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1. Write a note on the following: a. Tax holidays b. SEZ Answer: a. Tax holidays A tax holiday is a temporary reduction or elimination of a tax. Governments usually create tax holidays as incentives for business investment. The taxes that are most commonly reduced by national and local governments are sales taxes. In developing countries, governments sometimes reduce or eliminate corporate taxes for the purpose of attracting Foreign Direct Investment or stimulating growth in selected industries. Tax holiday is given in respect of particular activities, and sometimes also only in particular areas with a view to develop that area of business. Or If an assessee is permitted or given exemption for not to pay tax for certain number of year/ years then that particular year or years will be termed as Tax holiday. The following are the some of provisions mentioned by income tax department regarding tax holidays. 1. 100% export oriented units 10 year tax holiday is allowed for 100% of the income. 2. For newly established industrial undertaking in Free trade zones , electronic hardware technology park, software technology park or special economic zone- 10 year tax holiday is allowed for 100% of the profits(except for SEZ) For SEZ the deduction is as follows a) For the first 5 years b) For the next 2 years c) For the next 3 years 100% of export profit 50% of export profit 50% of export profit

b. SEZ In India, SEZs are the special zones created by the Government and run by GovernmentPrivate or solely Private ownership, to provide special provisions to develop industrial growth in that particular area. The government of India launched its first SEZ in 1965, in Kandla, Gujarat. The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment include: Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units

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100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years. Exemption from minimum alternate tax under section 115JB of the Income Tax Act. External Commercial Borrowing by SEZ units up to US $ 12500 billion in a year without any maturity restriction through recognized banking channels. Exemption from Central Sales Tax. Exemption from Service Tax. Single window clearance for Central and State level approvals. Exemption from State sales tax and other levies as extended by the respective State Governments.

The major incentives and facilities available to SEZ developers include: Exemption from customs/excise duties for development of SEZs for authorized operations approved by the BOA. Income Tax exemption on income derived from the business of development of the SEZ in a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act. Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act. Exemption from dividend distribution tax under Section 115O of the Income Tax Act. Exemption from Central Sales Tax (CST). Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).

Currently there are 114(as on Oct 2010) SEZs operating throughout India in the following states. Karnataka - 18; Kerala - 6; Chandigarh - 1; Gujarat - 8; Haryana - 3; Maharashtra - 14; Rajastan - 1; Orissa - 1 TamilNadu - 16; Utter Pradesh - 4; West Bengal - 2. Additionally, more than 500 SEZs are formally approved (as on Oct 2010) by the Govt of India in the following states. Andhra Pradesh - 109; Chandigarh - 2; Chattisgarh - 2; Dadra Nagar Haveli - 4; Delhi- 3; Goa - 7; Gujarath - 45; Haryana - 45; Jharkand - 1; Karnataka - 56; Kerala - 28; Madhya Pradesh - 14; Mahrashtra - 105; Nagaland - 1; Orissa - 11; Pondicherry - 1; Punjab - 8; Rajasthan - 8; TamilNadu - 70; Uttarankhand - 3; Utter Pradesh - 33; West Bengal 22;

2. Comment on incomes which are exempted from the tax. Answer:

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All receipts which give rise to income are taxable unless they are specifically exempted from tax under the Act. Such exempted incomes are enumerated in Section 10 of the Act. Figure 2.1 depicts important exempted incomes.

Important Exempted Incomes The income under Section 10 is exempt from tax, as they do not form part of total income. The burden of proving that a particular income falls within this section is on assessed. The following are some of the types of income that are exempted under u/s 10. Chapter II of the Income-tax Act contains a number of provisions in Sections 10 to 13A which exclude various kinds of incomes from the purview of taxation. 1. Section 10 enumerates a number of incomes at one place, which are otherwise incomes, but which are not to be included in the income for the purpose of taxation under the Income-tax Act provides that the agricultural income will be considered for the purpose of determining the rate of tax levied on non-agricultural income. 2. Agricultural Income is exempt from tax if it comes within the definition of agricultural income as given in Section 2(1A) 3. Subject to the provisions of 64(2), any sum received by an individual as a member of a HUF, where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family. 4. In the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm. (up to A.Y. 92-93 it is taxable)

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5. In case the income of an individual includes the income of his minor child in terms of Section 64(1A), such an individual shall be entitled to exemption of Rs. 1,500/- in respect of each minor child if the income of such minor is includible under Section 64(1A) exceeds that amount. 6. Any income arising from the transfer of a capital asset being a unit of US 64and where the transfer of such assets takes place on or after 1.04.2002, shall be exempt from tax. This exemption is applicable whether US 64 Unit is long term capital asset or short term capital asset. 7. Any income by way of dividends received from Domestic Company. As per Section 2(22A), Domestic Company means an Indian Company, or any other company which, in respect of its income liable to tax under this Act, has made the prescribed arrangements for the declaration and payment, within India, of the dividends (including dividends on preference shares) payable out of such income 8. Section 10A exempts the income of any newly established undertaking in a free trade zone. 9. Section 10B exempts the income of any newly established 100% export oriented undertaking. 10. Section 11 exempts the income of any charitable or religious trust or institution. 11. Section 12 deems voluntary contributions to a charitable or religious trust or institution as the income from property held under the trust and, thus, exempts the contributions received by any charitable or religious trust or institution. 12. Section 13A exempts the income of political parties. 13. Section10 (35) Income from Units, i.e. Income received in respect of units of Mutual Fund specified under clause (23D); or Income received in respect of units from the Administrator of the specified undertaking; or Income received in respect of units from the specified company It may please be noted that Transfer of the above mentioned Units are not exempt under this provision. 14. Long Term Capital Gains arising on transfer of equity shares or units of equity oriented mutual fund is not chargeable to tax from the assessment year 2005-06 if such transaction is covered by securities transaction tax. Mutual Fund as defined u/s. 10(23D) i.e. Mutual fund registered under the SEBI Act, 1992, Mutual fund set up by Public Sector Bank, Public Financial Institution or Authorised by the RBI and subject to such conditions as the Central Govt. may by notification in the Official Gazette, specify in this behalf. 15. Gratuity exempt u/s. 10(10) are as under for different class of employee: a) Government Employee Fully exempt b) Non Govt. Employee covered by the Payment of Gratuity Act, 1970:
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i) 15 days salary based on salary last drawn for each year of service ii) Rs. 3, 50,000 iii) Gratuity actually received Least of the above three is exempt. c) Non-Govt. employee and not covered by the payment of Gratuity Act, 1970 i) Rs. 3, 50,000 ii) Half months average salary for each completed year of service iii) Gratuity actually received Least of the above three is exempt. 16. Amount received (Compensation) at the time of voluntary retirement or separation is exempt from tax if the following conditions are satisfied: a) Compensation is received at the time retirement or termination. b) Compensation is received by an employee of the specified undertakings. c) Compensation is received in accordance with the scheme of voluntary retirement/separation which is framed in accordance with prescribed guidelines. d) Maximum amount of exemption is Rs. 5, 00,000/17. House rent allowance is exempt from tax under Sec10 (13A).The least of the following three is exempt from tax: a) An amount equal to 50% of salary where residential house is situated in Metro Cities and an amount equal to 40% of salary where residential house is situated at any other places. b) HRA received by the employee in respect of the period during which rental accommodation is occupied by the employee during the previous year. c) The excess of rent paid over 10% of salary To understand more clearly you can classify the income under Section 10 as follows: A) Incomes which are not to be included in the income without any further consideration, and B) Incomes which are not to be included in the income on satisfaction of some further condition or conditions. The same are summarised in the Table Income Exempt from Tax Section 1 10(1) 10(2) 10(2A) Nature of Income 2 Agricultural income Share from income of HUF Share of profit from firm
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Exemption limit, if any 3

