Direct & Indirect Taxation (A.Y.

2010-11)

Course Semester Marks Faculty Mcom, SET.

: : : :

PGDM (2009-11) II 60+40 Prof. Akshay Damani FCA, MBA (UK),

DEATH
&

TAXES ARE UNAVOIDABLE

Classification of Taxes
Direct and Indirect taxes Direct taxes directly levied on source of income and wealth E.g. Income tax and Wealth tax Indirect taxes indirectly levied on activity/transaction which generates income or wealth E.g. sales tax, service tax, etc.

KINDS OF TAXES
Income-tax Sales tax Wealth tax Service tax Custom duties Securities transaction tax Excise duties and many more

INCOME TAX ACT, 1961 (will be replaced by Direct tax codes from 1.4.2011)

Income tax

INCOME

TAX

WHO

WHEN

INCOME
U/s 2 (24): Meaning and

PERIODICA A MONETARY L RETURN COMING IN WITH OR SOME SORT OF REGULARITY REGULARIT FROM A Y DEFINITE SOURCE

Characteristics

Characteristics of Income
Legal or Illegal incomes are taxable Moral or Immoral incomes are taxable. Cash or kind Real and not imaginary. E.g. sales supported by invoice documents Examples: profits, gains, donations, perquisites, allowances, compensation, export cash assistance, lottery prize, kaun banega crorepati ?, etc.

Tax
The outflow from income paid to the Government.

Who is liable to pay TAX?

PERSON U/s 2 ( 31 ) INDIVIDUAL HUF COMPANY FIRM BOI / AOP LOCAL AUTHORITY
ANY OTHER ARTIFICIAL JURIDICAL PERSON

What is the status of the following person

Ms. Katrina Mr. Salman a minor Ms. Ruby a person of unsound mind Ram, his wife Sita and two sons M/s Chip and Dale 2 CAs in partnership Tata limited Mumbai Municipal corporation Roha Gram Panchayat Joint venture between X ltd and Y ltd Joint venture between Mr. A and Mr. B Mumbai University Tirupathi Devasthanam

Assessee U/s 2 ( 7 )
a) every person in respect of whom any proceedings are taken under the act b) every person who is deemed to be an assesses under the act e.g. a trustee of a trust c) every person who is deemed to be as assessee in default. e.g. an employer who does not deduct TDS from employees salaries

When to pay tax ?

PREVIOUS YEAR - U/S 3 ASSESSMENT YEAR U/S 2 ( 9)

Year in which the income is received Always ends on 31st march E.g. P.Y. 2009-2010 begins on 1.4.2009 and ends on 31.3.2010 P.Y. 2008-09 begins on 1.4.2008 and ends on 31.3.2008

Previous year 3

u/s

Year in which final tax is payable relating to the previous year. Always for 12 months.
Example: PY 2008-09 PY 2009-10 AY 2009-10

ASSESSMENT YEAR u/s 2(9)

AY 2010-11 (this is relevant or exam)

Assessment U/s 2(8)

Assessment 2 (8): Process of determining and computing the amount of income and tax dues of a person.

Charge of Income tax u/s 4:

Income tax shall be charged, At the rates laid down by the finance act, For that assessment year, In respect of the total income, Of the previous year, Of every person.

Residential status u/s 6

Tax liability is based on the residential status of a person. Citizenship is NOT the main criteria for tax purposes and is different from residential status Residential status may change from year to year depending upon the stay in India.

