Basics of Direct Taxes (1)

8/2/2019 Basics of Direct Taxes (1)

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TAXSTRUCTUREIN INDIA

Govt. Of India

Ministry of Finance

Economic Affairs Expenditure Revenue Financial Services Disinvestment

Direct Tax Indirect Tax


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BASICS OF DIRECT TAXES


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Income Tax

Wealth Tax


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Basic Concepts of Income Tax

Assessment Year [Sec 2 (9)]

Previous Year [Sec 3]

Person [Sec 2 (31)]

Income[ Sec 2 (24)]

Gross total Income[ Sec 14]

Total Income & Tax Liability [ Sec 2(45)] Agricultural Income

Exemption Vs Deduction


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EXCEPTIONSTO ASSESSMENT YEAR

Shipping Business of NonResidents (Sec 172)

Persons Leaving India (Sec 174)

Bodies Formed for Short Duration (Sec 174A)

Persons Likely to Transfer Property to Avoid Tax(Sec 175)

Discontinued Business (Sec 176)


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Person

Person [Sec. 2(31)]

Individual

HUF

Company

Firm

AOP/BOI

Local Authority Artificial Juridical Persons


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Income

Income [Sec.2(24)] Income under sec 2 (24) is inclusive term.

It includes

Profit & Gains

Dividend

Voluntary Contributions received by aTrust

Perquisites in the hands of employee

Capital gains

Insurance Profit etc..


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Gross Total Income

Income computed under following fiveheads:

Salaries

Income from House Property

Profits & Gains of the business orprofession

Capital Gain Income from other sources


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Total Income & Tax Liability


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SALARIES

As per Sec 15 of Income Tax Act,1961 salary

consists of:-

Any salary due from an employer or a former

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 an

employer(or a former employer), though not

due or before it became due; and,

Any arrears of salary paid or allowed to him inthe previous year by or on behalf of an

employer (or a former employer),if not charged

to income tax for any earlier previous year.


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EXEMPTIONSUNDERSALARYHEAD

Gratuity [Sec 10(10)]

Pension [Sec 10(10A)]

Leave Encashment [Sec 10(10AA)]

Retrenchment Compensation [Sec 10(10B)]

Voluntary Retirement Compensation [Sec 10(10C)]

House Rent Allowance [Sec 10(13A)]


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ALLOWANCES

City Compensatory Allowance

Fixed Medical Allowance

Tiffin/Lunch/Dinner/Refreshment Allowance

Servant Allowance Dearness Allowance

Project Allowance

Overtime Allowance

Any other Cash Allowance


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PERQUISITES

Rentfree unfurnished Accommodation (Rule 3)

Rentfree furnished Accommodation

Gas, Electricity or water supply

Free Domestic Servants

Free or concessional Education Facility


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DEDUCTIONSFROM SALARY(SECTION 16)

Entertainment Allowance [Sec 16 (ii)]

Tax on Employment [Sec 16 (iii)]


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INCOME FROM HOUSE PROPERTY

Income Chargeable: Real & Notional

Charging Section :Sec 22

Annual Value:

Gross Annual Value (GAV) Net Annual Value (NAV)

Deductions from NAV

In case of let out properties:

In case of self occupied residential houseproperties:

Interest Deduction


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INCOME FROM CAPITAL GAINS

Chargeable Sec:45

Profits or Gains arising from the transferof a capital asset is chargeable to tax inthe year in which transfer take placeunder the head Capital Gain.


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TRANSFER: SEC 2(47)

Transfer in relation to Capital Asset includes sale,Exchange or relinquishment of the asset orextinguishment of any rights therein or the

compulsory acquisition thereof under any law orconversion of the asset by the owner in stock -in-trade of a business carried on by him or thematurity or redemption of a zero coupon bond.


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CAPITALASSET:

Capital Asset: Sec. 2(14): Capital Asset meansproperty of any kind (Fixed, Circulating, movable,

immovable, tangible or intangible) whether or notconnected with business or profession.

Exclusions

(a) Stock-in- trade (b) Personal effects of the assessee

(c) Agricultural land in a rural area

(d) 6% Gold Bonds 1977 or 7% Gold Bonds 1980 orNational Defence Bonds 1980 issued by the Central

Government (e) Special Bearer Bonds 1991 issued by the Central

Government.

