Management

of
Direct Taxes

CA. Manish Dafria,

M.Com., M.A(Eco.)., F.C.A., DISA(ICAI).
mdafria@gmail.com

Know your faculty

Faculty

at Institute of Chartered Accountants of

India- teaching Tax and Business Law to C.A.s

Faculty

Income Tax Department Training CentreDelivering lectures on tax to Income Tax Officers.

Visiting

Faculty IIM Indore, conducting courses

on Taxation since 2001.

Managing

Partner- Chartered Accountancy Firm

M/s. V.K. Dafria & Co. Practicing in the area of
Tax Consultancy and Start Up Advisory Services.

Management Of Tax Overview

Why Tax ???

Cost of living in a society
Why Income Tax ???
. Equitable Distribution of
Burdon

Why Tax Management ??

Because

no body is under any

obligation to bear more then his
rightful share of societys burden.

Because

tax evasion is SIN.

Why Tax Management ??

Because

Tax
is
consideration
for
business decisions.

an
any

important
strategic

Because

Tax affects my profitability,

my cash flow, my competitive strength.

Because

in any of my venture, I have a

30% partnership with taxman.

Contours of Tax Management..

Understanding

process of Tax Calculation

It is not simply 30% of your income.

Understanding

various tax deductions/

reliefs/ differential tax treatment.

Analyzing

how these can be fitted into

ones
business/personal/investment
decisions - so as to minimise the impact
of adverse tax rules and to enhance the
benefits of positive ones.

Coverage

International
Taxation :
Avoidance of
Double
Taxation

Residential
Status and Tax
Incidence .

Tax Collection
Mechanism-TDS,
Advance Tax

Scheme of Tax
Calculation :
Rules for
Taxation of
Different Types
of Income

Tax treatment
of Different
Investment
AvenuesMutual
Fund/Equity
Market/Fixed
Income
Securities
Tax Aspects of
Employee
Compensation
Package, Tax
Deductions
Income Tax
Provisions To
Check
Avoidance Of
Tax

Scheme of Tax
Calculation

Basic Procedure of Income

Computation and Tax
Calculation
For computation of income tax, first of
all the total income of every person
is segregated under five different
heads of income viz.:

5 Heads Of Income

Income
from
House
Property

Income
from
Salary

Profits And
Gains Of
Business
And
Profession

Gross
Total
Income
(G.T.I.)

Capital
Gains

Income
From
Other
Sources.

Basic Procedure of Income

Computation and Tax Calculation
From

G.T.I.,
certain
deductions
(called
deductions
under Chap. VI-A) are
allowed and Taxable
Income is calculated.

This

the

Taxable Income is
called "Total Income"
in the Income-tax act.

G.T.I.

Tax
Deduction
s

Taxab
le
Incom
e

Basic Procedure of Income

Computation and Tax
Calculation
On the taxable income, rate of tax is applied and Gross Tax
Liability is determined.

On this Gross Tax Liability, Surcharge if any payable by the

taxpayer , is calculated.

In some cases, a tax rebate is available which is adjusted from

the Gross Tax Liability.

Above amount is further increased by - Education Cess @2% and

Higher Education Cess @1%.

This gives us the total tax amount payable by the person.

Tax Calculation
1

2
Basic
Tax

3
Surcharge/
(Rebate)

4
Cess

Tax
Payabl
e

Different Tax Entities

Following are different tax entities under Indian Tax Laws :

Previous
Year

Year in which income

is earned. Same as
accounting year

Assessm
ent Year

Year immediately
next to the previous
year. Year in which
income is taxed.

Concept of Year

Tax Calculation For

Individual

Basic Tax Rates

In case of individuals, Income tax
act prescribes three different slabs
of tax rates

Normal
rates

Rates
for
for Rates
Resident
Resident
Senior
Very Senior
Citizens
Citizens

Basic Tax Rates

TOTAL INCOME
Age < 60

Age 60 to 80

Age + 80

RATES
OF TAX

0%

Upto Rs. 2,50,000

Upto Rs.
3,00,000

Upto Rs.
5,00,000

10%

Rs. 2,50,001 to
5,00,000

Rs. 3,00,001
to 5,00,000

--

20%

Rs. 5,00,001 to
10,00,000

Rs. 5,00,001
to 10,00,000

Rs. 5,00,001
to 10,00,000

30%

More than Rs.