10(3)

Casual and non-recurring receipts

Winnings from races Rs. 2500/- other receipts Rs. 5000/-

10(10D) 10(16) 10(17)

Receipts from life Insurance Policy Scholarships to meet cost of education Allowances of MP and MLA. Awards and rewards i) from awards by Central/State Government ii) from approved awards by others iii) Approved rewards from Central & State Governments For MLA not exceeding Rs. 600/per month

10(17A)

10(26)

Income of Members of scheduled tribes residing in certain areas in North Eastern States or in the Ladakh region. Income of resident of Ladakh i) Subsidy from Tea Board under approved scheme of replantation ii) Subsidy from concerned Board under approved Scheme of replantation Minors income clubbed with individual

Only on income arising in those areas or interest on securities or dividends On income arising in Ladakh or outside India

10(26A)

10(30)

10(31)

10(32)

Upto Rs. 1,500/-

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10(33)

Dividend from Indian Companies, Income from units of Unit Trust of India and Mutual Funds, and income from Venture Capital Company/fund. Profit of newly established undertaking in free trade zones electronic hardware technology park on software technology park for 10 years (net beyond 10 year from 2000-01) Profit of 100% export oriented undertakings manufacturing articles or things or computer software for 10 years (not beyond 10 years from 2000-01) Profit of newly established undertaking in I.I.D.C or I.G.C. in North-Eastern Region for 10 years

10(A)

10(B)

10(C)

Income from Interest 10(15)(i)(iib)(iic) Interest, premium on redemption or other payments from notified securities, bonds, Capital investment bonds, Relief bonds etc. 10(15)(iv)(h) Income from interest payable by a Public Sector Company on notified bonds or debentures Interest payable by Government on deposits made by employees of Central or State Government or Public Sector Company of money due on retirement

To the extent mentioned in notification

10(15)(iv)(i)

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under a notified scheme 10(15)(vi) Interest on notified Gold Deposit bonds

10(15)(vii)

Interest on notified bonds of local authorities Leave Travel assistance/ concession Not to exceed the amount payable by Central Government to its employees Exemption in respect of income in the form of tax paid by employer for a period up to 48 months

Income from Salary 10(5)

10(5B)

Remuneration of technicians having specialised knowledge and experience in specified fields (not resident in any of the four preceding financial years) whose services commence after 31.3.93 and tax on whose remuneration is paid by the employer Allowances and perquisites by the government to citizens of India for services abroad Remuneration from foreign governments for duties in India under Cooperative technical assistance programmes. Exemption is provided also in respect of any other income arising outside India provided tax on such income is payable to that Government. Death-cum-retirement Gratuityi) ii) from Government Under payment of

10(7)

10(8)

10(10)

Amount as per Sub8|Page

Gratuity Act 1972 iii) Any other

sections (2), (3) and (4) of the Act. Upto one-half months salary for each year of completed service.

10(10A)

Commutation of Pensioni) from government, statutory Corporation etc.

ii) from other employers

Where gratuity is payable - value of 1/3 pension. Where gratuity is not payable value of 1/2 pension.

iii) from fund set up by LIC u/s 10(23AAB) 10(10AA) Encashment of unutilised earned leave i) from Central or State government ii) from other employers Upto an amount equal to 10 months salary or Rs. 1,35,360/whichever is less Amount u/s. 25F (b) of Industrial Dispute Act 1947 or the amount notified by the government, whichever is less. Amount as per the Scheme subject to maximum of Rs. 5 lakh

10(10B)

Retrenchment compensation

10(10C)

Amount received on voluntary retirement or termination of service or voluntary separation under the schemes prepared as per Rule 2BA from public sector companies, statutory authorities, local authorities, Indian Institute of Technology, specified

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institutes of management or under any scheme of a company or Co-operative Society 10(11) Payment under Provident Fund Act 1925 or other notified funds of Central Government Payment under recognised provident funds To the extent provided in rule 8 of Part A of Fourth Schedule

10(12)

10(13) 10(13A)

Payment from approved Superannuation Fund House rent allowance least ofi) actual allowance ii) actual rent in excess of 10% of salary iii) 50% of salary in Mumbai, Chennai, Delhi and Calcutta and 40% in other places

10(14)

Prescribed [See Rule 2BB (1)] special allowances or benefits specifically granted to meet expenses wholly necessarily and exclusively incurred in the performance of duties Pension including family pension of recipients of notified gallantry awards

To the extent such expenses are actually incurred.

10(18)

Exemptions to Non-citizens only 10(6)(i)(a) and i) passage money from (b) employer for the employee and his family for home leave outside India
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ii) Passage money for the employee and his family to Home country after retirement/ termination of service in India. 10(6)(ii) Remuneration of members of diplomatic missions in India and their staff, provided the members of staff are not engaged in any business or profession or another employment in India. Remuneration of employee of foreign enterprise for services rendered during his stay in India in specified circumstances provided the stay does not exceed 90 days in that previous year. Remuneration of foreign Government employee on training in certain establishments in India.

10(6)(vi)

10(6)(xi)

Exemptions to Non-residents only Refer Chapter VII (Para 7.1.1) Chapter VIII (Para 8.4) Chapter IX Chapter X (Para 10.4) Exemptions to Non-resident Indians (NRIs) only Refer Chapter XI Exemptions to funds, institutions, etc. 10(14A) Public Financial Institution from exchange risk premium received from person borrowing in foreign currency if the amount of such premium
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is credited to a fund specified in Section 10(23E) 10(15)(iii) 10(15)(v) Central Bank of Ceylon from interest on securities Securities held by Welfare Commissioners Bhopal Gas Victims, Bhopal from Interest on securities held in Reserve Banks SGL Account No. SL/DH-048 any local Authority (a) Business income derived from Supply of water or electricity anywhere. Supply of other commodities or service within its own jurisdictional area.

