A study on procedure of Taxation and Auditing in P.A. & Associate at Bhubaneswar.

Conducted at -: P.A. & Associates (Chartered Accountant)

Submitted in partial fulfillment of the course requirement of Post Graduate Diploma in Management.

Submitted by: Shaswat Panigrahi Reg. No -: DSBSPGDMA1042.

Guided by : K.K. Agrawalla (Chartered Accountant)

College Guide: Prof. KV Ramanathan April 2011 June 2011

Dayananda Sagar Business School Shavige Malleswara Hills, Kumaraswamy Layout Bangalore 560078
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Guide Certification
This is to certify that the report title A Study on Procedure of Taxation &

Auditing has been prepared under my guidance and supervision. The report is
submitted in partial fulfillment of the requirement for the award of Post Graduate Diploma in Management (Approved by AICTE) by Shaswat Panigrahi, Reg No:DSBSPGDMA1042 and this report / study has not formed a basis for the award of any degree or diploma in any university / institution.

Place - Bangalore Date

(Prof. K.V. Ramanathan)

Director

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Student Declaration

I hereby declare that the report/ study titled A Study on Procedure of

Taxation & Auditing prepared under the guidance of Kamal Ku

Agrawalla chartered accountant at P.A & Associates, submitted in partial fulfillment of the requirement for the award of Post Graduates Diploma in Management (AICTE) in Dayananda Sagar Business School is my original work and has not been submitted for the award of any other degree/ diploma in any university / institution. (Shaswat Panigrahi) Signature

Place - Bangalore Date

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ACKNOWLEDGEMENT
I am very much obliged to DSBS for giving me such an opportunity to give the presentation. This summer I have an opportunity to work on this Summer Internship Project (SIP) Taxation I express my sincere gratitude to all those to their render helping hand directly or indirectly in completing our presentation and without their valuable encouragement it would not have been possible on my part to complete the arrangement. I express my deep gratitude to my Guide Mr. Kamal Kumar Agarwalla for his constant guidance and help in successfully completing my summer internship project. My special thanks go to Lecturer. K.V. Ramanathan who also helped me to complete my project successfully and giving tips on how to formulate the taxation project and was kind enough to approve my project. Lastly I would also like to express my heartily thanks to Prof. R.K.Vijayasarathy and all the faculties of DSBS for providing possible informations during the project. Shaswat Panigrahi. Reg no -:DSBSPGDMA1042
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Contents

Chapter No I

Topic

Pages

Introduction Objective of the Study Importance of Tax management Scope of study Research Methodology

9 - 14 14 15 - 16 16 - 17 18 - 19 21 22 23 24 - 39 41 - 55

II

Organization Structure Profile of the company Mission & Vision Review on Tax

III

Case analysis and interpretation of Taxation & Auditing. Basis Of Income Finding out Tax Liability Computation of income from salary

56 - 57 57 - 61

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IV

Finding, suggestion and conclusion

63 - 67
68

Bibliography

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Chapter - 1

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Introduction

A tax is a financial charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state. An income tax is a tax levied on the income of individuals or businesses (corporations or other legal entities). Various income tax systems exist, with varying degrees of tax incidence. Income taxation can

be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate tax, corporate income tax, or profit tax. Individual income taxes often tax the total income of the individual (with some deductions permitted), while corporate income taxes often tax net income (the difference between gross receipts, expenses, and additional write-offs). Various systems define income differently, and often allow notional reductions of income (such as a reduction based on number of children supported). Cooley defines taxation as the process or means by which the sovereign, through its law-making body, raises income to defray the necessary expenses of government. Expressed in another way, it is a method of apportioning the cost of government among those who in some measure are privileged to enjoy its benefits and must, therefore, bear its burdens.

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Malcolm explains that taxation is the power vested in the legislature to impose burdens or charges upon persons and property for the purpose of raising revenue for public purposes. India has a well developed tax structure with a three-tier federal structure, comprising the Union Government, the State Governments and the Urban/Rural Local Bodies. The power to levy taxes and duties is distributed among the three tiers of Governments, in accordance with the provisions of the Indian Constitution. The main taxes/duties that the Union Government is empowered to levy are Income Tax (except tax on agricultural income, which the State Governments can levy), Customs duties, Central Excise and Sales Tax and Service Tax. The principal taxes levied by the State Governments are Sales Tax (tax on intra-State sale of goods), Stamp Duty (duty on transfer of property), State Excise (duty on manufacture of alcohol), Land Revenue (levy on land used for agricultural/non-agricultural purposes), Duty on Entertainment and Tax on Professions & Callings. The Local Bodies are empowered to levy tax on properties (buildings, etc.), octroi (tax on entry of goods for use/consumption within areas of the Local Bodies), Tax on Markets and Tax/User Charges for utilities like water supply, drainage, etc. Since 1991 tax system in India has under gone a radical change, in line with liberal economic policy and WTO commitments of the country. Some of the changes are:
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Reduction in customs and excise duties Lowering corporate Tax Widening of the tax base and toning up the tax administration

Types
Personal -: A personal or individual income tax is levied on the total income of the individual (with some deductions permitted). It is often collected on a pay-as-you-earn basis, with small corrections made soon after the end of the tax year. These corrections take one of two forms: payments to the government, for taxpayers who have not paid enough during the tax year; and tax refunds from the government for those who have overpaid. Income tax systems will often have deductions available that lessen the total tax liability by reducing total taxable income. They may allow losses from one type of income to be counted against another. For example, a loss on the stock market may be deducted against taxes paid on wages.