10,00,000

More than Rs.

10,00,000

More than
Rs.
10,00,000

Basic Tax Rates Special

Rates of Tax
The basic tax is levied as per slab system of
taxation where there are different tax rates
for income in different slabs.

For certain special Income, Special rates of

Taxation are applicable like
Long Term
Capital Gains
20%

Lottery Income30%

Specified Short
Term Capital
Gains- 15%

Rebate of Income Tax

An

individual who

is resident in India
and

whose

Total

Income is upto Rs.

5,00,000, is given
a rebate from tax
upto

lower

following :

of

Surcharge

a
When Total Income of an
surcharg
individual
is more than Rs.
1 crore,
e is
payable
@ 10%
of Tax

Cess
Education Cess =
@2%
Apart from tax
and surcharge,
following 2 cess
are also payable

Secondary and
Higher Education
Cess (SHE Cess)=
@ 1%

Tax Calculation For

Partnership Firms

 Education Cess = @2% of (tax + surcharge

amount )
Secondary and Higher Education Cess(SHE
Cess)= @1% of (tax + surcharge amount )

Cess
Rate of
Tax

30% flat

Surchar
ge

10% of tax if total income exceeds Rs. 1

Crore

Rates of Tax Partnership

Firms

Tax Calculation For

Companies

Rates of Tax for Companies

Exercise
Calculate the amount of Income tax
payable in following cases#

Tax Payer

Taxable Income

1 Mr. A, an individual resident in

India, aged 45 years

20,00,000

2 Mr. B, an individual resident in

India, aged 65 years

1,20,00,000

3 M/s. ABCL Ltd., a Indian

Company

5,00,00,000

4 M/s. MSFT Inc., a US company

12,00,00,000

Summary
of
Discussion
For tax calculation, all income are segregated into 5 heads o

Rules For Taxation Of

Different Heads
Of Income

Mr.
hasincome
earned
HowAmit
all these
shallfollowing
be subjected to
income
tax?
income during
the previous
year :

He is working as CFO of M/s. Info Ltd. where he gets Rs. 25,00

Income From
Salary

Income From Salary

Even

if some thing
is called salary but
there is no
employee
employer
relationship (e.g. in
case of salary of
partner in a
partnership firm),
this is not taxable
under the head
salary.

Income From Salary

Income From
House Property

Income from House

Property

Income From House

Property

Income From House

Property

Example

Solution

Self Occupied Property

Deduction of Interest

Profits And Gains Of

Business And
Profession

Profits And Gains Of Business

And Profession

Profits And Gains Of Business

And Profession

Deductions: Revenue
Expenditure
For calculating once business
income, any revenue expenditure
which has been incurred wholly
and
exclusively
for
the
purpose
of
business/profession
may be
claimed deduction.

Revenue Expenditure

Depreciation

Depreciation

Expenditure Not Allowed

As Deduction

Treatment of Loss
In case of loss in any business, it is treated as follows :

However, if carried forward loss is due to excess

depreciation (called unabsorbed depreciation), it
can be carried forward for any number of years
and in subsequent years, t can be adjusted with
any income.

Capital Gains

Capital Gains
Any profits or gains arising from

the transfer of a capital asset

are taxed under the head
"Capital Gains".
The capital gain is taxable in the

year in which the transfer took

place.

Transfer of following items is not liable for capital gains :

Types of Capital Assets

Types of Capital Assets

Exceptions

Computation Of Capital Gains

Computation of Capital
Gains: Concept Of
Indexation

Indexed cost of
acquisition

Cost Of
Acquisition/
Cost of
Improvement

Index of Year of
Transfer
X
Index of Year
of Purchase

Tax on long-term capital

gains:
Sec. 112

Treatment of Loss

A long term capital loss can be set off with any other long term

Income From
Other Sources

Income from Other

Sources

Taxability of Winnings from

Lottery etc.

Session complete

Taxability of Gifts in the

hands of receiver

For above purposes, specified

movable property means following
capital assets:
Shares

and securities,
Jewellery,
Archaeological collections,
Drawings,
Paintings,
Sculptures, or
Any work of art.
Bullion

Exclusions

Receipts from :
Any local authority as defined in the
Explanation to Sec. 10 clause (20).
Any educational or medical
institution or other entities referred
to in Sec. 10 clause (23C).

Any trust or institution registered

under section 12AA.