Kinds of Residential status:

All Assesses Resident Individual & HUF R & OR R but not OR Non-resident

Conditions for determining residential status for an individual sec 6(1)

BASIC ADDITIONA L

Stay in India for At least 182 days O in Current R PY 09-10

(A)

eptions: citizen of India/crew of Indian Ship leaving India for oyment or self-employment OR b) A citizen of or a persons of Indian origin comes to a visit in India ACE 60 by 182 days

Stay in India for at least 60* days in current PY. AND & Stay in India for at least 365 days in 4 PY preceding ( PY. current B )

Stay in India for 730 days in 7 PY & preceding the current PY 09-10
(C)

Resident in India for 9 out of 10 PY preceding current PY

(D)

If {a or b}+ {c & d} satisfied: ROR If only a or b satisfied: RNOR If a or b NOT satisfied: Nonresident

Counting of days
a) the stay need be in the same place b) the stay need not be continuous c) the days of entry and exit are both counted d) a stay in a boat in territorial waters of India is treated as stay in India e) For February, where applicable 29 days are considered.

E.g. Mr. George Bush comes for the first time to India on 26.1.2009 and leaves India on 15.3.2010. Determine his residential status for AY 2010-11

Solution: PY 2009-10

Mr. George Bush Foreign Citizen AY 2010-11

Days in India in P.Y. 2009-10 Jan : 6 days Feb: 28 days Mar: 15 days Total: 49 days He does not satisfy any of the conditions. Therefore he is Non resident.

Conditions for determining residential status

BASIC ADDITIONA L

Stay in India for At least 182 days O in Current R PY 05-06

(A)

Stay in India Stay in Resident in for at least India for India for 9 out 60 days in 730 days of 10 PY current PY. AND in 7 PY & preceding & preceding current PY Stay in the (D) India for at current PY least 365 05-06 days in 4 (C) PY preceding If {a or b}+ {c & d} satisfied: current PY. ROR (B)
If a or b NOT satisfied: Non-resident

If only a or b satisfied: RNOR

Class exercises
(1) Mr. Sanjay, an Indian citizen went to USA for the first time for the purpose of employment on 10th May, 2009. He came back to India on 19th November, 2009. Determine his residential status for Assessment year 2010-11. Ans: Non resident No. of days in India 173(30+10+12+31+31+28+31) Employment so replace 60 by 182

Class exercise 2:
Ishant sharma, an Indian cricketer submits the following information of stay outside India for the year ending Days place 31.3.2010 12.4.09 to 27.4.09 Sharjah for Asia cup 2009
2.5.09 to 8.7.09 26.8.09 to 9.9.09 10.9.09 to 1.10.09 3.1.10 to 25.3.10 Summer tour to england triangular series in Sri lanka singapore on tour summer cricket tour to south africa

He made his debut in international cricket on 10th march, 2007. Then in a match against the West Indies, he suffered a major injury needing two years of hospitalization in USA. He recovered and returned back to India on 28.3.2009. Thereafter, he was employed by China Cricket board as Manager of the team. Determine his residential status For A.Y. 2010-11.

Solution
Total no. of days in PY 09-10 365 Less: stay out of India: 12.4 to 27.4 16 2.5 to 8.7 68 26.8 to 9.9 10.9 to 1.10 22 3.1 to 25.3 203 Therefore, stay in India = 365-203 = 162

15 82

He has not stayed in India for 182 days from

Class exercise
Mr. Bond an Indian citizen leaves India for honeymoon with his wife for the first time on 18.2.2010. Determine his residential status? Mr. Khiladi an Indian citizen leaves India for employment purposes for the first time on 18.2.2010. Determine his residential status?

Residential Status for a Company

Depends on the management and control of affaires, i.e. where is the majority decision making taking place. Irrespective of the type of company. For HUF the residential status of Karta is considered as residential status of HUF.

 Assignment sums: Please see hand out.

