Professional Documents
Culture Documents
Chapter
8
8.1 INTRODUCTION
The following income shall be chargeable to tax under this head of income only
if it is not taxable under the head Profits and Gains of Business or Profession:
(a) Interest on securities (State and Central Government securities and
debentures);
(b) Any sum collected from employees towards their share of contribution to any
Welfare Fund Account :
(c) Income from letting of machinery, plant and furniture; and
(d) Income from letting of machinery, plant and Furniture together with building,
if the letting of the building is inseparable to the letting of other assets.
2
(10D)
(15)
(16)
(17)
10]:
Conditions/Remarks
(a) Such compensation is received or
receivable from the central/State
government or a local authority.
(b) Exemption is not available to the
extent such amount has been allowed
a deduction on account of any loss or
damage caused by such disaster under
this act.
Sum
received
under
life- Following are not exemptinsurance policy included sum (1) sums u/s 80DD(3) and 80DDA(3)
by way of bonus allocated on it. (2) sums under key man insurance
policy
(3) Sums received under insurance
policy issued on or after 1-4-2003 if in
any year the premium payable exceeds
20% of actual capital sum assured.
However sum received on death is
exempt.
(i) Interest, premium on redemption or other payments on securities,
bonds, deposits etc. issued or notified by central government subject to
prescribed conditions or limits.
(ii) In the case of an individual or a HUF, interest on notified capital
investment bonds and interest on notified relief bonds.
Education scholarship.
Note: (a) Recipient can be Indian or foreigner; whole amount need not be
spent on education.
(b) Scholarship granted to meet education cost of children of employee is
exempt.
Allowance to MLA and MP or Following are exemptmembers of any parliamentary (1) daily allowance;
or legislative committee.
(2) any allowance received under the
3
(19)
(26)
(26AAAA)
(34)
(35)
(39)
8.4 DIVIDEND
(a)
(b)
(c)
(d)
(e)
Exceptions:
(1) Any advance or loan to a shareholder or the concern in which the shareholder
has substantial interest by a company will not be deemed as dividend, if the
loan or advance is given during the normal course of its business provided the
lending of money is a substantial part of the business of the company.
(2) Any payment made by a company on purchase of its own shares from a
shareholder in accordance with the provisions of Section 77A of the Companies
Act, 1956, shall not be regarded as dividend. Such buyback of shares attracts
capital gains tax liability in the hands of the shareholder u/s 46A.
(3) Any distribution of shares pursuant to a demerger by the resulting company to
the shareholders of the demerged company (whether or not there is a reduction
of capital in the demerged company) shall not be treated as dividend.
Where the total income of an assessee includes any income by way of winnings
from any lottery or crossword puzzle or race including horse race or card game and
other game of any sort or from gabling or betting of any form, tax shall be
calculated at the rate of 30% of such income plus surcharge.
The taxability of income in the nature of winnings from any lotteries,
crossword puzzles, race, etc. are subject to the following:
6
Lottery includes winnings from prizes awarded to any person by draw of lots
or by chance or in any other manner whatsoever, under any scheme or
arrangement by whatever name called.
Card game and other game of any sort includes any game show, an
entertainment programme on television or electronic mode, in which people
compete to win prizes or any other similar game.
8.6 DEDUCTIONS ADMISSIBLE IN COMPUTING INCOME FROM OTHER SOURCES
[SEC. 57];
(i)
(ii)
Personal expenses
Interest and salary payable outside India, if tax has not been paid or deducted
at source
(iii) Wealth-tax
(iv) Expenses of the nature described in Section 10A
(v) No deduction shall be allowed in respect of winnings from lotteries, cross word
puzzles, card games, races including horse race, gambling, betting, etc.
However, in respect of the activity of owning and maintaining racehorses, expenses
incurred shall be allowed even in the absence of any stake money earned. Such
loss shall be allowed to be carried forward in accordance with the provisions of
Section 74A.
Students may not that in addition to the above, section 14A read with the rule 8D
prescribes disallowance of any expenditure incurred in relation to exempt income.
In a case where dividend, interest or any other income which are exempt by virtue
any of the sub-sections of section 10 and wherea) the assessing officer, having regard to the accounts, is not satisfied with the
correctness of the claim of the assessee in respect of expenditure in relation to
exempt income; or
b) The assessee claims that no expenditure has been incurred by him in relation to
the exempt income.
In the above circumstances, the assessing officer shall determine the correct
amount of expenditure incurred in relation to exempt income in accordance with
the manner prescribed under rule 8D for disallowance of such expenditure.
MANNER OF COMPUTATION OF DISALLOWANCE
A. Rule 8D of the income tax Rules prescribes the manner of computation of
disallowance of expenditure, which is claimed as deduction against exempt income.
This rule shall be made applicable in a case where the assessing officer, having
regard to the accounts of the assessee is not satisfied with the:
i) Correctness of the claim of the expenditure made by the assessee; or
ii) Claim made by the assessee that no expenditure has been incurred.
in relation to the exempt income. In such cases, the assessing officer shall
determine the amount of such expenditure in relation to exempt income in
accordance with the manner prescribed in rule 8D(2)
B. according to rule 8D(2), the manner of computation of expenditure relating to
exempt income shall be as follows:
Amount in Rs.
A
B
C
A+ B+ C
Note:
1. The amount disallowable in respect of interest expenditure as referred above
shall be computed in the following manner:
X*Z
Y
Where:
X= Total amount of interest other than those considered in item A above.
Y= the average of the total assets in the balance sheet as on the first day and the
last day of the previous year.
Z= the average value of investment, income from which does not or shall not form
part of the total income as appearing in the balance sheet as on the first day and
the last day of the previous year.