Corporate -: Corporate tax refers to a direct tax levied on the profits made by companies or associations and often includes capital gains of a company. Earnings are generally considered gross revenue minus expenses. Corporate expenses related to capital expenditures are usually deducted in full (for example, trucks are fully deductible in the Canadian tax system, while a corporate sports car is only partly deductible) over
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their useful lives by using percentage rates based on the class of asset they belong to. Accounting principles and tax rules about recognition of expenses and revenue will vary at times, giving rise to book-tax differences. If the book-tax difference is carried over more than a year, it is referred to as a deferred tax. Future assets and liabilities created by a deferred tax are reported on the balance sheet.

Payroll -: A payroll tax generally refers to two kinds of taxes: employee and employer payroll taxes. Employee payroll taxes are taxes which employers are required to withhold from employees' pay, also known as withholding, pay-as-you-earn (PAYE) or pay-as-you-

go (PAYG) tax. These withholdings contribute to the payment of an employee's personal income tax obligation; if the payments exceed this obligation, the employee may be eligible for a tax refund or carry forward to future periods. Employer payroll taxes are paid from the employer's own funds, either as a fixed charge per employee or as a percentage of each employee's pay. Payroll taxes often cover government social insurance programs, such as social security, health care, unemployment, and disability. These payments do not count toward the income taxes of employees and

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employers, but are normally deductible by the employer as a business expense.

Inheritance -: The inheritance tax, estate tax and death duty are the names given to various taxes which arise on the death of an individual. In international tax law, there is a distinction between an estate tax and an inheritance tax: the former taxes the personal representatives of the deceased, while the latter taxes the beneficiaries of the estate. However, this distinction is not universally recognized. For example, the "inheritance tax" in the UK is a tax on personal representatives, and is therefore, strictly speaking, an estate tax.

Capital gains tax -: A capital gains tax is the tax levied on profits from the sale of capital assets. In many cases, the amount of a capital gain is treated as income and subject to the marginal rate of income tax. In an inflationary environment, capital gains may be, to some extent, illusory. If prices in general have doubled over five years, then selling an asset for twice the price it was purchased at five years earlier represents no gain at all. Partly to compensate for such changes in the value of money over time, some jurisdictions, such as the United States, give a favorable capital gains tax rate based on the length of holding. European jurisdictions have a similar rate reduction to nil on certain property
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transactions that qualify for the participation exemption. In Canada, 20 50% of the gain is taxable income. In India, Short Term Capital Gains Tax (arising before one year) is 10% [15 % from F.Y 2008-09 as per Finance Act 2008] flat rate of the gains and Long Term Capital Gains Tax is nil for stocks and mutual fund units held one year or more, provided the sale of shares involved payment of the Securities Transaction Tax, and 20% for any other assets held three years or more.

Objective Of the Study

1. To understand the day to day activity of the Chartered Accountant Firm 2. To understand the various obstacles faced by the Chartered Accountant Firm 3. To know the techniques they are using for the calculations of the Taxation and balance sheet. 4. To know how the auditing process is done in a Chartered accountant firm. 5. To understand how the auditing works for the companies benefit.

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Importance Of Tax Management

The nature of the state power to tax is two-fold. It is both an inherent power and a legislative power. It is inherent in nature being an attribute of sovereignty. It has been argued that it is literally impossible for the state to run its affairs without taxes. Its existence and operations are dependent primarily from the revenues and charges imposed from various sources. It is a legislative power because it involves promulgation and implementation of rules. Taxation is a set of rules, how much is the tax to be paid, who pays the tax to whom and when it should be paid.

Government financial operations are well-nigh impossible without taxation. Apart from this, taxation can be a powerful means in order to achieve the goals of social progress and the objectives of economic development. It serves as a device to encourage the growth certain activities by way of giving exemptions, discourage use of certain products by way of imposing heavier charges like those sin taxes which are imposed upon tobacco products, or strengthen anaemic enterprises, also by way of tax exemptions. Local industries may be protected through taxation by imposing high customs duties to foreign goods. Moreover, taxation can also be used to reduce inequities or inequalities
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in wealth and income by progressively higher taxes as in the case of estate and income tax. So based on the foregoing premises, it is clear that taxation is indeed the lifeblood of the state, without which the existence of the state will be put to jeopardy.

Scope Of study

The scope of the study is to have a clarity on the Tax rules which are implemented according to the Income tax act 1961 and companies act 1956.

To get to know the changes which are made in the amendments every fiscal year during the budget. To have a clear vision of the auditing practices which is being done at the companies and the procedure they follow to make a note of the following verifications of the ledger balances, cash books which are verified with the hard copy like receipts.

To have an idea about the pay roll processes and the functions they practice at the firm to note down to make their trial balance and making a report on how the companies either if it is making profit or loss and
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showing the processed auditing by giving a report on the following verifications to the company and filing the taxation amount at the taxation department in the government on behalf of the company.

