Final Summer Project

8/2/2019 Final Summer Project

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A study on procedure ofTaxation and Auditing in P.A. &

Associate at Bhubaneswar.

Conducted at-: P.A. & Associates (Chartered Accountant)

Submitted in partial fulfillment of the course requirement of Post Graduate

Diploma in Management.

Submitted by: Guided by :

Shaswat Panigrahi K.K. Agrawalla

Reg. No-: DSBSPGDMA1042. (Chartered Accountant)

College Guide:

Prof. KV Ramanathan

April 2011June 2011

Dayananda Sagar Business School

Shavige Malleswara Hills, Kumaraswamy Layout

Bangalore560078


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Guide Certification

This is to certify that the report title A Study on Procedure of Taxation &

Auditing has been prepared under my guidance and supervision. The report is

submitted in partial fulfillment of the requirement for the award of Post Graduate

Diploma in Management (Approved by AICTE) by Shaswat Panigrahi, Reg No-

:DSBSPGDMA1042 and this report / study has not formed a basis for the award

of any degree or diploma in any university / institution.

Place - Bangalore

Date (Prof. K.V. Ramanathan)

Director


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Student Declaration

I hereby declare that the report/ study titled A Study on Procedure of

Taxation & Auditing prepared under the guidance of Kamal Ku

Agrawalla chartered accountant at P.A & Associates, submitted in partial

fulfillment of the requirement for the award of Post Graduates Diploma in

Management (AICTE) in Dayananda Sagar Business School is my original work

and has not been submitted for the award of any other degree/ diploma in anyuniversity / institution.

Place - Bangalore

Date (Shaswat Panigrahi)

Signature


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ACKNOWLEDGEMENT

I am very much obliged to DSBS for giving me such an opportunity to

give the presentation.

This summer I have an opportunity to work on this Summer Internship

Project (SIP) Taxation I express my sincere gratitude to all those to

their render helping hand directly or indirectly in completing our

presentation and without their valuable encouragement it would not have

been possible on my part to complete the arrangement.

I express my deep gratitude to my Guide Mr. Kamal Kumar Agarwalla

for his constant guidance and help in successfully completing my

summer internship project.

My special thanks go to Lecturer. K.V. Ramanathan who also helped

me to complete my project successfully and giving tips on how to

formulate the taxation project and was kind enough to approve my

project.

Lastly I would also like to express my heartily thanks to Prof.

R.K.Vijayasarathy and all the faculties of DSBS for providing possible

informations during the project.

Shaswat Panigrahi.

Reg no -:DSBSPGDMA1042


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Contents

Chapter

No

Topic Pages

I Introduction 9 - 14

Objective of the Study 14

Importance of Tax management 15 - 16

Scope of study 16 - 17

Research Methodology 18 - 19

II Organization Structure 21

Profile of the company 22

Mission & Vision 23

Review on Tax 24 - 39

III Case analysis and interpretation of Taxation

& Auditing.

Basis Of Income

41 - 55

Finding out Tax Liability 56 - 57

Computation of income from salary 57 - 61


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IV Finding, suggestion and conclusion 63 - 67

Bibliography 68


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Chapter - 1


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Introduction

A tax is a financial charge or other levy imposed on an individual or a

legal entity by a state or a functional equivalent of a state.

An income tax is a tax levied on the income of individuals or businesses

(corporations or other legal entities). Various income tax systems exist,

with varying degrees oftax incidence. Income taxation can

be progressive, proportional, or regressive. When the tax is levied on the

income of companies, it is often called a corporate tax, corporate income

tax, or profit tax. Individual income taxes often tax the total income of

the individual (with some deductions permitted), while corporate income

taxes often tax net income (the difference between gross receipts,

expenses, and additional write-offs). Various systems define income

differently, and often allow notional reductions of income (such as a

reduction based on number of children supported).

Cooley defines taxation as the process or means by which the sovereign,

through its law-making body, raises income to defray the necessary

expenses of government. Expressed in another way, it is a method of

apportioning the cost of government among those who in some measure

are privileged to enjoy its benefits and must, therefore, bear its burdens.
http://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Incomehttp://en.wikipedia.org/wiki/Tax_incidencehttp://en.wikipedia.org/wiki/Progressive_taxhttp://en.wikipedia.org/wiki/Flat_taxhttp://en.wikipedia.org/wiki/Regressive_taxhttp://en.wikipedia.org/wiki/Corporate_taxhttp://en.wikipedia.org/wiki/Corporate_taxhttp://en.wikipedia.org/wiki/Regressive_taxhttp://en.wikipedia.org/wiki/Flat_taxhttp://en.wikipedia.org/wiki/Progressive_taxhttp://en.wikipedia.org/wiki/Tax_incidencehttp://en.wikipedia.org/wiki/Incomehttp://en.wikipedia.org/wiki/Tax


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Malcolm explains that taxation is the power vested in the legislature to

impose burdens or charges upon persons and property for the purpose of

raising revenue for public purposes.

India has a well developed tax structure with a three-tier federal

structure, comprising the Union Government, the State Governments

and the Urban/Rural Local Bodies. The power to levy taxes and duties is

distributed among the three tiers of Governments, in accordance with the

provisions of the Indian Constitution. The main taxes/duties that the

Union Government is empowered to levy are Income Tax (except tax on

agricultural income, which the State Governments can levy), Customs

duties, Central Excise and Sales Tax and Service Tax. The principal

taxes levied by the State Governments are Sales Tax (tax on intra-State

sale of goods), Stamp Duty (duty on transfer of property), State Excise

(duty on manufacture of alcohol), Land Revenue (levy on land used foragricultural/non-agricultural purposes), Duty on Entertainment and Tax

on Professions & Callings. The Local Bodies are empowered to levy tax

on properties (buildings, etc.), octroi (tax on entry of goods for

use/consumption within areas of the Local Bodies), Tax on Markets and

Tax/User Charges for utilities like water supply, drainage, etc.

