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School of Distance Education. Income Tax Law and Practice. Page 2. UNIVERSITY OF CALICUT. SCHOOL OF DISTANCE EDUCATION. Study Material. usaascvb.info Direct Tax Laws (Income Tax) and Indirect Tax Laws (Service Tax, Value . Professional Approach to Direct Taxes Law & Practice; Bharat. The subject of Direct Tax Law & Practice is inherently complicated and Income Tax Act, provides for levy, administration, collection and.

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Income Tax Law And Practice Pdf

Income Tax Law And Practice - [Free] Income Tax Law And Practice [PDF] [EPUB ] An income tax is a tax imposed on individuals or entities that. Taxation Law & Practice Solutions Student Edition Geoff Cliff John Taggart James Cooper Income Tax Law & Practice - Solutions Taxation Law & Practice. Download Income Tax Law And Practice Download free online book chm pdf.

Actual gratuity received a. Actual gratuity received b. Commuted pension is a one time payment. It means lump sum amount taken by commuting the pension or part of the pension. Annuity is the annual payment made by an employer to employee.

Other taxable entities are generally treated as partnerships. In the US, many kinds of entities may elect to be treated as a corporation or a partnership. Partners of partnerships are treated as having income, deductions, and credits equal to their shares of such partnership items. Separate taxes are assessed against each taxpayer meeting certain minimum criteria.

Many systems allow married individuals to request joint assessment. Many systems allow controlled groups of locally organized corporations to be jointly assessed. Tax rates vary widely.

Some systems impose higher rates on higher amounts of income. Example: Elbonia taxes income below E. Joe has E. His tax is E. Tax rates schedules may vary for individuals based on marital status.

Few jurisdictions tax nonresidents other than on specific types of income earned within the jurisdiction. See, e. Residents, however, are generally subject to income tax on all worldwide income. Residence is often defined for individuals as presence in the country for more than days. Most countries base residence of entities on either place of organization or place of management and control. The United Kingdom has three levels of residence.

Defining income[ edit ] Most systems define income subject to tax broadly for residents, but tax nonresidents only on specific types of income. What is included in income for individuals may differ from what is included for entities. The timing of recognizing income may differ by type of taxpayer or type of income.

Income generally includes most types of receipts that enrich the taxpayer, including compensation for services, gain from sale of goods or other property, interest, dividends, rents, royalties, annuities, pensions, and all manner of other items. Most tax systems exclude from income health care benefits provided by employers or under national insurance systems. Deductions allowed[ edit ] Nearly all income tax systems permit residents to reduce gross income by business and some other types of deductions.

By contrast, nonresidents are generally subject to income tax on the gross amount of income of most types plus the net business income earned within the jurisdiction.

Expenses incurred in a trading, business, rental, or other income producing activity are generally deductible, though there may be limitations on some types of expenses or activities. Business expenses include all manner of costs for the benefit of the activity. An allowance as a capital allowance or depreciation deduction is nearly always allowed for recovery of costs of assets used in the activity.

Rules on capital allowances vary widely, and often permit recovery of costs more quickly than ratably over the life of the asset. Most systems allow individuals some sort of notional deductions or an amount subject to zero tax.

In addition, many systems allow deduction of some types of personal expenses, such as home mortgage interest or medical expenses. Business profits[ edit ] Only net income from business activities, whether conducted by individuals or entities is taxable, with few exceptions.

Many countries require business enterprises to prepare financial statements [38] which must be audited.

Income tax in India

If such foreign profits not received in India are taken not only in accounts books but are also taken in determining the amount to be paid as dividend. Salary income earned at Delhi. Income from structure designing consultancy service. Past foreign untaxed income brought to India 2. Profits earned from a business in Paris which is controlled in India.

Krishna discloses following particulars of his receipts during the financial year Income from property. Interest on USA development bonds and one half of which was Loss from foreign business. Land sold in Delhi. Income from agriculture in Nepal and brought to India Dividend paid by an Indian company but received in London One half is taxable on receipt basis b.

