INCOME TAX

TAX
A fee charged (levied) by a government on a product,
income,or activity.
The purpose of taxation is to finance government expenditure.

TYPES OF TAXES
DIRECT TAX

INDIRECT TAX

EXAMPLES:
1. INCOME TAX
2.WEALTH TAX
3.CORPORARE TAX
4.GIFT TAX

EXAMPLES:
1.EXCISE DUTY
2. CUSTOMS DUTY
3.SALES TAX

INCOME TAX
Income tax is one of the direct tax and it is
levied on the incomes of individuals, HUF,
unregistered firms and other associations of
peoples.
Income tax act was passed in Sep 1961 and
came into force in 1st April 1962.

Charge of Income Tax

Income tax is charged in assessment year at rates
specified by the Finance Act applicable on 1st April of
the relevant assessment year.
It is charged on the total income of every person for
the previous year.
Total Income is to be computed as per the
provisions of the Act.
Income tax is to be deducted at source or paid in
advance wherever required under the provision of
the Act.

INCOME TAX RELATED TERMS

ASSESSEE.
PREVIOUS YEAR.
ASSESSMENT YEAR.
PERSON.
GROSS TOTAL INCOME.
TOTAL INCOME.

Important Definitions
1. Person u/s 2(31) includes,
a.
b.
c.
d.
e.
f.
g.

An Individual,
Hindu Undivided Family (HUF),
A Company,
A Firm,
An Association of Persons(AOP) or Body of
Individuals (BOI),
A Local Authority,
Every other Artificial Juridical Person

2. Assessment Year u/s 2(9) means, the period of 12

months commencing on the 1st April every year. It
is the year (just after previous year) in which
income is earned is charged to tax. The current
Assessment is 2011-2012.

3. Previous Year u/s 2(34) means, the year in

which income is earned.

4. Gross Total Income (G.T.I) :- The aggregate

income under the 5 heads of income (viz. Salary,
House Property, Business or Profession, Capital
Gains & Other Sources) is termed as Gross Total
Income.
5. Total Income (T.I) :- Total Income of assessee is
gross total income as reduced by the amount
permissible as deduction under sections 80C to
80U.

Types of Residential Status

The different types of residential status are:Resident(R) or Ordinary resident
Not Ordinarily Resident (NOR)

Non-Resident (NR)

Residential Status of Individual

The residential status of individual will be determined as underAssessee

Resident

Not Ordinarily Resident

Non-Resident

Basic Condition

Additional Condition

He must satisfy at one of

Not required.
the basic conditions.
He must satisfy at least He must satisfy either one
one
of
the
basic or both the additional
conditions.
conditions given u/s 6(6).

Should not satisfy any of

Not required.
the basic conditions.

Basic Conditions u/s 6(1):

i. He must be in India for a period of 182 days or more during
the previous year; or
ii. He must be in India for a period of 60 days or more during the
previous year and 365 days or more during the four years
immediately preceding the previous year.

Additional Conditions u/s 6(6):

i. He should be resident in India in at least 2 out of 10 years
immediately preceding the current previous year.
ii.
AND
iii.A stay of 730 days or more during the 7 years
immediately preceding the current previous year.

Residential Status of HUF

The residential status of HUF depends upon the control and
management of its affairs.
Resident HUF: If the control and management of the affairs of
HUF is situated wholly or partly in India then HUF is said to be
Resident in India.
Non- Resident HUF: If the control and management of the
affairs of HUF is situated wholly outside India then HUF is said
to be Non- Resident in India.
Not Ordinarily Resident HUF: A resident HUF is said to be Not
Ordinarily Resident in India if Karta or manager
thereof, satisfies any of the additional
conditions u/s 6(6).

Residential Status
According to section 6(3) an Indian Company is always
Resident in India. A foreign Company will be resident in India
if Control or Management of its affairs is wholly situated in
India.
Residential Status of a firm or AOP or other person depends
upon control and management of its affairs.
Resident: If the control and management of the affairs of a firm or
AOP or other person is situated wholly or partly in India then such
a firm or AOP or other person is said to be resident in India.
Non-Resident: If the control and
management of the affairs of a
firm or AOP or other person is situated outside India then such a
firm or AOP or other person is said to be non-resident in India.

