INCOME TAX

AY 2009 - 10

Meenal P Wagle
Swayam Siddhi College of Management and Research
INCOME TAX STANDING

Revenue to government

Direct taxes Indirect taxes

Income Tax Central excise
VAT
Custom duty
Income tax Act 1961
Finance Act, 2009
 IMPORTANT TERMS
 Assessment – Calculation of Total income and tax
liability

 Assessment year – The year following the previous year

of which income will be assessed.

 Previous year – The financial year ending 31st March of

which the income has to be assessed

 Assessee – Individual, HUF, AOP, Company, Firm ….

Who is supposed to pay tax, penalty or is undergoing
proceedings under the Act

 Residential Status – This decides the income that has to

be taxed in India
 INCOME TAX RATES
Finance Act specified the rates for ascertaining the charge (Say for Finance Act, 2009):-
First Schedule –
Part 1 - For calculating tax liability for the FY 2008 – 09 OR AY 2009 – 10
Part 2 - For calculating TDS for the FY 2009 – 10 OR AY 2010 – 11
Part 3 – For calculating tax liability for the FY 2009 – 10 OR AY 2010 – 11

Tax rates for FY 2009 – 10 / AY 2010 - 11

Income
Individual , BOI, AOP, HUF < = 160,000 NIL
(Excluding women and senior citizen 160000 < income <= 300000 (Income – 160000)*10%
300000 < income <= 500000 (Income – 300000)*20% + 14000
500000 < income (Income – 500000)*30% + 54000
Women with age < 65 years < = 190,000 NIL
190000 < income <= 300000 (Income – 190000)*10%
300000 < income <= 500000 (Income – 300000)*20% + 11000
500000 < income (Income – 500000)*30% + 51000
Individual with age >= 65 years < = 240,000 NIL
240000 < income <= 300000 (Income – 240000)*10%
300000 < income <= 500000 (Income – 300000)*20% + 6000
500000 < income (Income – 500000)*30% + 46000

Cooperative society < = 10,000 Income *10%

10000 < income <= 20000 (Income – 10000)*20% + 1000
20000 < income (Income – 20000)*30% + 3000
Firm, local authority, Domestic Company 30% of total income
The rates specified have to be further increased by
1) an additional surcharge for domestic company having total income > 1 crore @ 10% on such income tax and in
case of other than domestic company having total income > 1 crore @ 2.5% on such income tax
2) education cess @ 2% on such income tax + surcharge, if any
3) Secondary and Higher education cess @ 1% on such income tax + surcharge ,if any
RESIDENTIAL STATUS - I
Scope of Income liable to tax
For all assessees  ROR, RNOR, NRI
Income that is received or deemed to be received in India
Income that accrues or arises or deemed to accrue or arise in India

Resident and Ordinarily resident – Sec 5(1)

Income that accrues or arises outside India
 
Resident and Not Ordinarily resident – Proviso to Sec 5(1)
Income that accrues or arises outside India only if the same is derived
from business controlled in or profession set up in India

Irrespective of residential status, all income accruing directly or

indirectly in India thru
Any business connection in India
Any property in India
Any asset or source of income in India
Any transfer of capital asset situated in India
Shall be deemed to accrue or arise in India and will be taxable in India Sec 9(1)
(i)
COMPONENTS OF TOTAL INCOME
 Salaries u/s Sec 9(i)
 House Property
 Capital gains
 Business or profession
 Other sources
 Gross total income u/s 80B
 Deductions U/Ch VI-A
 Exemptions from income tax u/s 10
 Net taxable income
 SALARIES
Income assessable under the head “Salaries” Sec 17(1) includes:-
1) Wages
2) Any annuity or pension
3) Any gratuity
4) Any fees, commission, perquisites or profits in lieu of or in addition to any salary or wages
5) Any advance of salary
6) Any payment received by the employee while in service in respect of the period of leave not availed of by him
7) Employer’s contribution to PF for the employee > 12% of the employee’s salary
8) Interest credited on PF A/c > 9.5%
9) Transferred balance in Recognised PF to the extent chargeable under Sub-rule (4) of Rule 11 of Part A of Fourth
schedule
10) Contribution made by Central govt or any employer to employee a/c under Sec 80CCD pension scheme

Any lumpsum payment made as gratuitous payment to widow / legal heir of employee, who dies while in service
will be exempt

Dearness Allowance – will be charged as salary

Bonus – will be charged as salary, bonus paid gratuitously without agreement – will be charged as perquisite
Commission – will be charged as salary, Commission paid gratuitously without agreement – will be charged as
perquisite
 HOUSE PROPERTY
House property = Buildings + Land in the form of court yard, compound forming part and parcel of the building

If the property is used for the purposes of business, then the income on the same will not be taxable as “Income from
House property”

Sec 22 – Owner is liable to tax.