It is not income in India. Further more. One half of profits are taxable on receipt basis b. Profits earned from a business Dividend paid by an Indian Profits from a business in Mumbai managed from London 4,20, ii.

Pension for services rendered in Canada, but kept with state 60, Bank in Canada with the permission of the RBI iii. Income from property in Pakistan, received in India 58, iv.

Profits from business in Bangladesh and deposited in a bank 1,12, there v. Income received in Kenya from a profession, which was set up 70, in India, extended to Kenya and managed from Kenya vi.

Profit on sale of machinery in India but received in France 26, vii. Interest on foreign bank deposit, received by his minor son in 70, India. Bank deposit was made out of funds gifted by grandfather ix.

A German company credited commission to his bank account 1,75, outside India for sale of goods by him in India x. Commission earned and received by him outside India for sale 2,30, of goods by him in India xi. Dividends remitted in India by an Egyptian company to him 80, under his instruction through bank of Baroda. Profits from a business 4,20, 4,20, 4,20, at Mumbai, managed from London ii.

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Pension for services 60, rendered in Canada, received there iii. Rent of house property, 58, 58, 58, situated in Pakistan but received in India iv. Profits from business in 1,12, Bangladesh and deposited in bank there v. Income from profession 70, 70, in Kenya which was set up in India, received there, managed from there.

Profit on sale of 26, 26, 26, machinery in India but received in France vii. Profit from foreign 2,00, 80, 80, business: Depreciation of foreign -2,50, -1,00, -1,00, business viii. Income of a minor child is 68, 68, 68, included in total income of that parent whose income, before including such income is greater, however, an exemption up to Rs.

Commission from German 1,75, 1,75, 1,75, company received outside India is deemed to accrue or arise in India because of business connection in India. Commission earned and 2,30, 2,30, 2,30, received outside India on export orders collected in India is deemed to accrue or arise in India xi. Dividends from foreign 80, company received out side India.

Sowmya discloses the following particulars of his income during the previous year Dividends from Sri Lanka companies received in India, 2,00, Dividends were received partly in cash and partly in shares. Face value of shares is Rs. However, currently there is no downloader in the market ii. Pension remitted to him in India by Sri Lankan government after 70, deduction of tax source Rs.

Fees received in Sri Lanka for arguing a patent case in Delhi 1,00, High court on behalf of a fellow lawyer friend of Mumbai iv. Commission credited to his account in India under his 1,20, instructions by law firms in India, for referring clients from outside India but commission was received in Myanmar v. State of income from his HUF, received in Kolkata 50, vi. Income from law practice in Myanamar and Sri Lanka received 4,80, there but practice was set up in Delhi vii.

He has downloadd the dealership rights from Mumbai law house on 1st January Gift from a foreign client, received outside India 20, Cash dividend 1,20, b. Commission not be apportioned between seller and downloadr on time basis Gift from a foreigner client, received 20, outside India TOTAL 11,80, 10,90, 6,10, J, a Japanese national discloses the following particulars of his income during financial year Profit from business in Japan, controlled and managed from India but 10,00, profits being received in Japan.

Profits from speculation business in 2,00, 2,00, 2,00, India Profits from business in Japan, 10,00, 10,00, Rs. Non-resident is entitled to carry forward business loss of Rs. The following amounts of income have been computed for MR. Ram chand for the previous year ended on 31st March.

Salary accrued and received in India 25, Profit from hotel business in Japan 50, Dividends declared in Japan received in India 10, Gain from transfer of capital asset in India 25, Interest on debentures of a company in New York received in India 7, Royalty received in Germany from a resident in India for technical 20, services provided for a business in Germany Interest received in UK from Robert, non-resident, on loan provided to 6, him for business in India Fees from an Indian company carrying on business in the UK for 25, technical services rendered in London, directly deposited in his bank account in India.

Compute the total income of Mr. Robert, a 6, 6, 6, Profit computed on sale of building in India received in Pakistan Rs. Gift of Rs. X furnishes the following particulars of his income earned during previous year ended on 31st March Income from business in Iran which is controlled from India Rs.