Since 1991 tax system in India has under gone a radical change, in line

with liberal economic policy and WTO commitments of the country.

Some of the changes are:


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Reduction in customs and excise duties Lowering corporate Tax Widening of the tax base and toning up the tax administration

Types

Personal -: A personal or individual income tax is levied on the total

income of the individual (with some deductions permitted). It is often

collected on a pay-as-you-earn basis, with small corrections made soon

after the end of the tax year. These corrections take one of two forms:payments to the government, for taxpayers who have not paid enough

during the tax year; and tax refunds from the government for those who

have overpaid. Income tax systems will often have deductions available

that lessen the total tax liability by reducing total taxable income. They

may allow losses from one type of income to be counted against another.

For example, a loss on the stock market may be deducted against taxes

paid on wages.

Corporate -: Corporate tax refers to a direct tax levied on the profits

made by companies or associations and often includes capital gains of

a company. Earnings are generally considered gross revenue minus

expenses. Corporate expenses related to capital expenditures are usually

deducted in full (for example, trucks are fully deductible in the Canadian

tax system, while a corporate sports car is only partly deductible) over
http://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/Tax_yearhttp://en.wikipedia.org/wiki/Taxpayerhttp://en.wikipedia.org/wiki/Tax_refundhttp://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Tax_refundhttp://en.wikipedia.org/wiki/Taxpayerhttp://en.wikipedia.org/wiki/Tax_yearhttp://en.wikipedia.org/wiki/PAYE


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their useful lives by using percentage rates based on the class of asset

they belong to.

Accounting principles and tax rules about recognition of expenses and

revenue will vary at times, giving rise to book-tax differences. If the

book-tax difference is carried over more than a year, it is referred to as

a deferred tax. Future assets and liabilities created by a deferred tax are

reported on the balance sheet.

Payroll -: A payroll tax generally refers to two kinds of taxes:

employee and employer payroll taxes. Employee payroll taxes are taxes

which employers are required to withhold from employees' pay, also

known as withholding, pay-as-you-earn (PAYE) or pay-as-you-

go (PAYG) tax. These withholdings contribute to the payment of an

employee's personal income tax obligation; if the payments exceed this

obligation, the employee may be eligible for a tax refund or carry

forward to future periods.Employer payroll taxes are paid from the employer's own funds, either

as a fixed charge per employee or as a percentage of each employee's

pay. Payroll taxes often cover government social insurance programs,

such as social security, health care, unemployment, and disability. These

payments do not count toward the income taxes of employees and
http://en.wikipedia.org/wiki/Deferred_taxhttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Employeehttp://en.wikipedia.org/wiki/Employerhttp://en.wikipedia.org/wiki/Wagehttp://en.wikipedia.org/wiki/Withholding_taxhttp://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/PAYGhttp://en.wikipedia.org/wiki/PAYGhttp://en.wikipedia.org/wiki/Tax_refundhttp://en.wikipedia.org/wiki/Social_insurancehttp://en.wikipedia.org/wiki/Social_securityhttp://en.wikipedia.org/wiki/Publicly-funded_health_carehttp://en.wikipedia.org/wiki/Unemploymenthttp://en.wikipedia.org/wiki/Disabilityhttp://en.wikipedia.org/wiki/Disabilityhttp://en.wikipedia.org/wiki/Unemploymenthttp://en.wikipedia.org/wiki/Publicly-funded_health_carehttp://en.wikipedia.org/wiki/Social_securityhttp://en.wikipedia.org/wiki/Social_insurancehttp://en.wikipedia.org/wiki/Tax_refundhttp://en.wikipedia.org/wiki/PAYGhttp://en.wikipedia.org/wiki/PAYGhttp://en.wikipedia.org/wiki/PAYEhttp://en.wikipedia.org/wiki/Withholding_taxhttp://en.wikipedia.org/wiki/Wagehttp://en.wikipedia.org/wiki/Employerhttp://en.wikipedia.org/wiki/Employeehttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Deferred_tax


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employers, but are normally deductible by the employer as a business

expense.

Inheritance -: The inheritance tax, estate tax and death duty are the

names given to various taxes which arise on the death of an individual.

In international tax law, there is a distinction between an estate tax and

an inheritance tax: the former taxes the personal representatives of the

deceased, while the latter taxes the beneficiaries of the estate. However,

this distinction is not universally recognized. For example, the

"inheritance tax" in the UK is a tax on personal representatives, and is

therefore, strictly speaking, an estate tax.

Capital gains tax -: A capital gains tax is the tax levied on profits from

the sale of capital assets. In many cases, the amount of a capital gain is

treated as income and subject to the marginal rate of income tax.

In an inflationary environment, capital gains may be, to some extent,

illusory. If prices in general have doubled over five years, then selling an

asset for twice the price it was purchased at five years earlier represents

no gain at all. Partly to compensate for such changes in the value of

money over time, some jurisdictions, such as the United States, give a

favorable capital gains tax rate based on the length of holding. European

jurisdictions have a similar rate reduction to nil on certain property
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transactions that qualify for the participation exemption. In Canada, 20

50% of the gain is taxable income. In India, Short Term Capital Gains

Tax (arising before one year) is 10% [15 % from F.Y 2008-09 as per

Finance Act 2008] flat rate of the gains and Long Term Capital Gains

Tax is nil for stocks and mutual fund units held one year or more,

provided the sale of shares involved payment of the Securities

Transaction Tax, and 20% for any other assets held three years or more.

Objective Of the Study

1.To understand the day to day activity of the Chartered AccountantFirm

2.To understand the various obstacles faced by the CharteredAccountant Firm

3.To know the techniques they are using for the calculations of theTaxation and balance sheet.

4.To know how the auditing process is done in a Charteredaccountant firm.