The scope of the study was also to find out certain problems which the chartered accountants are facing during their work and how they are managing the work. During the study the main objective was to find out gaping in their work, To acknowledge the job environment at a chartered accountant firm, to have a corporate experience by working with the executives of the firm and gain access to the knowledge they have while implementing taxation and what other valuable functions they are functioning in the organization to gain profits for their company and how they are managing the time for their projects and completing the work within the desired time.

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Research Methodology

The source of data can be obtained for study can be divided into two types. 1. Primary Data

2. Secondary Data The primary data were collected from the department of finance and from the discussion with the head of the department officials. The data thus gained from the department officials were of vocal data based on the trasanctions made in the term of the auditing, how the formulas are imposed, the basics about the taxation on the priliminaries and its exemption and what is the limit for having a tax auditing like a business or firm gaining 60,00,000 or more than it would have to do auditing for its tax filing from a chartered accountant.

The secondary data has been collected from the Annual report of various companies maintained by the chartered accounting firm P.A &
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Associates. The files and the hard data got from the various data filings kept in the firm to have our research done to find out the problems they are facing in the firm and to find out its solution for the firm to progress further and save time to gain profits. Limitations -: There may be limitations to this study because the study duration of the summer internship project is very short and it is not possible to observe every aspect of taxation practices and auditing.

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Chapter 2

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Organization Structure

Prashant Ku Panda (CA)

Head of the P.A & Associates.

Kamal Ku Agarwalla
(CA)

R.C Routray
(CA)

Prabhasini (Accountant)

Santosh (ICWAI)

Amit (ICWAI)

Prafulla (Accountant)

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Profile of the company P.A & Associates, Chartered Accountant Company, a leading chartered accounting company, with office in Bhubaneswar, Rourkela, Sambalpur and cuttack is rendering comprehensive professional services in the area of Direct Tax consultancy, Payroll processing, NRI Services, Us GaapFIN48 tax reporting and other regulatory compliances.
Established by CA Mr. Prashant Kumar Panda, who qualified in the year 1985, the Company's constant endeavor is to craft a premier focused professional practice providing high quality services and integrating value added knowledge, for its people, clients and society as a whole. P & A Associates approach blended with personal touch has earned the Chartered accounting Company enormous confidence of all its clients, which is reflected in an enduring business relationship that it enjoys with them and also in the consistent growth in portfolio of its services. The Chartered accounting Company regards the provision of a personal, high quality service to the clients as an absolute priority.

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Mission and Vision With Quality is Priority as an ultimate aspiration, P & A

Associates vision is to nurture a professional Company of repute which is competitive, dynamic and focused team leader in the areas of its operation, providing the best opportunity to progress and grow to all those who are associated with it and also serving the best.

Excellence, Integrity and Independence, the Motto of our Institute of Chartered Accountants of India, is the ultimate objective of the Chartered accounting Company in all its professional commitments.

The Company always strives to improve the quality of life and the standard of living, for society as a whole. The Companys Offices in Bhubaneswar and Cuttack are fully equipped with modern infrastructure.

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Review Of Tax
Taxation

Tax system in India is divided in to two types, Direct Tax and

Indirect Tax.

Direct Taxes that comprising of income tax, wealth tax, etc. are

those whose burden falls directly on the taxpayer.

The indirect taxes are levied on goods and services and its

ultimate falls indirectly on the consumers. The indirected taxes are comprising of sales tax, service tax, VAT, excise duty, custom duty, etc. Income Tax Income Tax is all income other than agricultural income levied and collected by the central government and shared with the states.

According to Income Tax Act 1961, every person, who is an assessee and whose total income exceeds the maximum exemption limit, shall be chargeable to the income tax at the rate or rates prescribed in the
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finance act. Such income tax shall be paid on the total income of the previous year in the relevant assessment year.

The total income of an individual is determined on the basis of his residential status in India.
Detailed Income tax Rates for financial year 2011-12 -(AY 2012-13)

The Income Tax Rates applicable for the financial year 2011-12 (Assessment year 2012-13) have been revised. The following is the New Income Tax structure for the year 2011-12. In case of individual (other than II and III below) and HUF
Income Level Where the total income does not exceed Rs.1,80,000/-. Where the total income exceeds Rs.1,80,000/- but does not exceed Rs.5,00,000/-. Where the total income exceeds Rs.5,00,000/- but does not exceed Rs.8,00,000/-. Income Tax Rate NIL

i. ii.

iii.

iv.

10% of amount by which the total income exceeds Rs. 1,80,000/Rs. 32,000/- + 20% of the amount by which the total income exceeds Rs.5,00,000/-. Rs. 92,000/- + 30% of the a Where the total income mount by which the total i exceeds Rs.8,00,000/-. ncome exceeds Rs.8,00,000/-.

II. In case of individual being a woman resident in India and below the age of 60 years at any time during the previous year:Income Level Income Tax Rate
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i. ii.

iii.

Where the total income does not exceed Rs.1,90,000/-. Where total income exceeds Rs.1,90,000/but does not exceed Rs.5,00,000/-. Where the total income exceeds Rs.5,00,000/but does not exceed Rs.8,00,000/-.