Income from property received outside India Rs. Income from agriculture in Bangladesh. Arrears of salary Rs. Interest on Pakistani development bonds.

Untaxed profit for the previous years brought to India in July 2. Profit from business in Kolkata managed from outside India Rs. Dividends received on outside India from an Indian company Rs. Find out Gross total income of Mr.

Profits received in India 1. During the calendar year he does not visit India at all but comes to India on January Steve Waugh. He has never been out of India before. Determine his residential status for the assessment year He cannot claim the beneficial status of NOR as he was Resident of India for 9 previous yeas and he was in India for more than days during 7 previous years preceding the relevant previous year. Relevant previous year Determine his residential status for the previous year He cannot claim the status of NOR as he was: He left Delhi for Canada on 10th February His status is non-resident as his stay is less than days.

Find out his residential status for the assessment year and Again on 10th August He is covered under explanation to 6 1 b as he is in India citizen going abroad on a job approved by government.

Stay in India during relevant previous year: NIL he was absent through out the previous year As such he does not satisfy any of the two tests of sections. He made another attempt to go abroad and finally succeeded to go to Canada. He returned to India on After reporting for duty.

As such he is ordinary resident. What is his residential status for the previous year Under the provisions of section 6 6 he can not claim the beneficial status of Resident but not ordinarily resident as he was: Vinayak was in India during the relevant previous year ie. Give reasons. He again came back to join duty on 10th November Babu a married citizen of India left for Germany for the first time on on a business trip.

What will be his residential status for the assessment year His total stay during the preceding 7 years was days. Hence he is ordinary resident. Relevant previous year to Stay in India in this previous year: What would be the residential status of doctor during the assessment year under the following circumstances: He returned to India on 28th March Krishnaiah for the previous year A person after about 26 years stay in India retired to England in April and returned to India on 15th February to take up a salaried appointment.

What is his residential status for the previous year ? As Dr. State giving reasons what will be the residential status of Mr. Mahesh is an Indian citizen rendering service in USA ie. Relevant previous year to Stay in India to [46 days] His residential status is Non-resident as he cannot fulfill either of the two tests of Sec. Gowda went to Germany for diploma course on 5 th August and came back to India on 25th February He had never been out of India before.

He cannot claim the status of NOR as: What is his residential status for the year ending 31st March Who is a Non-resident? Who is Not ordinarily resident? State the Basic conditions? What is residential status of an individual who came to India for the first time in and who has in India as follows: Relevant previous year: Who is a resident?

What is previous year? State the additional conditions? What would be the residential status of doctor during the assessment year under the following circumstances? Gowda went to Germany for diploma course on 5th August and came back to India on 25th February He was never out of India in the past. What is assessment year? What is his residential status for the year ending 31st March ? Salary accrued and received in India Commission credited to his account in India under his 1.

Profit from hotel business in Japan Fees received in Sri Lanka for arguing a patent case in Delhi 1. Dividends from Sri Lanka companies received in India. Income from law practice in Myanmar and Sri Lanka received 4.

Somayaiah discloses the following particulars of his income during the previous year State of income from his HUF. Ram for the relevant assessment year if he is ROR. Pension remitted to him in India by Sri Lankan government after Income from property in Pakistan.

Gift from a foreign client. Profits from a business in Mumbai managed from London 4. Pension for services rendered in Canada.

Profits from business in Bangladesh and deposited in a bank 1. Income received in Kenya from a profession. Interest on foreign bank deposit. Profit on sale of machinery in India but received in France Commission earned and received by him outside India for sale 2. A German company credited commission to his bank account 1. Dividends remitted in India by an Egyptian company to him Income tax act. In deciding whether a particular receipt is of a revenue capital or revenue type.

For this distinction capital and revenue items can be divided into three sub-parts: This makes the distinction between capital and revenue of vital importance.

