TAXATION PROJECT

The chargeability is based on nature of income, i.e., whether it is revenue or capital. The rates of taxation of income are-:

Income Tax Slabs and Rates for the Assessment Year 2016-17 (applicable on income earned during 01.04.2015 to 31.03.2016) for various categories of Indian Income Tax payers.

•

Individual resident aged below 60 years

•

Senior Citizen

•

Super Senior Citizen

•

Any NRI / HUF / AOP / BOI / AJP

•

Co-operative Society

•

Firm

•

Local Authority

•

Domestic Company

•

Other Company

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1.2 SLAB RATES

A. INDIVIDUAL RESIDENT AGE BELOW 60 YEARS (NRI/ HUF/ AOP/ BOI/ AJP) INCOME SLAB

TAX RATE

Where the taxable income does not exceed

NIL

Rs. 2,50,000/Where the taxable income exceeds Rs.

10% of amount by which the taxable income

2,50,000/-

exceeds Rs. 2,50,000/-. Less ( in case of

but

does

not

exceed

Rs.

5,00,000/-

Resident Individuals only ) : Tax Credit u/s 87A - 10% of taxable income upto a maximum of Rs. 2000/-.

Where the taxable income exceeds Rs.

Rs. 25,000/- + 20% of the amount by which

5,00,000/-

the taxable income exceeds Rs. 5,00,000/-.

but

does

not

exceed

Rs.

10,00,000/Where the taxable income exceeds Rs.


10,00,000/-


Surcharge - 12% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal

Relief in Surcharge, if applicable) Education Cess - 3% of the total of Income Tax and Surcharge.

3

B. SENIOR CITIZEN (Individual resident who is of the age of 60 years or more but below the age of 80 years at any time during the previous year i.e. born on or after 1st April 1936 but before 1st April 1956) INCOME SLAB

TAX RATE

Where the taxable income does not exceed Rs.

NIL

3,00,000/Where

the

taxable

income

exceeds

Rs.

3,00,000/- but does not exceed Rs. 5,00,000/-

10% of the amount by which the taxable income exceeds Rs. 3,00,000/-. Less : Tax Credit u/s 87A - 10% of taxable income upto a maximum of Rs. 2000/-.

Where

the

taxable

income

exceeds

Rs.

Rs. 20,000/- + 20% of the amount by which the


taxable income exceeds Rs. 5,00,000/-

Where


the

taxable

income

10,00,000/

exceeds

Rs.



Relief in Surcharge, if applicable) EducationCess - 3% of the total of Income Tax and Surcharge.

4

C. SUPER SENIOR CITIZEN (Individual resident who is of the age of 80 years or more at any time during the previous year i.e. born before 1st April 1936) INCOME SLABS

TAX RATES


NIL

5,00,000/-. Where

the

taxable

income

exceeds

Rs.

20% of the amount by which the taxable


income exceeds Rs. 5,00,000/-.

Where


the

taxable

income

10,00,000/-

exceeds

Rs.




5

D. CO-OPERATIVE SOCIETY INCOME SLABS


TAX RATE

10% of the income.

10,000/ Where the taxable income exceeds Rs. 10,000/-

Rs. 1,000/- + 20% of income in excess of Rs.

but does not exceed Rs. 20,000/-.

10,000/-.

Where the taxable income exceeds Rs. 20,000/-

Rs. 3.000/- + 30% of the amount by which the taxable income exceeds Rs. 20,000/-.



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E. PARTNERSHIP FIRM Income Tax – 30% of taxable income. Surcharge - 12% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal


F. LOCAL AUTHORITY Income tax - 30% of taxable income. Surcharge - 10% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal


G. DOMESTIC COMPANY Income Tax : 30% of taxable income. Surcharge - The amount of income tax as computed in accordance with above rates, and after

being reduced by the amount of tax rebate shall be increased by a surcharge •

At the rate of 7% of such income tax, provided taxable income exceeds Rs. 1 crore.

•

At the rate of 12% of such income tax, provided that the taxable income exceeds Rs. 10 crores.

•

Education Cess - 3% of the total of Income Tax and Surcharge. 7

1.3 FORMAT OF COMPUTATION OF TOTAL INCOME Name of assessee : Assessment year : Previous year : Legal status :

COMPUTATION OF TOTAL INCOME 1) Income from salary 2) Income from house property a) let out property b) self occupied property 3) income from business /profession 4) income from capital gains a) long-term capital gain b) short-term capital gain 5) income from other sources Gross total income (1+2+3+4+5) Less : i) u/s 80C ii) u/s 80CCC iii) u/s 80D iv) u/s 80DD v) u/s 80DDB vi) u/s 80E v) u/s 80U

8

Amt

Amt

ITR FORM

DESCRIPTION OF TAXPAYER

NAME

This is applicable to all individuals having salary or pension income ITR – 1

or income from one house property, or income from other sources (which aren’t income from lottery winnings and income from race horses). This is also known SAHAJ.