NIL 10% of the amount by which the total income exceeds Rs.1,90,000/-. Rs. 31,000- + 20% of the amount by which the t otal income exceeds Rs.5,00,000/-.

iv.

Rs.91,000/+ 30% of Where the total income the amount by which exceeds Rs.8,00,000/the total income exceeds Rs.8,00,000/-.

III. In case of an individual resident who is of the age of 60 years or more at any time during the previous year:Income Level Where the total income does not exceed Rs.2,50,000/-. Where the total income exceeds Rs.2,50,000/- but does not exceed Rs.5,00,000/Where the total income exceeds Rs.5,00,000/but does not exceed Rs.8,00,000/Where the total exceeds Rs.8,00,000/Income Tax Rate NIL

i. ii.

iii.

iv.

10% of the amount by which the total income exceeds Rs.2,50,000/-. Rs.25,000/- + 20% of the amount by which the total income exceeds Rs.5,00,000/-. Rs.85,000/- + 30% of the amount income by which the total income exceeds Rs.8,00,000/-.

IV. In case of an individual resident who is of the age of 80 years or more at any time during the previous year:-

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i.

ii.

iii.

Income Level Where the total income does not exceed Rs.2,50,000/-. Where the total income exceeds Rs.2,50,000/- but does not exceed Rs.5,00,000/Where the total income exceeds Rs.5,00,000/- but does not exceed Rs.8,00,000/Where the total exceeds Rs.8,00,000/-

Income Tax Rate NIL

Nil

iv.

20% of the amount by which the total income exceeds Rs.5,00,000/-. Rs.60,000/- + 30% of the income amount by which the total income exceeds Rs.8,00,000/-.

Note :

Education cess is applicable @ 3 per cent on income tax, inclusive of surcharge if there is any.

A marginal relief may be provided to ensure that the additional IT payable, including surcharge, on excess of income over Rs 1,000,000 is limited to an amount by which the income is more than this mentioned amount.

Agricultural income is exempt from income-tax.

Income Tax Timeline in India (History)-

1860

1860 Introduced for the first time for a period of five years to cover the 1857 mutiny expenses. It was

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abolished in 1873.

1877

1877 The tax system was revived as a result of the Great Famine of 1876.

1886

1886 Introduced as Act II of 1886. It laid down the basic scheme of income tax that continues till the present day.

1918

1918 Introduced as Act VII of 1918. It had features like aggregation of income from various sources for the determination of the rate, classification of income under six heads and application of the Act to all income that accrued or arose or was received in India from whatever source in British India.

1922

1922 On the recommendations of the All-India Income Tax Committee, the father of the present act was introduced. The central government was vested with the power to administer the tax.

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1961

1961 The Act came into force from 1 April 1962, it extended to the whole of India.

1997

1997 Establishment of the Tax Reform Committee under the chairmanship of Dr. Raja J. Chelliah. It was followed by restructuring the income tax with parameters like lower taxes, fewer slabs, higher execptions, etc.

2003

The Kelkar Task Force, which was followed by outsourcing of PAN/TAN, exemption of dividend income, compensated by levy of the dividend distributed tax to be paid by the company.

Income Tax Rates Across the World

Country

Personal Income Tax Rate

Australia

0% - 48.5%

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Canada

16% - 29%

Estonia

24% - 24%

Denmark

44% - 63%

Hong Kong

0% - 33%

India

0% - 33%

Israel

10% - 49%

Malaysia

0% - 29%

Mexico

3% - 32%

Russia

13% - 13%

Singapore

0% - 22%

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UK

0% - 40%

US

10% -35%

Residence Rules An individual is treated as resident in a year if present in India I. II. for 182 days during the year or for 60 days during the year and 365 days during the preceding four years. Individuals fulfilling neither of these conditions are nonresidents. (The rules are slightly more liberal for Indian citizens residing abroad or leaving India for employment abroad.) A resident who was not present in India for 730 days during the preceding seven years or who was nonresident in nine out of ten preceding yeas I treated as not ordinarily resident. In effect, a newcomer to India remains not ordinarily resident.

For tax purposes, an individual may be resident, nonresident or not ordinarily resident.

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Non-Residents

and Non-Resident

Indians

Residents are on worldwide income. Nonresidents are taxed only on income that is received in India or arises or is deemed to arise in India. A person not ordinarily resident is taxed like a nonresident but is also liable to tax on income accruing abroad if it is from a business controlled in or a profession set up in India.

Capital gains on transfer of assets acquired in foreign exchange is not taxable in certain cases. Non-resident Indians are not required to file a tax return if their income consists of only interest and dividends, provided taxes due on such income are deducted at source. It is possible for provisions non-resident even after Indians to avail of these special

becoming residents by following certain

procedures laid down by the Income Tax act.