The method of tax on different types of receipts is different. The receipt where it is monthly remuneration or lump sum for 3 years is revenue receipt. Particularly while calculating business profit or professional gain only revenue receipts and revenue expenses are considered.

Whether any income is received in lump sum or in installments. It has been decided in so many court cases that a lump sum receipt may be an item of revenue nature and an annual receipt recurring over few years may be a capital receipt. Income tax is levied on income of assessee and not on every receipt which he receives. The nature of the receipt has to be the receipt has to be determined at the time when it is received and not afterwards when it has been appropriated by the recipient.

The magnitude of receipt. Payment made out of capital: No attention will be paid towards the source from which amount is coming. Salary even if paid out of capital by a new business will be it revenue receipt in the hands of employee. No attention will be paid towards the source from which the amount is coming. It was also decided in a case that if a receipt is made out of capital.

The character of the receipt shall be decided by considerations other than by what name the parties call it. What name the recipient or payer of the receipt has given in the books of accounts or with what name he has called a particular payment by a dealer may be a revenue receipt in the hands of the recipient. The nature of the receipt will be determined in the hands of the person receiving such income.

Supreme Court has ruled in a case the magnitude of a receipt is immaterial for the purpose of determining its nature. Salary even paid out of capital by a new business will be a revenue receipt in the hands of the employee.

Whether the income is received voluntarily or under a legal obligation. A receipt of Rs. If a recipient is beneficially entitled not only to the income but also to the capital. Plant and machinery. Circulating asset is asset which is turned over and while being turned over yields profit or loss where as fixed asset is one on which the owner earns profit by keeping it in his own possession. Fixed asset is that with the help of which owner earns profits by keeping it in his possession eg.

Any sum received in substitution of income is revenue receipt. A Company downloadd the right to produce a film from its earlier producer with the condition that no other producer will be given these rights. Even the courts have found it difficult to lay down some points of distinction on the basis of which a capital receipt may be distinguished from a revenue receipt.

It is very difficult to draw a line of demarcation between capital receipts and revenue receipts. Circulating asset is that with the help of which owners earn profit by parting with it and letting others to become its owner eg stock in trade.

These tests are: Profit on the sale of motor car used in business by an assessee is a capital receipt where as the profit earned by an automatic dealer. The A company claimed damages and was awarded Rs. It is capital receipt but if he receives it as advance royalty for 5 years it is revenue receipt.

Price received on sale of know-how 5. An author gives up his right to publish a book and receives Rs. Compensation received from the employer for loss of employment due to premature termination of service. Damages received by an employer who is wrongly dismissed or a payment received by an employee in lieu of notice.

Contribution received by electric supply company from consumer for installation of service lines excess of amount over cost of installation. If an article is acquired for the purpose of trade. The following are some important examples of capital receipts decided by courts: It was held in a case that the capital receipt had been spread over 10 years period and so the annual receipt of Rs.

Compensation was held to be a revenue receipt as building of houses for sale was presumed to be a trading asset or stock in trade. Damages awarded by a court to a company for breach of contract by another company 4. A company sold its business including goodwill to another company for a certain sum. Supreme court held that the amount so collected from the consumers is essentially the reimbursement of capital expenditure incurred by the company in laying service lines and hence the receipt including the excess recovered over the actual cost was a capital receipt.

The company also entered into a convenat restraining itself from starting a similar business for 10 years for separate consideration of Rs. A company of building contractors was refused permission by the local authority to build house on a certain piece of land and was paid compensation. Lump sum royalty received in advance 2.

The contributions collected exceeded the actual cost of laying the service lines. An electricity generating company collected contributions from the consumers for laying of service lines from its distributing main lines.

A pugree received by the owner of the house property from tenant 3. A passenger is injured in a railway accident and is temporarily disabled thus losing income for a short period. Any receipt as compensation shall be revenue receipt.

The receipt in the nature of damages shall be capital assets of the trade. Such a compensation may be voluntary and recipient may not have any legal right to demand such a compensation. Where the grant or subsidy is given for a specific purpose eg. Where an assessee had been allowed deduction regarding the amount embezzled by an employee as trading loss and subsequently it is recovered from that employee.