Sec 27 – Deemed owners who are liable to tax:-
1) Transferor who has transferred the house property to his spouse, legal heir, unmarried minor daughter, minor
son, at a concessional inadequate consideration
2) Holder of impartiable estate
3) A member of cooperative society, AOP trusts to whom the building or part thereof is leased or allotted under
the house building scheme of the society
4) A person who is allowed to take possession of any part of building as required for the part performance of the
contract to buy
5) A person who gets rights on the building or part thereof by way of sale/ exchange / lease for >=12 months ,
excluding any rights by way of lease from month to month or for period <= 1 year
SOHP / UNREALISED RENT
Self occupied property

Deduction is allowed for the interest paid on

the funds borrowed for acquiring or repairing
the property – max of 30000/- pa.
Rent booked as income only on receipt. Hence
unrealised rent has to be booked on income
on receipt of the same.
 CAPITAL GAINS I
Capital Gains
Sec 2(14) Capital asset means property of any kind held by the assessee , whether or not connected with business or
profession , but doesnot include :-
1) Stock in trade , consumable stores, raw material held for business or profession
2) Personnel effect such as wearing apparel, furniture, motor car, AC, fridge held by the assessee or any member
dependant on him excluding drawings, scriptures, work of art, archaeological collections, paintings.
3) 6 ½% gold bonds 1977
4) 7 ½% gold bonds 1980
5) National defence gold bonds 1980
6) Special bearer bonds, 1991
7) Gold deposit bonds issued under gold deposit scheme 1999 notified under central govt
8) Agricultural land in India in non-urban area … which is
a) Not situated within local limits of municipality, notified area committee, town committee or cantonment
board
b) Which has population > 10000
c) Which is situated in any area which is 8 kms from this locality or as per the distance specified in Notification

Fair market value Sec 2(22B) for capital asset is the price that the asset would ordinarily fetch on sale in open market at
a relevant date. If the price is not determinable, it can be fixed based on the rules set by the Board
 CAPITAL GAINS II
Sec 2(42A) Short term and long term capital asset
Determined based on the holding period of the asset by the assessee or its previous owner
Period of holding = Date of acquisition – date of transfer
For Shares or securities listed on stock exchange or units of UTI or Mutual funds – If the asset is held for <= 12 months,
then it is short term asset else long term
For others – If the asset is held for <= 36 months, then it is short term asset else long term

Capital gain is chargeable in the previous year in which the transfer took place Sec 45(1)
Capital gain =Full consideration accrued or received on transfer – [Cost of acquisition (inflated with Cost inflation index)
+ expenditure incurred on any improvement to the capital asset (inflated with Cost inflation index)]
 EXEMPTIONS IN CAPITAL GAINS
Exemptions under Capital gains
Sec 10(33) – STCG & LTCG on US 64 units
Sec 10(37) – CG for individuals and HUF on compulsory acquisition of agricultural land in urban area PROVIDED it was
used for agricultural purposes for last 2 years by individual or his family, compulsory acquisition made by Central
government or RBI as per law, compensation is received on or after 1/4/2004.
Sec 10(38) – LTCG on sale of equity shares or units of equity oriented fund if the same is charged to Securities
transaction tax and is done thru recognised Stock exchange

Sec 54 – LTCG on sale of SOP is used to purchase new residential house, then LTCG is exempt provided the new asset is
not sold within 3 years.
Sec 54B - LTCG on sale of Agricultural land is used to purchase new agricultural land, then LTCG is exempt provided the
new asset is not sold within 3 years.
Sec 54D - LTCG on compulsory acquisition of land and building in case of person owning industrial undertaking is used
for the purpose of shifting and re-establishing the undertaking or setting up new undertaking , then LTCG is exempt
provided the new asset is not sold within 3 years.
Sec 54F - Consideration on sale of any capital asset ( not being residential house) is used to purchase new residential
house, then LTCG is exempt provided the new asset is not sold within 3 years and income from this property , other
than SOP, is chargeable under Income from House property

Where the amount required is not used for purchase of required asset before filing of return, the same has to be
deposited in bank as per rules framed in Capital gains account scheme, 1988 by Central government.
 INCOME FROM OTHER SOURCES
INCOME FROM OTHER SOURCES
 Residuary head including income of every kind not chargeable under the other heads of income
 Interest on Securities held as investment
 Income received on machinery, plant, land let on hire
 Aggregate value of gift received if the same is > 50000/- from person other than relative, or on occasion of
marriage, under will, inheritance, from local authority, from educational institute in the form of money,
movable property, immovable property ( AY 2010 – 11)
 Interest on delayed compensation with a deduction of 50% allowed (AY2010 – 11)
 Interest on bank deposits, delayed refunds
 Directors fees from a company
 Director’s commission for standing as a guarantor to bankers for providing O/D facility to company
 Income from royalties in general
 Family pension

Deductions to be made from “ Income from Other sources”

 Repairs on the let out property
 Insurance premium paid for the let out property
 Depreciation for the let out property
 33-1/3% of Family pension or 15000/- whichever is lower in case of income received as Family pension
 Any revenue related expenditure incurred for generating the revenue under this head
 DEDUCTIONS FROM INCOME TAX
Deductions from Income Tax