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Taxability of individuals is summarised in the table below

Status

Indian Income

Foreign Income

Resident and ordinarily resident

Taxable

Taxable

Resident but not ordinary Taxable resident Not Taxable

Non-Resident

Taxable

Not Taxable

How to save tax

Investments under Sec 80C Mediclaim Insurance Policy Sec 80D Personal Disability under Sec 80U Dependent Disability ie. Handicapped dependent under Sec 80DD
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 Interest on Educational Loan under Sec 80E Donations under Sec 80G ALL THE ABOVE INVESTMENTS / EXEMPTIONS ARE

CLASSIFIED AS

DEDUCTION UNDER CHAPTER VI-A INVESTMENT UNDER SEC 80C

What is the Limit ? Rs. 1 Lac is the limit. The Overall Rebate shall not exceed Rs. 1 Lac even if the Investments are more than Rs.1 Lac.

The investments allowed for exemption are In the name of Self or Spouse or Children or joint names Life Insurance Premium Public Provident Fund (Max Rs.70 K per Account as per PPF Rules) ULIP Unit Linked Insurance Plan Mutual Funds In the name of Self or Joint names PF, Voluntary PF (deducted in Salary Self) Pension Plan (Self only) National Savings Certificate NSC Housing Loan principal
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 Term Deposit for a fixed period not less than 5 years Children Tuition Fee (Maximum 2 Children)

MEDICLAIM INSURANCE POLICY SEC 80D

Mediclaim policy taken in the name of employee or his spouse and dependent children: Rs. 15 K or actual premium paid whichever is less. Mediclaim policy covering his parents alongwith his spouse and children: Additional exemption of Rs.15 K. ie. Rs.30K or actual premium paid whichever is less. Where the parent is Senior Citizen and additional exemption of Rs.5 K. ie. Rs.35 K or actual premium paid whichever is less.

PERSONAL DISABILITY UNDER SEC 80U

A fixed deduction of Rs.50 K is allowed from his total income, if the person is suffering from permanent physical disability and a higher deduction of Rs. 1 Lac is allowed if the person is suffering from severe physical disability (ie. disability over 80%). Person with disability means a person having a disability of not less than 40%.
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 Who will certify 40% or 80% physical disability Government physician for permanent physical disability (40% claim) Neurologist or Civil Surgeon or Chief Medical Officer in a Government Hospital for severe physical disability ( 80% claim )

DEPENDENT DISABILITY SEC 80DD

A fixed deduction of Rs.50 K is allowed irrespective of amount paid for : Any expenditure incurred for the medical treatment, training and rehabilitation of a handicapped dependent, or Any amount paid or deposited under a scheme framed in this behalf by the LIC or any other insurer or UTI, approved by the Board in this behalf for maintenance of handicapped dependent. If the dependant is a person with severe disability (ie. disability over 80%), deduction is Rs. 1 Lac. Dependent means the parents, spouse, children, brother or sister of the individual. Such dependent should not have claimed any deduction U/s 80U in computing his total income.

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INTERSEST ON EDUCATION LOAN UNDER SEC 80E

Amount of interest paid on a loan taken from any financial institution for pursuing any higher education after senior secondary examination for himself or for his spouse or children This deduction would be allowed subject to a maximum of 8 years or till the full payment of interest is made, whichever is earlier. There is no limit for claiming rebate. Any amount of Interest but not the principal amount would be allowed as a deduction out of total taxable income.

DONATION UNDER SEC 80G

Individuals are entitled for deductions under Sec 80G if they have donated to Approved Funds and Charitable Institutions. Donations to the following funds will qualify for 100% of the amount donated: National Defence Fund Prime Ministers National Relief Fund National Illness Assistance Fund
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 National Sports fund Maharashtra Chief Ministers Earthquake Relief Fund Andhra Pradesh Chief Ministers Cyclone Relief Fund Gujarat Relief Fund etc Any Fund set up by a State Government to provide medical relief to the poor Donations to the following funds will qualify for 50% of the amount donated: Jawaharlal Nehru Memorial Fund Indira Gandhi Memorial Trust Rajiv Gandhi Foundation PM Drought Relief Fund National Childrens Fund

INTEREST ON HOUSING LOAN

A maximum of Rs. 1,50,000/- can be claimed as an exemption, if the property is self occupied.
There is no limit for claiming the Interest paid on Housing Loan, if

the property is let out for rent. For this purpose, the employee has to provide Form 12C, which contains the detailed calculation of Loss on House Property taking the Rent Income, expenses incurred
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towards maintenance of the property (max of 30%) & Property tax paid to the local authorities.

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Chapter -3

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Case analysis and interpretation of Taxation & Auditing. 1st case Gargson Properties (P) ltd (2007 2008) 1 Operating Results
The operating result of the company for the year are as follows

Particulars

In lakhs 20072008

20062007

Profit for the year after meeting all expenses but before providing for depreciation less : Depretiation for the year proit / (loss) for the year less : provision for income tax (including deferred tax) less : provision for FBT profit after tax profit brought forward from previous year profit carried forward to balance sheet

24.02 8.31 15.72 4.2 1.32 10.2 31.34 41.54

14.25 9.32 4.93 1.73 1.26 1.94 29.41 31.35

The above table is the operating results table which shows how much the company has gained profits in the recent year in comparison to the previous year.
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80

70

60

50 Series2 Series1 30

40

20

10

0 1 2 3 4 5 6 7 8

The above line graph is made out from the tables operating results which shows the variations or the differences in each point of the firms an shows the percentage gain in the operations of the firm.