Lump sum amount received in lieu of future royalty. Any revenue payment made to discharge a liability. Where as. If an expenditure is incurred by an assessee as a capital expenditure. A payment made by a person to discharge a capital liability is a capital expenditure.

Salary of the staff. download of patents to produce picture tubes of TV sets. If the amount is spent on increasing the earning capacity of an asset. For computing profits of a business taxable under this act.

The following tests can be applied for this purpose: But any expenditure on the replacement of part of a plant which does not bring any additional advantage to the business of assessee is revenue expenditure. On the basis of court judgments. Amount deposited by a person with manufacturing industry to get its agency and lost due to company being liquidated is a capital loss.

The following items are found debited to the profit and loss account of a company. Are these items deductible in computing the income of the company for income tax purposes? Give reasons for your answer: Loss occurring due to theft or embezzlement or misappropriation committed by an employee is revenue loss. Once the amount is deposited in bank and then it is withdrawn by an employee and is misappropriated it is capital loss. It is very difficult to distinguish between a capital loss and a revenue loss on the basis of certain principles.

How ever depreciation will be allowed. The new company being unsuccessful. The bad debts were sustained by the company in respect of loans advanced to customers and written off. Hence it is not deductible.

The company has formed another company to take over its downloading agency at Delhi and had taken up 80 shares of Rs. Annuity received from an employer is a salary income State whether the following are capital or revenue receipts: What is capital expenditure?

It is not taxable as a receipt. What is a capital receipt? What is a revenue receipt? Annuity v. Distinguish between revenue expenditure and capital expenditure. What is revenue loss?

What is revenue expenditure? Compensation received for compulsory vacation of place of business What is capital loss? Compensation received for nationalization ii. Sales tax collected from download of goods iv. Premium on issue of new shares iii. Give distinction between capital losses and revenue losses. Why is it necessary to distinguish between a capital receipt and revenue receipt?

How would you determine whether a particular receipt is a capital receipt or a revenue receipt? What tests would you apply to distinguish capital receipts from revenue receipts? Unclaimed dividends 5. Bonus shares received by a dealer of shares Money received by a tyre manufacturing company for sale of technical know how regarding manufacture of tyre. Dividend for interest for investments 6. Every non-monetary benefits and perquisites are valued in accordance with specified rules and assessed to tax.

Any income from salary is taxed either on due basis or on receipt basis. It comprehends every payment. Even the arrears of salary. It is a cardinal principal that any amount chargeable to tax under the head salaries must come to the assessee only from or on behalf of his employer or former employer and that too only account of employment or services rendered by him to the employer and not by virtue of personal considerations.

Employer may be any entity. There must be a master at whose command services are rendered. Under Sec. The position is different when a professional permanently accepts an employment and exchanges his profession for service. Such an engagement cannot be considered as an employment. Only those payments can be charged as salaries which are paid or due to the employee for services rendered.

The following points in subsequent sections may be taken into account while determining the relationships of employer and employee. In view of this. Salary is a payment for services rendered. A local authority. The remuneration in that case is chargeable to tax under the head salaries. Payments made by an employer on account of personal consideration cannot be taxed as salaries. The relationship of the principal and the agent may or may not be of an employer and employee: If agent has to work under the direct control and supervision of the principal and has no discretion of his own in the performance of his duties.

An agent. A person who is engaged in managing a business may be a servant or an agent according to the nature of his service and the authority of his employment. But this test is not universal in its application and does not determine in every case. For ascertaining whether a person is a servant or an agent.

The remuneration payable to the agent in such a case is liable to be taxed under the head. Though a director simpliciter is not a servant of a company. It is treated as business income under 28 v.

The doubt. A firm is not a legal person and has no legal existence apart from its partners. In such case. They are their own masters. In order to decide the question whether a director is an employee of the company or not. Salary received by partner is not received from an employer and it constitutes business income. Though under income tax law.

