Elements of direct and Indirect Taxes

Date: 23/11/2007

10 Steps involved in computing Income Tax.

(1) What is Income?

(3) To find out which items of income are exempt from tax.

(a) Agricultural Income:

(b) Dividends.

Long Term Capital Gains from Stock Market.

(4) Tofind out allocate Taxable Income which is to be allocated under 5 heads as
given below.
 Section Deals With

(5) To Claim the deductions permissible under the law.

(6) To total up the Net Income under each head and arrive at gross total income.

(7) From the Gross Total Income, you claim a deduction under chapter VI- A
(Section 80 C gives you a reduction of up to a maximum of Rs. 1, 00,000 a year.

(8) To arrive the figure of taxable income after deductions from Chapter VI-A.

(9) To apply the rates of taxes as applicable to taxable income

Who are Tax Assesses?
(1) Individuals
(2) Hindu Undivided Family (HUF)
(3) A Limited Company
33.99%.
(4) A Partnership Firm
partners are nor liable to tax on their share of profits under Section 10.
(5) AOP (Association of Persons)
(6) A Trust (Public or Private)
Trust Deed Corpus.
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(7) Artificial Judicial Person

Total 122 + 16 (March) = 138 Days

FCNR A/C (Foreign Currency Non Resident Account)

Under Sec 10 interest on FCNR A/C is exempt from tax.
NRE A/C (Non Resident External Account)
Under Sec 10 interest on NRE A/C is exempt from tax.
FEMA: Non Resident if employment is taken up.
ITA: Depending upon the number of days.
Date for filing Returns:
Taxability of Income
Date: 6th December, 2007
Salaries (Section 15 to Section 17)

Section 10 (5): Leave Travel Allowance (LTA)

Section 10 (13-A) House Rent Allowance (HRA).
Salary=Basic Salary + Dearness Allowance.
Section 10(14): It exempts from tax certain allowances which are notified by the
government.

a)
b)
c)

Section 10 (10) deals with gratuity.

Date: 14th December, 2007.
Section 10 (10- aa): It deals with encashing leave.
Section 10 (12) deals with Provident Fund.
Section 10 (13) deals with contribution received from approved Super Annuation Fund.
Section (17) deals with Medical Expenses.
Hospitalization Expenses
Foreign Medical Treatment
Stock Option or ESOP (Employees Stock Option Plan)
ESOP:
Perquisite Valuations:
a) Government Employees
b) Non Government Employees15% of salary where the population is more than 25
Lakhs
where the population is between 10 to 15 Lakhs10% of salary.
where the population is less than 10 Lakhs7.5% of salary.
The above all are respect to unfurnished accommodation.

Ultimately, P.V is as follows:

Small Cars: Rs. 1,800 per month.
Big Cars: Rs. 2,200 per month.
Date: 28th December, 2008

Section (22-27) Income From House Property.

Section 22 applies to any landlord.

Section 24 deals with Other Expenses.
annual value is zeroNo standard deduction of 30%.
If the property is rented out there is no limit on the deductable interest.

Illustration:
Section 28-44 DA (Profits and Gains of Business/Profession)

Section 28 states that any profit or gain from business or profession is taxable from the
year in which the business or profession starts.

Business is defined by Section 2(13) of the Income Tax Act as any trade, commerce or
manufacture or any adventure in the nature of trade commerce or manufacture.

Trade refers to buying and selling of Goods.

Commerce includes a lot of services. It is a wide concept.

Manufacturer means the one who converts raw materials into different forms for
different purposes. It can also mean assembling.
Adventure means doing something for the first time.

Profession means doing something which involves some intellectual skill.

Illustration
How to calculate Profits and Gains
Date: 4th January, 2008.
Deduction of Expenditure

1) Capital Expenditure
2) Preliminary Expenses
Section 72 A Demerger
Demerged CompanyResulting Company
 Provisions of Section 30, 31, 32.

Plant and Machinery

Date: 11th January, 2008

•
•
Section 37
1) Back ended Lease
2) Front ended Lease
3) Ballooned Lease
Provisions meant to promote socially desirable activities
Section 35 (Scientific Research)
Section 35 2(AA) deals with donation which is made to approved institution. There is
deduction of 1 ¼ times of donation made.
Section 35 (2AB) deals with donation made to approved industries. The deduction in
this case is 1 ½ times of donation made.
Section 35 (AC) says that if u set up any institution which is approved by National
Committee set up by the Government of India any donation made will be qualified for
100% deduction.

Section 80 (G) deals with donations made to any charitable trust.

The other provisions pertain to ploughing back of profits.

Tea and Coffee Plantations: Section 33(AB).

Section 33 (ABA)
Section 36 (1) (viii)

Date: 1st February, 2008.

Section 35 ABB
License fees paid by the Telecom companies to DoT (Department of
Telecommunication).
Section 35 D
Amortisation of Preliminary Expenses.
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Section 35 DD
Expenditure incurred on amalgamation or Demerger of the Company. Such
expenditure will be amortised over a period of 5 years.

Section 35 DDA
Expenditure incurred to claim compensation under the VRS scheme. The expenditure
is amortised over a period of 5 years.

Section 35 E
Abortising expenditure prospecting for minerals.

Section 36 (I) (IX)

Section 44 AD
Applies to residents of India.
Section 44 AE
Applies to Transport Operator.
Section 44 B
Foreign Shipping Company registered outside India.
.

Section 44 BBA
Foreign Airlines
Section 44 BB
Oil Producing Company
Section 44 BBB
Date: 15th February, 2008.

Section 9 (1) vi talks about royalty paid by Indian Companies to Foreign Collaborators.
Under Section 115 (A) the full royalty is taxed at a flat rate of 10%.
Section 9 (1) vii deals with fees for technical services.
The whole amount is liable for tax. 100% fees is presumed income. The rate of tax is
10%
Deductions under Chapter 6 (A) as applicable to persons carrying on any business.

Section 80-IA
Tax Holiday
Section 80-IAB
Section 10 AA

Section 80- LA
For OBU (Offshore Banking Unit) and IFSC.
Section 54- GA
Date: 22nd February, 2008.
Section 45 (1)
Land Acquisition Act
Section 2 (47) defines what “Transfer’” means
Date: 14th March, 2008
Different Methods of Computing Capital Gains

Section 77 applies to buyback of shares

Section 46 A
Section 47 deals with transactions not to be treated as Transfers.
2.
7.
Provisions for Exemption

Section 54 applies to residential property treated as Long Term Capital Asset.

Section 54 (F) applies when you sell any Long Term Asset.
Under Section 54 (EC), Capital Gains on sale of Long Term Assets are invested within 6
months in certain bonds which are issued by public sector undertakings