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45 40 35 30 25 20 15 10 5 0 1 2 3 4 5 6 7 8 Series1 Series2

General report given by the Chartered Accountant. [The turnover of the company has increased by 2% to rs 2369.33 lacs from rs 2192.86 lacs in the previous year. There was no such employee in the company drawing a salary more than as prescribed under section 217(2A) of the companies Act 1956 during the year. Section 227 (4A) of the companies act, 1956 Accounting standard 15 Employee benefits referred to in subsection (3c) of section 211 of the companies act 1956 Unsecured loans listed in the register maintained u/s 301 of the companies act , 1956
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Loan Satish garg Asha Garg Satish Garg (HUF) Shradha Garg Maintenance of the cost records under section 209 (1) of the companies Act, 1956 From the above operationg results it is clear that the company has not invited or accepted any deposit from public within the meaning of section 58 A and section 58 AA or any other provisions of the Act and rules framed there under.]

Profit & Loss Account for the year Ended as at 31st march 2007 Previous Year

Particulars I Income Sales Other Incomes

Schedule

Current Year

14

219,286,312 10,721,011 230,007,323

179,916,302 8,785,807 188,702,109

II Expenditure
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Cost of Sales personnel expenses administrative expenses Selling Expenses Interest Depreciation

15 16 17 18

192,013,594 3,838,109 3,970,352 26,139,835 2,620,422 932,426 229,514,737 492,586 140,077 32,740 319,770 2,940,382

155,075,206 3,608,931 4,893,060 21,612,582 1,587,651 776,575 187,554,005 1,148,104 242,244 -2789 908,649 2,178,433

III profit before taxation IV Provision for Tax Current Deferred V Profit After Tax VI Balance Brought forward from previous year VII Fringe Benefit Tax for the year VIII Balance carried to balance sheet IX Earning per share X Accounting policies & notes on a/c 19 20

1,25,643 3,134,509 0.24

1,46,700 2,940,382 0.69

The above table shows the profit and loss Account of the year ended 31st marh 2007, the total of companies profits and loss incurred with comparison to the previous year profit and loss Account.

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Annual Accounts 2006 - 2007 Balance Sheet particulars I Sources of funds 1 Share holder's funds share capital Reserve & surplus 2 Loan Funds Secured Loan unsecured Loan 3 Deferred Tax liability schedule current year Previous Year

1 13,171,000 2 3,134,509

13,171,000 2,940,381

3 28,662,405 4 5 7,345,094 722,272 53,035,279

32,196,685 6,180,190 689,532 55,177,788

II Application of funds 1 Fixed assets gross block less : Depreciation net block WIP (work in progress) 2 Investment 3 current assets, loans and advances Inventories

6 17,268,326 3,892,713 13,375,613 2,254,835 7 5,000

16,039,542 2,960,287 13,079,255 1,674,708 5,000

8 17,361,471

14,290,281
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Sundry Debtors Cash & bank balances Loans & Advances less: current liabilities & provisions: current liabilities net current assest 4 Miscellaneous Expenditure to the extent not written off or adjusted

9 10,599,884 10 11 5,054,684 9,603,883 42,619,992

20,010,275 6,735,098 6,751,528 47,787,182

12

5,280,091

7,542,058

37,339,831

40,245,124

13

60,000 53,035,279

1,73,700 55,177,787

III Accounting policies and notes on account

20

The above table is the balance sheet of the Gargson (P) ltd for the year of 2006 2007

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Chart Title

3 51%

1 49%

The above chart is the pie chart of the Gargson (P) ltd which shows the difference in percentage of its profits gained in the current year than the previous year.

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Basis Of Income Income from Business & Profession particulars Profit as per profit & loss A/c Add: Depriciation Considered separately loss on sale of fixed assest less: Depreciation u/s 32 of the Income Tax Act 1961 Gross taxable Income less: carry Forward loss Taxable Income Rounded off to Tax on Above Add: Surcharge on above Tax Payable Add: Education cess Total tax payable less: Advance tax paid TDS Advance tax

Amt

4,92,586 9,32,426 0 1,425,011 1,008,857 416,154 0 416,154 416,150 124,845 12,485 137,330 2,747 140,077 41,957 2,50,000 2,91,957 -151,880

The above table shows the basis of income of the Ganesh sponge ltd where it shows that the company has paid all the taxes in advance and would not have to pay in the current year.

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2nd Case Study Ganesh Sponge (P) ltd

Basis of Income Particulars I Income from Business & profession

Amount

profit as per profit & loss account after all expenses and depriciation Add: Depritiation considered separately II Profit Before Depreciation less: depriciation U/S 32 of I.T Act III Profit as per Income tax Act IV Rounded off to V net profit for mat u/s 115 JB VI less: Fringe benefit Tax VII less: Depriciation loss brought forward VIII Book Profit for mat U/s 115 JB IX total tax under mat X Education cess XI Tax payable XII Tax paid U/s 140 A

59,36,884 74,51,245 13,388,129 14,239,757 -851,629 -851630 59,36,884 33,724 37,89,085 21,14,075 2,11,407 6342 2,17,750 2,17,750

The above table show the basis of income of the Ganesh Spong Ltd where the calculation for tax payable is about 2,17,750
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Computation of Depreciation Particulars Building Op bal Additions more than 180 days less than 180 days Amount 10,242,464 Rate of dep Depreciation Total Dep