The partners in a firm work for themselves and not for any employer. The salaries of members of parliament are governed by the salaries and allowances of members of parliament act Charge is either on due basis or on receipt basis but not on both the basis: When a salary is taxed on due basis.

A member of parliament is not a government employee. Government does not exercise any control on the member of the legislature. The fact that the employee has not received the salary or the salary has been paid to a third person. When any salary is received by an employee in the previous year before it becomes due to him. The expression due implies that there is an obligation on the part of the employer to pay that amount and a right has accrued to the employee to claim the same.

Any salary due from an employer or former employer to an assessee in the previous year. The salaries of President. Section 15 c applies to arrears of salary provided such arrears had not been charged to income tax for any earlier previous year. Place of accrual of salary [sec. In other words. Any annuity or pension iii.

Arrears of salary: When any arrears of salary. Wages ii. Such income is treated as earned in India if it is payable for services rendered in India.

Any gratuity Fictitious salary not chargeable to tax: It is immaterial that the arrears relate to a year in which they were not chargeable to tax. Any advance of salary vi. Any fees. The scope of an inclusive definition of salary cannot be restricted only to those words which occur in such a definition.

The aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule 2 of rule 11 of part A of the fourth schedule of an employee participating in the recognized provident fund.

Wide scope of the definition of salary: The definition of salary is inclusive of the aforesaid items but not limited to them only. These seem hardly anything which can escape taxation as salary if the payment is made to an employee by an employer or a former employer by virtue of employment. The annual accretion to the balance at the credit of an employee participating in a recognized provident fund. The contrition made by the central government or any other employer in the previous year.

The payment may be made during the employment or at the termination of the employment. Any payment received by an employee in respect of any period of leave not availed by him. The words Salary and Wages are Interchangeable: Conceptually, there is no difference between salary and wages, both being a recompense for work done or services rendered, though ordinarily the former expression is used in connection with services of non- manual type while the latte is used in connection with manual service.

Date on which salary falls due: When salary is taxable on due basis, the date on which salary falls due become important. There are no specified rules to determine a date when salary falls due. It is a matter of contract between employer and employee. The contract of service specifies the date on which salary falls due.

Unless specified otherwise, salary falls due on the date of the month. When salary falls due on the last day of the month, the period of calculation will be from 1st April to 31st March 12 months. When salary does not fall due on the last day of the month, but on any specified date in the following month, the period of calculation during the previous year will be from 1st March to the end of February 12 months.

Any deduction from salary by the employer is a part of taxable salary. When rate of salary per month is given, deductions from salary may be ignored. The rate of salary may be multiplied by the period of previous year. When net salary is given after various deductions, eg. When salary scale or grade is given, salary for the relevant previous year may be worked on the basis of given facts taking into account the annual increments for the service period. Arrears of salary will be taxed on receipt basis if the same has not been taxed due basis.

Thus, where an employee is promoted with retrospective effect, such arrears of salary will be taxed on receipt basis. The assessee is also entitled to relief under Sec.

Income Tax Law & Practice

Advance of salary does not become taxable again when such salary becomes due. For a payment to fall under the head salaries, the relationship of employer and employee must exist between payee and the receiver of the salary. The employer may be a government, a local authority, a company or any other public body or an association or HUF or even an individual. Every kind of payment to every kind of servant, public or private, however high or low placed he may be is covered under the provisions of this act.

Such situation may arise when an employee is working with two employees simultaneously or has worked with one employer and later on serves with another employer after leaving service with first employer, salary from both the employer shall be taxable under this head. Salary received or due from present, past or future employer is also taxable under this head. Sometimes, the employer allows an employee to draw tax free salary, eg.

The employer pays full salary to the employee and also pays tax on this directly to the department. Salary drawn plus the tax paid by the employer. Salary received by a member of parliament is not taxable under the head salaries. It is taxable as income from other sources. Any allowance received by them is fully exempted from tax.

