INCOME TAX RULES SALARIES 1. 2. 3. 4.

Basic salary = Net salary +Tax deducted @ source+Employee contribution to PF Running flight allowance id exempted up to 70 % or 10,000 P.M whichever is less Tribal area allowance is exempted up to 200 P.M Exempted HRA is least of a. Actual HRA b. 40% salary (Non metro cities) 50% for metro cities c. Excess of rent paid over 10% of salary * a. *salary for this purpose= Basic salary+ DASB+ Commission on turn over 5. When the place of stay is not mentioned HRA exemption is calculated @ 40% of salary 6. HRA is fully taxable if the stay is in the own house. 7. When there is no mention about the DA then DA need not be included for exemption calculations. 8. Commission on Gross profit should not be taken for computing HRA exemption 9. Employers contribution to RPF is exempted upto 12% of salary *. salary *= Basic+DASB+Commission on turn over 10. Interest on RPF is exempted uo to 9.5% 11. SPF ,URPF contributions + interest there on are ignored. 12. Incase of SPF anf RPF refund of PF is fully exempted 13. URPF Out of the refund, employers contribution and interest there on is taxes as salary.Interest on employees contribution is taxed as Income from other sources. 14. SPF & URPF employers contributions and interest there on while in service are exempted. 15. Education allowance is exempted up to 100 P.M,to a maximum of 2 children 16. Education allowance of children studying abroad is not exempt. 17. Hostel allowance of 300 P.M for a maximum of 2 children is exempted 18. Acedamic research allowance is exempted up to the amount actually spent 19. Transport allowance is exempted up to 800 P.M.(without reference to actuals) 20. Entertainment allowance deductible for Government employees only is the least of the following; a. Actual allowance b. 1/5th of Basic salary c. 5,000 21. Any allowances received by the government employees outside India are fully exempted. 22. Allowances received by UNO employees are fully exempted.

23. Professional tax paid by the employer is to be included in the salary and then deducted u/s 16(iii) 24. Professional tax paid by the employees is deducted u/s 16(iii) 25. Value of Rent free accommodation for non government employees accommodation owned by the employers a. For population more than 25 lakhs , 15 % of salary* b. For population between 10 lakhs and 25 lakhs , 10% of salary* c. For population less than 10 lakhs , 7.5% of salary* Salary * for the purpose= Basic+DASB+Bonus+Commission+other taxable allowances. 26. Fair rent of the accommodation should be ignored if the house in owned by the employer. 27. Furniture 10% 0f the original cost + hire charges 28. In case of Non-government employees where the accommodation is not owned by the employer the value of perquisite is least of the actual rent or 15% of the salary irrespective of the place, whichever Is less. 29. Gardners salary is taxable only if the house in not owned by the employer 30. Specified employee : a. Who receives a salary greater than 50,000 P.A b. He holds 25% of the share capital c. He is a director of a company 31. Car, club,bills, credit cards,freeluch are taxable perquisites 32. Medical Reimbursement for treatment of dependants is exempted up to 15,000 is taxable in the hands of specified employees only 33. Expenditure on medical treatments of dependent family members in a hospital owned by the employers or in a Govt hospital, or in an approved hospital are Tax free 34. specified employees* Specified employees* salary = Basic+DA+Bonus+commission+taxable allowances 16(ii) and 16(iii) DA includes all DA 35. Car expenses for the car more than 1.6 litres= 2400P.M Less than 1.6 litres 900 P.M Driver salary 900 P.M 36. Gratuity received by a Govt employee is fully exempt from Tax. 37. Gratuity received by an employee covered under the gratuitys Act is exempted up to the least of the following a. Actual gratuity received b. 10,00,000