5.To understand how the auditing works for the companies benefit.


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Importance Of Tax Management

The nature of the state power to tax is two-fold. It is both an

inherent power and a legislative power. It is inherent in nature being an

attribute of sovereignty. It has been argued that it is literally impossible

for the state to run its affairs without taxes. Its existence and operations

are dependent primarily from the revenues and charges imposed from

various sources. It is a legislative power because it involves

promulgation and implementation of rules. Taxation is a set of rules,

how much is the tax to be paid, who pays the tax to whom and when it

should be paid.

Government financial operations are well-nigh impossible without

taxation. Apart from this, taxation can be a powerful means in order to

achieve the goals of social progress and the objectives of economic

development. It serves as a device to encourage the growth certain

activities by way of giving exemptions, discourage use of certain

products by way of imposing heavier charges like those sin taxes which

are imposed upon tobacco products, or strengthen anaemic enterprises,

also by way of tax exemptions. Local industries may be protected

through taxation by imposing high customs duties to foreign goods.

Moreover, taxation can also be used to reduce inequities or inequalities


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in wealth and income by progressively higher taxes as in the case of

estate and income tax.

So based on the foregoing premises, it is clear that taxation is indeed the

lifeblood of the state, without which the existence of the state will be put

to jeopardy.

Scope Of study

The scope of the study is to have a clarity on the Tax rules which are

implemented according to the Income tax act 1961 and companies act

1956.

To get to know the changes which are made in the amendments everyfiscal year during the budget. To have a clear vision of the auditing

practices which is being done at the companies and the procedure they

follow to make a note of the following verifications of the ledger

balances, cash books which are verified with the hard copy like receipts.

To have an idea about the pay roll processes and the functions they

practice at the firm to note down to make their trial balance and making

a report on how the companies either if it is making profit or loss and


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showing the processed auditing by giving a report on the following

verifications to the company and filing the taxation amount at the

taxation department in the government on behalf of the company.

The scope of the study was also to find out certain problems which the

chartered accountants are facing during their work and how they are

managing the work.

During the study the main objective was to find out gaping in their work,

To acknowledge the job environment at a chartered accountant firm, to

have a corporate experience by working with the executives of the firm

and gain access to the knowledge they have while implementing taxation

and what other valuable functions they are functioning in the

organization to gain profits for their company

and how they are managing the time for their projects and completing

the work within the desired time.


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Research Methodology

The source of data can be obtained for study can be divided into two

types.

1.Primary Data

2.Secondary DataThe primary data were collected from the department of finance and

from the discussion with the head of the department officials.

The data thus gained from the department officials were of vocal data

based on the trasanctions made in the term of the auditing, how the

formulas are imposed, the basics about the taxation on the priliminaries

and its exemption and what is the limit for having a tax auditing like a

business or firm gaining 60,00,000 or more than it would have to do

auditing for its tax filing from a chartered accountant.

The secondary data has been collected from the Annual report of various

companies maintained by the chartered accounting firm P.A &


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Associates. The files and the hard data got from the various data filings

kept in the firm to have our research done to find out the problems they

are facing in the firm and to find out its solution for the firm to progress

further and save time to gain profits.

Limitations -:

There may be limitations to this study because the study duration of the

summer internship project is very short and it is not possible to

observe every aspect of taxation practices and auditing.


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Chapter2


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Organization Structure

Prashant Ku Panda (CA)

Head of the P.A & Associates.

Kamal Ku Agarwalla

(CA)

R.C Routray

(CA)

Prabhasini

(Accountant)

Prafulla

(Accountant)

Santosh

ICWAI

Amit (ICWAI)


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Profile of the company

P.A & Associates, Chartered Accountant Company, a leading

chartered accounting company, with office in Bhubaneswar,

Rourkela, Sambalpur and cuttack is rendering comprehensive

professional services in the area of Direct Tax consultancy,

Payroll processing, NRI Services, Us GaapFIN48 tax reportingand other regulatory compliances.

Established by CA Mr. Prashant Kumar Panda, who qualified in the

year 1985, the Company's constant endeavor is to craft a premier

focused professional practice providing high quality services and

integrating value added knowledge, for its people, clients and society asa whole.

P & A Associates approach blended with personal touch has earned

the Chartered accounting Company enormous confidence of all its

clients, which is reflected in an enduring business relationship that it

enjoys with them and also in the consistent growth in portfolio of its

services. The Chartered accounting Company regards the provision of

a personal, high quality service to the clients as an absolute priority.


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Mission and Vision

With Quality is Priority as an ultimate aspiration, P & A

Associates vision is to nurture a professional Company of repute

which is competitive, dynamic and focused team leader in the areas of

its operation, providing the best opportunity to progress and grow to

all those who are associated with it and also serving the best.

Excellence, Integrity and Independence, the Motto of our Institute of

Chartered Accountants of India, is the ultimate objective of the

Chartered accounting Company in all its professional commitments.

The Company always strives to improve the quality of life and the

standard of living, for society as a whole.

The Companys Offices in Bhubaneswar and Cuttack are fully equipped

with modern infrastructure.


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Review Of Tax

Taxation

Tax system in India is divided in to two types, Direct Tax andIndirect Tax.

Direct Taxes that comprising of income tax, wealth tax, etc. arethose whose burden falls directly on the taxpayer.

The indirect taxes are levied on goods and services and itsultimate falls indirectly on the consumers. The indirected taxes are

comprising of sales tax, service tax, VAT, excise duty, custom duty,

etc.

Income Tax

Income Tax is all income other than agricultural income levied

and collected by the central government and shared with the states.

According to Income Tax Act 1961, every person, who is an assessee

and whose total income exceeds the maximum exemption limit, shall

be chargeable to the income tax at the rate or rates prescribed in the
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finance act. Such income tax shall be paid on the total income of the

previous year in the relevant assessment year.