10(20)

(b) Income from house property, other sources and capital gains. 10(20A) 10(21) 10(23) Housing or other Development authorities Approved Scientific Research Association Notified Sports Association/ Institution for control of cricket, hockey, football, tennis or other notified games. Notified professional association/institution All income except from house property, interest or dividends on investments and rendering of any specific services

10(23A)

10(23AA) 10(23AAA)

Regimental fund or Nonpublic fund Fund for welfare of

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employees or their dependents. 10(23AAB) Fund set up by LIC of India under a pension scheme Public charitable trusts or registered societies approved by Khadi or Village Industries commission Any authority for development of khadi or village industries Societies for administration of public, religious or charitable trusts or endowments or of registered religious or charitable Societies. European Economic Community from Income from interest, dividend or capital gains SAARC Fund Certain funds for relief, charitable and promotional purposes, certain educational or medical institutions Notified Mutual Funds Notified Exchange Risk Administration Funds Notified Investors Protection Funds set up by recognised Stock Exchanges Venture capital Fund/ company set up to raise funds for investment in venture Capital undertaking Infrastructure capital fund, Income from investment in venture capital undertaking

10(23B)

10(23BB)

10(23BBA)

10(23BBB)

10(23BBC) 10(23C)

10(23D) 10(23E) 10(23EA)

10(23FB)

10(23G)

Income from dividend,

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or infrastructure capital company

interest and long term capital gains from investment in approved infrastructure enterprise Income from house property and other sources Interest on securities and capital gains from transfer of such securities

10(24)

Registered Trade Unions

10(25)(i)

Provident Funds

10(25)(ii) 10(25)(iii) 10(25)(iv) 10(25)(v) 10(25A)

Recognised Provident Funds Approved Superannuation Funds Approved Gratuity Funds Deposit linked insurance funds Employees State Insurance Fund

10(26B)(26BB) Corporation or any other and (27) body set up or financed by and government for welfare of scheduled caste/ scheduled tribes/backward classes or minorities communities 10(29) Marketing authorities Income from letting of godown and warehouses

10(29A)

Certain Boards such as coffee Board and others and specified Authorities

3. Enumerate the differences between tax planning and tax evasion. Answer:

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The Indian Income Tax law is a highly complicated piece of legislation. Hence knowledge about its key features is useful for business managers and others because under the law, a taxpayer is legitimately entitled to plan his taxes in such a manner that his tax liability is minimal and net income from the business and other sources is maximum. Tax Planning thus can be defined as an arrangement of the financial affairs within the scope of law in a manner that derives maximum benefit of the exemptions, deductions, rebates and relief and reduces tax liability to the minimal. As long as one is within the framework of law, one can plan financial affairs in such manner which keeps tax liability at its minimum. However, in the name of tax planning, one should not indulge in Tax Evasion, and the line between Tax Planning and Tax Avoidance is very thin, so one needs to tread carefully. Tax evasion is sheer non-payment of tax even when it is due to be paid in the circumstances of the case. It should be remembered that while tax planning is perfectly legal, Tax Evasion is illegal and can result into penalties and prosecution for the perpetrator. When financial transactions are arranged in a way that it becomes obvious that they were entered with a malafide intention of either not paying taxes or with a view to defeat the genuine spirit of law, they cannot be accepted as legitimate Tax Planning. Twisting of facts or taking a very strict and literal interpretation of law without understanding the basic purpose of the law can only lead to punishable offence. Differences between the tax planning and tax evasion: Tax Planning 1. Tax planning is an act within the permissible range of the Act conducted to achieve social and economic benefits. 2. Tax planning is a legal right which enables the tax payer to achieve social and economic objectives. 3. Tax planning accelerates development of the economy of a country by generating funds for investment in desired sectors. 4. Tax planning promotes professionalism and strengthens economic and political situation of the country. Tax Evasion 1. Tax evasion is an attempt to avoid tax by misrepresentation of facts and falsification of accounts. 2. Tax evasion is a legal offence which may lead to penalty and prosecution. 3. Tax evasion retards the development of economy of a country by generating black money which works as a parallel economy. 4. Tax evasion encourages bribery and weakens economic and political situation of the country.

4. What are the key steps to calculate the tax liability of an individual? Answer: Steps to calculate the tax liability of an individual are: Determine residential status- First of all to determine the residential status of the assessee. The incomes are taxed according to residential status i.e. Resident in India, Not Ordinarily resident, or Nonresident.
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Calculation of gross total income- For the calculation of the gross total income we should have to calculate the income of five heads according to the provisions of Income Tax Act. Exempted Incomes- While calculating the incomes of the different heads, the incomes which are exempted will not be included. Income of other persons to be included in the income of assessee- Few incomes of other persons (Sec. 64) includes in the income of assessee. Set-off of losses- If there is negative income in a particular head then it is to be set off according to the provisions of Income Tax Act. Deductions u/s 80- After the above steps, the aggregate amount of income is known as Gross Total Income. From the gross total income few deductions which are provided under section 80 of income tax act will be deducted. After deductions, the balance of income is known as Total Income or Taxable Income. The list of deductions available to an individual are as follows: Investments and deposits (sec 80C) Contribution to certain pension funds (sec 80CCC) Contribution of new pension scheme (sec 80CCD) Payment to medical insurance premium (sec 80D) Medical treatment of handicapped dependents and amount deposited for maintenance of handicapped dependents (sec 80DD) Expenditure on medical treatment of certain diseases (sec 80DDB) Repayment of loan and interest thereon taken for higher education (sec 80E) Donations to certain funds/charitable institutions etc. (sec 80G) Deductions in respect of rent paid (sec 80GG) Donations for scientific research and rural development (sec 80GGA) Contribution to political parties (80GGC) Profit and gain of new industrial undertaking set up for infrastructure development (sec 80IA) Profit and gains of new industrial undertakings (sec 80IB) profit and specific industrial undertakings establish in specific states (sec 80IC) Deduction in respect of profits and gains from business of collecting and processing of bio gradable waste (sec 80JJA) Deduction in respect of certain incomes of offshore banking unit (sec 80LA) Deduction in respect of royalty income to authors (80QQB) Deduction in respect of royalty on patent (sec 80RRB) Deduction in case of person with disability (sec 80U) Total Income rounded off in the multiple of ` 10 The total income calculated will rounded off in multiple of Rs. 10. For this rupee five or more than Rs. 5 will be treated as Rs. 10 and less than Rs. 5 will be deleted.

5. Explain the basic rules of deductions. Answer:

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Basic Rules of Deductions Section 80(A) lays down following general rules for claiming deductions under chapter VIA. 1. While computing total income of the assessee, the deductions specified in Section 80C to 80U shall be allowed. 2. Total deductions u/s 80C to 80U shall be limited to the amount of the Gross total income of the assessee. In other words, the deductions allowable cannot result in a negative income. Thus, if GTI is found to be net loss, there is no question of any further deductions under these provisions. 3. If, in computation GTI of Association of Persons or Body of Individuals any deduction is allowed u/s 80G, 80GGA, 80GGB,80GGC, 80HH, 80HHA, 80HHB, 80HHC, 80HHD, 80I, 80IA, 80IB, 80J or 80JJ, no deduction under the same Sections shall be allowed while computing total income of member of AOP or BOI. However, above provision is not applicable to company and its shareholders because the member and the company both enjoy separate identities. 4. Deductions under this chapter VI-A are allowed, only if assessee claims them. If no such deduction is claimed, Assessing Officer is not bound to allow any such deduction. However, any such omission to claim, may be made good at the appellate stage. 5. Where an assessee claims some deductions under this chapter, it shall be his duty to place all relevant material before the statutory authority. In other words, he must be in a position to satisfy the said authority that he was entitled to obtain the deductions in accordance with the provisions of taxing statute. 6. In other words, the deductions allowable cannot result in a negative income. Thus, if GTI is found to be net loss, there is no question of any further deductions under these provisions: Above provisions can be classified in the following two categories: A) Deduction in respect of Payments B) Deduction in respect of Incomes.

6. Explain the capital gains exempt from tax. Answer: Capital Gains Exempt from Tax Capital Gains exempt from tax are defined in Sections 54, 54B, 54D, 54EC, 54ED, 54F, 54G, 54H and 54GA.