(f) Gold Deposit Bonds issued under Gold DepositScheme 1999


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Short-term capital asset: Sec. 2(42A): means acapital asset held by an assessee for not more

than thirty six months immediately preceding thedate of its transfer. However, in the followingcases, an asset, held for not more than twelvemonths, is treated as short-term capital asset

Quoted or unquoted equity or preference shares in acompany

Quoted Securities

Quoted or unquoted Units of UTI

Quoted or unquoted Units of Mutual Funds specifiedu/s. 10(23D)

Quoted or unquoted zero coupon bonds


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Long-term capital asset: Sec. 2(29): means a

capital asset which is not a short-term capitalasset


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YEAROFCHARGEABILITYTOTAX

Capital gains are generally charged to tax in the yearin which transfer takes place. Exceptions

(a) Sec. 45(1A) Insurance Claim In the year of

receipt. (b) Sec. 45(2) Conversion of capital asset into

Stock-in-trade In the year of actual sale of thestock.

(c) Sec. 45(5) Compulsory acquisition Whenconsideration or part thereof is first received.


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EXEMPT CAPITAL GAINSUNDER SECTION 10

10 (33): Transfer of US 64 on or after April 1,2002

10 (37): Compulsory acquisition of UrbanAgriculture Land where consideration isreceived after March 31, 2004.

10 (38): Long-term capital gain arising ontransfer on or after October 1, 2004 of equityshares or units of equity oriented mutual fund

and the STT is paid at the time of transfer.


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COMPUTATIONOFCAPITALGAINS (SEC. 48)

The method of computation depends on the nature ofcapital asset transferred. It is as follows:

Short-term Capital Gain Long-term Capital Gain

A. Find out Full Value of

Consideration

A. Find out Full Value of Consideration

B. Deduct: B. Deduct:

(i) expenditure incurred wholly andexclusively in connection with suchTransfer.

(i) expenditure incurred wholly andexclusively in connection with suchTransfer.

(ii) Cost of Acquisition (ii) Indexed Cost of Acquisition(iii) Cost of Improvement (iii) Indexed Cost of Improvement

(iv) Exemption provided by Ss. 54B,54D, & 54G, 54GA

(iv) Exemption provided by Ss. 54, 54B,54D, 54EC, 54ED, 54F & 54G, 54GA

C. (A-B) is short-term capital gain C. (A-B) is a long-term capital gain


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Indexed Cost of acquisition = Cost ofacquisition * Cost inflation index for thefinancial year in which the asset is transferred/

Cost inflation index for the first financial year inwhich the asset was held by the assessee or theyear beginning on 1.4.1981, whichever is later orthe year of Improvement of the asset

However, in case of Bonds, Debentures exceptcapital indexed bonds depreciable assets, and fornon residents even if they are long term capital

assets the benefit of indexation is not available.


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COSTINFLATION INDEX

Financial Year Cost Inflation

Index

Financial Year Cost Inflation

Index1981-82 100 1992-93 223

1982-83 109 1993-94 244

1983-84 116 1994-95 259

1984-85 125 1995-96 281

1985-86 133 1996-97 305

1986-87 140 1997-98 331

1987-88 150 1998-99 351

1988-89 161 1999-2000 389

1989-90 172 2000-2001 406

1990-91 182 2001-2002 426

1991-92 199 2002-2003 447


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Financial Year Cost Inflation Index2003-04 463

2004-05 480

2005-06 497

2006-07 519

2007-08 551

2008-09 582

2009-10 632

O O


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CAPITAL GAINS - VARIOUS EXEMPTIONS DETAILS

Section 54 54B

(a) Kind of asset

transferred

Long-Term Capital Asset being

House Property used forresidential purpose

Land used for agricultural

purposes

(b)EligibleAssessees

Individual & HUF Individual & HUF

(c) Condition ofperiod ofholding

original Asset

3 Years 2 Years

(d) Condition ofutilisation ofconsideration

Purchase of Residential Housewithin 2 years after or 1 year priorto date of transfer; or constructionof residential house within 3 yearsfrom the date of transfer

Purchase of Agricultural Landwithin 2 years from the date oftransfer

(e) Exempt

Amount

The amount of gain or, the cost of

new asset, whichever is less

Lower of the Capital Gain or the

Cost of acquisition of newagricultural land.

