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TAXES ARE UNAVOIDABLE

Classification of Taxes
 Direct and Indirect taxes  Direct taxes directly levied on source of income and wealth  E.g. Income tax and Wealth tax  Indirect taxes indirectly levied on activity/transaction which generates income or wealth  E.g. sales tax, service tax, etc.

KINDS OF TAXES
       Income-tax Sales tax Wealth tax Service tax Custom duties Securities transaction tax Excise duties and many more

INCOME TAX ACT, 1961 (will be replaced by Direct tax codes from 1.4.2011)

Income tax

INCOME

TAX

WHO

WHEN

INCOME
U/s 2 (24): Meaning and Characteristics

PERIODICAL MONETARY

RETURN COMING IN WITH REGULARITY REGULARITY OR SOME SORT OF FROM A

DEFINITE SOURCE

Characteristics of Income
     Legal or Illegal incomes are taxable Moral or Immoral incomes are taxable. Cash or kind Real and not imaginary. E.g. sales supported by invoice documents Examples: profits, gains, donations, perquisites, allowances, compensation, export cash assistance, lottery prize, kaun banega crorepati ?, etc.

Tax
The outflow from income paid to the Government.

Who is liable to pay TAX?


PERSON U/s 2 ( 31 ) INDIVIDUAL HUF COMPANY FIRM BOI / AOP LOCAL AUTHORITY
ANY OTHER ARTIFICIAL JURIDICAL PERSON

What is the status of the following person


            Ms. Katrina Mr. Salman a minor Ms. Ruby a person of unsound mind Ram, his wife Sita and two sons M/s Chip and Dale 2 CAs in partnership Tata limited Mumbai Municipal corporation Roha Gram Panchayat Joint venture between X ltd and Y ltd Joint venture between Mr. A and Mr. B Mumbai University Tirupathi Devasthanam

Assessee U/s 2 ( 7 )
a) every person in respect of whom any proceedings are taken under the act b) every person who is deemed to be an assesses under the act e.g. a trustee of a trust c) every person who is deemed to be as assessee in default. e.g. an employer who does not deduct TDS from employees salaries

When to pay tax ?

PREVIOUS YEAR - U/S 3 ASSESSMENT YEAR U/S 2 ( 9 )

Previous year u/s 3


Year in which the income is received Always ends on 31st march E.g. P.Y. 2009-2010 begins on 1.4.2009 and ends on 31.3.2010 P.Y. 2008-09 begins on 1.4.2008 and ends on 31.3.2009

ASSESSMENT YEAR u/s 2(9)


Year in which final tax is payable relating to the previous year. Always for 12 months.
Example: PY 2008-09 AY 2009-10 PY 2009-10 AY 2010-11 (this is relevant or exam)

Assessment U/s 2(8)


 Assessment 2 (8): Process of determining and computing the amount of income and tax dues of a person.

Charge of Income tax u/s 4:


      Income tax shall be charged, At the rates laid down by the finance act, For that assessment year, In respect of the total income, Of the previous year, Of every person.

Residential status u/s 6


 Tax liability is based on the residential status of a person.  Citizenship is NOT the main criteria for tax purposes and is different from residential status  Residential status may change from year to year depending upon the stay in India.

Kinds of Residential status:


All Assesses Resident Individual & HUF R & OR R but not OR Non-resident

Conditions for determining residential status for an individual sec 6(1)


BASIC ADDITIONAL

Stay in India Stay in India for for at least 60* At least days in current 182 days OR PY. AND & in Current PY Stay in India 09-10 for at least 365 days in 4 PY preceding (A) current PY.
(B)
* exceptions: a) A citizen of India/crew of Indian Ship leaving India for Employment or self-employment OR b) A citizen of India or a persons of Indian origin comes to a visit in India REPLACE 60 by 182 days

Stay in India for 730 days in 7 PY preceding & the current PY 09-10

Resident in India for 2# out of 10 PY preceding current PY


(D)

(C)

If {a or b}+ {c & d} satisfied: ROR If only a or b satisfied: RNOR If a or b NOT satisfied: Non-resident

Counting of days
     a) the stay need be in the same place b) the stay need not be continuous c) the days of entry and exit are both counted d) a stay in a boat in territorial waters of India is treated as stay in India e) For February, where applicable 29 days are considered.

E.g. Mr. George Bush comes for the first time to India on 26.1.201009 and leaves India on 15.3.2010. Determine his residential status for AY 2010-11

Solution: PY 2009-10

Mr. George Bush Foreign Citizen AY 2010-11

Days in India in P.Y. 2009-10 Jan : 6 days Feb: 28 days Mar: 15 days Total: 49 days He does not satisfy any of the conditions. Therefore he is Non resident.