The total income of an individual is determined on the basis of his

residential status in India.

Detailed Income tax Rates for financial year 2011-12 -(AY 2012-13)

The Income Tax Rates applicable for the financial year 2011-12

(Assessment year 2012-13) have been revised. The following is the

New Income Tax structure for the year 2011-12.

In case of individual (other than II and III below) and HUF

Income Level Income Tax Rate

i.Where the total income does

not exceed Rs.1,80,000/-.NIL

ii.

Where the total income

exceeds Rs.1,80,000/- but does

not exceed Rs.5,00,000/-.

10% of amount by which

the total income exceeds

Rs. 1,80,000/-

iii.




Rs. 32,000/- + 20% of the

amount by which the

total income exceeds Rs.5,00,000/-.

iv.Where the total income

exceeds Rs.8,00,000/-.

Rs. 92,000/- + 30% of the a

mount by which the total i

ncome exceeds Rs.8,00,000/-.

II. In case of individual being a woman resident in India and below the age of

60 years at any time during the previous year:-

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ii.

Where total income exceeds

Rs.1,90,000/- but does


10% of the amount

by which the total

income exceeds Rs.1,90,000/-.

iii.

Where the total

income exceeds Rs.5,00,000/-

but does not exceed

Rs.8,00,000/-.

Rs. 31,000- + 20% of the

amount by which the t

otal income exceeds Rs.5,00,000/-.


exceeds Rs.8,00,000/-

Rs.91,000/- + 30% of

the amount by which

the total income exceeds

Rs.8,00,000/-.

III. In case of an individual resident who is of the age of 60 years

or more at any time during the previous year:-




ii.Where the total incomeexceeds Rs.2,50,000/- but does

not exceed Rs.5,00,000/-

10% of the amount bywhich the total


iii.

Where the total

income exceeds Rs.5,00,000/-

but does not exceed Rs.8,00,000/-

Rs.25,000/- + 20% of the amount

by which the total income




Rs.85,000/- + 30% of the amount

by which the total income


IV. In case of an individual resident who is of the age of 80 years

or more at any time during the previous year:-


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ii.


exceeds Rs.2,50,000/- but doesnot

exceed Rs.5,00,000/-

Nil

iii.



not exceed Rs.8,00,000/-

20% of the amount by which the

total income exceeds

Rs.5,00,000/-.



Rs.60,000/- + 30% of the

amount by which the total


Note : -

Education cess is applicable @ 3 per cent on income tax, inclusiveof surcharge if there is any.

A marginal relief may be provided to ensure that the additional ITpayable, including surcharge, on excess of income over Rs

1,000,000 is limited to an amount by which the income is more

than this mentioned amount.

Agricultural income is exempt from income-tax.

Income Tax Timeline in India (History)-

1860 1860 Introduced for the first time for a period of five

years to cover the 1857 mutiny expenses. It was


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abolished in 1873.

1877 1877 The tax system was revived as a result of the Great

Famine of 1876.

1886 1886 Introduced as Act II of 1886. It laid down the basic

scheme of income tax that continues till the present day.

1918 1918 Introduced as Act VII of 1918. It had features like

aggregation of income from various sources for the

determination of the rate, classification of income under

six heads and application of the Act to all income that

accrued or arose or was received in India from whatever

source in British India.

1922 1922 On the recommendations of the All-India Income

Tax Committee, the father of the present act was

introduced. The central government was vested with the

power to administer the tax.


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1961 1961 The Act came into force from 1 April 1962, it

extended to the whole of India.

1997 1997 Establishment of the Tax Reform Committee under

the chairmanship of Dr. Raja J. Chelliah. It was followed

by restructuring the income tax with parameters like

lower taxes, fewer slabs, higher execptions, etc.

2003 The Kelkar Task Force, which was followed by

outsourcing of PAN/TAN, exemption of dividend

income, compensated by levy of the dividend distributed

tax to be paid by the company.

Income Tax Rates Across the World

Country Personal Income Tax Rate

Australia 0% - 48.5%
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Canada 16% - 29%

Estonia 24% - 24%

Denmark 44% - 63%

Hong Kong 0% - 33%

India 0% - 33%

Israel 10% - 49%

Malaysia 0% - 29%

Mexico 3% - 32%

Russia 13% - 13%

Singapore 0% - 22%


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UK 0% - 40%

US 10% -35%

Residence Rules

An individual is treated as resident in a year if present in India

I. for 182 days during the year orII. for 60 days during the year and 365 days during the preceding

four years. Individuals fulfilling neither of these conditions are

nonresidents. (The rules are slightly more liberal for Indian citizens

residing abroad or leaving India for employment abroad.)

A resident who was not present in India for 730 days during the

preceding seven years or who was nonresident in nine out of ten

preceding yeas I treated as not ordinarily resident. In effect, a

newcomer to India remains not ordinarily resident.

For tax purposes, an individual may be resident, nonresident or not

ordinarily resident.


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Non-Residents and Non-Resident Indians

Residents are on worldwide income. Nonresidents are taxed only

on income that is received in India or arises or is deemed to arise in

India. A person not ordinarily resident is taxed like a nonresident but

is also liable to tax on incomeaccruing abroad if it is from a business

controlled in or a profession set up in India.