Scope of total income: Section 5

Nature of Income
Income received in India Income accruing in India

ROR

RNOR

NR
Taxable Taxable

Taxable Taxable Taxable Taxable

Foreign Income:
a) From business / profession Taxable Taxable controlled or set up IN India

Not-Taxable

b) From business/profession controlled or set up OUTSIDE of India

Taxable Not Taxable Not-Taxable

E.g.:

Items of Income Salary received in India Salary earned in India but received in Sri Lanka Foreign Income: Income from business in Nepal controlled form Delhi

Nature

ROR

RNOR T T

NR T T

Received in India T Accruing in India T

Foreign Income T controlled from India

NT

Income from business in Sri Foreign Income T Lanka received there. NOT controlled from India
T- Taxable

NT

NT

NT - Not Taxable

Mr. Tom, a British citizen had the following income during the year ended on 31st March,2010
1. Income from house property in India 15000 2. Income from property in Rome received there 10000 3. Interest from bank account in India 1200 4. Income from business in Bangladesh, being controlled from India 16000 5. Interest on Bank account in USA 11000 6. Salary earned and received in Tokyo 12000 7. Income earned and received in London 13000 8. Dividend from British company received in India 17000

NON- TAXABLE INCOMES:

(EXEMPTIONS) - Section 10
Section 10 (1) land Agricultural Incomes from situated in India Section 10 (2) - Sums received by a member of the HUF from a Family income Section 10 (2A) out of the Share of partner in profits partnership firm Section 10 (16) -Scholarships granted to meet the

Heads of Income
Income from Salaries Income from House property Income from profits and Gains of business or profession Income from capital gains Income from other sources

Computation of Total Income

PY 09-10
Particulars Income from Salaries Income from House property Income from P & G of Business or profession Income from capital gains (short term) Income from Other sources Add: Clubbed incomes GROSS total Income Less: deductions u/s 80 Net taxable income Add: Long term capital gains Net taxable income

AY 10-11
Rs. XX XX XX XX XX X X XX - X YY GG MM Rs.

Computation of Final tax payable :

Net taxable income Rates of tax (10 % 20% 30%) or as relevant Net tax payable Add: Surcharge (tax on tax) Tax payable Add: {education cess 3%} FINAL tax payable Less: Tax already paid (T.D.S. / Advance tax) Assessed tax payable/refund [5-6] [1+2] [1 x 3 %]

YY ---------1 2 3 4 5 6 7

Income tax slab for ay 10-11 Income Tax Slabs for ay 10-11 for Resident Senior Citizens (FY 2009-10) S. No. Income Range Tax percentage 1 Up to Rs 2,40,000 No tax / exempt 2 2,40,001 to 3,00,000 10% 3 3,00,001 to 5,00,000 20% 4 Above 5,00,000 30% Income Tax Slabs for ay 10-11 for Resident Women (below 65 years) (FY 2009-10) 1 Up to Rs 1,90,000 No tax / exempt 2 1,90,001 to 3,00,000 10% 3 3,00,001 to 5,00,00 20% 4 Above 5,00,000 30% Income Tax Slabs for ay 10-11 Others & Men (FY 2009-10) 1 Up to Rs 1,60,000 No tax / exempt 2 1,60,001 to 3,00,000 10% 3 3,00,001 to 5,00,000 20% 4 Above 5,00,000 30%

 Levy of surcharge has been withdrawn for personal income tax payers Education Cess on Income-tax and Secondary and Higher Education Cess on income-tax shall continue to be levied at the rate of two per cent and one per cent respectively of income-tax.

For the next class.

Assignment 1 to be submitted and Scope of total income and Salaries. Presentation: A) Group formation B) List of topics next slide

Session no. Group no.

