the Central Government w.e.f. Assessment Year 2002-2003 and State Government Employees w.e.f. Assessment Year 2001-2002. 25) What are the guidelines for exemption from tax of compensation received under voluntary retirement scheme? The guidelines for bestowing the exemption from tax on the voluntary retirement scheme are to be strictly followed:
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1. VRS applies to an employee of the company who has completed 10 years of service or 40 years. 2. It applies to all employees and executives (excluding directors). 3. It has been drawn to result in overall reduction in the existing strength of the employees of the company. 4. Vacancy caused by the VRS is not to be filled up. 5. The retiring employee is not to be employed in any other business, belonging to the same management. 6. The amount should not exceed Rs. 5 lacs. 7. The employee has not availed in the past the benefit of any other voluntary scheme. 26) Is there any relief against higher tax rates when salary is paid in arrears or in advance? Yes. If because of payment of salary in arrears or in advance, or payment of compensation or provident Fund or gratuity etc., an assessee's income becomes assessable at a higher rate in a particular year than at which it would otherwise have been assessed, the Assessing Officer is bound by Section 89(1) to grant relief as prescribed. This enables the assessee to pay the tax at lower rates. 27) Is it necessary that deductions and rebates claimed should have been made out of income, chargeable to tax? Yes, most definitely. It is to be strictly noted that deductions rebates, under Chapter VI-A of the IT Act, 1961, are allowed only if the
investments/payments are made out of the income, chargeable to tax of the financial year relevant to the assessment year under consideration.
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28) If the salary is being paid in foreign currency, what would be its taxable value for the purpose of TDS? For the purpose of TDS on salary, payable in foreign currency, the value in rupees shall be calculated at the prescribed rate of exchange, for each of such payments. 29) If the employer does not issue a TDS certificate, is there a remedy? Yes, As per Section 203, every person, responsible for TDS, must furnish a certificate to the payee that tax has been deducted and to specify the amount so deducted. This TDS certificate must be furnished within one month from the end of the relevant financial year. Even the banks, deducting tax at the time of payment of pension or bank-interest, are required to issue such certificates. This certificate is to be issued on the tax deductor's own stationery. If he fails to issue the TDS certificate to the taxpayer concerned, he will be liable to pay, by way of penalty under section 272A, a sum @ Rs.100 for every day during which the failure continues. However, the penalty shall not exceed the amount of tax deductible. 30) Is the liability of the employer to deduct and pay tax, u/s 192(1), absolute and what if he fails to do so? Yes. Such liability is absolute and any failure would attract interest liability as well as other penal provisions.
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Pension U/S 10 (10A)
Pension
Commuted Uncommuted
Government
Others
Fully Taxable
Gratuity Recieved
Gratuity Not Recieved
Exempt 1/3 rd of 100%
Exempt 1/2 of 100%
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Computing Income from Salary Name of the Asessee:-Mr.__________ Accounting Year: - 1-4-2012 to 31-3-2013 Assessment Year:-2013-14 Individual: - R & OR Particulars Income from Salary 1.Salary 2.Allowances 3.Annuity 4.Pension 5.Gratuity 6.Fees & Commission 7.Perquisites 8.Profit in lieu of Salary 9.Leave encashment 10.Gross taxable Salary (Less) Deduction U/S 16 1.1 Entertainment allowance (A)Govt. employee – least of a.1/5th of Basic Salary b.Rs.5,000 c. Actual Allowance (B) Other Employee 1.2 Profession Tax Net taxable Salary (Gross - Deduction) (xx) Nil xx xx Rs. xx xx xx xx xx xx xx xx xx xx xx
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Illustration
Calculate The Taxable Salary Of Mr. A For Previous Year 2012-13. Particulars 1. 2. Basic Salary Dearness Allowances (40% Are In Term) RS. 25,000p.M. 60% Salary 3. 4. 5. 6. 7. 8. 9. Fixed Commission Commission On Turnover Entertainment Allowances (Amt. Spent 800 P.M) Travelling Allowances (Amt. Spent 1,000 P.M.) Uniform Allowances Research Allowances (Amt Spent 50,000) Children Children) 10. Commutation Allowances (Amt. Spent 600 P.M.) 11. Medical Allowances ( Amt Spent On Doctor 12,000) Education Allowances (He Has 5,000p.M 40,000 1,000 P.M. 1,500p.M. 600 P.M 40,000 Three 200 Child 1,200 Pm 15,000 P.M. Per Of Basic
12. Own Contribution To RPF Employer Also Contribute 2,000 P.M. Equal Amt. 13. Interest Credited To RPF @ 12% 6,000 Value
14. He Was Provided With A Car For Official As Well Perquisite As For Personal Purpose. 15. Mediclaim Insurance Premium Paid By Employer. 16. LIC Premium Paid By Employer. 30,000 7,000 1,000 P.M.
