Rambaan - Fast-track Income Tax Notes (CA Intermediate, AY 24-25) PDF

Handwritten Notes Income Tax For CA Intermediate (New Syllabus) AY 24-25 By CA Pooja Kamdar Date Name of the Student Mobile Number This book ….. Is applicable for May 24 and November 24 Attempt. Is...

Handwritten Notes Income Tax For CA Intermediate (New Syllabus) AY 24-25 By CA Pooja Kamdar Date Name of the Student Mobile Number This book ….. Is applicable for May 24 and November 24 Attempt. Is updated as per law including circulars & notification. Chapters are divided into concepts for better understanding. Dear students, Welcome to the PKD Family!! Students, congratulations on your success in CPT/ Foundation! With tremendous love and affection I dedicate this book to the students. Students I have been in the teaching field for the last 21 years. I would like to share my journey with you. I have been a science student and did not have any background of commerce, let CA alone. I learnt every subject from the scratch and that’s when I realized the importance of conceptual learning. So if your fundamentals are clear you can definitely crack the exam. I don’t believe in the terms average student or brilliant student or above average student. I only understand the term “Hardworking students”. So if you are ready to work hard and follow the principles of 3C’s we can achieve great results. Conceptual clarity, commitment and thereby gaining confidence for the exam. I am not saying that your journey is going to be easy but it is going to be worth it. In this journey of yours I shall be there with you. Even in your study leave we shall stay connected. You can Whatsapp us for any querries relating to tax on 78878 75075 Students while preparing these notes I have divided the chapters into concepts. Remember the questions in the exams are not chapter wise but based on the concepts. Also I have inserted some important and interesting quotes from the budgets. So lets just not have a theoretical understanding but a practical approach for studies thus making learning fun. We shall be giving you the following books: Rambaan (Handwritten Income Tax Notes) Prashna Manjusha (Question Bank) Saaransh (Summary Charts) Compiler Happy Learning!! CA Pooja Kamdar Date. Act applicable to us! The Second Female Finance Minister after Indira Gandhi but First full time female Finance Minister. Presented the following budgets : 2019-2020 2020-2021 2021-2022 2022-2023 2023-2024 Direct Tax Collection: 1200000 1137685 1000000 1002037 800000 849713 741945 695792 600000 400000 200000 0 2014-15 2015-16 2016-17 2017-18 2018-19 Total Collection (In Crores) Number of Tax Payers: 90000000 80000000 84521487 70000000 74249558 69225199 60000000 61388342 57036588 50000000 40000000 30000000 20000000 10000000 0 2013-14 2014-15 2015-16 2016-17 2017-18 A "Taxpayer" is a person who either has filed a return of income for the relevant Assessment Year (AY) or in whose case tax has been deducted at source in the relevant Financial Year but the taxpayer has not filed the return of income. ChapterWise Weightage As Per ICAI: Advance tax, TDS, Basic Concepts & TCS, Return of Residential Status Income 10-20% 15%-20% Computation of total income Heads of income 20%-25% 25%-30% Clubbing, Setoff, Deductions 15-20% **Subject to changes as per ICAI Notification 70:30 Paper Pattern 100% 90% 15 Marks MCQ 15 Marks MCQ 80% 70% 60% 50% 40% 35 Marks Descriptive 35 Marks Descriptive 30% 20% 10% 0% Income Tax (50 Marks) GST(50 Marks) 70% 30% **Subject to changes as per ICAI Notification  Paper Pattern & Instruction for Examinees: **(Reference of Old Course) Question Paper Part 2- 70 Marks Part 1 - 30 Marks 1) MCQ- Income Tax Section A Income Tax Section B - GST - Total +GST Total Question 4 - Q1, question 4 - Q5,Q6, Q2,Q3,Q4 Q7, Q8 Answers to be written in OMR sheet. All Question 5 - compulsory questions. Question 1- Compulsory No negative marking Compulsory Out ouf Q2,Q3,Q4 - Solve any 2 Out of Q6, Q7, Q8 - Solve any 2 Remember..!! 1. Solve the paper using black ink ball point pen only. 2. Use of Scientific calculator is not allowed in the examination 3. Income Tax and GST Questions should be solved in 2 separate answer books. a. Section A : Income Tax b. Section B: GST  AIR 1 – Rekha Suthar Black & White Day Classroom Scene Christmas Celebration Another Black & White Day Students of May 2023 Batch PKD Students, PKD’s Pride!!  Index Sr. No Name of the chapter Page No 1. Basic Concepts 1-25 2. Income from Salaries 26-72 3. Income from House Property 73-89 4. Profits and Gains of Business and 90-139 Profession 5. Capital Gains 140-175 6. Income from Other Sources 176-191 7. Agricultural Income 192-199 8. Residence and Scope of Total Income 200-215 9. Income of Other Persons included in 216-222 Assessee’s Total Income 10. Aggregation of Income, Set off and Carry 223-232 Forward of Losses 11. Provisions For Filing Return of Income 233-252 and Self –Assessment 12. Deductions from Gross Total Income 253-259 13. Computation of Total Income & Tax 260-280 Payable 14a. Advance Tax 281-289 14b. Tax Deduction at Source and 290-313 Introduction to Tax Collection At Source 15. Incomes which do not form a part of 314-319 Total Income 16. 115 Series and Special Rates 320-321  1 BASIC CONCEPTS Contents of Chapter C1. – Basic Concepts C2.- Components of Income Tax C3.- Some Important Sections of the Act C4.- So what exactly are we going to learn? C5.- Some Important Definitions in the Income-Tax Act, 1961 C6.- Cases where Income of a previous year will be assessed in the previous year itself C7.- Definition of Income & its concept under Income Tax Act C8.- Rates of Tax for individuals C9.-Concept of Marginal Relief C10.-Lets have a look at the tax liability of other persons C11.-Special tax rates C12.-MMR and AR Concept 1: Basic concepts: 1.1) What is Tax and Why are taxes levied? Tax is your contribution to Government from your Income. It is a fee charged by the Government on a product, income or activity. There are two types of taxes –direct and indirect taxes. Taxes constitute the basic source of revenue to the Government. Revenue raised is used to meet the expenses of the government like defense, providing education, infrastructure facilities. 1.2) Different types of taxes: Direct Tax and Indirect Tax a) Direct Tax : It is levied directly on the income of the person b) Indirect Tax : It is levied on the price of a good or service c) Difference between Direct & Indirect tax: Types of Taxes in India Direct Tax Indirect Tax 1) The person paying the tax to the 1) The person paying the tax to the Government Government directly bears the collects the same from the ultimate consumer. incidence of the tax. Thus, incidence of the tax is shifted to the other 2) Progressive in nature-high rate person. of taxes for people having ability to 2) Regressive in nature – All the consumers equally pay. bear the burden, irrespective of their ability to pay. Swapnil Patni Classes 1  1. Basic Concepts Goods and Services Tax Indirect Taxes Customs Duty Major Direct & indirect taxes Income Tax(Tax on income) Direct Tax Other(Tax on undisclosed foreign income & assets) 1.3) How and who derives its power to levy tax from the Constitution of India Article 246 of the Constitution empowers the State and Union Government to levy taxes the Constitution contains the following three lists under which the Union and State Government have the authority to make laws for the purpose of levy of taxes The following are the lists contained in Article 246: i) Union List: Central Government has the exclusive power to make laws on the matters contained in Union List. ii) State List: State Government has the exclusive power to make laws on the matters contained inthe State List. iii) Concurrent List: Both Central and State Governments have the power to make laws on the matters contained in the Concurrent list. Entry No 82 of the Union List has given the power to the Central Government to levy taxes on Income i.e. Income Tax 1.4)Since When ?- History of Income Tax: 1) Kings Levied Taxes on Artists, Farmers & Traders etc. Taxes were to be paid in form of gold coins, cattle, grains and raw material. 2) Income tax was first introduced in 1860 by James Wilson who was the then Finance Member of British Government. 3) The levy of income-tax in India is governed by the Income-tax Act 1961. In this book we shall briefly refer to this as the Act. a) It came into force on 1st April, 1962. b) It contains 298 sections and XIV schedules. 