Conditions for determining residential status


BASIC ADDITIONAL

Stay in India Stay in India for for at least 60 days At least in current PY. 182 days OR AND & in Current PY Stay in India 05-06 for at least 365 days in 4 PY preceding (A) current PY.
(B)

Stay in India for 730 days in 7 PY preceding & the current PY 05-06

Resident in India for 9 out of 10 PY preceding current PY


(D)

(C)

If {a or b}+ {c & d} satisfied: ROR If only a or b satisfied: RNOR

If a or b NOT satisfied: Non-resident

Class exercises
 (1) Mr. Sanjay, an Indian citizen went to USA for the first time for the purpose of employment on 10th May, 2009. He came back to India on 19th November, 2009. Determine his residential status for Assessment year 2010-11.   Ans: Non resident  No. of days in India 173(30+10+12+31+31+28+31)  Employment so replace 60 by 182

Class exercise 2:
 Ishant sharma, an Indian cricketer submits the following information of stay outside India for the year ending 31.3.2010
Days 12.4.09 to 27.4.09 2.5.09 to 8.7.09 26.8.09 to 9.9.09 10.9.09 to 1.10.09 3.1.10 to 25.3.10 place Sharjah for Asia cup 2009 Summer tour to england triangular series in Sri lanka singapore on tour summer cricket tour to south africa

He made his debut in international cricket on 10th march, 2007. Then in a match against the West Indies, he suffered a major injury needing two years of hospitalization in USA. He recovered and returned back to India on 28.3.2009. Thereafter, he was employed by China Cricket board as Manager of the team. Determine his residential status For A.Y. 2010-11.

Solution
         Total no. of days in PY 09-10 Less: stay out of India: 12.4 to 27.4 2.5 to 8.7 68 26.8 to 9.9 15 10.9 to 1.10 3.1 to 25.3 Therefore, stay in India = 365-203 = 365 16

22 82

203 162

He has not stayed in India for 182 days from employment condition, therefore he is Non-resident.

Class exercise
 Mr. Bond an Indian citizen leaves India for honeymoon with his wife for the first time on 18.2.2010. Determine his residential status?  Mr. Khiladi an Indian citizen leaves India for employment purposes for the first time on 18.2.2010. Determine his residential status?

Residential Status for a Company


 Depends on the management and control of affaires, i.e. where is the majority decision making taking place. Irrespective of the type of company.  For HUF the residential status of Karta is considered as residential status of HUF.

 Assignment sums:  Please see hand out.

Scope of total income: Section 5


Nature of Income
Income received in India Income accruing in India

ROR

RNOR

NR
Taxable Taxable

Taxable Taxable Taxable Taxable

Foreign Income:
a) From business / profession controlled or set up IN India

Taxable Taxable

Not-Taxable

b) From business/profession controlled or set up OUTSIDE in India

Taxable Not Taxable Not-Taxable

E.g.:

Items of Income Salary received in India Salary earned in India but received in Sri Lanka Foreign Income: Income from business in Nepal controlled form Delhi Income from business in Sri Lanka received there.

Nature Received in India Accruing in India

ROR T T

RNOR T T

NR T T

Foreign Income controlled from India Foreign Income NOT controlled from India
T- Taxable

NT

NT

NT

NT - Not Taxable

Mr. Tom, a British citizen had the following income during the year ended on 31st March,2010
           1. Income from house property in India 15000 2. Income from property in Rome 10000 3. Interest from bank account in India 1200 4. Income from business in Bangladesh, being controlled from India 16000 5. Interest on Bank account in USA 11000 6. Salary earned and received in Tokyo 12000 7. Income earned and received in London 13000 8. Dividend from British company received in India 17000 Compute his total income for AY 2010-11 in 3 different cases: A) ROR, b) RNOR and C) NR.

NON- TAXABLE INCOMES:


(EXEMPTIONS) - Section 10
 Section 10 (1)  Section 10 (2)  Section 10 (2A)  Section 10 (16)  Section 10 (32) Agricultural Incomes from land situated in India Sums received by a member of the HUF from a Family income Share of partner in profits out of the partnership firm Scholarships granted to meet the cost of education like tuition fees.

Minors income upto Rs.1500 per child. See notes for other exemptions

Heads of Income
Income from Salaries Income from House property Income from profits and Gains of business or profession Income from capital gains Income from other sources

Computation of Total Income


PY 09-10
Particulars Income from Salaries Income from House property Income from P & G of Business or profession Income from capital gains (short term) Income from Other sources Add: Clubbed incomes GROSS total Income Less: deductions u/s 80 Net taxable income Add: Long term capital gains Net taxable income

AY 10-11
Rs. XX XX XX XX XX X X XX - X YY GG MM Rs.

Computation of Final tax payable :

Net taxable income Rates of tax (10 % 20% 30%) or as relevant Net tax payable Add: Surcharge (tax on tax) Tax payable Add: {education cess 3%} FINAL tax payable Less: Tax already paid (T.D.S. / Advance tax) Assessed tax payable/refund [5-6] [1+2] [1 x 3 %]

YY ---------1 2 3 4 5 6 7

                 

Income tax slab for ay 10-11 Income Tax Slabs for ay 10-11 for Resident Senior Citizens (FY 2009-10) S. No. Income Range Tax percentage 1 Up to Rs 2,40,000 No tax / exempt 2 2,40,001 to 3,00,000 10% 3 3,00,001 to 5,00,000 20% 4 Above 5,00,000 30% Income Tax Slabs for ay 10-11 for Resident Women (below 65 years) (FY 2009-10) 1 Up to Rs 1,90,000 No tax / exempt 2 1,90,001 to 3,00,000 10% 3 3,00,001 to 5,00,00 20% 4 Above 5,00,000 30% Income Tax Slabs for ay 10-11 Others & Men (FY 2009-10) 1 Up to Rs 1,60,000 No tax / exempt 2 1,60,001 to 3,00,000 10% 3 3,00,001 to 5,00,000 20% 4 Above 5,00,000 30%

 Levy of surcharge has been withdrawn for personal income tax payers  Education Cess on Income-tax and Secondary and Higher Education Cess on income-tax shall continue to be levied at the rate of two per cent and one per cent respectively of income-tax.