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Section 54: Capital gains arising from the transfer of residential House Property: is exempt from tax provided the following conditions are satisfied: 1. The house property is a residential house whose income is taxable under the head Income from House Property. 2. The house property is owned by an individual or HUF. 3. The house property is a long term capital asset. 4. The assessee has purchased residential house within a period of one year before the transfer or within two years after the date of transfer. OR He has constructed a residential house property within a period of three years after the date of transfer. Notes: 1. Construction of the house should be completed within 3 years from the date of transfer. Date of commencement of construction is irrelevant. 2. Case of allotment of flat under the self financing scheme of DDA is treated as construction of house for this purpose. Amount of exemption: If the amount of the capital gains is less than the cost of new house property, entire amount of capital gains is exempt from tax. On the other hand, if the amount of capital gains is greater than cost of new house property, the difference between of new house is chargeable to tax as capital gains. Section 54B: Capital gains on transfer of agricultural land: Any capital gains arising on the transfer of agricultural land situated in an urban is exempt subject to the following conditions: 1. The agricultural land is owned by an individual. If agricultural land is transferred by a HUF, the family is not entitled to exemption u/s 54B [CIT vs. G.K. Devrajulu] 2. The agricultural land must have been used by the assessee or his parents for agricultural purpose during the two years immediately preceding the date of its transfer. 3. The assessee has purchased within a period of two years from the date of transfer (and not before sale) any other land for being used for agricultural purposes. Amount of exemption: The capital gains arising from the transfer of such agricultural land is exempt to the extent of the cost of the new agricultural land purchased within the period mentioned above. It means, if the whole capital gain is reinvested it is fully exempt from tax.
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Section 54D: Capital gains on compulsory acquisition of lands and buildings: Any capital gain arising on the transfer of land or building or any right in land or building is exempt subject to the following conditions: 1. The assessee is engaged in an industrial undertaking. 2. The land or building or any right there in should form part of the industrial undertaking. 3. Such asset should have been compulsorily acquired under any law. 4. The assessee has used the land or building or any right there in for the purposes of the business of industrial undertaking in the two years immediately preceding the date on which the transfer took place. 5. The assessee has within a period of three years after such transfer purchased any other land or building or any right in any other land or building or constructed any other building for the purposes of shifting or re-establishing the industrial undertaking or setting up another industrial undertaking. 6. The capital gain arising from the transfer of such land or building is exempt to the extent of the cost of the new land or building purchased or constructed within the period mentioned in (5). Where the amount of the capital gain exceeds the cost of acquisition or construction, only excess shall be chargeable to tax. Section 54EC: Exemption of long-term capital gain in case of investment of capital gains in certain bonds: w.e.f. 1.4.2001 (assessment year 2001-02 and onwards), where the capital gain arises from the transfer of a long-term capital asset, it will be exempt if the assessee has invested the capital gain in the long-term specified asset subject to the fulfillment of all the conditions given hereunder: 1. The capital gain arises on or after 1.4.2000 (and not up to 31.3.2000) from the transfer of a long-term capital asset (hereafter referred to as the original asset); 2. The assessee has, within a period of 6 months after the date of transfer or sale of the original asset, invested whole or any part of capital gains, in the long-term specified asset; Long-term specified asset is defined to mean any bond redeemable after three years and issued, on or after 1.4.2000, by the National Bank for Agricultural and Rural Development or by the National Highways Authority of India. 3. The cost of the long-term specified asset is not less than the capital gain in respect of the original asset. If the cost of the long-term specified asset is less than the capital gain, then, the capital gain, proportionate to part of capital gain invested will be exempt. After availing the exemption, the assessee has to retain the long-term specified asset for a minimum period of three years from the date of its acquisition.
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If the long-term specified asset is transferred or converted (otherwise than by transfer) into money or the assessee takes loan or advance on the security of such long-term specified asset, at any time within a period of three years from the date of its acquisition, the amount of exempted capital gain on transfer of original asset will be deemed to be long-term capital gain a) of the previous year in which long-term specified asset is transferred or converted into money, or b) of the previous year in which loan or advance is taken against security of such long-term specified asset. It may be noted that irrespective of the quantum of loan or advance taken, the entire exempted amount of capital gain will be brought to tax. Where the cost of long-term specified asset is also eligible for rebate u/s 88, the said rebate will not be allowed for any AY before 1.4.2006 and u/s 80(C) for any AY after 1.4.2006 if the exemption is availed under Section 54EC. Section 54ED: The feature of this Section is as follows: 1. A long term capital asset is transferred by an assessee during the P.Y. 2. The long-term capital asset is transferred to (a) a security listed in any recognized stock exchange in India (b) a unit of UTI or a mutual fund (whether listed or not). Securities mean (i) shares, scripts, stocks, bonds, debenture, debenture stocks or other marketable securities of a like nature in or of any incorporated company or other corporate. (ii) Government securities, (iii) such other instruments as may be declared by the central government, (iv) Rights of interest in securities. 3. Within 6 months from the date of transfer of the asset, the assessee should invest the whole or part of the capital gains in Specified Equity Shares. 4. If the cost of the specified equity shares is not less than the whole capital gains will be exempt from tax. If however, the amount invested in the specified equity shares in less than the capital gains, then the amount of exemption is equal to the amount in specified equity shares. 5. If the specified equity shares are sold or otherwise transferred within one year from the date of acquisition. The amount of capital gains arising from transfer of original assets which was not charged to tax will be deemed to be income by way of long term capital gain of previous year in which specified equity shares transferred. 6. The cost of specified equity shares which is considered for the purpose of Section 54ED shall not be eligible for tax rebate u/s 88 for any A.Y. before 1.4.2006 and u/s 80C for A.Y. starting after 1.4.2006.

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Section 54F: Capital gain on transfer of long-term capital asset: [Exempted if net consideration is invested in residential house]: Exemption is granted if following conditions are fulfilled: 1. The assessee is either an individual or a HUF. 2. Assessee has transferred a long-term capital asset other than residential house. 3. The assessee purchases within a year before or within a period of 3 years after the date of transfer, a residential house. 4. Assessee does not own more than one residential house except as mentioned in 3 above. Amount of exemption 1. If the cost of the new house is more than the net consideration in respect of the capital asset transferred, the entire capital gain arising from the transfer will be exempt from tax. 2. If the cost of the new house is less than the net consideration in respect of the asset transferred, the exemption from long-term capital gains will be granted proportionately on the basis of investment of net consideration either for purchase or construction of the residential house (cost of new house X capital gains/net consideration). Net consideration in respect of the transfer of capital asset as the full value of the consideration received or accruing as a result of the transfer of a capital asset after deduction of any expenditure incurred wholly and exclusively, in connection with the transfer. Section 54G: Capital gains on shifting of industrial undertakings from urban area: Capital gains on shifting of industrial undertaking from urban area to non-urban area are exempt if the following conditions are satisfied: 1. The assessee transfers a long-term or short-term capital asset in the nature of plant, machinery, building or land or any right in building or land. It means exemption is not available on capital gains on transfer of other assets e.g. furniture. 2. Such asset should have been used for the purpose of the business of industrial undertaking situated in urban area. 3. The asset should have been transferred in connection with the shifting of the undertaking to a non-urban area. 4. The amount of capital gains should be utilized within a period of one year before or three years after the date of transfer for the following purposes: a) Purchases new machinery or plant, acquire land or building or construction of building for the purposes of his business in the area to which the undertaking is shifted, or

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b) Incurs expenses on shifting the original asset and transferring the establishment of the undertaking to such area. c) Incurs expenses on such other purposes as may be specified in a scheme framed by the Central Govt. The capital gain shall be exempted to the extent such gain has been utilized for the aforesaid purposes. Section 54H: Extension of time limit for acquiring new asset: Where the transfer of the original asset is by way of compulsory acquisition under any law and the amount of compensation awarded for such acquisition is not received by the assessee on the date of such transfer, the period of acquiring the new asset under Sections 54, 54B, 54D, 54BC and 54F by the assessee or the period for depositing or investing the amount of capital gain shall be extended in relation to such amount of compensation as is not received on the date of transfer. The extended period shall be reckoned from the date of transfer. The extended period shall be reckoned from the date of receipt of the amount of compensation. Section 54GA: Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area to any Special Economic Zone: The benefits under this Section are similar to Sec. 54G of exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area. This has been inserted by the Special Economic Zones Act, 2005 applicable with effect from a date yet to be notified.