4) Every year, the Finance Minister of the Government of India introduces the Finance Bill in the Parliament’s Budget Session. When the Finance Bill is passed by both the houses of the Parliament and gets the assent of the President, it becomes the Finance Act. Amendments are made every year to the Income-tax Act, 1961 and other tax laws by the Finance Act. Swapnil Patni Classes 2  1. Basic Concepts 1.5) Who will pay Income tax? Every person who earns income will pay Income Tax (subject to some conditions) Concept 2: Components of Income Tax 2.1) Components of income Tax Law Components of Income Tax law INCOME TAX FINANCE ACT INCOME TAX CIRCULARS/ LEGAL ACT RULES NOTIFICATION DECISIONS Income-tax Act The levy of Income tax in India is governed by the Income-tax Act, 1961. This Act came into force on 1st April 1962. The Act contains 298 sections and XIV schedules. These sections and schedules undergo changes every year with additions and deletions brought about by the Finance Act passed by the Parliament. Know the Income Tax Act on detail in the next page. Finance Act Part A of the budget speech given by the finance minister every year contains the proposed policies of the government in the Fiscal areas. Part B of the budget speech contains detailed tax proposals. Once the Finance Bill is approved by the Parliament and gets the assent of the President, it becomes The Finance Act. Income Tax Rules The Central Board of Direct Taxes (CBDT) is empowered to make rules for carrying out the purposes of the Act. These rules which are framed from time to time for the proper administration of the Income Tax Act are known as the Income tax rules, 1962. Circulars and Notifications Circulars are issued by the CBDT to address certain problems and clarify doubts regarding the scope and meaning of the provisions. Circulars are issued for the guidance of the officers and/or Assessees Circulars are not binding on the assessees, but they can take advantage of beneficial Circulars. Notifications are issued by the Central Government to give effect to the provisions of the Act. The CBDT is also empowered to make and amend rules for the purposes of the Act by issue of notifications. Case Laws The judiciary hears cases of disputes between assessees and the department and gives decisions On various issues. These are known as case laws and can be referred in future Swapnil Patni Classes 3  1. Basic Concepts disputes. The law laid Down by the Supreme Court is the law of the land. Decisions made by High courts will apply to the Specific States. 2.2) Income Tax Act, 1961 298 Sections XIV Schedules Section Sub-Sections Proviso Clauses Explanation Sub Clauses 2.3) Examples I) Section 2: defines terms used in Income Tax Act. 1) Clause 1A of Section 2:- Defines agricultural Income(2) Clause 1B of Section 2:- Defines amalgamation II) Section 10: Exemption 1) Clause 1 of section 10-10(1):- exempts agricultural Income 2) Clause 2 of section10-10(2):- exempts scheme of Income of member from HUF III) Sections can have sub sections IV) Proviso and Explanation: 1) The proviso to a section/sub-section/clause spells out the exception to the provision contained in the respective section/sub-section/clause 2) The Explanation to a section/sub-section/clause gives a clarification relating to the Provision contained in the respective section/sub-section/clause Concept 3: Some Important Sections of the Act Section 1 The Act shall be called as Income Tax Act 1961 It shall come into force from 1st April 1962 It Extends to whole of India Section 4 This is the charging section of the Act Charging 1. Income Tax is Payable For Section 2. Any Assessment Year 3. At the rate specified in Annual Finance Act 4. In respect of total income of 5. Any person In the previous year Swapnil Patni Classes 4  1. Basic Concepts Section 2 It has many subsections and it defines some important terms Concept4: So what exactly are we going to learn? 4.1) Income tax is levied on assessee’s total income. Such total income has to be computed as per the provisions contained in the Income Tax Act, 1961. 4.2) Income Tax Act prescribes five heads of income (Whereas you have unlimited sources of earning income) The First Schedule to the Finance Act 2023 contains four parts which specify the rates of tax 1) Part I of the First Schedule to the Finance Act 2023 specifies the rates applicable for the Assessment year 2023-24 2) Part II specifies the rate at which tax is to be deducted at source for the current financial year 2023-24. 3) Part III gives the rates for calculating income tax for deducting tax from income chargeable under the head “Salaries” and computing advance tax for the financial year 2023-24. Note: Part III of the First Schedule to the Finance Act, 2024 will become Part I of the First Schedule to the Finance Act, 2024 and so on. 4) Part IV gives the rules for computing the net agricultural income. 4.3) Computation of Total Income XXX Salaries (Sec 15 to 17) XXX Income from HP (Sec 22 to 27) XXX PGBP(Sec 28-44) XXX Capital Gains (45-55) XXX IOS(56-59) XXX Gross Total Income XXX (-)deductions under chapter VI A XXX Net Taxable Income XXX Tax XX Less: Rebate if any u/s 87A / Add: Surcharge XX Tax less rebate / Tax plus Surcharge XX Add: Health & Education Cess XX Tax liability XX Less : XX Tax payable / refundable XX Swapnil Patni Classes 5  1. Basic Concepts 4.4) What about legal Income? What about illegal Income? Whether income is legal or illegal it shall be taxable. 4.5) Who will pay Income tax? Every person who earns income will pay Income Tax (subject to some conditions) The definition of person is inclusive i.e. a person includes 1) An Individual 2) A Hindu Undivided Family (HUF) 3) A company 4) A firm 5) An AOP or a BOI, whether incorporated or not 6) A local authority, and 7) Every artificial juridical person e.g. an idol or deity Lets understand point 4.5 in detail 1) Individual i. ‘Individual’ means only a natural person, i.e. human being. ii. It includes both males and females. iii. It also includes a minor or a person of unsound mind. In such a case assessment is made on the guardian or the manager of the minor or the lunatic person. 2) HUF 1. Under the income-tax Act, 1961, a Hindu undivided family (HUF) is treated as a separate entity. 2. Therefore, income-tax is payable by a HUF. 3. HUF has not been defined under the Income-tax Act. 4. It means a family, which consist of all males lineally descended from a common ancestor and includes their wives and daughter. 5. Some members of the HUF are called co-parceners. 6. Earlier, only male descendents were considered as coparceners. With effect from 6th September, 2005, daughters have also been accorded coparcenary status. It may be noted that only the coparceners have a right to partition. 7. Under the Income-tax Act, 1961, Jain undivided families and Sikh undivided families would also be assessed as a HUF. School of Hindu Law Swapnil Patni Classes 6  1. Basic Concepts Dayabaga School Mitakshara School West Bengal and Assam Rest of India except West Bengal and Assam Dayabaga School Mitakshara School of Hindu Law Prevalent in West Bengal and Assam Prevalent in Rest of India. Nobody acquires the right; share in the One acquires the right to the family property by birth as long as the head of property by his birth and not by succession family is living. irrespective of the fact that his elders are living. Thus, the children do not acquire any Thus, every child born in the family acquires right, share in the family property, as a right/share in the family Property. long as his father is alive and only on death of the father; the children will acquire right/share in the property. Hence, the father and his brothers would be coparceners of the HUF. 3) Company (Definition) 1. Company means, any Indian company as defined in sec 2(26); 2. Anybody corporate incorporated by or under the laws of country outside India, i.e., any Foreign company; or 3. Any institution, association or body, whether incorporated or not and whether Indian or non-Indian; which is declared by a general or special order of the CBDT to be a company for such assessment years as may be specified in the CBDT’s order Classes of Companies and their Definition Domestic Company Indian company or any company which has made arrangements for payments of dividends Indian Company A company registered under Indian Companies Act and having the registered office in India Foreign company It means a company which is not a domestic company 4) Firm i) A firm means a firm as defined in the Indian Partnership Act 1932 and also includes LLP. 5) Association of persons (AOP) Swapnil Patni Classes 7  1. Basic Concepts i) When persons combine together for promotion of joint enterprise they are assessable as an AOP when they do not in law constitute a partnership. ii) Co-heirs, co-legatees or co-donees joining together for a common purpose or action would be chargeable as an AOP. 6) Body of Individuals (BOI) i) It denotes the status of persons like executors or trustees who merely receive the income jointly and who may be assessable in like manner and to the same extent as the beneficiaries individually. Thus, co-executors or co-trustees are assessable as a BOI as their title and interest are indivisible. ii) Income-tax shall not be payable by an assessee in respect of the receipt of share of income by him from BOI and on which the tax has already been paid by such BOI. 7) Local Authority The term means a municipal committee, district board, body of port commissioners or other authority legally entitled to or entrusted by the Government with the control or management of a municipal or local fund. 8) Artificial Persons This category could cover every Artificial Juridical Person not falling under other heads. An idol, Or deity would be assessable in the status of an artificial juridical person. Concept 5: SOME IMPORTANT DEFINITIONS IN THE INCOME-TAX ACT, 1961. Previous It means the FY immediately preceding the assessment year. The Year income earned in the previous year is taxed in the assessment year. [Sec 3] Business or profession newly set up during the financial year – In such as case, the previous year shall be the period beginning on the date of setting up of the business or profession and ending with 31st March of the said financial year. If a source of income comes into existence in the said financial year, then the previous year will commence from the date on which the source of income newly comes into existence and will end with 31st March of the financial year. Assessment Assessment year means a period of 12 months commencing on 1st Year April every year. [Section The year in which tax is paid is called the assessment year while the 2(9)] year in respect of income of which the tax is levied is called the Previous year. Assessee Assessee means a person by whom any tax or any other sum of money [Section is payable under this Act. It Includes: Swapnil Patni Classes 8  1. Basic Concepts 2(7)] 1) Every person in respect of whom any proceeding has been taken for The assessment of his income or assessment of fringe benefits. Nov. 13 2) A person who is assessable in respect of income of some other person. May 16 3) Every person who is deemed to be an assessee or an assessee in default under the provisions of this Act. Person The definition of person is inclusive i.e. a person includes [Section 1) An Individual 2(31)] 2) A Hindu Undivided Family (HUF) 3) A company 4) A firm 5) An AOP or a BOI, whether incorporated or not 6) A local authority, and 7) Every artificial juridical person e.g. an idol or deity. Gross u/s 14, income of a person is computed under the following five Total Heads: Income 1) Income from Salary(Sec 15 to Sec 17) 2) Income from House Property(Sec 22 to Sec 27) 3) Income from Business of Profession(Sec 28 to Sec 44) 4) Capital Gains(Sec 45 to Sec 55) 5) Income from Other Sources.