Capital gains on transfer of assets acquired in foreign exchange is not

taxable in certain cases. Non-resident Indians are not required to file

a tax return if their income consists of only interest and dividends,

provided taxes due on such income are deducted at source. It is

possible for non-resident Indians to avail of these special

provisions even after becoming residents by following certain

procedures laid down by the Income Tax act.
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Taxability of individuals is summarised in the table below

Status Indian

Income

Foreign

Income

Resident and ordinarily resident Taxable Taxable

Resident but not ordinary

resident

Taxable Not Taxable

Non-Resident Taxable Not Taxable

How to save tax

Investments under Sec 80CMediclaim Insurance PolicySec 80DPersonal Disability under Sec 80UDependent Disability ie. Handicapped dependent under Sec 80DD


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Interest on Educational Loan under Sec 80EDonations under Sec 80G

ALL THE ABOVE INVESTMENTS / EXEMPTIONS ARE

CLASSIFIED AS

DEDUCTION UNDER CHAPTER VI-A

INVESTMENT UNDER SEC 80C

What is the Limit ? Rs. 1 Lac is the limit. The Overall Rebate shall not exceed Rs. 1

Lac even if the Investments are more than Rs.1 Lac.

The investments allowed for exemption are In the name of Self or Spouse or Children or joint names

Life Insurance PremiumPublic Provident Fund (Max Rs.70 K per Account as

per PPF Rules)

ULIPUnit Linked Insurance PlanMutual Funds

In the name of Self or Joint namesPF, Voluntary PF (deducted in SalarySelf)Pension Plan (Self only)National Savings CertificateNSCHousing Loan principal


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Term Deposit for a fixed period not less than 5 yearsChildren Tuition Fee (Maximum 2 Children)

MEDICLAIM INSURANCE POLICYSEC 80D

Mediclaim policy taken in the name of employee or his spouse anddependent children:

Rs. 15 K or actual premium paid whichever is less.Mediclaim policy covering his parents alongwith his spouse and

children:

Additional exemption of Rs.15 K. ie. Rs.30K or actual premiumpaid whichever is less.

Where the parent is Senior Citizen and additional exemption ofRs.5 K. ie. Rs.35 K or actual premium paid whichever is less.

PERSONAL DISABILITY UNDER SEC 80U

A fixed deduction of Rs.50 K is allowed from his total income, ifthe person is suffering from permanent physical disability and a

higher deduction of Rs. 1 Lac is allowed if the person is suffering

from severe physical disability (ie. disability over 80%).

Person with disability means a person having a disability of notless than 40%.


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Who will certify 40% or 80% physical disabilityGovernment physician for permanent physical disability (40%

claim)

Neurologist or Civil Surgeon or Chief Medical Officer in aGovernment Hospital for severe physical disability ( 80% claim )

DEPENDENT DISABILITY SEC 80DD

A fixed deduction of Rs.50 K is allowed irrespective of amount paid for : Any expenditure incurred for the medical treatment, training and

rehabilitation of a handicapped dependent, or

Any amount paid or deposited under a scheme framed in this behalf by theLIC or any other insurer or UTI, approved by the Board in this behalf for

maintenance of handicapped dependent.

If the dependant is a person with severe disability (ie. disability over 80%),deduction is Rs. 1 Lac.

Dependent means the parents, spouse, children, brother or sister of theindividual.

Such dependent should not have claimed any deduction U/s 80U incomputing his total income.


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INTERSEST ON EDUCATION LOAN UNDER SEC 80E

Amount of interest paid on a loan taken from any financialinstitution for pursuing any higher education after senior secondary

examination for himself or for his spouse or children

This deduction would be allowed subject to a maximum of 8 yearsor till the full payment of interest is made, whichever is earlier.

There is no limit for claiming rebate. Any amount of Interest butnot the principal amount would be allowed as a deduction out of

total taxable income.

DONATION UNDER SEC 80G

Individuals are entitled for deductions under Sec 80G if they havedonated to Approved Funds and Charitable Institutions.

Donations to the following funds will qualify for 100% of theamount donated:

National Defence Fund Prime Ministers National Relief Fund National Illness Assistance Fund


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National Sports fund Maharashtra Chief Ministers Earthquake Relief Fund Andhra Pradesh Chief Ministers Cyclone Relief Fund Gujarat Relief Fund etc Any Fund set up by a State Government to provide medical

relief to the poor

Donations to the following funds will qualify for 50% of theamount donated:

Jawaharlal Nehru Memorial Fund Indira Gandhi Memorial Trust Rajiv Gandhi Foundation PM Drought Relief Fund National Childrens Fund

INTEREST ON HOUSING LOAN

A maximum of Rs. 1,50,000/- can be claimed as an exemption, ifthe property is self occupied.

There is no limit for claiming the Interest paid on Housing Loan, ifthe property is let out for rent. For this purpose, the employee has

to provide Form 12C, which contains the detailed calculation of

Loss on House Property taking the Rent Income, expenses incurred


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towards maintenance of the property (max of 30%) & Property tax

paid to the local authorities.


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Chapter -3


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Case analysis and interpretation of Taxation &

Auditing.

1st case

Gargson Properties (P) ltd (20072008)

1 Operating Results

The operating result of the company for the year are as follows

In lakhs

Particulars

2007-

2008

2006-

2007

Profit for the year after meeting all expenses but before providing for

depreciation 24.02 14.25

less : Depretiation for the

year 8.31 9.32proit / (loss) for the year 15.72 4.93

less : provision for income tax (including deferred tax) 4.2 1.73

less : provision for FBT 1.32 1.26

profit after tax 10.2 1.94

profit brought forward from previous year 31.34 29.41

profit carried forward to balance

sheet 41.54 31.35

The above table is the operating results table which shows how much the

company has gained profits in the recent year in comparison to the

previous year.


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The above line graph is made out from the tables operating results

which shows the variations or the differences in each point of the firms

an shows the percentage gain in the operations of the firm.

0

10

20

30

40

50

60

70

80

1 2 3 4 5 6 7 8

Series2

Series1


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General report given by the Chartered Accountant.

[The turnover of the company has increased by 2% to rs 2369.33 lacs

from rs 2192.86 lacs in the previous year.

There was no such employee in the company drawing a salary more than

as prescribed under section 217(2A) of the companies Act 1956 during

the year.

