Income Tax

Savita Sawant -8249Ravi Nagrani -83

Indian Income Tax

Governed by CBDT. Part of Dept. of Revenue managed by

IRS, under ministry of finance , Govt. of India.

Levy of tax is governed by Income Tax Act, 1961.

Income tax is a tax payable, at the rate enacted by the Union Budget (Finance Act) for every Assessment Year, on the Total Income earned in the Previous Year by every Person.

Some Key Definitions-Income Tax Law Assessment year refers to the 1st day of

April every year. Income earned during the previous year is charged to tax in the assessment year.

Previous year refers to the financial year immediately preceding the Assessment year.

The principle of taxation of income is: - All revenue incomes are chargeable to tax

unless it is specifically exempt (declared as not taxable).

All capital profits are not chargeable to tax unless specifically made chargeable.

Progressive:Tax imposed so that the effective tax rate increases as the economic well being increases.

Regressive:The effective tax rate decreases as the economic well being increases.

Proportional:The tax rate is fixed as the economic well being increases.

Residential Status

Resident & Ordinarily Resident. Resident but not Ordinarily Resident. Non Residents.

Heads Of IncomeThe total income of a person is divided into

five heads, viz., Income from Salary. Income from House Property . Income from profits and gains of Business

or Profession . Income from Capital Gains . Income from Other sources .

General Gross ComponentsThe total income of a person is divided into

five heads, viz., Basic. HRA. Conveyance. Children Education Allowance. Allowance in any other name.

Basic : Taxable HRA : Taxable. Exemption can be claimed

Required Document – Rent receipt Computation of exemption - Least of the

following :1) Actual amount of HRA received

2) 50% (Metro) / 40% (Non Metro) of Salary

(Basic + DA) 3) Actual Rent paid Less 10% of Salary ( Basic +

DA)[The exemption will not be available, if the

employee lives in his own house, or in a house for which he does not pay any rent or pays rent which does not exceed 10% of annual basic salary]

Conveyance : Taxable. Exempted up to Rs.800 per month & up to Rs.1600

per month if the employee is Handicapped.

Children Education Allowance : Taxable. Exempted up to Rs.100 per month per child restricted to 2 children

Other Allowances : All other allowances (except LTA) are Taxable

In arriving at the taxable income certain deductions are allowed being;

1.Deduction for HRA.2.Deduction for Conveyance allowance up to Rs.

9,600/- per annum.3.Deduction for Leave Travel Allowance.4.Deduction for Medical Reimbursement up to Rs.

15,000/- per annum.5.Deduction for Housing loan interest paid upto

Rs. 1,50,000/- per annum.6.Deduction for eligible investments U/S 80C &

80CCD of the Income Tax Act –not exceeding Rs.1,00,000

Eg:Mrs.X (age 51 yrs) is a part time college lecturer in Delhi owned by A Ltd. During the year 2008-09 she gets basic salary of Rs.52,300 upto june 30,2008 and Rs.62,700 afterwards. Besides, she gets 30 % of basic salary as house rent allowance ,Rs.1,6300 per month as dearness allowance (71 % of it forms a part of salary for computation of retirement benefits) and Rs. 5000 per month as conveyance allowance which is entirely used for personal purposes. On July 10,2008, the employer transfers a music system to Mrs. X on her completing 10 years of service (cost of music system purchased on September 1,2007 :Rs.22,470) for Rs.7,500.She is member of the statutory provident fund to which both the employer and employee contribute @12% of basic salary. Apart from the minimum contribution, she makes an additional contribution of Rs. 6000 per month to the provident fund. During the previous year 2008-09, Rs.65,698 is paid to her for checking answer sheets of different universities. Determine the taxable income and tax liability of Mrs.X for the assessment year 2009-10 on the assumption that she pays rent of Rs.14,000 per month.

Rates of Tax and DeductionsIncome Tax Rates Individuals 2009-10 Tax Rates

Men upto Rs. 1,60,000 Nil

Women upto to Rs. 1,90,000 Nil

Rs.1,60,001/1,90,001 to Rs. 3,00,000 10%

Rs. 3,00,001 to 5,00,000 20%

Rs. 5,00,001 and above 30%

Educational Cess is payable on tax calculated above at 3%.