ITR – 2

This is for Hindu Undivided Families that have income from sources other than “Profits and Gains of Business or Profession”. This is for Hindu Undivided Families or individuals who are partnered in a firm. The income here is either by the way of interest,

ITR – 3

salary, bonus, commission or remuneration that’s due or received from the partnered firm. The head of income should be “Profits and Gains of Business or Profession”. This is for individuals and Hindu Undivided Families who’ve opted

ITS – 4S

for the presumptive taxation scheme of Section 44AD / 44AE. This is also called SUGAM.

ITR – 4

This is for individuals or Hindu Undivided Families who carry on a proprietary business or profession. This is for firms, LLPs, AOPs, BOIs, artificial judiciary persons, cooperative societies and local authorities. This does not apply to

ITR – 5

trusts, political parties, colleges, etc. who are required to instead file return of income under Sections 139(4A), 139(4B), 139(4C) and 139(4D) and do not use this form. This for companies that don’t claim exemptions under Section 11.

ITR – 6

Charitable and religious trusts can claim exemptions under Section 11.

ITR – 7

This is for persons and companies who are required to furnish returns under Sections 139(4A), 139(4B), 139(4C) and 139(4D). 9

CHAPTER 2 DEDUCTIONS FROM GROSS TOTAL INCOME 2.1 DEDUCTIONS UNDER SECTION 16 A. ENTERTAINMENT ALLOWANCE [SECTION 16(II)]

A deduction is also allowed under section 16(ii) in respect of any allowance in the nature of an entertainment allowance specifically granted by an employer to the assessee, who is in receipt of a salary from the Government, a sum equal to one-fifth of his salary(exclusive of any allowance, benefit or other perquisite) or five thousand rupees whichever is less. No deduction on account of entertainment allowance is available to non-government employees. B. TAX ON EMPLOYMENT [SECTION 16(III)]

The tax on employment (Professional Tax) within the meaning of article 276(2) of the Constitution of India, leviable by or under any law, shall also be allowed as a deduction in computing the income under the head "Salaries".

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2.2 DEDUCTIONS UNDER CHAPTER VI-A OF THE ACT A. TAX DEDUCTIONS UNDER SECTION 80C

Section 80C of the Income Tax Act provides provisions for tax deductions on a number of payments, with both individuals and Hindu Undivided Families eligible for these deductions. Eligible taxpayers can claim deductions to the tune of Rs 1.5 lakh per year under Section 80C, with this amount being a combination of deductions available under

Sections 80 C, 80 CCC and 80 CCD. Some of the popular investments which are eligible for this tax deduction are mentioned below. •

Payment made towards life insurance policies (for self, spouse or children)

•

Payment made towards a superannuation/provident fund

•

Tuition fees paid to educate a maximum of two children

•

Payments made towards construction or purchase of a residential property

•

Payments issued towards a fixed deposit with a minimum tenure of 5 years

Section 80C has an exhaustive list of deductions an individual is eligible for, which have led to the creation of suitable sub-sections to provide clarity to taxpayers. a) SECTION 80 CCC ( DEDUCTION FOR PREMIUM PAID FOR ANNUITY PLAN PR PTHER INSURER)

Section 80 CCC of the Income Tax Act provides scope for tax deductions on investment in pension funds. These pension funds could be from any insurer and a maximum deduction of Rs 1.5 lakh can be claimed under it. This deduction can be claimed only by individual taxpayers. 11

b) SECTION 80 CCD ( DEDUCTION FOR CONTRIBUTION TO PENSION ACCOUNT)

Section 80 CCD aims to encourage the habit of savings among individuals, providing them an incentive for investing in pension schemes which are notified by the Central Government. Contributions made by an individual and his/her employer, both are eligible for tax deduction, subject to the deduction being less than 10% of the salary of the person. Only individual taxpayers are eligible for this deduction.

c) SECTION

80

CCF

(DEDUCTION

IN

RESPECT

OF

LING

TERM

INFRASTRUCTURE BONDS)

Open to both Hindu Undivided Families and Individuals, Section 80 CCF contains provisions for tax deductions on subscription of long-term infrastructure bonds which have been notified by the government. One can claim a maximum deduction of Rs 20,000 under this Section.

d) SECTION 80 CCG ( DEDUCTION IN RESPECT OF INVESTMENT UNDER AN EQUITY SAVING SCHEME)

Section 80 CCG of the Income Tax Act permits a maximum deduction of Rs 25,000 per year, with specified individual residents eligible for this deduction. Investments in equity

savings schemes notified by the government are permitted for deductions, subject to the limit being 50% of the amount invested.