(Sec 56 to Sec 59) India The term India means i)The territory of India as per article 1 of the constitution, ii)Its territorial waters, seabed and subsoil underlying such waters, iii)Continental shelf iv)Exclusive economic Zone v) Any other specified maritime zone and the air space above its territory and territorial waters. vi)Specified Maritime zone means the maritime zone as referred to in The Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act. Swapnil Patni Classes 9  1. Basic Concepts Net Total income is income after reducing deduction under chapter VI-A Taxable from the gross total income. This income is also called taxable income Income on which tax has to be imposed. Exemption Every income of the assessee is charged to tax unless specifically (Sec 10 of Exempted under the Act, Sec. 10 provides list of incomes which are The IT not to be include in the total income of the assessee for tax purpose. Act) In other words,these incomes are out of the purview of income tax and for tax purpose, total income is computed without taking these incomes into consideration. Deduction From the GTI of the assessee, deductions are allowed on fulfillment of conditions as prescribed in the various sections of chapter VIA. Chapter VI A of the Act (comprises of sections 80C to 80U) provides for various deductions from gross total income. Relief Income tax liability of assessee is computed on the total income After allowing various exemption & deductions under several sections of the Act. Relief are reduced from the amount of income tax liability so computed on fulfillment of conditions as prescribed in Sec. 86,89, etc. Concept 6: Cases where Income of a previous year will be assessed in the previous year 1. Shipping business of a non-resident [Section 172] Exceptional Case a) Where a ship belonging to or chartered by a non-resident carries passengers, livestock, mail or goods shipped at a port in India. Nov 12 b) The ship is allowed to leave the port only when the tax has been paid or satisfactory arrangement for payment thereof has been made. c) 7.5% of the freight paid or payable to the owner or the charterer or to any other person on his behalf, whether in India or outside India on account of such carriage is deemed to be his income. d) This income is charged to tax in the same year in which it is earned. 2) Persons leaving India [Section 174] a) Where it appears to the assessing officer that any individual may leave India during the current assessment year or shortly thereafter and has no intention of returning. b) The total income of such individual for the period from the expiry of the respective previous year to the probable date of his departure from India is chargeable to tax in that Assessment Year. Eg: Mr X is leaving India for USA on 10.6.2023 and it appears to the Assessing Officer that he has no intention to return. Before leaving India, Mr X may be asked to pay Swapnil Patni Classes 10  1. Basic Concepts income tax on the income earned during the PY 2023-24 as well as on the total income earned during the period 01.04.2023 to 10.06.2023. 3) AOP/BOI/ Artificial Judicial person formed for a particular event or purpose [Section 174A] a) In case that an AOP/BOI etc. is formed or established for a particular event or purpose. b) The assessing officer apprehends that the AOP/BOI is likely to be dissolved in the same year or in the next year. c) The assessing officer can make assessment of income up to the date of dissolution as income of the relevant assessment year. 4) Persons likely to transfer property to avoid tax [Section 175] a) If it appears to the assessing officer that a person is likely to charge, sell, transfer, dispose of or otherwise part with any of his assets to avoid payment of any liability under this Act. b) The total income of such income for the period from the expiry of the previous year to the date when the assessing officer commences proceedings under this section is chargeable to tax in that assessment year. 5) Discontinued business [Section 176] a) Where any business or profession is discontinued in any assessment year. The income of the period from the expiry of the previous year up to the date of such discontinuance may, at the discretion of the assessing officer, be charged to tax in that assessment year.In this case it is at the discretion of the AO Concept 7: Definition of Income and its concept under Income tax Act 7.1) Definition of Income Income This definition of income is inclusive and not exclusive. Income includes: 1. Profits and Gains 2. Dividends 3. Voluntary contributions received by a trust/institution wholly or partly created for charitable Or religious purposes or by an association or institution referred to in section 10(21) or section 23C. 4. The value of any perquisite or profit in lieu of salary taxable under section 17. 5. Any special allowance or benefit other than perquisite given to the employee to meet Expenses wholly, necessarily and exclusively for the performance of the duties of an office or Employment of profit. Swapnil Patni Classes 11  1. Basic Concepts 6. Any allowances granted to the assessee to meet his personal expense at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for increased cost of living. 7. The value of any benefit or perquisite whether convertible into money or not, obtained from The company either by the director or by a person who has substantial interest in the company or by a relative of the director or such person and any such sum paid by any such company in respect of any obligation which, but for such payment would have been payable by the director or other person aforesaid. 8. The value of any benefit or perquisite whether convertible into money or not, which is obtained by any representative assessee mentioned under section 160(1)(iii) and (iv), or by any beneficiary or any amount paid by the representative assessee for the benefit of the beneficiary which the beneficiary would have ordinarily been required to pay. 9. Deemed profits chargeable to tax under section 41 or section 59. 10. Profits and Gains of business or profession chargeable to tax under section 28. 11. Any Capital Gains chargeable under section 45. 12. The profits and gains of any insurance business carried on by Mutual Insurance Company or by A cooperative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of the provisions contained in the first schedule to the Act. 13. The profits and gains of any business of banking (including providing credit facilities) carried On by a cooperative society with its members. 14. Any winnings from lotteries, cross-word puzzles, races including horse races, card games or Any other games of any sort or from gambling, or betting of any form or nature whatsoever. 15. Any sum received by an assessee from his employees as contributions to any provident fund Or superannuation fund or Employees State Insurance Fund or any other fund for the welfare Of such employees. 16. Any sum received under a Keyman Insurance policy including the sum allocated by the way Of bonus on such policy will constitute income. 17. Any sum referred to clause (va) of section 28. Thus any sum, whether received or receivable In cash or in kind, under an agreement for not carrying out an activity in relation to any business, or not sharing any know how, patent, copy right, trade-mark, licence, franchise or any other business or commercial right of any nature, or information or technique likely to assist in the Manufacture or processing of goods or provision of Swapnil Patni Classes 12  1. Basic Concepts services, shall be chargeable to income tax under the head ‘profits and gains of business or profession’. 18. Any sum related to in section 56(2)(x) Gifts received by any person from non- relatives or on or after 1.4.2006, if the aggregate value of such gifts exceed Rs.50,000 during a year. 19. As per Finance Act 2015 the income shall include assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement by the central government or the state government or any other authority. As per Finance act 2016 amended to exclude subsidy or grant or reimbursement which has been taken into account for determination of actual cost of depreciable asset 20.