Session-4

Income not forming part of total income

• Agricultural income• Any sum received by an individual as a member of a HUF• Partner’s share of income in the firm• In case of non-resident any income by way of interest on such

securities and bonds specially notified in the official gazette.• The value of any travel concession or assistance on LTC or on

retirement provided by the employer for himself and his family members.

• An individual not being a citizen of India, the remuneration received by him as an official of embassy, high commission, consulate or the trade representation of a foreign state or as an employee of a foreign enterprise provided the enterprise is not engaged in any trade or business in India and his stay in India does not exceed 90 days in that previous year. This is also applicable to an individual being a non-resident working in a foreign ship and his stay in India does not exceed 90 days in the previous year.

• Any allowances or perquisites paid or allowed as such outside India by the Govt to a citizen of India for rendering service outside India.

• Any individual assigned to duties in India and receiving any remuneration from the foreign Govt in connection with any cooperative technical assistance programme and projects between Central Govt and Govt of a foreign state.

• In case of a consultant any fees or remuneration out of the fees made available to an international organisation under technical assistance grant agreement.

• Any income of any member of the family accompanying him to India which accrues or arises outside India in respect of which such member is required to pay any income or social security tax to the Govt of that foreign State.

• Any death cum retirement gratuity• Any gratuity received under Payment of Gratuity

Act not exceeding Rs 350000/-.• Any other gratuity received by an employee or his

dependant on his retirement, termination, death or on becoming incapacitated to the extent it does not exceed one and half months salary for each completed year of service.

• Any payment in commutation of pension under Civil Pension Rules. Any other payment in commutation of pension received under the scheme of any other employer to the extent it does not exceed one third of the pension if receiving gratuity and one half of such pension in other cases.

• Any payment received by an employee of Central or State Govt as cash equivalent of earned leave to his credit at the time of retirement, superannuation or otherwise. For other employees upto 10 months average salary.

• Any compensation received by a workman under the Industrial Dispute Act.

• Any payment received under Bhopal Gas Leak Disaster.

• Any amount received from Central or State Govt or local authority by way of compensation on account of any disaster.

• Any amount received under voluntary retirement scheme upto Rs 5.00 lacs.

• The tax paid by the employer on the income derived as perquisite not entailing any monetary payment.

• Any sum received under a life insurance policy including bonus on such policy.

• Any payment from a provident fund.• Any accumulated balance due and becoming

payable to an employee participating in a recognised provident fund.

• Any payment from an approved superannuation fund

• The exempted amount of HRA is least of the following

i) Allowance actually receivedii)Rent paid in excess of 10% of salaryiii)50% of salary in the cities of Bombay, Kolkata,

Delhi,Chennai and 40% of salary in other cities.

Salary for the purpose includes basic salary, DA and commission based on a fixed percentage of turnover.

• Income by way of interest, premium on redemption on such securities, bonds or any other certificate issued by the central Govt and notified in the official gazette.

• Any scholarship granted to meet the cost of education.

• Any income by way of Daily Allowance, Constituency Allowance or any other allowance paid to MP and MLA

• Any payment made in pursuance of an award instituted in the public interest by any Central or State Govt.

• Any income by way of pension received by an individual who has been awarded Param Vir Chakra, Maha Vir Chakra or Vir Chakra.

• Family pension received by widow or children of a member of armed forces where death of such member has occurred in the course of operational duties.

• Annual value of any one palace in occupation of a Ruler

• The income of local authorities which is chargeable under the head income from house property, capital gains, income from other sources or from a trade or business of supply of a commodity or service.

• Any income of scientific research association approved for thr purpose of Section 35(1)(ii)

• Any income of such news agency set up in India solely for collection and distribution of news as the Central Govt may by notification in the official gazette specify.

• Any income other than from house property, dividend, interest or specific service of an association or institution established in India having objects of control, regulation, supervision and encouragement of the profession of law, medicine, accountancy, engineering or architecture.

• Any income received by any person on behalf of Regimental Fund or Non-Public fund established by the armed forces for welfare of past and present member of such forces.

• Any income of a fund set up by LIC to which contribution is made to receive pension.

• Any income of an institution constituted as trust or society and existing solely for the development of khadi or village industries and not for the purpose of profit.

• Any income of Khadi and Village Industries Board or any other organisation established for development of khadi and village industries in the state.

• Any income of European Economy Community by way of interest, dividend or capital gains.

• Any income of SAARC Fund for Regional Projects set up by Colombo declaration.

• Any income of IRDA

• Any income of North Eastern Development Finance Corporation.

• Any income of Central Electricity Regulatory Corporation.• Any income received by any person on behalf ofa) Prime Minister National Relief Fundb)National foundation for communal harmony.c) Any educational institution, Hospital substantially funded by

Govt.d)Any educational institution having aggregate receipt of less

than one Crore.e)Any other trust, hospital or educational institution approved

by the prescribed authority.

• Any income of Mutual Fund• Any income of Investor Protection Fund• Any income of Credit Guarantee Trust for small

industries.• Any income of commodity exchange• Any income of dividend and long term capital gain in

respect of Venture Capital Fund.• Any income under the head In come from house

property or income from other sources of a Trade Union.

• Interest on securities held by any provident fund.• Any income of Employee state insurance fund.• Any income of a corporation wholly financed by

Govt. formed for promoting the interest of ST,SC ,OBC ,minority community and ex-serviceman.