Perquisites or benefits or any other remuneration received from persons other than the employer, would be taxable not under the head salaries but under the head income from other sources even if they accrue to the employee by reason of his employment or while he was discharging his normal duties, eg, amount received by a professor of a college for acting as an examiner in a university.

Place of accrual of salary income: Salary accrues at that place where the services are rendered. If the services are rendered in India, the salary accrues in India and if the services are rendered outside India, the salary accrues outside India. Thus, if a person employed in India goes on leave to England and gets his leave salary there, the salary is said to accrue in India and not in England, because it is paid for services rendered in India.

Salary as partner: Any salary, commission or remuneration received by a working partner from a firm assessed as firm shall not be taxable under the head salaries.

It is fully taxable under the head profits and gains. Payment received by legal heirs of a deceased employee: Any Ex-gratia payment or compensation given to widow or legal heirs of an employee who dies during service is not taxable as salary income but family pension received is taxable under the head other sources.

Salary income of an employee is to be computed in accordance with the provisions laid down in section 15, 16 and Section 15 gives scope of the word salary, section 16 gives deductions to be allowed out of incomes taxable under this head. According to this section salary includes the following amounts received by an employee from his employer, during the previous year:. These can be explained in the following manner: It may be for actual work or leave salary or actually received or due during the relevant previous year.

Salary in lieu of notice. Any annuity or pension: It may be received direct as pension or out of a superannuation fund created by employer; in both cases it is taxable. Any gratuity: Any fee—any amount received from employer under the name of fee is also fully taxable.

Any commission given by employer to employee is fully taxable. Any commission received by a director for standing gurantee for repayment of loan and if he is not employee of the company, shall be taxable under the head Income from other sources. Any salary in lieu of leave received during service is fully taxable. Any advance salary: In case an assessee receives some salary in advance in previous year and which was actually not due in that year shall be taxable in the year of receipt.

It does not include any loan or advance taken from employer. To encourage savings for the social security of employees, the government has set up various kinds of provident funds. The employee contributes a fixed percentage of his salary towards these funds and in many cases employer also contributes. If the employee dies his heirs will get the full payment. SPF is the oldest type of fund. It was started in the year through a provident fund act of , this fund was started with a view of promoting savings amongst government employees.

Generally this fund is maintained by government or semi government departments like railways, reserve bank of India, colleges, Universities, local bodies, insurance companies etc. In such case fund will be treated as RPF from the day of its inception and exemption will be allowed in same manner. It is the provident fund which is not recognized by the Commissioner of Income tax. It is the provident fund which is not recognized by the commissioner of Income tax.

Only excess of amount transferred to RPF over exempted amount shall form taxable portion of transferred balance.

The employee and the employer both contribute towards this fund. When the URPF is recognized for the first time. This balance is known as transferred balance. The employee is entitled to relief under section 89 1. The interested people can open their account in SBI and its subsidiaries.

Calculate the taxable amount of annual accretion to RPF if following information is provided by assessee: At one time one can deposit in multiples of 50 and in one month only one deposit is possible and in the year minimum subscription should be Rs.

The subscription can be between Rs. This fund can suit all types of pockets and its working is also very simple. The subscription towards this type of fund is eligible for rebate in the similar manner. So far all these funds were for the salaried people. Partial withdrawal and loans are also possible. Interest credited in this account is fully exempted. On July 1. Full withdrawal is possible after 15 years but in case of death of the subscriber full repayment will be made to the legal heir of nominee.

Self employed people are doctors. Exempted upto 9. As per rule 8. As such allowances are given in cash along with salary by the employer. These allowances are given to an employee to meet some specific type of loss or expenditure of employee or to help him to meet certain type of expenses.

It simply means that the employee is leaving not of his own sweet will. These are divided into three categories on the basis of their tax treatment. These are: So DA is nothing but an additional salary and it is fully taxable.

Dearness allowance: Some times it is mentioned that: But with effect from assessment year this deduction is admissible only to government employees for an amount equal to least of following: City Compensatory Allowance: These are given to compensate for the high cost of living in a particular big city of India or any other capital city.