Section 227 (4A) of the companies act, 1956

Accounting standard 15 Employee benefits referred to in subsection

(3c) of section 211 of the companies act 1956

Unsecured loans listed in the register maintained u/s 301 of the

companies act , 1956

0

5

10

15

20

25

30

35

40

45

1 2 3 4 5 6 7 8

Series1

Series2


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Loan

Satish garg

Asha Garg

Satish Garg (HUF)

Shradha Garg

Maintenance of the cost records under section 209 (1) of the companies

Act, 1956

From the above operationg results it is clear that the company has not

invited or accepted any deposit from public within the meaning of

section 58 A and section 58 AA or any other provisions of the Act and

rules framed there under.]

Profit & Loss Account for the year Ended as at 31st march

2007

Particulars Schedule Current Year

Previous

Year

I IncomeSales 219,286,312 179,916,302

Other Incomes 14 10,721,011 8,785,807

230,007,323 188,702,109

II Expenditure


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Cost of Sales 15 192,013,594 155,075,206

personnel expenses 16 3,838,109 3,608,931

administrative expenses 17 3,970,352 4,893,060

Selling Expenses 18 26,139,835 21,612,582

Interest 2,620,422 1,587,651

Depreciation 932,426 776,575

229,514,737 187,554,005

III profit before taxation 492,586 1,148,104

IV Provision for Tax

Current 140,077 242,244

Deferred 32,740 -2789

V Profit After Tax 319,770 908,649

VI Balance Brought forward from previous

year 2,940,382 2,178,433

VII Fringe Benefit Tax for the

year 1,25,643 1,46,700

VIII Balance carried to balance

sheet 3,134,509 2,940,382

IX Earning per share 19 0.24 0.69

X Accounting policies & notes

on a/c 20

The above table shows the profit and loss Account of the year ended

31st

marh 2007, the total of companies profits and loss incurred withcomparison to the previous year profit and loss Account.


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Annual Accounts 2006 - 2007

Balance Sheet

particulars schedule current year

Previous

YearI Sources of funds

1 Share holder's funds

share capital 1 13,171,000 13,171,00

Reserve &

surplus 2 3,134,509 2,940,38

2 Loan

Funds

SecuredLoan 3 28,662,405 32,196,68

unsecured

Loan 4 7,345,094 6,180,190

3 Deferred Tax liability 5 722,272 689,53

53,035,279 55,177,788

II Application of funds1 Fixed

assets

gross block 6 17,268,326 16,039,54

less :

Depreciation 3,892,713 2,960,287

net block 13,375,613 13,079,25

WIP (work in progress) 2,254,835 1,674,70

2 Investment 7 5,000 5,000

3 current assets, loans and

advances

Inventories 8 17,361,471 14,290,28


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The above table is the balance sheet of the Gargson (P) ltd for the year

of 20062007

Sundry

Debtors 9 10,599,884 20,010,27

Cash & bank

balances 10 5,054,684 6,735,09

Loans &

Advances 11 9,603,883 6,751,52

42,619,992 47,787,182

less: current liabilities &

provisions:

current

liabilities 12 5,280,091 7,542,05

net current

assest 37,339,831 40,245,124

4 Miscellaneous Expenditure to the extent not

written off or adjusted 13 60,000 1,73,700

53,035,279 55,177,787

III Accounting policies and notes

on account 20


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The above chart is the pie chart of the Gargson (P) ltd which shows the

difference in percentage of its profits gained in the current year than the

previous year.

1

49%3

51%

Chart Title


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Basis Of Income

Income from Business & Profession

particulars Amt

Profit as per profit & loss A/c 4,92,586

Add: Depriciation Considered separately 9,32,426

loss on sale of fixed assest 0

1,425,011

less: Depreciation u/s 32 of the Income Tax Act 1961 1,008,857

Gross taxable Income 416,154

less: carry Forward loss 0

Taxable Income 416,154

Rounded off to 416,150

Tax on Above 124,845

Add: Surcharge on above 12,485

Tax Payable 137,330

Add: Education cess 2,747

Total tax payable 140,077

less: Advance tax paid

TDS 41,957

Advance tax 2,50,000 2,91,957-151,880

The above table shows the basis of income of the Ganesh sponge ltd

where it shows that the company has paid all the taxes in advance and

would not have to pay in the current year.


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2nd Case Study

Ganesh Sponge (P) ltd

Basis of Income

Particulars Amount

I Income from Business & profession

profit as per profit & loss account after all expenses and depriciation 59,36,884

Add: Depritiation considered separately 74,51,245

II Profit Before Depreciation 13,388,129

less: depriciation U/S 32 of I.T Act 14,239,757

III Profit as per Income tax Act -851,629

IV Rounded off to -851630

V net profit for mat u/s 115 JB 59,36,884

VI less: Fringe benefit Tax 33,724

VII less: Depriciation loss brought forward 37,89,085

VIII Book Profit for mat U/s 115

JB 21,14,075

IX total tax under

mat 2,11,407

X Education cess 6342

XI Tax

payable 2,17,750

XII Tax paid U/s 140

A 2,17,750

The above table show the basis of income of the Ganesh Spong Ltd

where the calculation for tax payable is about 2,17,750


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Computation of Depreciation

Particulars Amount

Rate of

dep Depreciation Total Dep

Building

Op bal 10,242,464 10% 10,24,246

Additions

more than 180

days 0 10%

less than 180 days 0 5%

10,242,464 10,242,246

Plant &Machinery

Op bal 79,270,580 15% 11,890,587

Additions

More than 180

days 5,772,149 15% 865,822

less than 180 days 3,108,050 7.50% 233,104

88,150,779 12,989,513

Computer

Op bal 119,707 60% 71,824

addition

more than 180

days 63,317 60% 37,990

less than 180 days 31,500 30% 9450

214,524 119,265

Furniture &Fixture

Op bal 10,67,332 10% 4,06,733

Additions

more than 180

days 10%

less than 180 days 5%


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1,067,332 106,733

Total

Depreciation 14,239,757

The above table shows the calculation of the depreciation for the assests

of the company Ganesh Spong Ltd.