c. 15 days average salary*for each completed year of service i.e. average salary x15/26 xcompleted years of service Salary*= basic+DA(all DA)service more than 6 months is rounded off as one year 38. Gratuity received by an employee not covered under the gratuitys Act is exempted up to the least of the following a. Actual gratuity received b. 10,00,000 c. Half month average salary for each year of completed service i.e. average salary x 15/30 x completed years of service for employees not covered under the gratuitys act service of less than full year is ignored. 39. Pension : Commuted value of pension in the case of Government employees is fully exempted Commuted value of pension in the case of non-government employees entitled to gratuity is 1/3rd of full commuted value Commuted value in the case of Non-government employees not entitled to gratuity is of full value 40. Exempted value of leave encashment in the hands of Non-government employeesis least of the following a. Actual amount of leave encashment b. Permitted minimum amount exempted. 3,00,000 c. 10 months average salary d. Cash equivalent of leave credit at the rate of one month for evry year of completed service i.e leave credit x average salary 41. Shares allotted by a company to its employees is a taxable perquisite 42. Amount spent on sons education as tuition fee will qualify u/s 80C 43. LIP will qualify up to 20% of the policy value

INCOME FROM HOUSE PROPERTY 1. GAV of the property which is let out throughout the year I step Municipal rent or Fair rent whichever is higher II step Result from the first step or standard rent whichever is less III step annual rent or expected rent whichever is higher 2. GAV of the property which was vacant I step MRV or FRV whichever is higher II step result of the above or SR whichever is less

II step Sxpected rent or Annual value whichever is higher then subtract the Vacancy loss from that That is the GAV 3. GAV of the house used for own residence is NIL 4. Unrealized rent is reduced first from the Annual rent before ascertaining GAV 5. Vacancy rent is reduced after reducing the unrealized rent 6. When a property is let out for part of the year and self occupied for the rest of the year GAV is calculated as though the house is let out for full year. 7. Self-occupied and let out portions are treated as independent units 8. Where the assesse occupies more than one house, a house with higher GAV is treated as residential purpose property. 9. Municipal tax paid by the owner is deducted from GAV 10. Municipal tax paid by the tenant cannot be deducted 11. Surcharge is deductible from GAV as part of municipal tax 12. In case of self-occupied house interest allowed as deduction u/s 24 is least of 1,50,000or actual interest if the loan is borrowed on or after 1.4.99.In the case of let out house actual interest amount is allowed.If it is before 1-4 -99 the interest is restricted to 30,000 13. Municipal tax outstanding and tax paid after 31st march are not deductible 14. Two deductions are allowed under section 24 namely ,standard deduction of 30% of NAV and interest on Loan for construction acquisition and repairs for the house 15. Pre-construction interest is for the period from the date of borrowing to Date of repayment of loan or 31st march preceding the date of completion, whichever is earlier 16. Total pre-construction interest is allowed in 5 years 17. Arrears of rent received are chargeable in the year of receipt and standard deduction is allowed.

INCOME FROM PROFITS AND GAINS OF BUSINESS AND PROFESSION 1. Depreciation on Building 3 blocks (5%,10%,& 100%) 2. Furniture and fittings- 1 block (10%) 3. Plant and Machinery- 8 Blocks(15%,20%,30%,40%50%,60%,80% and 100%) 4. Intangible assets- 1 block (25%) 5. Patents or technical know how acquired before 1-4-1998 can be written off in 14 years. 6. If the asset is put to use for less than 180days during the year in which it is acquired half of usual depreciation is allowed