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B. TAX DEDUCTIONS UNDER SECTION 80D

Section 80D of the Income Tax Act permits deductions on amounts spent by an individual towards the premium of a health insurance policy. This includes payment made on behalf of a spouse, children, parents or self to a Central Government health plan. An amount of Rs 20,000 can be claimed as deduction when paid towards the insurance for spouse, dependent

children or self, while this amount is Rs 25,000 if the person is over the age of 60 years. Both individuals and Hindu Undivided Families are eligible for this deduction, subject to the payment being made in modes other than cash. Section 80D is further subdivided into two sub-sections, offering clarity on the benefits available to taxpayers. a) SECTION 80DD (DEDUCTION FOR REHABILITATION OF DEPENDENT RELATIVE)

Section 80DD provides provisions for tax deductions in two cases, with the permitted deduction being Rs 75,000 for normal disability and Rs 1.25 lakh if it is a severe disability. This deduction can be claimed in case of the following expenditures. On payments made towards the treatment of dependants with disability Amount paid as premium to purchase or maintain an insurance policy for such dependant. The permitted deduction is Rs 75,000 for normal disability and Rs 1.25 lakh for a severe disability. Both Hindu Undivided Families and resident individuals are eligible for this deduction. The dependant, in this case can be either a spouse, sibling, parents or children.

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b) SECTION 80DDB ( DEDUCTION ON MEDICAL EXPENDITURE OF SELF OR DEPENDENT RELATIVE)

Section 80DDB can be utilised by HUFs and resident individuals and provides provisions for deductions on the expense incurred by an individual/family towards medical treatment of certain diseases. The permitted deduction is limited to Rs 40,000, which can be increased to Rs 60,000 if the treatment is for a senior citizen.

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C. TAX DEDUCTIONS UNDER SECTION 80E

Under Section 80E of the Income Tax Act has been designed to ensure that educating oneself doesn’t become an additional tax burden. Under this provision, taxpayers are eligible for tax deductions on the interest repayment of a loan taken to pursue higher education. This loan can be availed either by the taxpayer himself/herself or to sponsor the education of his/her ward/child. Only individuals are eligible for this deduction, with loans taken from approved charitable organizations and financial institutions permitted for tax benefits.

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D. TAX DEDUCTION UNDER SECTION 80TTA (DEDUCTION OF INTEREST ON BANK SAVING DEPOSITS)

Deductions under Section 80TTA can be claimed by Hindu Undivided Families and Individual taxpayers. This section permits deductions to the tune of Rs 10,000 every year on the interest earned on money invested in bank savings accounts in the country.

E. TAX DEDUCTION UNDER SECTION 80U ( DEDUCTION FOR DISABLED PERSON)

Tax deductions under Section 80U can be claimed only by resident individual taxpayers who have disabilities. Individuals who have been certified by relevant medical authorities to be a Person With Disability can claim a maximum deduction of Rs 75,000 per year. Individuals who have severe disabilities are entitled to a maximum deduction of Rs 1.25 lakh, subject to them meeting certain criteria. Some of the disabilities which classify for tax benefits are autism, mental retardation, cerebral palsy, etc.

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CHAPTER 3 INCOME EXEMPTED FROM TAX 3.1 GRATUITY- SEC 10(10) As per Sec 10 (10) of Income Tax Act, gratuity is paid when an employee completes 5 or more years of full time service with the employer (minimum 240 days a year).

TAX TREATMENT OF GRATUITY

The gratuity so received by the employee is taxable under the head ‘Income from salary’. In case gratuity is received by the nominee/legal heirs of the employee, the same is taxable in their hands under the head ‘Income from other sources’. This tax treatment varies for different categories of individual assesses. We shall discuss the tax treatment of gratuity for each assesses in detail. For the purpose of calculation of exempt gratuity, employees may be divided into 3 categories – (a) Government employees and (b) Non-government employees covered under the Payment of Gratuity Act, 1972 (c) Non-government employees not covered under the Payment of Gratuity Act, 1972 In case of government employees – they are fully exempt from receipt of gratuity. In case of non-government employees covered under the Payment of Gratuity Act, 1972 –

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NON GOVERNMENT EMPLOYEES

Maximum exemption from tax is least of the 3 below: (i) Actual gratuity received; (ii) Rs 10,00,000; (iii) Half-month’s average salary for each completed year of service (no part thereof) Note-

Here, salary = basic + DA + commission (if it’s a fixed % of sales turnover).