Incidence of Tax
Particulars

Tax Incidence
R

NOR

NR

Income received in India by or on behalf of

assessee

Yes

Yes

Yes

Income deemed to received in India by or on

behalf of assessee

Yes

Yes

Yes

Income accruing or arising in India

Yes

Yes

Yes

Income deemed to accrue or arise in India

Yes

Yes

Yes

Income which accrues or arise outside India

Yes

No

No

Que -: Mr. Balaji an Indian Citizen and a professional cricketer toured south Africa, Australia, U.K.,
West Indies and Zimbabwe on various dates. The details of departure from and arrival to India are
as under .
Country
Date of Departure
Date of Arrival
South Africa ( for the first time)
01-03-2006
25-03-2008
Australia
15-04-2008
01-05-2008
U.K.
05-05-2008
11-07-2008
West Indies
31-08-2008
14- 09-2008
Zimbabwe
01-01-2009
23-03-2009
Determine his residential status for the assessment year 2009-2010. Give your working and explaination.

INCOME TAX SLAB RATES (APPLICABLE

FOR ASSESSMENT YEAR 2013 2014).
The new and revised income tax slabs and rates applicable for the financial year (FY) 2012-13 and
assessment year (AY) 2013-14 are mentioned below:
FOR INDIVIDUAL MALE,AGE LESS THAN 65 YEARS

Up to 200000 : Nil

200001-500000 : 10%

500001-1000000 : 20%

1000001 & above : 30%

FOR INDIVIDUAL FEMALE,AGE LESS 65 YEARS

Up to 200000 : Nil

200001-500000 : 10%

500001-1000000 : 20%

1000001 & above : 30%

FOR INDIVIDUAL, AGE MORE THAN 65 YEARS ( SENIOR CITIZEN)

Up to 250000 : Nil

250001-500000 : 10%

500001-1000000 : 20%

1000001 & above : 30%

HEADS OF INCOME
1.
2.
3.
4.
5.

Income from Salary.

Income from House property.
Income from Business / Profession.
Income from Capital Gains.
Income from Other Sources.

Meaning
Salary includes [section17(1)] :i. Wages
ii. Any annuity on pension
iii. Any gratuity
iv. Any fees, commission, bonus, perquisite on profits in lieu of
or in addition to any salary on wages
v. Any advance of salary
vi. Any earned leave
vii.Employers contribution (taxable) towards recognized
provident fund.

BASIS OF CHARGE
Income is taxable under head Salaries, only if there exists Employer Employee Relationship between the payer and the payee. The following

incomes

shall be chargeable to income-tax under the head

Salaries:1.Salary Due
2.Advance Salary [u/s 17(1)(v)]
3.Arrears of Salary
Note:
(i)Salary is chargeable on due basis or receipt
basis, whichever is earlier.
(ii)Advance salary and Arrears of salary are
chargeable to tax on receipt basis only.

Allowances
Allowance is generally defined as a fixed quantity of
money or other substance given regularly in addition
to salary for the purpose of meeting some particular
requirement connected with the services rendered by
the employee or as compensation for unusual
conditions of that service.
1.Dearness Allowance - It is Always Taxable.
2.City Compensatory Allowance - It is Always Taxable.

Contd
3.

House Rent Allowance

Exemption In Respect Of House Rent allowance is regulated by
rule 2A. The least of the three given below is Exempt from Tax.

An Amount Equal to 50 % of Salary. Where Residential House in situated at Bombay,

Calcutta, Delhi or Madras and An Amount Equal to 40 % of Salary where Residential
House is situated at any Other Place.

House Rent Allowance Received by The Employee in Respect of The Period during which
Rental Accommodation is Occupied by the Employee during the Previous Year.

The Excess of Rent Paid over 10 % of Salary.

Contd
4. Entertainment allowance [sec.169(ii)]Entertainment allowance is first included in salary in come under
the head salaries and thereafter a deduction is given on the basis
enumerated below:
Status of Employee

Non- Government

Nothing is deductible

Government

Least of the Following is deductible :

1. Rs. 5000
2. 20 % of basic salary
3. Amount of entertainment allowance
grated during the previous year

Contd
5. Special allowances prescribed as exempt
under section 10(14) In the cases given
below the amount of exemption under section
10(14) is :
i.
ii.

The amount of the allowance ; or

The amount utilized for the specific purpose for
which allowance is given.
Whichever is lower.

Contd
Exemption is available on the aforesaid basis in the case of following allowances

NAME OF ALLOWANCE

:-

NATURE OF ALLOWANCE

Travelling Allowance/
Transfer Allowance

Any allowance granted to meet the cost of travel on

tour or on transfer (including sum paid in connection
with transfer, packing and transportation of personal
effects on such transfer).

Conveyance Allowance

Conveyance allowance granted to meet the expenditure

on conveyance in performance of duties of an office
(expenditure for covering the journey between office
and residence is not to be included).

Daily Allowance

Any allowance whether granted on tour or for the period

of journey in connection with transfer, to meet the
ordinary daily charges incurred by an employee on
account of absence from this normal place of duty.