17. Profession Tax Paid (Of That 1,000 Was Paid By 2,500 Employer) 18. Reimbursement Of Medical Expenses (Treatment Was 20,000 Taken At Employer Hospital ) 19. Free Cook Provided By The Employer Perquisite 5,000 20. Telephone Facility Provided By The Employer 10,000 Value
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Solution Name of the Assessee:-Mr. A Accounting Year: - 1-4-2012 to 31-3-2013 Assessment Year:-2013-14 Individual: - R & OR Particular 1. 2. Basic Salary Dearness Allowances Rs. Rs. 3,00,000
(40% Are In Term) (60% Are Not In Term)
72,000 1,08,000 1,80,000
3. 4. 5.
Fixed Commission Commission On Turnover Entertainment Allowances (Amt. Spent 800 P.M)
60,000 40,000 12,000
6.
Travelling Allowances Less: (Amt. Spent 1,000 P.M.)
18,000 (12,000) 6,000
7.
Uniform Allowances Less: (Amt. Spent )
7,200 (7,200) NIL
8.
Research Allowances Less: (Amt Spent 50,000)
40,000 (40,000) NIL
9.
Children Education Allowances (He Has Three Children) 7,200 Less: [Exempt U/S 10 (14)] Allowances (Amt. Spent (2,400) 600 14,400 4,800
10.
Commutation
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Ghanshyamdas Saraf College 2013
P.M.) Less: 11. (Exempt) (9,600) 4,800 15,000
Medical Allowances ( Amt Spent On Doctor 12,000)
12.
Own Contribution To RPF Own Contribution Employers Contribution Less: Exempt Up to 12% NIL Ignore 24,000
[Basic + D.A In Term + Commission On (49,440) Turnover] (3,00,000 + 72,000 + 40,000)*12% 13. Interest Credited To RPF @ 12% Less: 14. Exempt Up to 9.5% 6,000 (4,750)
1,250 He Was Provided With A Car For Official As Well As For Personal Purpose. 15. Mediclaim Employer. Less: 16. 17. Exempt (7,000) NIL 12,000 1,000 Insurance Premium Paid By 7,000 30,000
LIC Premium Paid By Employer. Profession Tax Paid (Of That 1,000 Was Paid By Employer)
18.
Reimbursement Of Medical Expenses Less:
20,000
Exempt Treatment Was Taken At (20,000) NIL
Employer Hospital 19. 20. Free Cook Provided By The Employer Telephone Facility Provided By The Employer Less: Exempt 10,000 (10,000) NIL 5,000
Gross Salary
Less: Deduction U/S 16
6,71,850
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U/S 16 (11) Entertainment Allowances Profession Tax Paid NIL (2,500) 6,69,350
Net Salary
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INCOME FROM OTHER SOURCES – SEC 56
Any income which is not chargeable to tax under Section 15, 22, 28, or 45, will be chargeable to tax as Income from Other Sources (IFOS) i.e. any income not taxable under the head Income from Salary, House Property, Business/Profession or Capital Gains, is chargeable to tax as Income from Other Sources.
Section 56 (2): Under Section 56 (2), the items that are mentioned as taxable under this head are as follows:1. Dividend from shares of a Foreign Company or from shares of a CoOperative Society. [Dividend from shares of an Indian Company is exempt from tax by virtue of section 10 (34.]