Available to Individuals and HUF

Sec 80C – Investments in specified savings listed in this section eg. LIC Premium, Investment for Deferred annuity,
Contribution to approved Provident Fund, Investment in ULIP or Equity Mutual Funds, Payment towards housing loan
instalments, 5 year time deposit in a deposit under Post office time deposit

Sec 80CCC – Contribution to pension fund schemes which however, will be taxed if withdrawn as pension or paid to
employee or his nominee on surrender of the scheme

Sec 80CCD - Contribution to pension fund scheme of Central government to the limit of 10% of his salary + Contribution
Made by Central government or any other employee to this fund. The amount in this fund will be taxed if withdrawn as
pension or paid to employee or his nominee on surrender of the scheme

Total maximum deduction under Sec 80C, Sec 80CCC, Sec 80CCD = Rs.100,000/-

Sec 80D – Insurance premium paid to cover the health of the spouse, dependant children, parents or for all the members
of HUF. To the limit of 15000/-

Sec 80DD – Insurance premium for the maintenance including medical treatment of dependant who is person with
disability to the limit of 50,000/- which gets extended to 75000/- in case of severe disability
 DEDUCTIONS FROM INCOME TAX
Sec 80DDB – Actual expense incurred towards medical treatment of the individual or dependant / any member of HUF
and has a certificate from specialist doctor in Govt hospital to the limit of 40,000/- which gets extended to 60000/- in case
of senior citizen

Sec 80E – Interest paid on loan taken from approved institute towards higher education for 8 successive AY or till the
completion of repayment of full interest, whichever is earlier

Sec 80G – Donation paid to the approved funds, charitable institutions to the extent of amount paid

Sec 80GG – Assessee who doesnot get HRA from his employer can claim deduction if the rent paid > 10% of total
income before allowing deduction under this section and assessee doesnot own any residential premises. Deduction to
the extent of 25% of total income or 2000/- pm whichever is less

Sec 80GGA – Paid towards scientific research or rural development but doesnot have Profits / gains from business and
profession as income head

Sec 80GGB – Contribution made by Companies to political parties fully allowed as deduction

Sec 80GGC - Contribution made by any person (other than local authority or any artificial person wholly or partly funded
by government) to political parties fully allowed as deduction
 PROFITS & GAINS FROM BUSINESS /
PROFESSION
Sec 2(13) – Business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade,
commerce or manufacture

This head includes income from Business and also from Profession or vocation which needs intellectual skills eg.
Doctors, chartered accountants etc

Deductions from Business and Profession income

1) Sec 30 - Rent, rates, taxes, repairs and insurance for business or professional premises
2) Sec 31 - Repairs and insurance of machinery, plant and furniture not in the nature of capital expenditure
3) Sec 33AB - Amount deposited in tea development account, coffee development account, rubber development
account at NABARD – limit 40% of Profits before making deduction under this section.
4) Sec 33ABA – Amount deposited in SBI under Site restoration Scheme – for business extracting petroleum,
natural gas - limit 20% of Profits before making deduction under this section.
5) Sec 33AC - Reserve for Shipping Business – limit 100% of Profits before making deduction under this section.
6) Sec 35 – Expenditure on scientific research – revenue and capital nature - limit 125% of Profits before making
deduction under this section.
7) Sec 35A – Expenditure on patent rights, copyrights allowed in 14 equal instalments spread over a period
beginning with the PY in which this expenditure was incurred or business was commenced, whichever is earlier
8) Sec 35AB – Expenditure on knowhow allowed in 6 equal instalments spread over a period beginning with the PY
in which this expenditure was incurred or business was commenced, whichever is earlier
9) Sec 35ABB – Amortisation of telecom licence fees over the period of licence
10) Sec 35AC – Expenditure for promoting social / economic welfare or uplift of the public
PROFITS & GAINS FROM
BUSINESS / PROFESSION
1) Sec 35CCA – Expenditure by payment to associations and institutions for carrying out rural development
programmes
2) Sec 35CCB – Expenditure by payment to associations and institutions for carrying out programmes of
conservation of natural resources
3) Sec 35D – Preliminary expenses – limit 5% of cost of project – Deduction for 5 years in equal instalments
4) Sec 35DDA – Voluntary retirement scheme expenses –Deduction for 5 years in equal instalments
5) Sec 36 –
a) Insurance against risk of damage or destruction of stocks, stores, cattle and health of employees,
b) bonus or commission paid to employee,interest paid on borrowed capital,
c) discount on Zero coupon bonds,
d) Contribution to approved superannuation fund gratuity fund or any other employee welfare fund subject to
conditions u/s 43B
e) Cost of animals which were used for business which have died or become permanently useless
f) Bad debts
g) Banking cash transaction tax
h) Securities transaction tax
6) Sec 37 – Following expenditure allowed without limits
Entertainment expenditure, Advertisement expenditure, Travelling expenditure,Guest house maintenance
expenditure.