Balance Sheet

Particulars Sc No 2010 2009

I Sources of funds

1 Shareholder's Funds

a) Capital 1 115,000,000 111,953,170

b) Reserve & Surplus 2 73,593,732 61,830,251

2 Loan Funds

a) Secured loan 3 295,503,885 219,770,170

b) unsecured loan 4 70,000,000 73,900,413

3 Deferred Tax Liability 5 34,334,722 18,084,702

588,432,339 485,538,706

II Application of funds

1 Fixed assets

a) gross block 6 440,513,309 273,584,902

b) less: Depriciation 41,678,503 26,466,686

c) Net block 398,834,806 247,118,216


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d) capital work in progress 2,124,593 48,895,525

2 Investments 7 420,746 398,530

3 Current Assets, loans & Advances

a) Inventories 8 108,090,128 121,343,869

b) Sundry debtors 9 24,680,615 16,633,195

c) Cash & Bank bal 10 6,837,784 34,325,182

d) Loans & Advances 11 57,475,531 31,791,110

197,084,058 204,093,356

4 less: current liabilities & provisions

a) Liabilities 4,727,520 10,630,490b) Provisions 5,745,303 5,032,393

10,472,823 15,662,883

c) Net Current Assets 186,611,233 188,430,473

5 Miscellaneous Expenditure 14 440,958 695,958

588,432,339 485,538,706

6 Significant accounting policies and notes ofa/c

The last table is the balance sheet which shows the company has gained

a profit in the recent year in comparision to previous year. The profit

percentage gained by the company is around 10% as shown in the pie

chart given below.


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The above chart shows the variations of the profit of the company in

respect to current year and the previous year.

The two cases which were handeled by me were the private companies

named Gargson (p) ltd and Ganesh spong (P) ltd in both the cases the

company had an profit margin of 2% and 10% respectively as shown by

the table and the graphs.

1

55%

2

45%

Chart Title


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Basis of Income

Income from Business & Profession.

Particulars Amt

Profit as per profit and loss A/c XXXX

Add: Depritiation XXX

Loss on sale of fixed assets XX

Less: Depritiation u/s 32 of the I.T Act 1961 XXX

Gross Taxable Income XXXX

Less: Carry Forward Loss XX

Taxable Income XXX

Tax on Above XXX

Add: surcharge on above XXX

Tax payable XXX

Less: Advance Tax Paid

TDS XXX

Advance Tax XXX XXX

XXXXXXX


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Finding out Tax Liability

1st

find out gross total income

2nd less deduction under sections 80C to 80U

3rd

After deducting the deduction from gross total income the value

which we get is Net Income.

4th

divide the net income into the following

4.1 income subject to special tax rates mentioned in para 0.1-6

4.2 remaining income subject to normal rates

5th

find out income tax on net income

5.1 tax on income specified in 4.1 (special tax) at the rates given in para

0.16

5.2 tax on remaining income at the normal rate given in para 0.1 1 or

0.12 or 0.13 or 0.14 or 0.15.

6th

Add surcharge @ 0%, 2%, 2.5%, 5%, or 7.5%

7th

find out the total of [(5) + (6)]

8th add education cess [2% of 7]

9th

add secondary and higher education cess [1% of (7)]

10th

Find out the total [(7) + (8) + (9)]


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11th

deduct: rebate under section 86, 89, 90, 90A or 91

12th

tax liability [(10)(11)]

13th add: Interest / Penalty etc

14th

less: pre paid taxes [i.e, advance tax, self assessment tax, Tds, tcs,

mat credit]

15th

tax payable [(12) + (13)(14)]

Computation of income from salary

Tax calculation for the year 2006 - 2007ASSUMING THERE IS NO CHANGE IN INVESTMENT AND INCOME

Name Gender (M / F) F

LOCATION MUMBAI Emp. No.:

CITY METRO

Salary Components P.M. P.A.

BASIC 7,000.00 84,000.00

CONVEYANCE ALLOWANCE 4,000.00 48,000.00

OTHER ALLOW II(MED) 0.00 0.00

HMA 0.00 0.00

HOUSE RENT ALLOW. 0.00 0.00

BONUS 0.00 0.00

SPECIAL ALLOWANCE 0.00 0.00

VARIABLE PAY 0.00 0.00

OTHER ALLOW I(LTA) 0.00 0.00

OTHER ALLOW III(PETR) 0.00 0.00

OTHER ALLOW III(DRIV) 0.00 0.00

0.00

0.00


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Total Gross Salary 11,000.00 132,000.00

Total Gross Annual Income 132,000.00

Less EXEMPTION

MEDICAL EXEMPTION 0.00

LTA EXEMPTION

HRA EXEMPTION 0.00

CONVEYANCE EXEMPTION 48,000.00

Total Exemptions 48,000.00

Gross Taxable Income 84,000.00

Less OTHER DEDUCTION ALLOWED

Profession Tax 2,500.00

INTERST ON HOUSING LOAN 0.00

Total Other Deductions 2,500.00

Net Annual Income 81,500.00

Less Deductions under Chapter VI A

Total investment under section 80C (as detailed in Table - I) Max.