2. Winnings from Lotteries, Puzzles, Crosswords, Card games, any other game of any sort, Races including Horse Races or from Betting or Gambling. (Only Winnings from such activities and not business income generated out such activities. For e.g.: Income from Agency Commission on selling of Lottery Tickets will not be taxable as IFOS, but will be separately taxable as income from Business /Profession).Tax rate@30%
3. Interest on Securities if Securities are held as Investment and not as Stock-in-trade. (If they are held as Stock-in-Trade, then interest
therefrom will be chargeable to tax as income from Business or Profession and not as income from Other Sources).
4. Rent from Letting out of Plant & Machinery, Furniture.
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5. Composite Rent (Combined Rent) from Letting out of Building, along with Plant & Machinery or other assets. For e.g.: Composite rent from letting out of a Cinema Building together with chairs, projectors and other furniture will be entirely chargeable as income from Other Sources. 6. Any sum received as contribution by assessee from his employee towards any Staff Welfare Scheme. Initially when an employer receives any contribution from his employees towards any Staff Welfare Scheme, it becomes an income in his hand and later on when he deposits such sum in the respective fund, it is allowed as a deduction to him from his income..
7. Any sum received under a „Keyman Insurance Policy (KIP)? including any Bonus therein if not taxed under Profits and Gains of Business and Profession.
8. Any Gift in cash (only cash and no other asset whether moveable or immoveable) exceeding Rs. 50,000/- received by an Individual or a Hindu Undivided Family on or (after 01-06-2006 However, following receipts of cash shall not be regarded as an income: (a.) Cash received from any person on occasion of Marriage (only Marriage and no other function like Birthday Party or Engagement), (b.) Cash received in contemplation death of the donor, (c.) Cash received under a Will or Inheritance, (d.) Cash received from a Relative.
For e.g.: Mr. A received Rs. 51,000/- from his friend Mr. X on 12/09/2006, then entire amount of Rs. 51,000/- (and not only the amount in excess Rs. 50,000/-) will be chargeable to tax in the hands of Mr. A, under the head Income from Other Sources.
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NOTE: (1.) One shall keep it in mind that all the incomes discussed above, will be taken as income from other sources only when the same is not taxable under any of the other four heads of income, except of Dividend income and Winnings from Lotteries, Puzzles, Card Games, Gambling, Betting, etc. Dividend and Winnings are always taxable as Income from Other Sources, irrespective of the business of the assessee.
(2.) All those incomes, which are chargeable to tax as income from Other Sources, are chargeable to tax either on „Due? basis or on „Receipt? basis, depending upon the method of accounting regularly followed by the assessee, except of „Dividend? income. Dividend income is always chargeable to tax on ‘Due’ basis, irrespective of the method of accounting followed by the assessee. OTHER INCOMES CHARGEABLE UNDER THIS HEAD: 1. Interest on Bank Fixed Deposits and Loans given.
2. Royalty income. For e.g.: Royalty received for writing Books. 3. Director?s Sitting fees.
4. Rent from Letting out of a vacant Plot of Land. (Only from a vacant Plot of Land without having any Building constructed thereon, if Building is also present, then such rent would be chargeable to tax as income from House Property and not as income from Other Sources)
5. Ground Rent received.
6. Agricultural income received from an Agricultural Land situated outside India.
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7. Amount received under Family Pension. (Subject to Standard Deduction U/S 57, which will be lower of 1/3rd of such Family Pension or Rs.15,000/-) („Family Pension? is an monthly/periodical pension received by Family Members of a deceased Employee after his/her death)
8. Income from Subletting of a House Property. (Rent received from Letting out of a House Property is chargeable to tax as income from House Property, whereas rent received from Subletting of a House Property is chargeable to tax as income from Other Sources) (‘Subletting’ means letting out of a property by Tenant of that property or by a person who is not an owner of that property) 9. Salary received by Members of Parliament. (Though it is called as „Salary?, such remuneration is not chargeable to tax as „Salary? because Members of Parliament are not treated as Government Servant. They do not have any employer and due to lack of employer-employee relationship, their remuneration can not be charged to tax as „Salary?)
10. Income on any Investment.
11. Interest on Income Tax Refund. However, the Income Tax refund is not an income of the assessee, therefore, it is not taxable.