7. No depreciation can be claimed if the asset is not put to use 8. Interest on loan borrowed for the purpose of purchasing fixed asset is to

be capitalized from the date of acquiring the asset till the commencement of its usage 9. Repairs before installation is to be capitalized 10. Preliminary expenses after the commencement for setting up branch are disallowed and the expenses may be capitalized to claim depreciation 11. Charity and donations are disallowed as they are deductible from GTI 12. Profit on sale of import license is business income 13. Depreciation actually charged is fully added and the allowable depreciation is then reduced 14. Amount paid to any institute for approved social and statistical research is deductible @125% of the amount given 15. Bad debts recovered and allowed earlier is a business income 16. Expenses paid in cash exceeding 20,000 is disallowed to the extent of 100% 17. Excise duty ,sales tax ,commission ,bonus, interest on loan to banks shall be allowed to be deducted if they are paid before the due date of filing IT returns 18. Legal expenses related to business are allowed 19. Expenses incurred in the interest of business are allowed like loans , issue of debentures ,lawyer fees registration fee 20. Loss due to embezzlement in the normal course of business is allowed 21. Undervaluation of closing stock would have reduced the profit therefore has to be added back to Net profit .Over valuation of closing stock would have increased the profit therefore has to be reduced from Net profit 22. Goods withdrawn by the proprietor has to be valued at cost,If profit is included in such goods it is to be reduced from profit 23. Amount paid to IITs , National labs scientific research is deductible @200% of the amount given 24. Amount donated to scientific research is allowed @175%

25. Income tax is disallowed but appeal expenses are allowable deducted as

part of audit expenses 26. Books used for profession(other than annual publication) are eligible for 60% depreciation 27. Interest on government securities rent received and loan from clients are non-professional income ,hence they are ignored 28. Books used being annual publication are eligible for 100% depreciation. 29. Depreciation on Furniture @ 10% on car 15% , On typewriter @15%Depreciation on surgical equipment is @15% 30. Salary as part time lecturer is income from salary 31. Cost of medicines sold= opening stock + Purchases closing stock

Answer any two of the following; (2 x 15 = 30) 1. Compute the taxable salary of Mr. S employed at Kolkatta Basic salary 25,,000P.M DA 20% of bacic salary but only 10% of salary is eligible for service benefits Contribution to RPF 60,000 Employers contribution to RPF 60,000 Interest on RPF @14% 4,200 Accommodation provided by the employer and Rent paid by the employer 7,000 cost of furniture 1,00,000 Car less than 1.6 ltr ,used for both official and personal purposes was provided by the employer,drivers salary of 1250 P.M paid by the employer Relevant books purchased by him for office work 800 Entertainment allowance 8,000 P.A Turnover 17,28,000 commission @ 1% Tuition fee paid for his son 2000 Gardners salary and watchmans salary 600 P.M and 700 P.M respectively paid by the employer. Employer contributes 6000P.A to superannuation fund for Mr.S Life Insurance Premium paid by S on his own life {policy value 60,000} 12,000 Professional tax paid by S 1,500 Income tax paid by the employer 4,000

2. X age 40 years furnishes the following particulars of his income relevant for the assessment year 2013-2014 Profit and Loss A/c for the year ended 31st March 2013 Salary to staff 2,31,000 Gross profit 10,86,000 Advertisement 8,000 Rent of House property 2,40,000 Repairs to house property 20,000 Dividends from a foreign 12,500 Municipal tax to house property 30,000 company Fire insurance: Profit on sale of import 63,800 House property 16,000 license Office godown 20,000 Life Insurance premium on own 3,000 life policy Depreciation House property 60,000 Business Assets 13,400 Wealth Tax Patent Rights{1/2 0f 70,000 being cost of such asset acquired on 6th April 2012} IT penalty Interest on capital borrowed For businesss For reconstruction of house property For investment in shares Rent paid to X {for using 25% portion for business} Net profit 6,000 35,000

1,000 3,800 50,000 2,000 1,00,000

7,98,600 14,02,300 14,02,300

X owns a house property which was constructed in March 1998 There are three residential units in the house Unit 1 50% of the carpet area is let out to a tenant at 20,000 P.M Unit 2 25% of the carpet area is used by X for residential purposes Unit 3 25% is utilized for his business purposes. Determine the tax liability of Mr.X for the A.Y 2013-2014 During the previous year 2012 -2013 he received a gift of 2,79,500 by cheque from his non-resident friend.