Benefit available under section 80C is Rs 1,00,000/- 10,080.00

Other Investments (as detailed in Table - II) 0.00

Total Deductions under Chapter VI A (I) 10,080.00

Net Taxable Income Rounded 71,420.00

Net Tax Payable 0.00

Surcharge @ 10% on (Net Tax) 0.00

Education Cess @ 2% on (Net Tax + Surcharge) 0.00

Total Tax Payable for the Year 0.00


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Table - I

U/s 80 C

PROVIDENT FUND 10,080.00LIFE INSURANCE PREMIUM 0.00

VPF 0.00

PPF 0.00

ELSS 0.00

PENSION FUND (80CCC) 0.00

ULIP 0.00

NSC 0.00

CTD 0.00

PRINCIPLE AMOUNT OF HSG LOAN 0.00

STAMP DUTY AND REGISTRATION CHARGES 0.00

FIXED DEPOSIT IN SCHEDULED BANK 0.00

EDUCATION EXPENDITURE 0.00

INFRASTRUCTURE BONDS 0.00

INTEREST ON HOUSING LOAN 0.00

Total 10,080.00

HRE

RENT per month

Table - II

Mediclaim Premium u/s 80D (max Rs 10,000/-) 0.00

Handicapped Dependent u/s 80DD (max Rs 50,000/-) 0.00

Dependent's Medical treatment u/s 80DDB (max Rs 40,000/-) 0.00

Interest repayment for Education Loan u/s 80E 0.00

Person with disability u/s 80U (max Rs 50,000/-) 0.00

TOTAL 0.00

C 0 Name

Month Basic HRA

Apr-06 7,000.00 0.00


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May-06 7,000.00 0.00

Jun-06 7,000.00 0.00

Jul-06 7,000.00 0.00

Aug-06 7,000.00 0.00

Sep-06 7,000.00 0.00

Oct-06 7,000.00 0.00

Nov-06 7,000.00 0.00

Dec-06 7,000.00 0.00

Jan-07 7,000.00 0.00

Feb-07 7,000.00 0.00

Mar-07 7,000.00 0.00

TOTAL 84000 0

0

Rent ACTUAL HRA50% OR 40% OF

BASIC

0.00 - 3,500.00

0.00 - 3,500.00

0.00 - 3,500.00

0.00 - 3,500.00

0.00 - 3,500.00

0.00 - 3,500.00

0.00 - 3,500.00

0.00 - 3,500.00

0.00 - 3,500.00

0.00 - 3,500.00

0.00 - 3,500.00

0.00 - 3,500.00

0 0 42000


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City 1

RENT PAID - 10% OF BASIC. HRE

(700.00) -

(700.00) -

(700.00) -

(700.00) -

(700.00) -

(700.00) -

(700.00) -

(700.00) -

(700.00) -

(700.00) -

(700.00) -

(700.00) -

-8400 0


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Chapter4


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Finding, suggestion and conclusion

Findings

From the research the major problems which I found out that -:

There is no internal audit in the P.A & Associates charteredaccounting firm.

The firm is completing its projects within the time period gainingan advantage to complete more projects and gaining profits.

The firm has been working for big firms like Nalco, Hcl, Infosyshence gaining a profit margin.

The applications use by them to store the data are quite obsolete, asthey have been using tally 7.2 and Microsoft office 2000.

The firms work environment have a problem as the employees aregossiping most of the time which in return is decreasing the

efficiency of the firm to complete a work and catch hold of the

next one.


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Suggestion

According to the research or what I personally observed.

I can suggest to some extent:

To change the work environment

To put an internal audit

The firm should update its applications so as to have a betterinterface to work on which would be much more easier for them.

To focus more on the big companies like Mayfair, Nationalinformatics center, Indiabulls securities to gain higher profits.


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Conclusion

If your finances are complex, involving substantial capital sums and

intricate legal trusts, you should have your tax position managed by a

professional accountant or solicitor like the chartered accountants who

will value and verify your books and make the taxation reports for you.

Mainly during mine summer internship project what I conclude is that

the datas which is provided by the companies are mainly the hardcopiesof the receipt which are verified with the books where all the datas have

been stored or we can say as written down.

The fact I observed is that in the chartered accounting firm, they are

using Tally ERP 7.2 which on my behalf of a suggestion they should

update the application to Tally ERP 9 and the Microsoft excel is 1st

used

to input the data and recording all the transactions.

All the data are recorded mainly in both of these software mainly the

audit report is made on the basis of the books maintained by the

company by auditing those books.

The primary thing which could be learnt during this process are somebasics about the taxation rules which are implemented according to the

Income tax act 1961 and companies act 1956.


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The amendments rules are used, the recent amendments decided which

changes each fiscal year during the budgeting.

The financial minister changes these rules and amendments whilemaking the budget for the year. Thus further concluding that an

individual should invest his money in the plans

Contribute to a pension plan Invest in ISAs and/or Fixed Interest Savings Certificates

Use your annual CGT exemptions Spread your wealth between you and your spouse to minimise the

income and CGT burden

Consider giving away 3,000 each year to your children

To save his hard earned money for giving away in income tax so that he

could have a better future and his hard earned money is also not lost.

From this summer internship project valid for 2 month I also get to

know that the files which are mainly reviewed during the Auditing are

the hard copy of the receipts which the company have maintained and

the ledger balance and cash books maintained by the company. The

books are tallied with the soft notes and soft doc entered in the

computer.

The total net income is then calculated and from that the taxable value is

calculated.


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So this is what I concluded in my 2 months work experience at the

chartered firm P.A & Associates.


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Bibliography

http://www.incometaxindia.gov.in/

http://siadipp.nic.in/publicat/invpub/taxation.htm

http://en.wikipedia.org/wiki/Category:Taxation

http://financeminister.in/latest-india-income-tax-slabs
http://www.incometaxindia.gov.in/http://siadipp.nic.in/publicat/invpub/taxation.htmhttp://en.wikipedia.org/wiki/Category:Taxationhttp://financeminister.in/latest-india-income-tax-slabshttp://financeminister.in/latest-india-income-tax-slabshttp://financeminister.in/latest-india-income-tax-slabshttp://en.wikipedia.org/wiki/Category:Taxationhttp://siadipp.nic.in/publicat/invpub/taxation.htmhttp://www.incometaxindia.gov.in/

Documents

Final Summer Project