10% 10,24,246

0 0 10,242,464

10% 5% 10,242,246

Plant & Machinery Op bal Additions More than 180 days less than 180 days

79,270,580

15%

11,890,587

5,772,149 3,108,050 88,150,779

15% 7.50%

865,822 233,104 12,989,513

Computer Op bal addition more than 180 days less than 180 days

119,707

60%

71,824

63,317 31,500 214,524

60% 30%

37,990 9450 119,265

Furniture & Fixture Op bal Additions more than 180 days less than 180 days

10,67,332

10% 4,06,733

10% 5%
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1,067,332 Total Depreciation

106,733

14,239,757

The above table shows the calculation of the depreciation for the assests of the company Ganesh Spong Ltd.

Balance Sheet Particulars I Sources of funds 1 Shareholder's Funds a) Capital b) Reserve & Surplus 2 Loan Funds a) Secured loan b) unsecured loan 3 Deferred Tax Liability

Sc No

2010

2009

1 2

115,000,000 73,593,732

111,953,170 61,830,251

3 4 5

295,503,885 70,000,000 34,334,722 588,432,339

219,770,170 73,900,413 18,084,702 485,538,706

II Application of funds 1 Fixed assets a) gross block b) less: Depriciation c) Net block

440,513,309 41,678,503 398,834,806

273,584,902 26,466,686 247,118,216

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d) capital work in progress 2 Investments 3 Current Assets, loans & Advances a) Inventories b) Sundry debtors c) Cash & Bank bal d) Loans & Advances 7

2,124,593 420,746

48,895,525 398,530

8 9 10 11

108,090,128 24,680,615 6,837,784 57,475,531 197,084,058

121,343,869 16,633,195 34,325,182 31,791,110 204,093,356

4 less: current liabilities & provisions a) Liabilities b) Provisions c) Net Current Assets 5 Miscellaneous Expenditure 14

4,727,520 5,745,303 10,472,823 186,611,233 440,958 588,432,339

10,630,490 5,032,393 15,662,883 188,430,473 695,958 485,538,706

6 Significant accounting policies and notes of a/c

The last table is the balance sheet which shows the company has gained a profit in the recent year in comparision to previous year. The profit percentage gained by the company is around 10% as shown in the pie chart given below.

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Chart Title

2 45% 1 55%

The above chart shows the variations of the profit of the company in respect to current year and the previous year. The two cases which were handeled by me were the private companies named Gargson (p) ltd and Ganesh spong (P) ltd in both the cases the company had an profit margin of 2% and 10% respectively as shown by the table and the graphs.

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Basis of Income
Income from Business & Profession. Particulars Profit as per profit and loss A/c Add: Depritiation Loss on sale of fixed assets Less: Depritiation u/s 32 of the I.T Act 1961 Gross Taxable Income Less: Carry Forward Loss Taxable Income Tax on Above Add: surcharge on above Tax payable Less: Advance Tax Paid TDS Advance Tax XXX XXX XXX XXXXXXX Amt XXXX XXX XX XXX XXXX XX XXX XXX XXX XXX

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Finding out Tax Liability 1st find out gross total income 2nd less deduction under sections 80C to 80U 3rd After deducting the deduction from gross total income the value which we get is Net Income. 4th divide the net income into the following 4.1 income subject to special tax rates mentioned in para 0.1-6 4.2 remaining income subject to normal rates 5th find out income tax on net income 5.1 tax on income specified in 4.1 (special tax) at the rates given in para 0.1 6 5.2 tax on remaining income at the normal rate given in para 0.1 1 or 0.1 2 or 0.1 3 or 0.1 4 or 0.1 5. 6th Add surcharge @ 0%, 2%, 2.5%, 5%, or 7.5% 7th find out the total of [(5) + (6)] 8th add education cess [2% of 7] 9th add secondary and higher education cess [1% of (7)] 10th Find out the total [(7) + (8) + (9)]
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11th deduct: rebate under section 86, 89, 90, 90A or 91 12th tax liability [(10) (11)] 13th add: Interest / Penalty etc 14th less: pre paid taxes [i.e, advance tax, self assessment tax, Tds, tcs, mat credit] 15th tax payable [(12) + (13) (14)]

Computation of income from salary

Tax calculation for the year 2006 - 2007 ASSUMING THERE IS NO CHANGE IN INVESTMENT AND INCOME Name LOCATION CITY MUMBAI METRO Salary Components BASIC CONVEYANCE ALLOWANCE OTHER ALLOW II(MED) HMA HOUSE RENT ALLOW. BONUS SPECIAL ALLOWANCE VARIABLE PAY OTHER ALLOW I(LTA) OTHER ALLOW III(PETR) OTHER ALLOW III(DRIV) P.M. 7,000.00 4,000.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 P.A. 84,000.00 48,000.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Gender (M / F) Emp. No.: F