These allowances are fully taxable. Compute his salary. These are also fully taxable. But in case any amount is reimbursed against any expenditure incurred by employee on entertainment of guest or customers it shall be fully exempted. Till assessment year this deduction was admissible both to government as well as private sector employees. His salary shall be computed as under: Salary Rs. Entertainment allowance: This allowance is fully taxable irrespective of any expenditure incurred on entertainment of guests or customers.

Enters into pay for service benefits. Statutory limit Rs. Yogesh is employed at Amritsar on salary of Rs. The three items are: House rent allowance received is fully taxable and no portion of it is exempted under any provision of law. Any amount received by them is fully exempted under High Court Judges Act and Supreme court judges act The amount of cash paid is known as HRA.

Some times the employer does not provide rent free accommodation but instead makes provision to pay some amount in cash. It is exempted up to actual expenditure incurred for the purpose of employment. It is also exempted up to actual expenditure incurred on acquiring or maintaining of the official uniform. Excess if any is taxable. It is exempted up to actual expenditure incurred in performance of official duties.

It is exempted up to actual amount spent on engaging a helper required to perform the official duties. In case amount received is more than actual expenditure.

It is exempted up to actual expenditure incurred for research. Uttar Pradesh. If any amount is given by employer to employee as education allowance for the education of own children in India. Exemption allowed up to Rs. West Bengal.

Any allowance granted by employer to meet the hostel expenditure of employees children it shall be exempted up to Rs.

In the nature of counter insurgency allowance given to the members of the armed forces operating in areas away from their permanent locations for a period of more than 30 days shall be exempted up to Rs.

Bihar and Orissa. Tamil Nadu. Granted to an employee of transport system to meet his personal expenditure during the duty performed in the course of running of such transport from one place to another provided that such employee is not is receipt of daily allowance. This allowance is exempted upto Rs. Exemption 9. Karthik is employed at Hyderabad at a Basic salary of Rs. Dearness allowance 2. HRA 5. Cash allowance 1. Lunch allowance 1. Exemption 3. Exemption 2. Servant allowance 1.

CCA PM n. In case any perks has been received from a person other than employer. Where goods are presented to an employee. The word perquisite has not been defined under Income tax act If the perquisite does not accrue to the employee it will not be taxable. Perquisite simply means any casual emolument attached to an office.

Officiating allowance Perquisites may be given in a variety of forms. For income tax purposes it is immaterial whether the perquisites are paid voluntarily or under a contractual obligation. Value of perquisites is chargeable to tax under the head salary only if these perks are received by an employee from his or her employer and employer may be a present.

They may be received in cash or in kind. Least of the following: Received Rs. Any benefit derived by an employee from his employer whether received in lump sum of is being received every month and if such benefit comes out of employment agreement and it is providing a personal benefit to the employee or his family members. Perks can be divided into four categories: Any contribution by the employer to an approved superannuation fund for employee 3.

H Expenditure incurred on festival celebrations L Expenditure incurred on use of health club and similar facilities M Expenditure incurred on gifts and N Expenditure incurred on scholarships A Expenditure incurred on entertainment B Expenditure incurred on provision of hospitality of every kind by the employer to any person. Value of following benefits is not taxable in the hands of an employee.

D Expenditure incurred on sales promotion including publicity. Any free or concessional ticket provided by the employer for private journeys of his employees or their family members. F Expenditure incurred on conveyance.

C Expenditure incurred on conference for the purpose of this clause. The employer has to pay tax on deemed income calculated as percentage of expenditure incurred. The value of house is rent fixed by the government for such house.

It can be rent charged b government from another employee of same status for similar type of house. Value of house is calculated in following manner: For Unfurnished accommodation: For the calculation of value of rent free accommodation the word salary includes: For Government employees the value of rent free house is license fee fixed by it which is in present case is 7. Gowda is working in a Central Government office at simla. His salary particulars are as follows: Salary Shankar gets salary of Rs.

Calculate the value of rent free accommodation and gross salary.