• Any income arising or accruing to Coffee Board,Rubber Board,Tea Board,Tobacco Board,Spice Board.

• Any income by way of dividend.• Any income chargeable under capital gain on

transfer by way of compulsory acquisition of agricultural land.

• Any income from transfer of long term capital asset being equity shares of a company which is chargeable to Security Transaction Tax.

FTZ,SEZ,EOUand Export of Certain Articles

• Gains derived from export of articles or things or computer software for 10 years in respect of a newly established undertaking in FTZ.(Sec 10A)

• 100% of profit on exports for first five years and 50% of profit for next five years in case of units established in SEZ.

• Profits from exports for 10 years of the newly established EOU.

• Profits from exports of eligible article i.e.hand made wooden article of artistic value (Sec-10BA)

Conditions to be satisfied u/s 10A

• It is not formed by splitting up or reconstruction of a business in existence.

• It is not formed by transfer of plant and machineries previously used.Old plant and machineries upto 20% of the total value of plant and machineries is allowed. Plant and machinery which were used outside India by another person and for which no depreciation has been allowed under the Act shall not be regarded as machineries previously used.

• The sale proceeds of the article, thing or the computer software exported out of India should be received in or brought into India by the assessee in convertible foreign exchange within the period of six months from the end of previous year

• Deduction to be calculated as belowExport Turnover x Profit/Total Turn over

Conditions to be satisfied u/s 10BA• It produces the eligible articles or things without the

use of imported raw material.• It is not formed by splitting up or the reconstruction of

a business already in existence.• It is not formed by the transfer of machinery and plant

previously used. However value of such machineries upto 20% is allowed. Plant and machinery which were used outside India by another person and for which no depreciation has been allowed under the Act shall not be regarded as machineries previously used

• 90% or more of the sales during the previous year is by way of eligible article

• It employs 20 or more worker during the previous year in the process of manufacture or production

• The sale proceeds of the article, thing or the computer software exported out of India should be received in or brought into India by the assessee in convertible foreign exchange within the period of six months from the end of previous year

• Deduction to be calculated as belowExport Turnover x Profit/Total Turn over

ExampleParticulars A Ltd(Rs in Lacs) B Ltd(Rs in Lacs)

Export Turnover 125 240

Domestic Turnover 68 42

Profits of the Business 21 28

• The export turnover of A Ltd includes charges received from onsite develoment of computer software outside India to the extent of Rs 30.00 lacs.B Ltd has realised only 90% of its export turnover and the remaining 10% has become irrecoverable.

Compute the deduction available.

Answer

• A Ltd=125x21/193=Rs 1360104/-• B Ltd=216x28/282=Rs2144681/-

Income from property held for charitable purpose• To the extent applied for charitable purpose and

if accumulated not exceeding 15% of such income.

• Where 85% of income has not been applied for charitable purpose a notice in writing to be given to AO mentioning the purpose and period(not more than 10 years) of accumulation.

• The money so accumulated to be invested or deposited in the forms or modes specified.

• The trust must be registered with commissioner of Income Tax u/s 12A

Example

• A charitable trust derives income net of expenses of Rs 1500000/- and corpus donation of Rs 800000/- for the year ending 31st March 2009.It invests the entire corpus donations in the bank deposit. It accumulates Rs 1000000/- out fo Rs 1500000/-for a specified purpose and informs the AO. Out of the balance Rs 100000/- is spent for the objects of the trust. Determine the taxable income of the trust for AY 2009-10

Answer• Income net of expenses Rs1500000/-• 15% Exempt without being spent Rs 225000/-• Balance- Rs 1275000/-• Less accumulated profit for specified purpose-Rs1000000• Balance that should have been applied for its objects- Rs

275000/-• Actual amount spent Rs 100000/-• Taxable income of the trust Rs 175000/-• Corpus donation of Rs 8 lacs is not treated as income

Example• A public charitable trust running a hospital derives

income of Rs 12500000.The expenses incurred to earn this income is Rs2700000 and the depreciation is Rs 1300000.Out of Rs 12500000 a sum of Rs 1000000 has accrued but not received as on 31/03/09. A sum of Rs1500000 earmarked and set apart in Feb 2009 to give as advance for a premises to be taken on lease for expansion of the hospital was paid only on 15/04/09 as lease agreement could not be signed by 31/03/09. Derive the taxable income if amount spent on furniture and equipment by 31/03/09 is Rs 4200000/-

Answer• Income Rs 12500000/-• Expenditure including Depreciation Rs 4000000/-• Balance Rs 8500000/-• Less 15% to be set apart Rs 1275000/-• Less income not received during the year which can be

spent in the year of receipt or in the following year Rs 1000000/-

• Balance Rs 6225000/-• Non application of income due to delay Rs 1500000/-• Amount should have been applied Rs 4725000/-• Amount actually spent Rs 4200000/-• Taxable income Rs 525000/-

Political Parties (Sec 13A)

• Following income of political parties are exempt from tax

i) Income from house propertyii) Income from other sourcesiii)Income from voluntary contributionsiv)Capital gains

Conditions u/s 13A

• The political party is registered u/s 29A of representation of the People Act.

• The political party maintain books of accounts• It maintains a record of voluntary contribution

in excess of Rs 20000/- and the name and address of each person who has made such contribution

• The accounts of political party should be audited.

Thank you