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SET - 2
1. Write a note on the following: a. Wealth Tax b. Service tax Answer: a. Wealth Tax Important Provisions under Wealth Tax Act You should try to understand the following provisions related to wealth tax act without which would not be able to get exact implications of wealth tax act. Asset must belong to the Assessee The above six assets will be included in the net wealth of the assessee only when they belong to him. Mere possession or joint possession unaccompanied by the right to, or ownership of, property would therefore, not bring the property within the definition of net wealth for it would not be an asset belonging to the assessee. Assets must be held by the Assessee on the Valuation Date If the asset has been spent, lost, destroyed or transferred by the assessee before the valuation date, it is not held by the assessee on the valuation date. Hence the value of such asset shall not be included in the net wealth of the assessee. Assets required being included, though these may belong to others[Section 4] Individual In computing the net wealth of an individual, there shall be included, as belonging to that individual, the value of assets which on the valuation date are held: i) by the spouse of such individual to whom such assets have been transferred by the individual, directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live apart, or ii) by a minor child, not being a minor child suffering from any disability of the nature specified in Section 80U of the Income-tax Act, or a married daughter, of such individual, or iii) by a person or association of persons to whom such assets have been transferred by the individual directly or indirectly, otherwise than for adequate consideration for the immediate or deferred benefit of the individual, his or her spouse, or iv) by a person or association of persons to whom such assets have been transferred by the individual otherwise than under an irrevocable transfer, or v) by the son's wife, of such individual, to whom such assets have been transferred by the individual, directly or indirectly, on or after the 1st day of June, 1973, otherwise than for adequate consideration, or vi) by a person or association of persons to whom such assets have been transferred by the individual, directly or indirectly, on or after the 1st day of June, 1973, otherwise than for adequate consideration for the immediate or deferred benefit of the son's wife, of such individual

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or both, whether the assets referred to in any of the sub-clauses aforesaid are held in the form in which they were transferred or otherwise: Provided that where the transfer of such assets or any part thereof is either chargeable to gift-tax under the Gift-tax Act, 1958 (18 of 1958) or is not chargeable under Section 5 of that Act, for any assessment year commencing after the 31st day of March, 1964, but before the 1st day of April, 1972 the value of such assets or part thereof, as the case may be, shall not be included in computing the net wealth of the individual. A partner in a firm or a member of an association of persons In the case of an assessee who is a partner in a firm or a member of an association of persons (not being a co-operative housing society), there shall be included, as belonging to that assessee, the value of his interest in the assets of the firm or association determined in the manner laid down in Schedule III : Provided that where a minor is admitted to the benefits of partnership in a firm, the value of the interest of such minor in the firm, determined in the manner specified above, shall be included in the net wealth of the parent of the minor, so far as may be, in accordance with the provisions of the third proviso to clause (a). An Individual being a Member of a Hindu undivided family Where, in the case of an individual being a member of a Hindu undivided family, any property having been the separate property of the individual has, at any time after the 31st day of December, 1969, been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family or been transferred by the individual, directly or indirectly, to the family otherwise than for adequate consideration (the property so converted or transferred being hereinafter referred to as the converted property), then, notwithstanding anything contained in any other provision of this Act or in any other law for the time being in force, for the purpose of computing the net wealth of the individual under this Act for any assessment year commencing on or after the 1st day of April, 1972: a) the individual shall be deemed to have transferred the converted property, through the family, to the members of the family for being held by them jointly; b) the converted property or any part thereof shall be deemed to be assets belonging to the individual and not to the family; c) where the converted property has been the subject-matter of a partition (whether partial or total) amongst the members of the family, the converted property or any part thereof which is received by the spouse of the individual on such partition shall be deemed to be assets transferred indirectly by the individual to the spouse and the provisions of sub-section (1) shall, so far as may be, apply accordingly: Provided that the property referred to in clause (b) or clause (c) shall, on being included in the net wealth of the individual, be excluded from the net wealth of the family or, as the case may be the spouse of the individual. Membership under a house building scheme [Section 4(7)] Where the assessee is a member of a co-operative society, company or other association of persons and a building or part thereof is allotted or leased to him under a house building scheme of the society, company or association, as the case may be, the assessee shall, notwithstanding anything contained in this Act or any other law for the time being in force, be deemed to be the
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owner of such building or part and the value of such building or part, shall be included in computing the net wealth of the assessee; and, in determining the value of such building or part, the value of any outstanding installments of the amount payable under such scheme by the assessee to the society, company or association towards the cost of such building or part and the land appurtenant thereto shall, whether the amount so payable is described as such or in any other manner in such scheme, be deducted as a debt owed by him in relation to such building or part. Building/Right in building acquired in special cases [Section 4(8)] A person: a) who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882 (4 of 1882); b) who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof by virtue of any such transaction as is referred to in clause (f) of Section 269UA of the Income-tax Act (43 of 1961), shall be deemed to be the owner of that building or part thereof and the value of such building or part shall be included in computing the net wealth of such person. Assets held by a minor child [Provisos 2 and 3 to Section 4(1)(a)] Provided further that nothing contained in sub-clause (ii) shall apply in respect of such assets as have been acquired by the minor child out of his income referred to in the proviso to sub-section (1A) of Section 64 of the Income-tax Act and which are held by him on the valuation date: Provided also that where the assets held by a minor child are to be included in computing the net wealth of an individual, such assets shall be included, (a) where the marriage of his parents subsists, in the net wealth of that parent whose net wealth (excluding the assets of the minor child so includible under this sub-section) is greater; or (b) where the marriage of his parents does not subsist, in the net wealth of that parent who maintains the minor child in the previous year as defined in Section 3 of the Income-tax Act, and where any such assets are once included in the net wealth of either parent, any such assets shall not be included in the net wealth of the other parent in any succeeding year unless the Assessing Officer is satisfied, after giving that parent an opportunity of being heard, that it is necessary so to do. b. Service tax Service Tax Assessment Service tax is levied on specified taxable services and the responsibility of payment of the tax is cast on the service provider. System of self-assessment of Service Tax Returns by service tax assessees has been introduced w.e.f. 01.04.2001. The jurisdictional Superintendent of Central Excise is authorized to cross verify the correctness of self-assessed returns. Tax returns are expected to be filed half yearly. Central Excise Officers are authorized to conduct surveys to bring the prospective service tax assessees under the tax net. Directorate of Service Tax at Mumbai oversees the activities at the field level for technical and policy level coordination. Tax free services
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In principle, no tax is payable for reimbursement of expenses incurred on behalf of client. Department has clarified that out of pocket expenses like traveling, boarding and lodging on reimbursable basis are not subject to service tax. The assessee will however have to provide documentary evidence substantiating his claim from the gross amount. The levy of service tax covers only services rendered within India. It may therefore be said that: No service tax is leviable on export of service. No service tax is leviable on service provided by an Indian outside India. No service tax is leviable on technical consultancy provided by foreign collaborator provided outside India. However, if the foreign technicians visit India and provide technical services, tax will be payable.