(The fair market value of inventory referred to in Section 28) in case of conversion of inventory into capital asset. (Wef AY 19-20.) 21.Any compensation or other payment referred to in Section 56(2)(xi). (Wef AY 19- 20) 7.2) Some Concepts: a) Regular Income/Casual Receipt Regular Income Casual Income 1) It is a periodic monetary return 1) It does not arise regularly 2) It accrues regularly from definite Sources 2) It has no definite source 3) It is treated as Income for tax purpose 3) It is also treated as income for tax Purpose E.g. Salary Income E.g. Winning from lotteries b) Revenue/Capital Receipt Revenue Receipt Capital Receipt 1) It is recurring receipt 1) It is a one time receipt 2) Revenue Receipt are generally 2) Capital receipts are generally exempt Taxable unless specifically made exempt unless specifically made taxable. Capital receipts are sometimes included in the definition of income in Income Tax. E.g. Business Income E.g. Capital gains i.e. gains on sale of a Salary Income capital assets like land 3) It is receipt referable to circulating 3) It is a receipt referable to fixed capital. The circulating capital is one Capital Tangible and intangible asset which which is turned over and yields income The owner keeps in his possession for or loss in the process Making profits are in the nature of fixed Capital Swapnil Patni Classes 13  1. Basic Concepts 4) Income arising from the sale of a 4) Profits arising from sale of a capital Trading asset are of revenue in nature Asset are capital receipt. It is taxable as and taxable as business income Capital gains because it is covered in the Definition of income 5) Transaction entered in the courses 5)Whereas for a trader in computer, Of business will yield business Income building and land would be a capital asset E.g. traders of Computer sells computer(computer will be stock in trade) 6) Even a single transaction can 6) These are usually one time receipts. constitute business. Repetition of such E.g. Liquidated damages linked with Transactions is not necessary. procurement of a capital asset is a capital Receipt. E.g. compensation on termination Of Agency business is capital receipt. c) Net Receipt/Gross Receipt Net Receipt Gross Receipt 1) Income means Net Receipt and not 1) Gross receipt cannot be treated as Gross Receipt Income. 2) Net receipts are arrived at after 2) Gross receipt are the total receipts Swapnil Patni Classes 14  1. Basic Concepts Deducting expenditure incurred. without deducting expenses d) Method of accounting 1) Assessee can maintain books on basis of cash system or mercantile system 2) In cash system expenses are recorded on payment basis and Income on receipt basis. 3) In mercantile system receipt and expenses are recorded on due basis 4) However only in case of PGBP and IOS income is calculated either on due or receipt basis i.e it Is dependent on assessee’s method of accounting. e) Application and diversion of Income Application of Income Diversion of Income Application of income means to discharge an Where by virtue of an obligation by overriding obligation after such income reaches the title, income is diverted before it reaches the assessee. assessee, it is known as diversion of income. The income would be taxable in the hands of the It is not taxable (i.e., even if the assessee were person who applies it. to collect the income he does so on behalf of the person to whom it is payable). Concept 8: RATES OF TAX for Individuals/HUF/AOP/BOI/AJP i. Optional Method 1) Individuals, HUFs, AOP/BOI and every Artificial Juridical Persons the rates of tax applicable for the A.Y 2024-25 are as follows: Particulars Slab Rate Individuals below 60 years/ Upto 2,50,000 Nil AOP/BOI/AJP/HUF/NR’s 2,50,001 – 5,00,000 5% 5,00,001 – 10,00,000 20% 10,00,001 and above 30% Resident Individual Senior Upto 3,00,000 Nil Citizen(60 years and 3,00,001 – 5,00,000 5% above) 5,00,001 – 10,00,000 20% 10,00,001 and above 30% Resident Individual Super Upto 5,00,000 Nil Senior Citizen (80 years 5,00,001 – 10,00,000 20% and above) 10,00,001 and above 30% Swapnil Patni Classes 15  1. Basic Concepts a. Resident Individual – 60 Years & above – Basic Exemption Limit Rs. 3,00,000 b. Resident Individual – 80 Years & above – Basic Exemption Limit Rs. 5,00,000The tax rates mentioned above are also applicable to all non-resident individuals irrespective of their age. i.e. for all non-residents the basic exemption limit shall be 2,50,000. 4) Surcharge or Rebate and Education Cess 1) Surcharge @ 10 % for Ind/HUF/AOP/BOI/AJP NTI Above 50 lakhs – 1 Cr 2) Surcharge @ 15 % for Ind/HUF/AOP/BOI/AJP Above 1 Cr to 2 Cr 3) Surcharge @ 25% for Ind/HUF/AOP/BOI/AJP Above 2 Cr to 5 Cr 4) Surcharge @ 37% for Ind/HUF/AOP/BOI/AJP Above 5 Cr 5) Rebate u/s 87A = tax or 12500 whichever is 1. It is a tax relief. lower. (consider tax before surcharge and cess) 2. Applicable to Resident education Individuals 3. Rebate = Income Tax or Rs 12,500 whichever is less. 4. Consider income before surcharge and HEC 6) Health and education cess @ 4% It comes into tax calculation 2% - towards primary education part at the end. It is 1% - towards secondary & higher education calculated @ 4% on Tax + 1% - health cess surcharge/tax less rebate. 7) The enhanced rate of surcharge of 25% and Refer chart on next page. 37% is not applicable for STCG u/s 111A and LTCG u/s 112A,112 and on dividend income. For AOP separate surcharge rules are different wef FA 2022 WEF FA 2022 Surcharge for AOP AOP - Only companies Other AOP are members NTI Rate Above 50 lakhs to 1 Cr 10% Above 1 Cr to 2 Cr 15% Above 2 Cr to 5 Cr 25% Swapnil Patni Classes 16  1. Basic Concepts Above 5 Cr 37% NTI – above 50 lakhs NTI – above 1 crore upto 1 crore Surcharge @ 10% Surcharge @ 15% Rounding off Sec. 288A Round off of Total Income r/off to nearest rupee multiple of Rs. 10 Sec. 288B Round off of Total Tax r/off to nearest rupee multiple of Rs. 10 ii. Concessional tax regime for Ind/HUF/AOP/BOI/AJP 1. Individuals and HUF’s have an option to pay tax in respect of their total income (other than income chargeable to tax at special rates under chapter XII) at following concessional rates, if they do not avail certain exemptions/deductions. Income Tax Rates Upto 3,00,000 Nil From 3,00,001 to 6,00,000 5% From 6,00,001 to 9,00,000 10% From 9,00,001 to 12,00,000 15% From 12,00,001 to 15,00,000 20% Above 15,00,001 30% Individuals and HUF’s exercising option u/s 115BAC are not liable to alternate minimum tax u/s 115JC. We will study this Section in detail in Chapter of “Combined Questions” “Chapter 13” 2. Surcharge NTI Surcharge Above 50L upto 1 Crore 10% Above 1 Crore upto 2 Crore 15% Above 2 Crore 25% 3. HEC @ 4% 4. Rebate Applicable for resident Individual whose NTI is upto 7,00,000 = 25,000 or tax Swapnil Patni Classes 17  1. Basic Concepts iii. Let’s Summarise Swapnil Patni Classes 18  1. Basic Concepts Some special points: A resident individual whose 60th birthday falls on 1st April, 2024 would be treated as having attained the age of 60 years in the P.Y. 2023-24 and would be eligible for higher basic exemption limit of Rs. 300000 in computing his tax liability for A.Y. 2024-25. Likewise, resident individual whose 80th birthday falls on 1st April 2023 would be treated as having attained the age of 80 years in the P.Y. 2023-24, and would be eligible for higher basic exemption limit of Rs. 500000 in computing his tax liability. Swapnil Patni Classes 19  1. Basic Concepts Concept 9 : Concept of Marginal Relief The purpose of marginal relief is to ensure that the increase in amount of tax payable (including surcharge) due to increase in total income of an assessee beyond the prescribed limit should not exceed the amount of increase in total income Marginal relief is available in case of Individual/HUF/AOP/BOI/AJP Particulars Marginal Relief i) Total income > Step 1:Compute income tax payable on total Income & add 50 lakhs ≤ 1 surcharge @10% on such income Tax(A) Crore Step 2: Compute income tax payable on 50 lakhs Step 3: total income (-)50 lakhs Step 4: Add the amount computed in step 2 and step 3 (B) Step 5 : income tax payable on total income (along with surcharge)would be the lower of the amount arrived at in step 1(A) or Step 4 (B). Consequently if A>B the marginal relief would be A-B. ii) Total income> Step 1: Compute income tax payable on total Income and add 1 crore ≤ 2 surcharge @15% on such income Tax(C) crore Step 2: Compute income tax payable on 1 crore + surcharge on such Income tax @ 10%. Step 3: total income (-)1 crore Step 4: Add the amount computed in step 2 and step 3 (D) Step 5 : income tax payable on total income (along with surcharge)would be the lower of the amount arrived at in step 1(C) or Step 4 (D). Consequently if c>D the marginal relief would be C-D. iii) Total income> Step 1: Compute income tax payable on total Income and add 2 crore ≤ 5 surcharge @25% on such income Tax(E) crore Step 2: Compute income tax payable on 2 crore + surcharge on such Income tax @ 15%. Step 3: total income (-)2 crore Step 4: Add the amount computed in step 2 and step 3 (F) Step 5 : income tax payable on total income (along with surcharge)would be the lower of the amount arrived at in step Swapnil Patni Classes 20  1. Basic Concepts 1(E) or Step 4 (F). Consequently if E>F the marginal relief would be E-F. iv) Total income Step 1: Compute income tax payable on total Income and add > 5 surcharge @37% on such income Tax(G) Crore Step 2: Compute income tax payable on 5 crore + surcharge on such Income