2 G1 3 G2 4 G3 5 G4

Topic

M VAT What is Vat, Procedure, set off, state VAT, CENVAT, rates, 2 sums M vat - turnover tax, tax invoices, registration procedure, payment, 2 sums M VAT, Incidence of tax, dealers liable to tax, Filing of returns and forms, challans. Cenvat act , definitions, duties eligible, when and how much to take credit, cenvat credit rules , exempted goods, documents and forms, procedure, 2 sums 6 G5 Central excise act, definitions, duties specified under the schedule, valuation , 2 sums 7 G6 Registration process, forms, challans, procedure, remission of duty, interest and penalty 8 G7 Section 10 and 11 of the income tax act and 2 sums 9 G8 Section 44 to Sec 44 AE 10G9 List of wards, departments in M umbai, challans, forms, itr forms, tds forms, challans, 11G10 Pan card and TAN card procedure, sec 234 a , b, c , 3 sums Corporate style Presentation guidelines: a) M ax 25 minutes, warning bell at 24 min, wind up in last minute b) 6 members in a group c) 12 slides, 1 -topics n members, 12th - references d) only 9 bullet points e) each bullet point - max 15 words f) pre approval of ppt compulsory, 2 days prior to presentation g) akshaydamani@gmail.com, 9969772252 h) no sounds but use customer animations and pictures

To do.

Income tax is the price one pays for Civilization.

Session 2
Points: Employer-employee relationship Receiver and giver different In cash or in kind Taxable on accrual basis Taxable from past, present or future employer. Arrears of salary taxable in year of receipt Bonus taxable when received Salary includes wages

Particulars Salary Basic salary/wages (accrual) Arrears of salaries (actually received) Advance salaries (actually received) Bonus (actually received) Leave salary (taxable portion) Commission Pension (taxable portion) Gratuity (taxable portion) Allowances: Entertainment allowance Dearness allowance HRA (taxable portion) Other allowances Perquisites (taxable portion) Profits in Lieu of salary GROSS SALARY Less: deductions u/s 16 a) entertainment allowance b) profession tax (annual Rs. 2500) NET taxable salary

Rs. X X X X X X X X X X X X X X X X X

Rs. X X X X x X X X X x X X X X X X X Zzzzzz

 Entertainment Allowance deduction (only for Government employees) is the Lowest of:
5000 1/5 of basic salary Actual sum of entertainment allowance received

Q1) Smt. Tejal is the managing director of Natural perfumes ltd... From the following particulars relating to the year ending 31.3.2010, compute her income from Salaries. Salary Rs. 15,000 p.m. Dearness allowances Rs. 1500 p.m. Directors meeting fees Rs. 600 Value of perquisites on account of free personal use of car Rs. 2800 The company had paid Rs. 8000 directly for the servant`s salaries in her house House rent allowance of Rs. 7200 of which Rs. 4800 is exempt u/s 10(13A)

Exercise 2. Compute the income of Mr. Sushant under the head Salaries for AY 2010-11 Salaries received during the year Rs. 13,500 per month Arrears of salary for the earlier year received during the year as per Labour Tribunal Award Rs. 7,500 Took advance salary Rs. 7,500 on account of marriage in the family and loan of Rs. 10,000 Received bonus during the year, in respect of an earlier year Rs. 4,500 Took loan from employer for purchasing a scooter Rs. 20,000 Mr. Sushant is provided with a car for office use as well as personal use. The perquisite value of the same is determined at Rs. 3800 Mr. Suhas received Rs. 12000 from his employer for meeting expenses in traveling for office purposes. Of the same he spent only Rs. 9000 He has incurred the following expenses for employment purposes: - Books and periodicals required for employment purposes 1500 - Profession tax paid 1600 - Fees paid for membership of a professional body 300 - The employer has paid during the year the life insurance premium of Mr. Suhas amounting to Rs. 5500 and Medical insurance premium amounting to Rs. 2700

Q3) Mr. Dharawat who is a part time lecturer in a college at Mumbai gives you the following details of his salary income for the financial year 2009-10 Salary for the year Rs. 80,000 Arrears of Salary received for the year 2006-07, this year, Rs. 25,000 Bonus received by him during the year is 25% of salary He received LTA of Rs. 20,000 (his air fare from Mumbai to Ahmadabad came to Rs.15,000 He has received Rs. 13,500 for setting and correcting the examination papers of the college He has encashed leave salary Rs.16,500 Profession tax Rs. 16500 Compute his income from salaries for AY 2009-10

 For next class Assignment 2 Presentation