(f) Otherrequirements

See Notes 1, 2 & 4 Assessee or his parents musthave used the land for precedingtwo years


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Section 54D 54EC

(a) Kind of assettransferred

Land or Building or any right thereinused by an industrial undertakingcompul- sorily acquired under any law)

Any Long-Term Capital Asset

(b) EligibleAssessees

All All

(c) Condition ofperiod ofholdingoriginal Asset

2 Years 1 Year for Shares, Listed Securities,Units of UTI/Mutual Fund specified u/s10(23D), Zero coupon bonds. 3 years forany other capital asset


Purchase/construction of Land,Building, or any right therein within 3years from the date of transfer by wayof compulsory acquisition for thepurposes of shifting/re-establishing/setting up anotherindustrial

undertaking

Investment of whole or any Part ofCapital Gain in specified assets

as stipulated in the section. Investmentshould be made within 6 months from thedate of transfer

(e) ExemptAmount

Lower of the Capital Gain or the Costof acquisition of new land and building

Lower of the Capital Gain or the cost ofinvestment in specified assets subject toa maximum of Rs. 50 lakhs

(f) Otherrequirements

See Notes 1, 2 and 4 Must have beenused for business of industrialundertaking for preceding 2 years

See notes 1, 2 & 4 Rebate u/s 88 ordeduction u/s 80C not to be granted forthe for . same investment. New Asset

must be retained a period of 3 years


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Section 54GA

(a) Kind of assettransferred

Land or Building or any right therein or Plant or Machinery inUrban Area used for the business

(b) Eligible Assessees Industrial undertakings in urban area shifting to any SpecialEconomic Zone.

(c) Condition of period ofholding of original

asset

No period specified


Acquire similar assets & incur expenses on shifting originalasset, within 1 year before, or 3 years from the date oftransfer

(e) Exempt Amount The amount of gain or the aggregate cost of new asset, andshifting expenses, whichever is lower

(f) Other requirements See Notes 1, 2, 3 and 4



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TAX RATES FOR CAPITAL GAINS

for Individual,HUFs

BOI, AOP, Firm

Corporates Corporates

Income Income

LLPs < 1 Crore > 1 Crore

Listed securitiescovered u/s. 10(36)

NIL NIL NIL

Listed securities traded onrecognized Stock Exchange notcovered under 10(36)

NIL NIL NIL

Listed securities not traded onrecognized Stock Exchangewithout Indexation or

10.30% 10.30% 11.07%

with Indexation 20.60% 20.60% 22.15%

On any other asset 20.60% 20.60% 22.15%

Short-term Capital Gains

On listed securities traded onrecognized Stock Exchange orUnit of Equity Oriented Fund

15.45% 15.45% 16.61%

Others at applicable

Slab Rates

at applicable

Slab Rates

at applicable

Slab Rates


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NOTES

In case New Asset is transferred before 3 years from dateof purchase/construction, the Capital Gains exemptedearlier will be chargeable to tax in year of transfer of newasset.

In order to avail the exemption, gains are to be reinvested,before the due date of return u/s 139(1). If the amount isnot so reinvested, it is to be deposited on or before thatdate in account of specified bank/institution and it should beutilised within specified time limit for purchase/construction

of New Asset.


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NOTES

U/s 54F Capital Gains exempted earlier shall be

chargeable to tax if a) If the assessee purchases within2 years or constructs within 3 years any residential houseother than the one in which reinvestment is made & b) Ifthe new asset is transferred within a period of 3 years fromthe date of its purchase/construction.

As per Section 54H, where the transfer is by way ofcompulsory acquisition, the period available for acquiringthe new asset u/ss. 54, 54B, 54D, 54EC and 54F shall becomputed from the date of receipt of compensation andnot the date of transfer.

If cost of new house is more than the net consideration of

original asset, the whole of the gains is exempt. If cost ofspecified asset is less than net consideration,proportionate amount of the gains will be exempt i.e.Capital Gain X cost of New Asset/Net consideration onSale of asset.


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INCOME FROM OTHER SOURCES


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TAX RATES (INCLUDES SURCHARGE AND EDUCATION

CESS) FOR ASSESSMENT YEAR 2011-12

INDIVIDUALS/HUF/AOP/BOI

Income (Rs.) Rate of Tax

Up to 1,60,000 Nil

1,60,001-5,00,000 10.30

5,00,001- 8,00,000 20.60

8,00,001 and above 30.90


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FOR RESIDENT WOMEN (BELOW 65 YRS. OF AGE)


Up to 1,90,000 Nil

1,90,001-5,00,000 10.30

5,00,001- 8,00,000 20.60

8,00,001 and above 30.90


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FOR RESIDENT SENIOR CITIZEN (ABOVE 65YRS. OF AGE)


Up to 2,40,000 Nil

2,40,001-5,00,000 10.30

5,00,001- 8,00,000 20.60

8,00,001 and above 30.90


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DEDUCTIONSFROM GROSS TOTAL INCOME &TAX LIABILITY

Documents

Basics of Direct Taxes (1)