tax @ 25%. Step 3: total income (-)5 crore Step 4: Add the amount computed in step 2 and step 3 (H) Step 5 : income tax payable on total income (along with surcharge)would be the lower of the amount arrived at in step 1(G) or Step 4 (H). Consequently if G>H the marginal relief would be G-H. 1. Firm/ LLP/ Local Authority Income Tax 30%(no BEL) Surcharge Total Income>1 crore 12% HEC 4% Concessional Tax Regime NA Marginal relief Applicable 2. Co-operative Society Income Tax Total Income (in Rs.) Rate of Tax Upto 10,000 10% Rs 10,001 to 20,000 20% Above 20,000 30% Surcharge Total income > ` 1 crore but 7% is ≤ ` 10 crore Total income is > ` 10 crore 12% HEC 4% Concessional Tax Regime Section 115BAD or section 115BAE (Final) Marginal relief Applicable Swapnil Patni Classes 21  1. Basic Concepts Concessional Tax Rates for Co-operative Society A. Domestic Company Income Tax Tax Rate a. Total turnover or gross receipts in the P.Y. 2021- 25% 22 ≤ ` 400 crore - b. Other domestic companies 30% Surcharge Total income > ` 1 crore but is ≤ ` 10 crore 7% Total income is > ` 10 crore 12% HEC 4% Concessional Tax Regime Final (Section 115BAA/115BAB) Marginal Relief Applicable Swapnil Patni Classes 22  1. Basic Concepts B. Foreign Company Income Tax 40% Surcharge a. Total income > ` 1 crore but is ≤ ` 10 crore 2% Total income is > ` 10 crore 5% HEC 4% Concessional Tax Regime NA. Marginal Relief Applicable Concessional Tax Regime for Domestic Companies Following two options are available to the domestic company (they can exercise the option anytime before filing return for AY 2020-21 or in any subsequent years ) Sectionsns 115BAAB 11115BAB5BAB Type of Company Domestic New Domestic Companies engaged in manufacturing research, Companies distribution in relation to manufactured article Option to Tax @ 22% 15% Surcharge 10% 10% Cess 4% 4% Conditions 1. The company has been set-up & registered on/after the 1st day of October, 2019, and has commenced manufacturing on or before the 31st March, 2024 (wef FA 2022) Should forgo 1)10AA-relating to SEZ these benefit 2) Additional depreciation (applicable for 3)32AD-Deduction for investment in new plant and machinery in 4 States both 115BAA & 4) 33AB-Tea/Coffee/Rubber development allowance. 115 BAB) 5) 33ABA-Site restoration fund. 6)35- certain expenses of scientific research 7)35AD-Deduction in respect of expenditure on 14 specified Business 8) 35CCC-Expenditure on agricultural extension project. 9) 35CCD-Expenditure on skill development project. 10)Deduction under Part C of Chapter VIA other than Section 80JJAA of the Act 11) No Set off of Losses allowed from earlier years due to the above mentioned benefits (Point 1 to 10) Swapnil Patni Classes 23  1. Basic Concepts Concept 11: SPECIAL TAX RATES (i.e. RATES SPECIFIED BY THE INCOME-TAX ACT) FOR ASSESSMENT YEAR 22-23 Section Income Rate Of Tax 112 LTCG (other than LTCG taxable as per sec 112A) 20% (shall be dealt with in detail in chapter “Capital Gains”) 112A LTCG on transfer of- equity share in a company, 10%(LTCG > Unit of equity oriented fund(ULIP policy),unit of business trust. 1,00,000) Condition for availing the benefit of this concessional rate is that Securities transaction tax should have been paid--- In case of capital asset Time of payment of STT Equity shares in a company Both at the time of transfer & acquisition Unit of equity oriented fund or Unit of business trust. Note: LTCG upto 1,00,000 is exempt. LTCG exceeding 1,00,000 is taxable @ 10%. (shall be dealt with in detail in chapter “Capital Gains”) 111A Long term capital gains on transfer of- equity share in a company, Unit of equity oriented fund, (ULIP policy), unit 15% of business trust. Conditions for availing the benefit of this concessional rate are -Transaction of sale of such equity share or unit should be entered on or after 1-10-2004. And such transaction should be chargeable into securities transaction tax(shall be dealt with in detail in chapter “Capital Gains”) 115BB Winning from lotteries,crossword puzzles, races including 30% horse races Card games or other games of any sort, gambling, betting, of any form or nature (shall be dealt with in detail in chapter of IOS) 115BBJ Net winnings from Online games 30% Swapnil Patni Classes 24  1. Basic Concepts 115BBE Unexplained money, investment, expenditure, etc deemed 60% as income u/s 68 or sec 69 or sec 69A or Sec 69B or sec 69C/69D (shall be dealt with in detail in chapter PGBP) Concept 13: MMR & AR “Average Rate of Tax” (AR) means the rate arrived at by dividing the amount of Income-tax calculated on the total income, by such total income.“Maximum Marginal rate” (MMR) means the rate of income-tax (including surcharge on the income tax, if any) applicable in relation to the highest slab of income in the case of an individual, AOP or BOI, as the case may be, as specified in Finance Act of the relevant year. Questions for Practice 1. Calculate the tax liability for the following a. NTI = 50,85,000 b. NTI = 52,00,000 c. NTI = 1,01,00,000 2. Mr. Agarwal aged 40 years and a resident in India, has a total income of ` 4,50,00,000, comprising long term capital gain taxable under section 112 of ` 55,00,000, STCG taxable under section 111A of ` 65,00,000 and other income of ` 3,30,00,000. Compute his tax liability for A.Y.2024-25. Assume that Mr. Kashyap has not opted for the provisions of section 115BAC. (Module Question from Basic Concepts) 3. Mr. Sharma aged 62 years and a resident in India, has a total income of 2,30,00,000, comprising long term capital gain taxable under section 112 of 52,00,000, short term capital gain taxable under section 111A of ` 64,00,000 and other income of` 1,14,00,000. Compute his tax liability for A.Y.2023-24. Assume that Mr. Sharma has not opted for the provisions of section 115BAC. Swapnil Patni Classes 25  2 INCOME UNDER THE HEAD SALARIES Contents of Chapter (Section 15 to 17) C1 –Introduction C2- Retirement & other Benefits C3- Allowances C4 –Perquisites C5- Deduction C6 - Keyman Insurance Policy C7- Relief Under section 89 C8 -Tax on perquisite paid by the employer Sec. 10(10CC) Concept 1: Introduction 1.1)SALARY (tax incidence in the hands of the employee) There should be relationship of employer and employee between the payer and the payee i.e. amount received by an individual shall be taxable as salary only if there is a relationship of employer and employee. Salary may be received from former, present or prospective employer. The remuneration should be in respect of Any payment received from a person who is not the employer will not be taxed as salary. E.g.1 Partners remuneration from the firm is not taxed a salary as there is no relation of employer and employee between the firm and the partner. Swapnil Patni Classes26  2. Income under the head Salaries E.g.2 Salary received by Member of Parliament is taxed under the head Income from Other Sources. 1.2)As per section 15 the basis of charge is “Due or receipt whichever is earlier”. Salary due in the previous year whether actually paid or not will be taxable in the previous year. Similarly, Advance salary received will be taxable in the year of receipt. The method of accounting followed by the employee is irrelevant. So what is the Basis of Charge? Lets answer it again, what is the basis of charge for salary? EG: Mr. X got 12 months’ salary during the year. In the month of March he also got 2 months’salary in advance. During the year how much salary will be taxable? 1.3) Forgoing of salary: As per sec 15(a), any salary due from employer or a former employer to an assessee in previous year, whether paid or not, will be taxable in his hands. If therefore an employee forgoes his salary, it does not mean that such a salary is not taxable. Such voluntary waiver or forgoing by an employee of salary due to him is merely an application of income and is chargeable to tax. E.g. Mr. X wants to donate his 2 days salary to a Charitable Trust. This will be taxable in his hands. 1.4) Surrender of salary: Where an employee opts to surrender his salary (including allowances) To the central government under voluntary surrender of salaries (exemption from taxation) Act, 1961,the salary so surrendered would not be taxable in his hands and will be excluded from his Taxable income. 1.5) Difference between advance salary and advance against salary Advance Salary - 1) Salary received in advance is income 2) Income, Taxed on due or receipt Advance against salary - 1) Loan 1.6) Full time or part time employment Both taxable under salary Swapnil Patni Classes27  2. Income under the head Salaries 1.7) Arrears of Salary Normally Salary is taxed on due or receipt basis. However sometimes it is not possible Sometimes there is a revision of previous year salary then such arrears are taxed in the year of receipt. 1.8) Salary paid tax free- It means that the employer bears the burden of the tax on the salary of the employee. In such a case, the income from salaries in the hands of the employee will consist of his salary income and also the tax on this salary paid by the employer. However as per sec 10(10CC), the income tax paid by the employer on the non-monetary perquisites on behalf of the employee would be exempt in the hands of the employee. 1.9) Computation of salary Particulars Amt(Rs) 1) Basic Salary - Fully taxable XXX 2) DA - Fully taxable XXX 3) Commission - Fully taxable XXX 4) Bonus - Fully taxable XXX Note - Arrears of bonus become taxable if not taxed earlier. 