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Total Gross Salary

11,000.00

132,000.00

Total Gross Annual Income Less MEDICAL EXEMPTION LTA EXEMPTION HRA EXEMPTION CONVEYANCE EXEMPTION Total Exemptions Gross Taxable Income Less Profession Tax INTERST ON HOUSING LOAN Total Other Deductions Net Annual Income Less Deductions under Chapter VI A Total investment under section 80C (as detailed in Table - I) Max. Benefit available under section 80C is Rs 1,00,000/Other Investments (as detailed in Table - II) Total Deductions under Chapter VI A (I) Net Taxable Income Rounded Net Tax Payable Surcharge @ 10% on (Net Tax) Education Cess @ 2% on (Net Tax + Surcharge) Total Tax Payable for the Year OTHER DEDUCTION ALLOWED EXEMPTION

132,000.00

0.00 0.00 48,000.00 48,000.00 84,000.00

2,500.00 0.00 2,500.00 81,500.00

10,080.00 0.00 10,080.00 71,420.00 0.00 0.00 0.00 0.00

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Table - I

U/s 80 C PROVIDENT FUND LIFE INSURANCE PREMIUM VPF PPF ELSS PENSION FUND (80CCC) ULIP NSC CTD PRINCIPLE AMOUNT OF HSG LOAN STAMP DUTY AND REGISTRATION CHARGES FIXED DEPOSIT IN SCHEDULED BANK EDUCATION EXPENDITURE INFRASTRUCTURE BONDS INTEREST ON HOUSING LOAN Total HRE RENT per month 10,080.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 10,080.00

Table - II Mediclaim Premium u/s 80D (max Rs 10,000/-) Handicapped Dependent u/s 80DD (max Rs 50,000/-) Dependent's Medical treatment u/s 80DDB (max Rs 40,000/-) Interest repayment for Education Loan u/s 80E Person with disability u/s 80U (max Rs 50,000/-) TOTAL 0.00 0.00 0.00 0.00 0.00 0.00

Name

Month Apr-06

Basic 7,000.00

HRA 0.00

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May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 TOTAL

7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 84000

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0

0 50% OR 40% OF BASIC 3,500.00 3,500.00 3,500.00 3,500.00 3,500.00 3,500.00 3,500.00 3,500.00 3,500.00 3,500.00 3,500.00 3,500.00 0 42000

Rent 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0

ACTUAL HRA -

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City

RENT PAID - 10% OF BASIC.

HRE

(700.00) (700.00) (700.00) (700.00) (700.00) (700.00) (700.00) (700.00) (700.00) (700.00) (700.00) (700.00) -8400

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Chapter 4

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Finding, suggestion and conclusion

Findings
From the research the major problems which I found out that -: There is no internal audit in the P.A & Associates chartered accounting firm. The firm is completing its projects within the time period gaining an advantage to complete more projects and gaining profits. The firm has been working for big firms like Nalco, Hcl, Infosys hence gaining a profit margin. The applications use by them to store the data are quite obsolete, as they have been using tally 7.2 and Microsoft office 2000. The firms work environment have a problem as the employees are gossiping most of the time which in return is decreasing the efficiency of the firm to complete a work and catch hold of the next one.

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Suggestion
According to the research or what I personally observed. I can suggest to some extent : To change the work environment To put an internal audit

The firm should update its applications so as to have a better interface to work on which would be much more easier for them. To focus more on the big companies like Mayfair, National informatics center, Indiabulls securities to gain higher profits.

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Conclusion

If your finances are complex, involving substantial capital sums and intricate legal trusts, you should have your tax position managed by a professional accountant or solicitor like the chartered accountants who will value and verify your books and make the taxation reports for you. Mainly during mine summer internship project what I conclude is that the datas which is provided by the companies are mainly the hardcopies of the receipt which are verified with the books where all the datas have been stored or we can say as written down. The fact I observed is that in the chartered accounting firm, they are using Tally ERP 7.2 which on my behalf of a suggestion they should update the application to Tally ERP 9 and the Microsoft excel is 1st used to input the data and recording all the transactions. All the data are recorded mainly in both of these software mainly the audit report is made on the basis of the books maintained by the company by auditing those books. The primary thing which could be learnt during this process are some basics about the taxation rules which are implemented according to the Income tax act 1961 and companies act 1956.

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The amendments rules are used, the recent amendments decided which changes each fiscal year during the budgeting. The financial minister changes these rules and amendments while making the budget for the year. Thus further concluding that an individual should invest his money in the plans

Contribute to a pension plan Invest in ISAs and/or Fixed Interest Savings Certificates Use your annual CGT exemptions Spread your wealth between you and your spouse to minimise the income and CGT burden

Consider giving away 3,000 each year to your children To save his hard earned money for giving away in income tax so that he could have a better future and his hard earned money is also not lost. From this summer internship project valid for 2 month I also get to know that the files which are mainly reviewed during the Auditing are the hard copy of the receipts which the company have maintained and the ledger balance and cash books maintained by the company. The books are tallied with the soft notes and soft doc entered in the computer. The total net income is then calculated and from that the taxable value is calculated.
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So this is what I concluded in my 2 months work experience at the chartered firm P.A & Associates.

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Bibliography

http://www.incometaxindia.gov.in/ http://siadipp.nic.in/publicat/invpub/taxation.htm http://en.wikipedia.org/wiki/Category:Taxation http://financeminister.in/latest-india-income-tax-slabs

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