•

Completed year of service (no part thereof) means: full time service of > 1 year is considered as 1 completed year of service. < 1 year is ignored.

•

Average salary =10 months’ salary (immediately preceding the month of leaving the job)/10

EXEMPTION ON GRATUITY UNDER PAYMENT OF GRATUITY ACT STEP

FIND OUT

FORMULA

RESULT

1.

Salary last drawn

Basic pay + D.A

= (A)

2.

Completed year of

Retirement date –

= (B)

service

joining date

15 days salary

Year of service *

3.

salary * 15/26= (A*B*15/26) 4.

Least of

Gratuity exempt

(1) 15 days salary for period of service (i.e. C) (2) Rs 10,00000 (3) Gratuity actually

18

= (C)

received.

3.2 PENSION -SEC 10(10A) At the time of retirement of an employee, the employer pays the employee a certain amount regularly in consideration of his past service. This periodic is paid by the employer to his employee is referred to as pension The amount received as pension from the employer or from the pension fund or from any other source as pension would be liable to income tax. There are two types of pension a) Commuted pension- Commuted pension means lump sum amount taken by commuting

the whole or part of the pension.

b) Uncommuted pension- uncommuted pension refers to pension received periodically. It is

fully taxable in the hands of both government and non government employees.

Employees of the central government/local authorities/statutory corporation members of the defence services: any commuted pension received is fully exempt from tax. Non government employee: any commuted pension received is exempt from tax in the following manner:

IF THE EMPLOYEE IS IN RECEIPT OF GRATUITY EXEMPTION

19

•

1/3rd

of the amount of pension which he would have received had he commuted the

whole of the pension. •

rd 1/3 commuted pension received / commutation % * 100%]

IF THE EMPLOYEE DOES NOT RECEIVE ANY GRATUITY

EXEMPTION

•

½ of the amount of pension which he would have received had he commuted the whole of the pension

•

1/2 * commuted pension received / commuted% * 100%]

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3.3 LEAVE SALARY EXEMPTION- SEC 10(10AA) Leave salary also known as leave encasement which means that employee will receive the cash for leaves which are not taken by the employees. Employee can encash his leaves during the course of employment but this amount will be fully taxable or he can encash at the time of retirement but the taxability of that amount depends on fulfillment of the certain conditions given under the income tax act. If Leave salary encashment is received by any employee while in employment then it is fully taxable in the hands of employee. While if leave encashment is received in case of retirement or superannuation or resignation, then exemption is available up to the following limits. GOVERNMENT EMPLOYEE

As per section 10(10AA), leave encashment by a Government employee at the time of retirement (whether on superannuation or otherwise) is wholly exempt from tax. OTHER EMPLOYEES

Any leave encashment received by non-government employees at the time of retirement/termination of employment, is exempt. The exemption will be least of the following: •

Period of earned leave standing to the credit in the employee’s account 21

•

at the time of retirement Average monthly salary

•

10 months Average monthly salary

•

Rs. 3,00,000, Maximum amount as specified by the Government

•

Leave encashment actually received at the time of retirement.

3.4 HOUSE RENT ALLOWANCE- SEC 10(13A) When the employee is occupying a rented residential accommodation, the amount of house rent allowance received by him is exempt to the extent of least of the following amounts: •

50% of the salary where residential house is situated at Bombay, Calcutta, Madras or Delhi and 40% of the salary where residential house is situated at any other place.

•

House Rent Allowance actually received by the Employee in respect of the period during which the residential accommodation is occupied by him during the year.

•

Amount of rent paid in excess of 10% of the salary. Besides the above, there are certain other incomes also, which are totally exempt or exempt subject to fulfillment of certain conditions.

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REFERENCES A. https://en.wikipedia.org/wiki/Income_tax_in_India B. http://taxguru.in/income-tax/income-tax-provisions-related-to-income-fromsalary.html C. https://www.bankbazaar.com/income-tax.html D. http://cawinners.com/income-under-head-salary/ E. http://www.google.co.in/www.incometaxindia.gov.in F. http://cacmacsclub.com/income-from-salaries-notes/ G. http://www.google.co.in/commercehub.webs.com H. http://incometaxmanagement.com/Pages/Gross-Total-Income/Salaries/Chat-ShowingComputation-of-Salary-Income.html I.

http://www.google.co.in/www.dawnhrs.co.inIncome_Under_Various_Heads.

J. http://www.cutmytax.com/salary-deductions/ K. http://taxguru.in/income-tax/deductions-chapter-applicable-assessees-incomesalaries.html L. https://cleartax.in/Salary M. http://www.charteredclub.com/income-tax-exemptions-for-salaried-employees/

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TAXATION PROJECT

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