5) Advance Salary - Fully taxable XXX 6) Gratuity - (Concept 4.1) XXX 7) Pension - (Concept 4.2) XXX 8) Leave Salary - (Concept 4.3) XXX 9) Entertainment allowance XXX 10) Allowances XXX 11) Employer’s contri to PF XXX 12) Perquisites XXX 13) VRS Compensation XXX 14) Superannutation Fund XXX 15) Retrenchment Compensation XXX 16) Profits in lieu of salary XXX 17) Sum received under keyman insurance policy XXX 18) Contri to Agniveer XXX (The contribution made by the Central Government in the previous year, to the Agniveer Corpus Fund account of an individual enrolled in the Agnipath Scheme referred to in section 80CCH.) (w.e.f. FA 2023) Swapnil Patni Classes28  2. Income under the head Salaries 19) Wages 20) Arrears of salary 21) Salary from previous employer 22) Incentives GROSS SALARY XXX Less - Deduction u/s 16 - 16 (ia) Standard Deduction (XX) 16 (ii) Entertainment Allowance (XX) 16 (iii) Profession Tax (XX) (Allowed only to Govt. Employee) NET SALARY XXX Concept 2: Retirement & other Benefits 2.1) Gratuity (Exemption u/s 10(10)) Swapnil Patni Classes29  2. Income under the head Salaries 2.2) Pension/Annuity Pension is a periodical payment received from the employer on or after retirement. Pension can be commuted or uncommutted. Pension/Annuity received from person other than employer is taxable under IOS Swapnil Patni Classes30  2. Income under the head Salaries Note : 1. Pension from UNO received by employee/Family member - exempt 2. Family pension received by the family members of armed forces - exempt 3. Family Pension: It is the pension received by the family members of the deceased employee. Family pension is not taxable under the head salaries but is taxable under the head-“IOS.” (It will be learnt in detail in the chapter of IOS) 2.3) Leave Encashment Sec 10 (10AA) a) Employees are entitled to certain leave during the year as per the service rules. these leaves may or may not be availed by the employee. b) If leave is not availed then: 1. Leave may lapse 2. Leave may be allowed to be enchased every year. 3. Leave may be accumulated and enchased at the time of retirement Encashment of accumulated leave at the time of retirement or during the service is known as Leave encashment c) Tax Treatment Swapnil Patni Classes31  2. Income under the head Salaries 1. Avg Salary : [Avg of last 10 months uoto date of Retirement] Average salary p.m. = Salary for 10 months Avg. Basic salary of last 10 months xxx Avg. DA (in terms) of last 10 months xxx Avg. Turnover Commission of last 10 months xxx Salary of last 10 months = xxx 2. Salary = B + DA (If...) + Comm (% of TO) 3. Leave at credit = Leave allowed - Leave Taken 4. For leave allowed, Income Tax has a ceiling of 30 days per year. 5. Consider completed no of years of service for calculation of leave at credit. 2.4) Retrenchment Compensation Sec. 10(10B) a) Retrenchment compensation means compensation paid under Industrial disputes Act 1947 b) Exemption is least of the following: 1. Retrenchment compensation received Swapnil Patni Classes32  2. Income under the head Salaries 2. Amount specified by Central Government Rs.5,00,000/- 3. Amount calculated in accordance with Sec.25F (b) of the Industrial Disputes Act.1947. 15/26 x Avg. salary of last 3 months x completed yrs of service and Part thereof in excess of 6 months. 2.5) Sec.10 (10C):Compensation received at the time of Voluntary retirement Scheme (VRS)Rule 2BA 1. Compensation is received by an employee under Voluntary Retirement or Voluntary Separation Scheme. 2. VRS is as per prescribed guidelines 3. Exemption – Least of the following a. Compensation received b. Maximum sum Rs.5,00,000 c. 3M X Salary p.m. X Completed no of yrs. d. Salary p.m. X No. of balance months of service 4. Either claim this exemption or relief u/s 89. 5. Prescribed Guideline Rule 2 BA a. It applies to an employee who has completed 10 years of services or completed 40 years of age b. It applies to all employees of an authority or co-operative society except directors of Company and of a co-operative society. c. The scheme has been drawn to result overall reduction in the existing strength of employees. d. The vacancy caused by the VRS is not to be filled up. e. The retiring employee of a company shall not be employed in another company or concern belonging to the same management. Illustration Mr. Dutta received voluntary retirement compensation of Rs. 7,00,000 after 30 years 4 months of service. He still has 6 years of service left. At the time of voluntary retirement, he was drawing basic salary Rs. 20,000 p.m.; dearness allowance Swapnil Patni Classes33  2. Income under the head Salaries (which forms part of pay) Rs. 5,000 p.m. Compute his taxable voluntary retirement compensation, assuming that he does not claim anyrelief under section 89. Solution: Particulars Rs. Voluntary retirement compensation received Less: Exemption under section 10(10C) [See note below] Taxable voluntary retirement compensation Note: exemption is to the extent of least of the following: Compensation actually received = Statutory limit = Last drawn salary × 3 × completed years of service = Last drawn salary × remaining month of service = 2.6) Employer’s contribution to the account of an employee under pension scheme u/s 80CCD Employer’s contribution to the account of an employee under pension scheme u/s 80CCD Employers contribution to NPS is treated as perquisite in the hands of employee. Also employee gets deduction u/s 80CCD upto 14% of salary contributed by Central Government and 10% of salary contributed by any other employer Now this benefit will be covered under an upper limit of 7,50,000 as per Finance Act 2020 We will learn this in detail in chapter of deductions ie Section 80CCD. 2.7) PROFIT IN LIEU OF SALARY Sec. 17(3) It includes the following: (i) Compensation on account of termination of his employment Swapnil Patni Classes34  2. Income under the head Salaries The amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment. (ii) Compensation on account of modification of the terms and conditions of employment Usually, such compensation is treated as a capital receipt. However, by virtue of this provision, the same is treated as a revenue receipt and is chargeable as salary. Note :- The payment must be arising due to master-servant relationship between the payer and the payee. If it is not on that account, but due to considerations totally unconnected with employment, such payment is not profit in lieu of salary. Example: A was an employee in company in a Pakistan. At the time of partition, he migrated to India. He suffered loss of personal movable property in Pakistan due to partition. He applied to his employer for compensating him for such loss. Certain payments were given to him as compensation. It was held that such payments should not be taxed as ‘Profit in lieu salary’. (iii) Payment from provident fund or other fund Any payment due to or received by an assessee from his employer or former employer from a provident or other fund other than - Gratuity [Section 10(10)] - Pension [Section 10(10A)] - Compensation received by a workman under Industrial Disputes Act, 1947 [Section 10(10B)] - from provident fund or public provident fund [Section 10(11)] - from recognized provident fund [Section 10(12)] - from approved superannuation fund [Section 10(13)] - any House Rent Allowance [Section 10(13A)], to the extent to which it does not consist of employee’s contributions or interest on such contributions. (iv) Keyman Insurance policy Any sum received by an assessee under a Key man Insurance policy including the sum allocated by way of bonus on such policy. (v) Lump sum Payment or otherwise Any amount, whether in lump sum or otherwise, due to the assessee or received by him, from any person - (a) before joining employment with that person, or (b) after cessation of his employment with that person. 2.8) Place of accrual of salary income Sec 9(1) a) Place of accrual of salary = place where the services are rendered. Swapnil Patni Classes35  2. Income under the head Salaries b) If services are rendered in India then the salary is deemed to accrue in India even if salary is paid outside India. Also Pension and leave salary paid abroad is deemed to accrue in India if it is paid in respect of services rendered in India. c) Exception–paid by Indian Government to Indian National shall always accrue in India even if service is rendered outside India. d) Exemption - Allowances and perquisites paid by Indian Government to Indian National working abroad are exempt from tax. Concept 3:ALLOWANCES Allowance is a fixed quantity of money given in addition to salary to meet a particular requirement connected with the services. Allowances are fixed and pre-determined. Allowances are received in cash. Only for some allowances there is exemption whereas most of the allowances are fully taxable. 3.1 House Rent Allowance: a. This is an allowance given to allow the employee to pay rent for an accommodation. This exemption is available only if the employee is paying rent for the accommodation. If he does not pay rent then the entire HRA received is taxable. b. HRA is exempt to least of following 1. HRA Received 2. 50% of Salary (metropolitan cities) or 40% of Salary (other cities) 3. Rent paid - 10% of Salary. Following are 4 metropolitan cities: c. Salary for HRA = Basic + Dearness Allowance + Commission (If forming part of (If received an % of to) retirement benefit) d. Exemption under HRA is not available where: Swapnil Patni Classes36  2. Income under the head Salaries 1. The employee lives in his own house 2. Employee lives in a house for which he does not pay any rent. 3. If rent paid does not exceed 10% of salary. 