03/16/15

26

Contd
6. When exemption does not depend upon
expenditure - In the cases given below, the
amount of exemption does not depend upon
expenditure incurred by the employee. Regardless
of the amount of expenditure, the allowances
given below are exempt to the extent of
i.
ii.

the amount of allowance ; or

the amount specified in rule 2BB,

Whichever is lower.

Contd
Name of allowance

Exemption as specifiedin rule 2BB

Special Compensatory
(Hill Areas) Allowance

Amount exempt from tax varies from Rs. 300 per mount to Rs. 7,000 per
month

Border area allowance

The amount of exemption varies from Rs. 200 Per month to Rs. 1,300 per
month

Tribal areas/ scheduled areas

allowance

Rs. 200 Per Month

Allowance for transport

employees

The amount of exemption isa.70 per cent of such allowance; or

b.Rs. 6,000 per month, whichever is lower.

Children education allowance

The amount exempt is limited to Rs. 100 per month per child up to a
maximum of two children.

Hostel expenditure allowance

It is exempt from tax to the extent of Rs. 300 per month per child up to a
maximum of two children.

Compensatory field area

allowance

Exemption is limited to Rs. 2,600 per month in some cases.

Contd
Name of Allowance

Exemption as Specified in Rule 2BB

Compensatory modified area

allowance

Exemption is limited to Rs.1,000 per month in some cases.

Counter insurgency allowance

Exemption is limited to Rs.3,900 per month in some cases.

Transport allowance

It is exempt up to Rs. 800 per month (Rs. 1,600 per month in the case of
an employee who is blind or orthopedically handicapped)

Underground allowance

Exemption is limited to Rs. 800 per month.

High altitude allowance

It is exempt from tax up to Rs. 1,060 per month (for altitude of 9,000 to
15,000 feet) or Rs. 1,600 per month (for altitude above 15,000 feet).

Highly active field area

allowance

It is exempt from tax up to Rs. 4,200 per month.

Island duty allowance

It is exempt up to Rs. 3,250 per month.

Contd
7. Allowance to Government employees outside
India [Sec. 10( 7)] - Any allowance paid or
allowed outside India by the Government to an
Indian citizen for rendering service outside India
is wholly exempt from tax.
8. Tiffin allowance - It is taxable.
9. Fixed medical allowance It is taxable.
10.Servant allowance - It is taxable.

Contd
11. Allowance to High Court and Supreme Court
Judges - Any allowance paid to High Court Judges
under section & 22C of the High Court Judges
(Conditions of Service) Act, 1954 is not chargeable
to tax.
12. Allowance received from a United Nations
Organization - Allowance paid by a United Nations
Organization to its employees is not taxable by
virtue of section 2 of the UN (Privileges and
Immunities) Act,
1974.

PERQUISITES
Perquisite may be defined as any Casual Emolument
or Benefit attached to an office or position in Addition to
Salary or Wages. It also denotes something that
benefits a man by going in to his own pocket.
Perquisites may be provided in cash or in kind.
Perquisites are included in salary income only if they
are received by an employee from his employer.

Perquisites as defined u/s 17 (2)

The term perquisites is defined by section 17 (2)
as including the following items:
1.The value of Rent-free Accommodation provided to
the assessee by his employer
2.The value of any concession in the matter of rent
respecting any accommodation provided to the
assessee by his employer

Contd
3. The value of any benefit or amenity granted or provided
free of cost or at concessional rate in any of the
following cases :
i.
ii.

By a company to an employee who is a director thereof ;

By a company to an employee, being a person who has
substantial interest in the company ;
iii. By any employer (including a company) to an employee to
whom provisions of (i) and (ii) above do not apply and whose
income under the head salaries exclusive of the value of all
benefits or amenities not provided for by way of
monetary benefits, exceeds Rs. 50,000

Contd
4. Any sum paid by the employer in respect of any
obligation which but for such payment would have been
payable by the assessee. Obligation of Employee met
by Employer.
5. Any sum payable by the employer, whether directly or
through a fund other than a recognized provident fund
or approved superannuation fund or a deposit-linked
insurance fund, to effect an assurance on the life of the
assessee or to effect a contract for an annuity
6. The value of any other fringe benefits or amenity as
may be prescribed

TERMINAL BENEFITS
1.

Gratuity [Sec.10(10)] Gratuity is a retirement benefit. It is generally

payable at the time of cessation of employment and on the basis of
duration of service. Tax treatment of gratuity is given below :

Status of Employee

Government Employee

It is fully exempt from

tax
under
section
10(10)(i)

Non-government employee
covered by the payment of
Gratuity Act, 1972

Least of following is exempt:

1)15 days salary x Length of
service
2)Rs. 3, 50, 000
3)Gratuity actually received.