In instances where value received becomes refundable if service is not provided by the assessee either wholly or partly for any reason, the assessee can adjust the amount payable from service tax liability of service tax payable and pay net amount as service tax. Such adjustment is permissible only if the assessee refunds the value of taxable service along with service tax thereon from whom it was received. Service tax is a payable on the value of taxable services received during the period under consideration. It follows therefore, that in instances where advance payment is made and no service is provided at that time, the same shall not be chargeable to service tax till the actual rendering of the service (vide Circular No. 65/14/2003 dated November 5, 2003). In terms of Rule 6 (2) of the Service Tax Rules, 1994 the service tax, liable to be paid by the assessee, shall be deposited only in a bank designated by the Central Board of Excise and Customs in Form TR-6 or any manner prescribed by the Central Board of Excise and Customs. Taxable services rendered as under are exempt from service tax: Service rendered to the United Nations or other international organisation (Notification No. 16/2002-ST, dated August 2, 2002). Export of services (Notification No. 2/2003-ST of March 01, 2003). Services rendered to Special Economic Zone (SEZ) developer or to a unit located in SEZ for the development, operation and maintenance or setting up SEZ units. (Notification No. 17/2002-ST, dated 21.11.2002 as amended by Notification No. 4/2004-ST dated 31.3.2004). The cost of goods or material sold by the service provider to the receiver of such services, during the course of provision of the taxable services (Notification No. 12/2003-ST dated 31.03.2004). Payment received in India in non-repatriable convertible foreign exchange, is exempt from Service Tax for the period 09.04.1999 to 28.02.2003 and from 20.11.2003 onwards. (Notification No. 6/99-ST, dated 09.04.1999 and Notification No. 21/2003-ST dated 20.11.2003).

Service Tax Exemptions and Rebates Exemptions (Section 93) (1) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette, exempt generally or subject to such conditions as

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may be specified in the notification, taxable service of any specified description from the whole or any part of the service tax leviable thereon. (2) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by special order in each case, exempt any taxable service of any specified description from the payment of whole or any part of the service tax leviable thereon, under circumstances of exceptional nature to be stated in such order. Rebate (Section 93A) Where any goods or services are exported, the Central Government may grant rebate of service tax paid on taxable services which are used as input services for the manufacturing or processing of such goods or for providing any taxable services and such rebate shall be subject to such extent and manner as may be prescribed: Provided that where any rebate has been allowed on any goods or services under this section and the sale proceeds in respect of such goods or consideration in respect of such services are not received by or on behalf of the exporter in India within the time allowed by the Reverse Bank of India under Section 8 of the Foreign Exchange Management Act, 1999 (42 of 1999), such rebates shall be deemed never to have been allowed and the Central Government may recover or adjust the amount of such rebate in such manner as may be prescribed.

2. Define clubbing of income. What are the key provisions for income clubbing? Answer: Clubbing of Income Generally an assessee is taxed in respect of his own income. But sometimes in some exceptional circumstances this basic principle is deviated and the assessee may be taxed in respect of income which legally belongs to somebody else. Earlier the taxpayers made an attempt to reduce their tax liability by transferring their assets in favour of their family members or by arranging their sources of income in such a way that tax incidence falls on others, whereas benefits of income is derived by them. So to counteract such practices of tax avoidance, necessary provisions have been incorporated in Sections 60 to 64 of the Income Tax Act. Hence, a person is liable to pay tax on his own income as well as income belonging to others on fulfillment of certain conditions. Inclusion of others Incomes in the income of the assessee is called Clubbing of Income and the income which is so included is called Deemed Income. It is as per the provisions contained in Sections 60 to 64 of the Income Tax Act. Provisions for income clubbing Income from assets transferred to spouse becomes taxable under provisions of Section 64(1)(iv) as per following conditions: The taxpayer is an individual He/she has transferred an asset (other than a house property) The asset is transferred to his/her spouse The asset is transferred without adequate consideration. Moreover there is no agreement to live apart.

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If the above conditions are satisfied, any income from such asset shall be deemed to be the income of the taxpayer who has transferred the asset. When Section 64(i) (iv) is not applicable On this basis of the aforesaid discussion and judicial pronouncements, Section 64 is not applicable in the following cases: If assets are transferred before marriage. If assets are transferred for adequate consideration. If assets are transferred in connection with an agreement to live apart. If on the date of accrual of income, transferee is not spouse of the transferor. If property is acquired by the spouse out of pin money (i.e. an allowance given to the wife by her husband for her dress and usual household expenses).

In the aforesaid five cases, income arising from the transferred asset cannot be clubbed in the hands of the transferor. Income from assets transferred to sons wife [Section 64 (1) (vi)] Income from assets transferred to sons wife attracts the provisions of Section 64(1)(vi) as per conditions below: The taxpayer is an individual. He/she has transferred an asset after May 31, 1973. The asset is transferred to sons wife. The asset is transferred without adequate consideration.

In the case of such individuals, the income from the asset is included in the income of the taxpayer who has transferred the asset. Income from assets transferred to a person for the benefit of spouse [Section 64(1) (vii)] Income from assets transferred to a person for the benefit of spouse attract the provisions of Section 64 (1) (vii) on clubbing of income. If: The taxpayer is an individual. He/she has transferred an asset to a person or an association of persons. Asset is transferred for the benefit of spouse. The transfer of asset is without adequate consideration.

In case of such individuals income from such an asset is taxable in the hands of the taxpayer who has transferred the asset. Income from assets transferred to a person for the benefit of sons wife [Section 64(1)(viii)] Income from assets transferred to a person for the benefit of sons wife attract the provisions of Section 64(1) (viii) on clubbing of income. If, The taxpayer is an individual. He/she has transferred an asset after May 31, 1973. The asset is transferred to any person or an association of persons. The asset is transferred for the benefit of sons wife.
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The asset is transferred without adequate consideration.

In case of such individual, the income from the asset is included in the income of the person who has transferred the asset. Income of minor child [Section 64 (1A)] All income which arises or accrues to the minor child shall be clubbed in the income of his parent [Sec. 64(1A)], whose total income (excluding Minors income) is greater. However, in case parents are separated, the income of minor will be included in the income of that parent who maintains the minor child in the relevant previous year. Exemption to parent [Section 10 (32)] An individual shall be entitled to exemption of Rs. 1,500 per annum (p.a.) in respect of each minor child if the income of such minor as included under Section 64 (1A) exceeds that amount. However if the income of any minor child is less than Rs. 1,500 p.a. the aforesaid exemption shall be restricted to the income so included in the total income of the individual. When Section 64(1A) is not applicable In case of income of minor child from following sources, the income of minor child is not clubbed with the income of his parent. Income of minor child on account of any manual work. Income of minor child on account of any activity involving application of his skill, talent or specialized knowledge and experience. Income of minor child (from all sources) suffering from any disability of the nature specified under Section 80U (see Para 11.8).