4. If assessee opts default tax regime u/s 115 BAC. e. HRA should be calculated on a monthly basis if any of the following factors change 1. Salary of employee 2. House rent allowance 3. Rent paid 4. The place where the house is taken on rent. 3.2) Section 16 (ii) Entertainment Allowance a) Entertainment Allowance is added as an allowance in salary while calculating Gross Salary. Then a deduction is allowed only in case of Government employees. b) Deduction is least of the following: 1) Entertainment Allowance actually received. 2) Rs. 5,000/- p.a. (Statutory Limit) 3) 20% of Basic Salary. 3.3) Other Allowances Allowances where exemption is dependent on expenditure: Swapnil Patni Classes37  2. Income under the head Salaries No. Name of allowance Purpose 1 Travelling allowance Any allowance granted to meet the cost of travel on tour or on transfer of duty. It includes any sum paid in connection with transfer, packing and transportation. 2. Conveyance allowance Any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office. 3. Helper allowance Any allowance, granted to meet the expenditure of a helper engaged for office duties. 4. Academic allowance Any allowance, granted for encouraging academic, research and training. 5. Uniform allowance Any allowance, granted to meet the expenditure incurred on purchase/maintenance of uniform for office purpose. 6. Daily Allowance Any allowance, whether granted on tour/for period of journey in connection with transfer, to meet the ordinary daily charges. Allowances dependent on amount specified: No. Name of allowance Amt Specified as Exemption 1. Children Education allowance 2. Hostel allowance 3. Counter Insurgency allowance (for armed forces when Maximum Rs 3,900 per month they are posted in States where the public is against the ruling Government) 4. Transport allowance granted to an employee who is Maximum Rs 3,200 per month blind or deaf and dumb or orthopedically handicapped with disability of the lower extremities of the body, Office Residence to meet his expenditure for commuting between his residence and place of duty. 5. Underground allowance for working in coal mines. Maximum 800 per month 6. Tribal Area allowance(specified places) Maximum 200 per month 7. Allowance to employees working in a transport 70% of such allowance up to a system to meet personal expenditure during his duty maximum of Rs.10,000/- per to another place Month 8. Island (duty) allowance granted to the member of Maximum 3,250 per month Armed forces in Andaman & Nicobar and Lakshadweep Group of Islands. Note: An employee, being an assesse who opts for the provisions of the section Swapnil Patni Classes38  2. Income under the head Salaries 115BAC would be entitled for exemptions only in respect of transport allowance granted to an employee who is blind or deaf and dumb or orthopedically handicapped with disability of the lower extremities of the body to the extent of 3200 p.m. Conclusion for Allowance 1) Hint: Name of the allowance is 2) Taxability of allowances 3) Some examples of fully taxable allowances are a) Entertainment allowance b) Dearness allowance c) Overtime allowance d) Fixed medical allowance e) City Compensatory allowance (to meet increased cost of living in cities) f) Interim allowance g) Servant allowance h) Project allowance i) Tiffin/lunch/diner allowance j) Any other cash allowance k) Warden allowance l) Non-practicing allowance m) Special Allowance,etc 3.4) Some examples of fully exempt allowance are 1. Allowable to High Court Judges: Any allowance paid to a High Court under section 22A(2) ofthe High Court Judges (conditions of service) Act, 1954 is not taxable. 2. Allowance receive from United Nations Organization (UNO): Allowance paid by the UNO to its employees is not taxable by virtue of section 2 of the United Nations (Privileges and Immunities) Act, 1947. 3. Compensatory allowance under Article 222(2) of the Constitution: Compensatory allowance received by judge under article 222(2) of the constitution is not taxable since it is neither salary not perquisite. Swapnil Patni Classes39  2. Income under the head Salaries 4. Sumptuary allowances: Sumptuary allowance given to High Court Judges under section 22C of the High Court Judges (conditions of service) Act, 1954 and Supreme Court Judges under section 23B of the Supreme Court Judges (Conditions of service) Act, 1958 is not chargeable to tax 5. Allowance payable outside India [Section 10(7)] Allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India for services rendered outside India are exempt from tax. Students may remember that in such cases under section 9(1)(iii), the income chargeable under the head ‘Salaries’ is deemed to accrue in India. The residential status of the recipient will, however, not affect this exemption. Concept 4:PERQUISITES 4.1) What is perquisites? a) A Perquisite is an additional benefit derived by the employee by virtue of his position. Perquisitemay be received in kind. Perquisite must be from employer to the employee. b) Reimbursement of expenses for discharging office duties is not a perquisite. 4.3) Tax Treatment of Provident funds Sec.10 and 10 (12) a) Understanding the concept b) Different Types of Provident Fund i) Recognized provident fund(RPF) Recognized provident fund means a provident fund recognized by the commissioner of income-tax for the purposes of income-tax. ii) Unrecognized provident fund (URPF) A fund not recognized by the Commissioner of income-tax is Unrecognized provident fund. iii) Statutory provident fund (SPF) The SPF is governed by provident funds Act, 1925. It is applies to employees of Swapnil Patni Classes40  2. Income under the head Salaries Government, railways, semi-government, institutions, local bodies, universities and all recognized educational institutions. iv) Public provident fund(PPF) Public provident fund is operated under the public provident fund Act, 1968 The fund is open to every individual. An individual may contribute to the fund on his own behalf as also on behalf of a minor of whom he is the guardian. For getting a deduction under section 80C, a member is required to Contribute to the PPF a minimum of Rs. 500 in a year. The maximum amount that may qualify for deductionon this account is Rs. 1,50,000 as per PPF rules Interest on PPF is exempt from tax. c) Taxability of Provident Fund Sec. Particulars SPF RPF URPF PPF 10(11) Employer’s Exempt Exempt up to Exempt N.A.(as there Contribution 12% is only of Salary Assesses Own contribution) 10(11) Interest credited Exempt Exempt up to Exempt Fully exempt (See note 9.5% p.a (See 3 below) note 3 below) 80C Employees Available Available Not Eligible for Contribution Available deduction u/s 80C 10(12) Lump sum payment at Exempt Exempt (as per Taxable (as Exempt the time of retirement/ u/s Note 1) u/s Per Note u/s 10(11). termination Of service 10(11) 10(12) 2) Note 1: If following conditions are satisfied by the employee: i) 5 or more years of continuous service with the employer. ii) Not able to render continuous service due to ill health. Accumulated balance will be taxable if the fund becomes unrecognized Swapnil Patni Classes41  2. Income under the head Salaries Note 2: Payment from unrecognized Provident fund is taxable as follows - Particulars Chargeability to Tax Employee’s Contribution Getting back own money invested not an income Employer’s Contribution Taxable as “Income from Salaries” Interest on Employer’s Contribution Taxable as “Income from Salaries” Interest on Employee’s Contribution Taxable as “Income from other Sources” Meaning of Salary HRA = B + DA (If...) + Comm (% of TO) Note 3: Amendment by FA. 2021 Exemption u/s 10(11) or 10(12) not available for interest accrued during the PY to the extent it relates to the contribution made by that person/employee exceeding `2,50,000 in any PY in that fund, on or after 01/04/21. If in that fund employer has not made any contribution, then a higher limit `5,00,000 would be applicable. It may be noted that interest accrued on contribution to such funds upto 31/03/21 would be exempt without any limit, even if the accrual of income is after that date. The above is effective from FA 2021. w.e.f. AY 22-23. Interest income accrued during the previous year which is not exempt from inclusion in the total income of a person (taxable interest) shall be computed as the interest accrued during the previous year in the taxable contribution account. For this purpose, separate accounts withing provident fund account shall be maintained during the previous year 2021-22 and all subsequent years for taxable contribution and non taxable contribution made by a person. Sr.No Medical treatment in Exempt/Taxable 1. Government hospital 2. Employers Hospital 3. Income Tax approved hospital 4. In Private Hospital/other hospital Swapnil Patni Classes42  2. Income under the head Salaries 5. Medical treatment outside India ___________________ & ____________________: Will not be treated as perquisite if the expenses are approved by RBI. __________________________________________: Will not be treated as perquisite if the GTI of the employee does not exceed Rs 200000 p.a Note - Travel & stay abroad of patient + 1 attendant allowed 6. Group Medi-claim insurance obtained for Exempt from tax Employees 7. Any medical expenses in relation to Covid-19 Exempt from tax (FA 2022) incurred by employer for his employee or his family members 8. Premium paid