2. Average value of investments is the investments as on the first and last of the
previous year as on the balance sheet, which income is exempt from tax.
3. Total assets means total assets as appearing in the balance sheet excluding the
increase on account of revaluation of assets but including the decrease on account
of revaluation of assets.
Illustration:
Mr. Jagadeesh is a chartered accountant in practice. The income & expenditure
account for the year ended March 31, 2009 read as follows:Expenses
To Employees cost
To Traveling and
Conveyance
To Administration & office
expenses
To Interest
To Demat charges
Rs.
Income
1,50,000 By Professional earnings
50,000 By Dividend income
- from shares
4,00,000 - from equity oriented
mutual funds
1,50,000
10,000
Rs.
12,00,000
2,00,000
1,00,000
7,40,000
15,00,000
Total
15,00,000
Other information:
a.) Entire dividend income is claimed as exempt from taxation by virtue of section
10 (34) and 10 (35).
b.) Jagadeesh claims that no expenditure has been incurred against the dividend
income, which is claimed as exempt from tax.
c.) The value of investment in shares as on the first day and the last day of the
previous year is Rs 2,50,000/-and 7,00,000/- respectively.
d.) The value of investment in units of mutual funds as on the first day and the last
day of the previous year is Rs 5,00,000 and 2,00,000 respectively.
e.) All expenditure including interest expenditure of Rs.1,50,000 incurred by
Jagadeesh are relating to taxable and non-taxable income. Demat charges are
directly attributable to exempt income.
f.) The value of the total assets as appearing in the balance sheet of the assessee as
on the first day and last day of the previous year is Rs. 50,00,000 and Rs.60,00,000
respectively.
You are required to compute the taxable income of Jagadeesh for the assessment
2009-10.
A.Y 2009-10
Rs.
4,40,000
Nil
4,40,000
36,625
4,76,625
Rs.
Rs.
7,40,000
2,00,000
1,00,000
3,00,000
4,40,000
10
Rs.
2,00,000
2,00,000
1,00,000
1,00,000
Rs.
Nil
Nil
Nil
Rs.
10,000
22,500
4,125
36,625
Note:
1. Average value of investments = ( 7,50,000 + 9,00,000) /2 = Rs.8,25,000/2. Average value of total assets = ( 50,00,000 + 60,00,000) /2 = Rs.55,00,000/Deemed Income Section 59:
Any amount received or benefit derived in respect of expenditure incurred or
loss or trading liability allowed as deduction shall be deemed as income in the year
in which the amount is received or the benefit is accrued. This provision is similar
to that of Section 41(1) under the head Profits and Gains of Business or
Profession.
11
12
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Identify income chargeable under this head of income and include them. In
respect of dividend income, year of chargeability should be decided by applying
Section 8.
If net amount after tax deducted at source is given, include the gross amount.
If the income so identified is eligible for exemption u/s 10, avail the exemption
and include only the balance amount. E.g. in respect of interest on certain
notified securities, deposits and bonds qualify for exemption u/s 10(15).
If income is clubbed from minor children, claim exemption u/s 10(32) in
respect of such income upto a maximum of Rs.1, 500 per child.
Expenses and deductions qualifying u/s 57 should be claimed.
Claim deductions, if any, available under Chapter VI-A to the extent applicable
after arriving at the gross total income and not under this head of income.
Deductions cannot exceed the amount of such income included in the gross
total income.
If the total income includes winnings from lotteries, crossword puzzles,
gambling, betting, etc., apply flat rate of 30% for calculating the income tax
payable on such income u/s 115BB.
Illustration:
Shri Ratanlal, a businessman, presents to you the following statements of
account relating to the year ending 31.3.2007 for computation of his gross total
income.
Capital Account
Rs.
Rs.
To Entertainment Exps.
12,000 By Balance b/f
32,000
To Gift to Son
3,000 By Profit
1,31,200
To Shares purchased
50,000 By Race Winnings
12,000
To Drawings
1,30,000 By LIC Policy matured
1,57,920
1,93,120 By Bad Debts recovered
5,000
To Balance c/f
By Loan for Investment
50,000
3,88,120
3,88,120
To
To
To
To
To
To
To
To
To
Salaries
Rent
Bonus
Subscriptions
Drawings
Conveyance
Bad Debts
Advertisement
Travelling
Profit &
Rs.
26,000
10,800
1,200
5,000
11,000
7,500
3,000
16,000
15,500
Loss A/c
By Gross Profit
By Discounts received from
wholesalers
By Interest on Deposits
(TDS Rs.1,000)
By Income Tax Refund
By Interest on Income Tax
Refund
By Profit on Sale of Personal
Rs.
1,93,000
2,500
9,000
5,000
1,200
13
to
1,31,200
Motor Car
16,500
2,27,200
2,27,200
Additional Information:
(a) Entertainment Expenses relate to business.
(b) Bad Debts recovered relate to deduction allowed in 2003-04.
(c) The LIC policy is for a assured sum of Rs.1, 50,000. Annual premium @
Rs.47, 000 each for 3 years.
Ans: Computation of Gross Total Income for the assessment year 2007-08
Rs.
I.
Profits and gains of business or profession Note 1
1,03,500
II. Income from Other Sources Note 2
40,120
Gross Total Income Rs.
1,43,620
Rs.
Rs.
1,31,200
11,000
5,000
16,000
1,47,200
9,000
5,000
1,200
16,500
12,000
Rs.
43,700
1,03,500
Rs.
10,000
1,200
12,000
16,920
40,120
Note 3: out of the gross total income of Rs.1, 43,620, a sum of Rs.12, 000 being
race winnings is taxable at a flat rate of 30% u/s 115BB.
14
15