3. Define fringe benefits and perquisites. Answer: Fringe Benefits W.e.f. assessment year 2008-09, fringe benefits provided by the employer to the employees have been divided into following three categories: 1. Fringe benefits or deemed fringe benefits provided to the employees which are chargeable to fringe benefit tax in the hands of the employer. 2. Fringe benefits or amenities which shall be taxable perquisites in the hands of all employees, whether the employer is liable to pay FBT on other fringe benefits or amenities or not under Chapter XII-H. 3. Fringe benefits or amenities which shall be taxable perquisites in the hands of employees provided the employer is not liable to pay FBT. Perquisites taxable in the hands of specified employees Section 17(2) (iii) Motor car facility: Rule 3(2) A) Where the employer is liable to pay FBT under Chapter XII-H: Expenses incurred on motor car provided by the employer to the employee or expenses incurred by the employer relating to a car owned by employee shall not be a perquisite in the hands of the employee. However, the

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employer shall have to pay fringe benefit tax on the value of fringe benefit provided in the form of a car/reimbursement of conveyance expenses. B) Where the employer is not liable to pay FBT under Chapter XII-H: Where the employer is an individual or HUF, a charitable or religious trust or institution covered under Section 10(23C) or registered under Section 12AA, or a registered political party, the perquisite of motor car shall be taxable in the hands of the employee as the member is not liable to pay FBT under Chapter XII-H. For this purpose rule 3(2) has been reintroduced for such employers by notification No.271/2007, dated 7-11-2007. Valuation of motor car/other vehicles [Rule 3(2)]: Motor car/other vehicles, provided by the employer, is a perquisite only for specified employees because it is facility provided by the employer to the employees. On the other hand, if the car belongs to the employee and the expenses of running and maintenance of that car are met by the employer, it becomes a perquisite taxable in the hands of all employees as it is an obligation of the employee to maintain his car but such obligation is being met by the employer. Gas, electricity or water supply provided: Rule 3(4) Figure 10.1 will help you to understand the value of perquisite on account of Gas Electricity or Water Supply provided.

Figure 10.1 Value of Perquisite on Account of Gas Electricity or Water Supply provided Note: If amount charged from Employee then can be deducted from above. Domestic servant [sweeper, gardener, watchman or personal attendant, cook, etc.] [Rule 3(3)] For understanding the perquisites on account of Domestic Servant see figure 10.2

Figure 10.2: Perquisite on Account of Domestic Servant (Sweeper, Gardener, Watchman etc.) Note on Gardener: If gardener is provided along with rent free accommodation (owned by ER). Then salary of garden plus all expenses for maintenance of garden are not taxable separately. Circular No. 122 dated 19.10.1973.
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Education facility Valuation in respect of free or concessional educational facilities to any member of employees household [Rule 3(5)]. Read Table 10.1 carefully for understanding the tax incidences of educational facilities by the employer. Table 10.1: Education Facilities

However, in all the above cases, if any amount is paid or recovered from the employee on this account, the value of benefit computed above shall be reduced by the amount so paid or recovered. Medical facilities provided: [Proviso to Section 17(2)] You can understand tax incidences of Perquisite on Account of Medical Facilities provided in India and outside India with the help of Figure 10.3.

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Figure 10.3: Perquisite on Account of Medical Facilities Provided Notes: 1. Approved hospital means a hospital approved by Chief Commissioner. Hospital includes a dispensary, a clinic, and a nursing home. 2. Payment of group medical insurance (i.e. Mediclaim) premium by the employer for his employees (on employees life or life of his members) is also exempt. 3. Expenses on medical treatment on the employee may be by way of payment or reimbursement. 4. For conditions for medical facility provided outside India look at Table 10.2.

Table 10.2: Medical Facilities outside India

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Family for the purpose of valuation of medical facilities Family means: i) The spouse and children of the employee, children may be dependent or not dependent. ii) Parents, brothers and sisters of the employee who are wholly or mainly dependent on such employee. Free or concessional journey given to the transport employees and their family members A) Where the employer is liable to pay FBT under Chapter XII-H The benefit of such free or concessional journey is treated as fringe benefit as per Section115WB (1) (b). B) Where the employer is not liable to pay FBT under Chapter XII-H[Rule 3(6)] The value of any benefit or amenity shall be taken to be the value at which such benefit or amenity is offered by such employer to the public as reduced by the amount, if any, paid by or recovered from the employee for such benefit or amenity. However, this rule shall not apply to the employees of an airline or the railways. Residual Clause Treatment of any other benefit, amenity, etc. provided by the employer Rule 3(7) (ix) has been inserted w.e.f. A.Y.2008-09 and is applicable to all employees. This rule is applicable irrespective of whether the employer is liable to FBT or not. As per this rule the value of any benefit on amenity, service, right or privilege provided by the employer shall be determined on the basis of cost to the employer under an arms length transaction as reduced by the employees contribution, if any. However nothing contained in this item shall apply to the expenses on telephone including a mobile phone actually incurred on behalf of the employee by the employer. Perquisites 1. Medical facility or medical reimbursement:
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a) First-aid medical facility: The value of any medical treatment provided to an employee or any member of his family in a hospital, dispensary or a nursing home maintained by the employer b) Medical reimbursement: Any sum paid by the employer in respect of any expenditure incurred by the employee on his medical treatment or treatment of any member of his family subject to maximum of Rs. 15,000 in the previous year. 2. Food and beverages provided to employees: The following shall be tax free perquisite in the hands of the employees. a) Any foods or beverage provided by the employer to his employees in the office or factory b) Any foods or beverage provided by the employer to his employees through paid vouchers which are not transferable and usable only at eating joints Where the employer is not liable to pay FBT under Chapter XII-H, the exemption shall be up to Rs. 50 per meal 3. Recreational facilities 4. Loans to employees 5. Perquisites provided outside India 6. Training of employees 7. Rent free House/Conveyance facility 8. Residence to officials of parliament etc. 9. Accommodation in a remote area 10. Educational facility for children of the employer 11. Use of health club, sports and similar facilities provided by the employer to his employee. 12. Use by the employee or any member of his household of laptops and computers belonging to the employer or hired by him. 13. Leave travel concession 14. The premium paid by the employer on an accident policy taken out by it in respect of the employee would not be a perquisite [CIT vs Lala Shri Dhar (1972) 84 ITR 192(Del)]. 15. Allotment of shares or debentures under any Employees Stock Plan or Scheme of the company when these are offered to employees in accordance with the guidelines issued in this
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behalf by the central Government. However the employer shall have to pay FBT on the value of the same. 16. Tax paid by the employer on non-monetary perquisites 17. Motor car provided by the employer to the employee or expenses incurred by the employer in connection with motor car belonging to the employee (for purposes other than exclusively for personal purposes) shall be a tax free perquisite in the hands of the employee although the employer shall have to pay fringe benefit tax on the value of such fringe benefit. However, if the employer is not liable to pay FBT, the value of such facility shall be taxable in the hands of the employee. 18. All other perquisites provided shall be tax free perquisite as no valuation rules have been prescribed. However, in this case the employer shall have to pay fringe benefit tax on the value of such fringe benefit. However, if the employer is not liable to pay FBT, the value of such facility shall be taxable in the hands of the employee.