for health insurance of employee Exempt 9. Reimbursement of premium for health insurance Exempt of employee or family member. Yearly threshold limit is`5,00,000, if the contribution by such person/ employee is in a fund in which there is no employer’s contribution and `2,50,000 in other cases. Conditions for Covid related expenses to be exempt. i. The Covid-19 positive report of the employee or family member. ii. All necessary documents of medical treatment of the employee or his family member for Covid-19 or illness related to Covid-19 suffered within 6 months from the date of being determined as Covid-19 positive; and iii. A certification in respect of all expenditure incurred on the treatment. d) Illustration: Mr. A retires from service on December 31, 2023, after 25 years of service. Following are the particulars of his income/investments for the previous year 2023- 24:- Rs. Basic pay @ 16,000 per month for 9 month 1,44,000 Dearness pay (50% forms part of the retirement benefits) 8,000p.m for 9 72,000 months Lumpsum payment received from the unrecognized provident fund 6,00,000 Deposits in the PPF account 40,000 Swapnil Patni Classes43  2. Income under the head Salaries Out of the amount received from the unrecognized provident fund, the employer’s contribution was Rs. 2,20,000 and the interest thereon Rs. 50,000. The employee’s contribution was Rs. 2,70,000 and the interest thereon Rs. 60,000. What is the taxable portion of the amount received from the unrecognized provident fund in the hands of Mr. A for the assessment year 2023-24 (module question) Solution: Taxable portion of the amount received from the URPF in the hands of Mr. A for the A.Y. 2023-24 is computed here under. Particulars Rs. Head of Income 1) Employer’s share in the payment received from the URPF 2,20,000 2) Interest in the employer’s share 50,000 3) Interest in the employee’s share 60,000 4) Employee’s share 2,50,000 Since the employee is not eligible for deduction under section 80C for contribution to URPF at the time of such contribution, the employee’s share received from the URPF is not taxable at the time of withdrawal as this amount has already been taxed as his salary income. 4.4) Perquisite divided into the following categories I) Perquisites taxable in hands of both. Specified& Non Specified employees: i) Interest credited to RPF up to 9.5% is tax - free. Above 9.5 % is taxable. ii) Employer’s contribution to recognized PF is exempt up to 12% of salary. Contribution in excess of 12% of salary is taxable. Swapnil Patni Classes44  2. Income under the head Salaries iii) Interest free loans /loans at concessional rate – If a loan is given to the employee by the employer,interest loans is chargeable to tax as perquisite. Interest is to be calculated on monthly outstanding balance at SBI lending rates as on first day of the previous year. Exceptions: 1) If the amount of original loans (or additional loan) does not exceed in the aggregate of Rs. 20,000/- 2) If the loan is given for medical treatment of diseases specified in rule 3 A. [However exemption is not applicable to so much of loan that has been reimbursed to the Employee under insurance scheme. Hint:- 4) Use of movable assets of the employer: if the employee (or any member of his household) Uses any moveable assets which belongs to the employer then the value of the perquisite is = - Use of employer’s computers & laptops is 5) Moveable asset sold by the employer to the employee: If any moveable asset is sold by the employer to the employee at a concession, then the value of Such perquisite is calculated as follows Perquisite = int = WDV is calculated as follows: Particulars Electronic items/ Computers Motor Others car Rate of Depreciation 50% 20% 10% Method of Depreciation WDV WDV SLM Assets Covered Electronic devices like data Motor White goods - household storage and handling devices car appliances like washing like computer, digital diaries machines, microwaves, oven, and printers. mixers, refrigerator, and hot plates. Swapnil Patni Classes45  2. Income under the head Salaries Depreciation is calculated for completed number of years. E.g. If WDV of the asset comes to Rs.20000 and the asset is sold to employee at Rs.12000 the value of perquisite chargeable to tax is Rs. 8000 [20000-12000] However if this asset is sold for Rs. 25000 then there is no benefit and hence no perquisites. 6) Any payment or reimbursement by the employer to the employee which amounts to fulfillment Of obligation of the employee is a perquisite taxable in the hands of both employees (Specified and Non Specified.) 7) Perquisite in respect of gift, voucher and token – Gifts received by the employee or any of his family member would be exempt from tax. Gifts in excess of Rs 5000 would be taxable. However the exemption is not available in case of gifts in cash or convertible into money i.e. gift cheques. E.g.1) The employer provides a gift cheque of Rs 3000 and also a wrist watch of Rs 18000 to X. Perquisite is__________________________________________________________ 2) Rs. 6000 cash gift from the employer. Perquisite = ____________________________ 8) Travelling Touring and Accommodation: No. Particulars Perquisite 1. Mr. X went to Mumbai for personal work. His employer paid for his trip. The total expenditure was Rs. 30,000 2. Assume in above that he had gone to Mumbai for office work 3. Mr. X went to Bangalore for office work for 5 days. He extended the stay for another 5 days for personal work. The total expenditure incurred by employer was Rs. 80,000 4. Company paid all travelling bills of Mr. X of Rs.76500. Out of which official trips amounted to 51000 and 5000 was recovered from Mr. X Swapnil Patni Classes46  2. Income under the head Salaries 9) Credit Card expenses – Expenses incurred by the employer in respect of credit card used by the employee or any member of his household. Expenditure incurred by the employer also includes membership fees and annual fees. In case of expenses for official purpose a proper record must be maintained and the same should be certified by the employer E.g. Company paid the credit card bills of the employee Mr. A of Rs. 58,000. Out of which X Had incurred Rs. 32,000 for official work. Amount recovered from employee is Rs. 8,500. Ans. 10) Club Expenditure – expenses incurred by the employer on the club facility used by the employee or his household members. In case of expenses for official purpose a proper record must be maintained and the same should be certified by the employer. E.g. Company paid the club bills of Mr. X Rs. 60,000, out of which expenses for office purpose wereRs.31,500. The company recovered Rs. 18,000 from Mr. X. Exceptions: a) Health club and sports facility provided uniformly to all employees at the employers premises are exempt from tax. Swapnil Patni Classes47  2. Income under the head Salaries b) In case the club membership is corporate or institutional (the benefit does not remain with the employee after the cessation of the employment), the initial fees and the deposits will no be included in the value of perquisites. 11) Lunch and refreshment - If free meals are provided to the employee the perquisite is as follows: Exceptions: a) Tea/non-alcoholic beverages and snacks provided during working hours in office is not charged as perquisite. b) Food, tea, non-alcoholic beverages provided during working hours in remote area or off-shore installation is not taxable. c) Free meals up to Rs. 50 per meal are exempt from tax. Eg. Employer provides tea/coffee in office expenditure being Rs 6000 p. a and lunch during office hours costing Rs 120 per meal for 300 working days and recovers Rs 10 per meal from X. The value of perquisite is _____________. (However exemption would not be available in case of an employee, being an assessee, who opts for the provisions of section 115BAC) 12) Employers Contribution to Superannuation Fund – From A Y 2010-11 employers contribution to superannuation fund is taxable in excess of Rs One lakh fifty thousand per assessment year. It is taxable in the year the contribution is made. E.g. ABC Ltd. deposited Rs. 1,80,000 in Superannuation Fund of Mr. X, their employee. 13) Employee Stock Option Plan / Sweat equity: Under this scheme the shares are allotted to the employees at concessional rate or for a consideration other than cash. Such benefit is taxable as perquisite in the hands of the employee. Swapnil Patni Classes48  2. Income under the head Salaries Tax on perquisite of specified securities and sweat equity shares is required to be paid in the year of exercising the option. However, where such shares or securities are allotted by the current employer, being an eligible start-up the perquisite is taxable in the year a) after the expiry of 48 months from the end of the relevant assessment year b) in which sale of such security or share are made by the assessee c) in which the assessee ceases to be the employee of the employer. Whichever is earlier. FMV of shares - Calculation of FMV as per Rule 3(8) 1. If the share is listed on a recognized stock FMV = Opening price + Closing price exchange 2 (price as on that date on the said stock exchange) 2. If the share is listed on more than one FMV= Opening price + Closing price recognized stock exchange 2 (price of the share on the recognized stock exchange which records the highest volume of trading in the share) 3. If there is no trading in the share on any FMV= recognized stock exchange a) The closing price of the share on any recognized stock exc