12. Honorarium received for lecture conducted, received from College, University, Institute, etc.
13. Deemed Dividend u/s 2(22)(a) to section 2(22)(e).
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PERMISSIBLE
DEDUCTIONS
FROM
INCOME FROM OTHER SOURCES:
Section 57: The following Deductions are permissible under the head Income from Other Sources (IFOS): (1.) Section 57(1): Commission or Remuneration paid for realizing Dividend or Interest on Securities/Investments.
(2.) Section 57(1)(a): Deduction in respect of Employees? Contribution towards Staff/Employees? Welfare Scheme, provided that the contribution is credited to the fund before the due date of filing the Income Tax Return by Employer.
(3.) Section 57(2): Repairs and Depreciation in case of letting out of the Plant and Machinery, Furniture, Building. Insurance Premium on the Building, Plant and Machinery and on the Furniture are allowed to be deducted.
(4.) Depreciation as per Section 32: Depreciation as per section 32 of the Act, is allowed to be deducted from Income from Other Sources, provided income generated out of that asset is chargeable to tax as Income from Other Sources.
(5.) Section 57(2)(a): Standard Deduction in case of Family Pension allowed to be deducted at either Rs. 15,000/- or 1/3rd of Family Pension received, whichever is less, in the hands of the person who is in receipt of the amount under Family Pension.
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(6.) Section 57(3): Any other expenses for earning income from Other Sources is allowed to be claimed as deduction if, such: (a.) Expense is incurred wholly and exclusively for earning the income. (b.) Expense is not a Capital Expenditure. (c.) Expense is not a Personal expenditure. (d.) Expense is incurred in the Previous Year. List of incomes exempted from tax under section 10 from this head(IFOS):
1. Section 10(1): Agricultural income from Agricultural Land in India.
2. Section
10(11):
Interest
or
any
Amount
due
from
Public
Provident Fund.
3. Section 10(12): Any amount due from Provident Fund A/C.
4. Section 10(13): Any amount due from an Approved Super annuation Fund.
5. Section 10(15): Any Interest on Post Office Saving A/c or from notified Securities.
6. Section 10(17): Allowances to MLA or MP.
7. Section
10(17A):
Any
Award
received
from
Central/State
Government.
8. Section 10(34): Any Dividend received from an Indian Company.
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9. Section 10(35): Any income(Dividend, Interest) from units of a Mutual Fund.
10. Section 10(10D): An amount received from Life Insurance Policy including any Bonus therein, issued by any Insurance Company in India.
Problem 1: Ramesh received following income during the year 2008-09 :Compute his annual taxable income. a. Bank Interest – 1. ICICI Bank 2. Axis Bank 3. Janata Co-operative Society 5400 3480 6250
b. Interest on Debentures
4200
c. Dividend Income4. XYZ Limited(Indian Company) 5. ABC Company) 36000 d. Family Pension Limited 2500
(Foreign 1400
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Solution 1: Assesse-Ramesh Previous Year-2008-09 Assessement Year-2009-10
Computation of Income from other sources: Rs. Bank Interest – 6. ICICI Bank 7. Axis Bank 8. Janata Co-operative Society 15130 5400 3480 6250
Interest on Debentures 4200 Dividend IncomeXYZ Limited Less:Exempt Nil ABC Limited 1400 1400 2500 2500
Family Pension Less-Deduction =
36000 12000
24000(36000*1/3=12000 or 15000 whichever is lower)
Total Income from other sources
44730
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Problem 2: Mohan earned following income during the year 2008-09 : Compute his annual taxable income.
a. Rental Income – i. Furniture ii. Machinery b. Lottery Winning c. Royalty Income – Books 12000 3480 50000 36000
Solution 2: Assesse- Mohan Previous Year-2008-09 Assessement Year-2009-10
Computation of Income from other sources: Rental Income – i. Furniture ii. Machinery 12000 3480
Rs.
15480
Lottery Winning Royalty Income – Books Total Incmoe from other sources
50000 36000
50000 36000 101480
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Bibliography
Varsha Ainapure, Mukund Ainapure Direct and Indirect taxes. Mumbai: Manan Prakashan, 2013. A.M. Sharma Understanding Wage System. Delhi: Himalaya Publication House.http://www.onlinesbi.com/ Income Tax Departmenthttp://www.incometaxindia.gov.in/ Googlehttp://www.google.co.in/
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