4. Write a note on income from capital gain. Answer: Provisions under Section 48 The income under the head Capital Gains shall be computed by deducting the following from the full value of the consideration received or accrued as a result of the transfer of the capital asset: 1) Expenditure incurred wholly and exclusively in connection with such transfer. 2) The cost of acquisition of the asset and the cost of any improvement thereto. Computation of capital gains

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Full value of consideration The expression full value means the whole price without any deduction whatsoever and it cannot refer to adequacy or inadequacy of price. The consideration for the transfer of capital asset is what the transferor receives in lieu of the asset he parts with, namely money or moneys worth is m. It is not necessarily always the market value of the asset on the date of transfer. However, at many places, reference is made to Free Market Value (FMV). Expenses incurred wholly and exclusively in connection with such transfer It refer to expenses necessary for effecting transfer, e.g. brokerage, commission paid for securing a purchaser, cost of stamp, traveling expenses, incurred in connection with transfer, litigation expenditure for claiming enhancement of compensation, etc. Cost of acquisition The cost of acquisition of an asset would normally be taken to be the price at which the asset was acquired by the assessee. Such price may litigation expenses incurred for having the shares registered in his name (as company refused to register the same) is part of the cost of acquisition and that incurred for gaining better voting rights is cost of improvement. [Bengal Assam Investors Ltd. vs. CIT] Cost inflation index Means the index as the Central Government may notify in this behalf. The government has notified the following cost of inflation index vide notification dated 5th August 1992 as amended till 2004:

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Indexed cost of acquisition =

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Indexed cost of improvement

Section 50: Computation of capital gains in case of depreciable assets Where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed, the provisions of Sections 48 and 49 shall be subject to the following modification: Where the full value of consideration received or accruing for the transfer of the asset plus the full value of such consideration for the transfer of any other capital asset falling with the block of assets during the previous year exceeds the aggregate of the following amounts namely: 1. Expenditure incurred wholly and exclusively in connection with such transfer; 2. WDV of the block of assets at the beginning of the previous year; 3. The actual cost of any asset falling within the block of assets acquired during the previous year, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets. Where all assts in a block are transferred during the previous year, the block itself will cease to exist. In such situation, if the aggregate of above three items exceeds the full value of consideration received/accruing for the transfer of asset(s), the loss shall be deemed to be shortterm capital loss. Section 51: adjustment of advance money received against cost of acquisition It is possible for an assessee to receive some advance in regard to the transfer of capital asset. Due to the breakdown of the negotiation, the assessee may have retained the advance. Section 51 provides that while calculating capital gains, the above advance retained by the assessee must be used to reduce the cost of acquisition.

5. What are the key rebates and reliefs under Income Tax Act? Answer: Rebates Rebate to be allowed in computing income tax Section 87
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In computing the amount of income tax on the total income of an assessee with which he is chargeable for any AY, there shall be allowed from the amount of Income-tax the deductions in accordance with and subject to the provisions of this chapter. The aggregate amount of deduction under this chapter shall not exceed the amount of income tax (as computed before allowing the deduction under this chapter) on the total income of the assessee.

Section 88E: Rebate in respect of securities transaction tax Note: The act has discontinued the rebate available under Section 88-E w.e.f A.Y.2009-10. It will be allowed as deduction u/s 36(1)(xv). Where the total income of an assessee in a previous year, includes any income chargeable, under the head Profits and gains of business or profession, arising from taxable securities transactions, he shall be entitled to a deduction from the amount of income tax on such income arising from such transaction computed by applying the average rate of tax on such transactions, to the extent of minimum of the following two amounts: Security transaction tax paid by such assessee Average rate of income-tax means Total tax/Total income 100

The assessee is required to furnish along with the return of income, evidence of payment of securities transaction tax in the prescribed form. Relief Relief when salary etc. is paid in arrears or in advance: Section 89 Where an assessee is in receipt of a sum in the nature of salary being paid in arrears or in advance or is in receipt, in any one financial year, of salary of more than twelve months or a payment which under the provisions of clause (3) of Section 17 is a profit in lieu of salary or is in receipt of family pension, being paid in arrears, due to which his total income is assessed at a rate higher than that at which it would otherwise have been assessed. The Assessing Officer shall on an application made to him in this behalf, grant such relief as may be prescribed (Rule 21AA and Form No.10E provides the framework for claiming relief u/s 89). Illustration: X who is a person with disability submits the following information. Compute (a) the taxable income; (b) the tax payable for the assessment year 2010-11. Rs. i) Salary per annum 180,000 ii) Rent received per month 3,500 iii) Dividend from cooperative society 1,000
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iv) Interest on bank deposits 8,000 v) Interest on Government securities 1,000 vi) Winnings from lotteries (gross) 4,000 vii) NSC (VIII issue) purchased during the year 10,000 viii) Deposit under PPF Scheme 30,000 He earned a long-term capital gain of Rs.12, 000 on sale of gold during the year. Rs. A)Computation of Total Income Salaries Less Statutory Deduction Income from house property Less Statutory deduction @ 30% Capital gains Long term capital gains Income from other source Dividend from co-operative society Interest on bank deposits Interest on Govt. securities Winnings from lotteries Gross Total Income Less Deductions u/s 80C to 80U i)80C (Rs. 10, 000 + 30, 000) ii)80U 40,000 50,000 90,000 145,400 1,000 8,000 1,000 4,000 14,000 235,400 42,000 12,600 29,400 12,000 1,80,000 180,000 Rs.

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B)Computation of Tax i)Tax on winning lotteries 30% on 4,000 ii)Tax on long term capital gains 20% on 12, 000 iii)Balance of total income 129,400 up to 1, 10,000 balance 19, 400 Tax Payable Add Education cess @ 2% Add SHEC Tax rounded off @ 1% nil 10% 1,940 5,540 111 55 5710 1,200 2,400

6. Summarise the objectives of tax planning. Answer: Objectives of Tax Planning The prime objectives of tax planning may be summarised as follows: i) Reduction of tax liability: By proper tax planning, a tax payer can oblige the administrators of the taxation laws to keep their hands off from his earnings. ii) Minimisation of tax liability: Proper tax planning in conformity with the provisions of the taxation laws, the chances of unscrupulous litigations are certainly minimised and the tax payer is saved from the hardships and inconveniences caused by the unnecessary litigations. iii) Productive investment: Taxation laws offer large avenues for the productive investment of earnings, granting absolute or substantial relief from taxation. A taxpayer has to be constantly aware of such legal avenues as are designed to open the floodgates of his well-being, prosperity and happiness. iv) Healthy growth of economy: A savings of earnings by legally sanctioned devices is the prime factor for the healthy growth of the economy of a nation and its people. An income saved and wealth accumulated in violation of law are the scourge on the economy and the people.
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Generation of black money darkens the horizons of the national economy and leads the nation to avoidable economic destruction. v) Economic stability: Under tax planning, taxes legally due are paid without any headache either to the tax payer or to the tax collector. Avenues of productive investments are largely availed of by the tax payers. Productive investments increase contours of the national economy embracing in itself the economic prosperity of not only the taxpayers but also of those who earn the income not chargeable to tax. The planning thereby creates economic stability of the nation and its people by even distribution of economic resources.

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