Non-government employee not

covered by the payment of
Gratuity Act, 1972

Least of following is exempt:

1) month avg. salary x Length of
service
2)Rs. 3, 50, 000
3)Gratuity actually received.

Contd
2.

PENSION [SEC. 17(1)(ii)] - Pension is chargeable tax as follows

PENSION

COMMUTED

Government
Employee

Entire Commuted
Pension is exempt
whether or not Gratuity
received.

UNCOMMUTED

Non-Government
Employee
If Gratuity
Received

If Gratuity not
Received

1/3 of commuted
pension is
exempt

1/2 of commuted
pension is
exempt

Taxable for
Government as well
as Non-Government
employees

:-

Contd
3.Annuity [Sec. 17(1)(ii)] An annuity payable by a present
employer is taxable as salary even if it is paid voluntarily
without any contractual obligation of the employer. An annuity
received from an ex-employer is taxed as profit in lieu of
salary.
4.Retrenchment compensation [Sec. 10(10B)] Compensation
received by a workman at the time of retrenchment is exempt
from tax to the extent of the lower of the following:
a. an amount calculated in accordance with the provisions of sec. 25F(b)
of the Industrial Disputes Act, 1947; or
b. such amount as notified by the Government (i.e., Rs, 5, 00, 000); or
c. the amount received.

Contd
5. Compensation received at the time of
Voluntary Retirement [sec.10 (10C)] Compensation received at the time of
voluntary retirement is exempt from tax,
subject to certain conditions. Maximum
amount of exemption is Rs. 500000.

Provident Fund
Provident Fund Scheme is a welfare scheme
for the benefit of employees. The employee
contributes certain sum to this fund every
month and the employer also contributes
certain sum to the provident fund in
employees A/c. the employers contribution
to the extent of 12% is not chargeable to tax.

LEAVE SALARY
Encashment of leave by surrendering leave standing to ones credit is
known as leave salary.
LEAVE ENCASHMENT

During Employment

Chargeable to
Tax

Retirement / Leaving the Job

Government
Employee

Fully Exempt

Non-Government
Employee

Least of following is exempt :1)Earned Leave on the basis of Average

Salary
2)10 x Average monthly salary
3)Rs. 300000
4)Leave Salary Received

Deductions Admissible in Computing

Income under head SALARIES
1. Entertainment allowance granted by employer
[Sec.16(ii)]: This deduction is available in case of
Government employees only.
2. Employment Tax / Professional Tax [Sec.16(iii)]:
Any sum paid by assessee on account of a tax on
employment within the meaning of Article 276(2).
Under the said article employment tax cannot
exceed Rs. 2500 p.a.

Relief in respect of
Advance or Arrears of Salary u/s 89
When an assessee is in receipt of a sum in the
nature of salary, being paid in arrears or in advance,
due to which his total income is assessed at a rate
higher than that at which it would otherwise have
been assessed, Relief is granted on an
application made by the assessee to the assessing
officer.

COMPUTATION OF
TOTAL INCOME OF M. NIRANJAN FOR A.Y. 2013-14
PARTICULARS
AMOUNT
AMOUNT
I. Income from Salary
(RS)
Basic Salary (Rs.7,500 x 12)
(RS)
90,000
II. Income from house property
Gross Annual Value (GAV)
27,000
Less : Municipal taxes paid
2,000
Net Annual Value (NAV)
25,000
Less : Deduction under section 24 (@ 30% of Rs.
7500
17500
25,000)
III. Income from profession
Net profit
366950
IV. Income from other sources
Interest on income-tax refund
450
Winnings from the game show on T.V.
50000
50450

Gross Total Income

5,24,900
Less:
Deductions under Chapter VI A
(a) Deduction under section 80C
Tuition fee paid to university for education
1,00,000
(b) Deduction under section 80D
Medical insurance premium
(maximum allowable upto Rs.15,000)
15,000
(c) Deduction under section 80E
Interest on loan taken for higher education is deductible
55,000
170000
Total income

3,54,900 of DR. NIRNJAN is

So the total income
RS.3,54,900

COMPUTATION OF TAX LIABILITY OF DR.NIRANJAN

PARTICULARS
AMOUNT

(%)
(RS)

Total income =RS. 3,54,900

Upto RS.200000
NIL

NIL

NEXT RS 200001-500000
15,490
(200001-354900)=RS.154900
Add: Education cess @ 2%
309.8
Add: Secondary and higher education cess @ 1%
154.9
Thus ,The
Total TAX LIABILITY of

for PAYABLE
A.Y 2013-2014
TAX
(17618.8) is
ROUNDED OFF

RS.17620

10

M.NIRANJAN