How to Save Tax (or) Claim Exemption Investments under Sec 80C Mediclaim Insurance Policy – Sec 80D Personal Disability under Sec 80U Dependent Disability ie. Handicapped dependent under Sec

80DD Interest on Educational Loan under Sec 80E Donations under Sec 80G

ALL THE ABOVE INVESTMENTS / EXEMPTIONS ARE CLASSIFIED AS

DEDUCTION UNDER CHAPTER VI-A

Current ProposedTaxable Income Slab (Rs)

Rate %

Taxable Income Slab (Rs)

Rate %

Up to 1,60,000Up to 1,90,000 (for women)Up to 2,40,000 (for resident individual of 65 years or above)

NIL

Up to 1,60,000Up to 1,90,000 (for women)Up to 2,40,000 (for resident individual of 65 years or above)

NIL

1,60,001 – 3,00,000 10 1,60,001 – 10,00,000 10

3,00,001 – 5,00,000 20 10,00,001 – 25,00,000 20

5,00,001 upwards 30* 25,00,001 upwards 30*

Objectives of the new Code

Improve efficiency and equity of the system.

Introducing moderate levels of taxation. Expanding the tax-base.

Strategies Adopted

Minimise Exemption Remove ambiguity in law Check erosion of tax base

The Goal Consolidate and amend all direct taxes. Simplify language to ensure that the law can be

reflected in the return form. Reduce scope for litigation. Flexibility in accommodating changes without

need for frequent amendments. Eliminate regulatory functions. Provide Stability.

Key Gains Deductions increased (sec 80C –Rs 3 lakh

from 1 lakh). Net Wealth tax rate exemption limit increased

(Rs. 50 crore from Rs.30L). Indefinite carry forward of Tax Losses. Agri income stays outside tax net. STT abolished. Cost of inflation adjustment. (1year) Max penalty down to 2 times tax amount. Base date for Capital gains tax shifted to

April 1-2000

Key Pains Re-introduction of capital gains tax on listed

shares and MF units Receipt of LIC policy taxable except for

pure life insurance policy. Deduction for rent paid restricted to Rs.2,000 per

month. No distinction between short term and long term

assets. General Anti-Avoidance provisions introduced. Rent free accommodation to govt. employees

made taxable.

Key pains ….contd. Income from house property.1. Presumptive rate calculated at 6% p.a. of rateable value

when higher than contractual rent.2. Repairs and maintenance deduction cut to 20% from 30%.3. For self-occupied property, no deduction for interest and

principal loan repayment.4. Income from letting of machinery, plant, furniture included

if letting of building is inseparablefrom the same. Roll over benefits for capital gains tax exemption trimmed

to only one residential house. EET method of taxation for savings introduced.

EET model

Fair and Equitable model. Progressive Approach for taxation. May lead to double taxation. EET is going to be the most significant

change for investment.

Tax Incentives on Saving SchemesInvestment Option Current

CodeExisting Upper Limit

Proposed Change

Tax investment on saving schemes 1,00,000 3,00,000

Pension Scheme 80CCC

Public Provident Fund 80C

Life Insurance Premium 80C

ULIP 80C

NSC 80C

Infrastructure Investment 80C

MF (Specific Scheme) 80C

ELSS 80C

Term Deposit 80C

Pension Fund 80C

Tuition Fees Paid 80C

Home Loan Repayment 80C

If your annual income is 8,00,000

Now Post CodeMax. Investment U/S 80C

1,00,000 3,00,000

Income Chargeable

3,00,000 1,00,000

Tax PayableIndividual 14,420 NILWomen (below 65 years)

11,330 NIL

Senior Citizen 6,180 NIL

If your annual income is 4,00,000

Now Post CodeMax. Investment U/S 80C

1,00,000 3,00,000

Income Chargeable

7,00,000 5,00,000

Tax PayableIndividual 1,17,420 34,000Women (below 65 years)

1,14,330 31,000

Senior Citizen 1,09,179 26,000

If your annual income is 15,00,000

Now Post CodeMax. Investment U/S 80C

1,00,000 3,00,000

Income Chargeable

14,00,000 12,00,000

Tax PayableIndividual 3,33,720 1,24,000Women (below 65 years)

3,30,630 1,21,000

Senior Citizen 3,25,480 1,16,000

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