UNIT-IV

FINANCING AND ACCOUNTING

 Financing
• Finance is a key input of production,
distribution and development. It is therefore,
aptly described as the "life-blood" of industry
and is a pre-requisite for accelerating the
process of industrial development.
• Having prepared the project report, the time
comes when the entrepreneur needs to decide
on the need for and source of finance as per
his/her projections made in the project report.
 NEED FOR FINANCIAL PLANNING
• The availability of finance that facilitates an
entrepreneur to bring together land, labour,
machinery and raw material to produce goods.
• Financing an enterprises-whether large or small is
a critical elements for source in business.
• The decision taken by the entrepreneur well in
advance regarding the future financial aspects of
his/her enterprises is called "financial planning".
 NEED FOR FINANCIAL PLANNING
(i) How much money is needed?
(ii) Where will money come from? And
(iii) When does the money need to be available?
• There should be adequate money to pay the
purchase considerations.
• There should be sufficient capital for the business
operations up to the three initial months.
• Lastly, enough provision to meet unexpected
expenses.
 NEED FOR FINANCIAL PLANNING
• Internal Sources refer to the owners own
money known as "equity".
• External Sources like the financial institutions
and commercial banks, etc.
 CLASSIFICATION OF FINANCIAL NEED
Financial Needs

Basis of extent of Basis of period

performance of use

Fixed Working Long Term Short Term

Capital Capital Capital Capital
 SOURCE OF FINANCE
SOURCE OF FINANCE

Internal Source External Source

1. Owners Investment 1. Bank loan
2. Retained profit 2. Over draft
3. Sale of stock 3. Additional partners
4. Sale of fixed assets 4. Share issue
5. Debt collection 5. Leasing
6. Hire purchase
7. Mortgage
8. Trade credit
9. Government grants
Owners Investment
• This is the money which comes from the
owners own savings.
• It may be in the form of startup capital used
when the business is set up.
• It may be in the form if additional capital
which may be used for expansion.
• This is a long-term source of finance.
Retained Profits
• This source of finance is only available for a
business which has been trading for more
than one year.
• It is when the profit made is ploughed back
into the business. This is a medium or long-
term source of finance.
Sale of Stock
• This money comes in from selling off unsold
stock. This is what happens in the January
sales.
• It is when the profits made are ploughed back
into the business. This is a short-term source
of finance.
Sale of Fixed Assets
• This money comes in from selling of fixed
assets, such as a price of machinery that is no
longer needed.
• Businesses do not always have surplus fixed
assets which they can sell off. There is also a
limit to the number of fixed assets a firm can
sell off.
• This is a medium term source of finance.
Debt Collection
• A debtor is someone who owns a business
money. A business can raise finance by
collecting the money owned to them (debts)
from their debtors.
• Not all businesses have debtors i.e those who
deal only in cash. This is a short term source of
finance.
Bank Loan
• This money borrowed at an agreed rate of
interest over a period of time. This is a
medium or long term source of finance.
Bank Overdraft
• This is where the business is allowed to be
overdraft in its account. This means they can
still write cheques, even if they do not have
enough money in the account. This is a short-
term source of finance..
Additional Partners
• This is a source of finance suitable for a
partnership business. The new partners can
contribute extra capital.
Share Issue
• This is a source of finance suitable for a limited
company. Involves issuing more shares. This is
a long-term source of finance.
Leasing
• This method allows a business to obtain assets
without the need to pay a large lump sum
upfront. It is arranged through a finance company.
Leasing is like renting an asset. It involves making
set repayments. This is a medium-term source of
finance.
Hire Purchase
• This method allows a business to obtain assets
without the need to pay a large lump sum up
front involves paying an initial deposit and regular
payments for a set period of time.
Mortgage
• This is a loan secured on property. It is repaid
in instalments over a period of time typically
25 years. The business will own the property
once the final payment has been made. This is
a long-term source of finance.
Trade Credit
• Trade credit is summed up by the phrase :
"buy now pay later". Typical trade credit
period is 3 days. This is a short-term source of
finance.
Government Organizations
• Government organizations invest offer grant
to businesses, both established and new
usually certain conditions apply, such as where
the business has to locate.
 FACTORS AFFECTING CHOICE OF SOURCE
OF FINANCE
• Purpose : Purpose is what the finance is to be used
for
• Time Period : The time period is how long the
finance will be needed for
• Amount : The main is amount how much money
the business needs.
• Ownership and Size of the business : Other factors
in ownership and size of the business depend on
the investment and turn over of the business.
 TERM LOAN
• A loan is the purchase of the present use of
money with the promise to repay the amount
in the future according to a pre arranged
schedule and at a specified rate of interest.
• A monetary loan that has to be repaid in
regular payments over a set period of time is
referred to as a term loan.
 CHARACTERISTIC OF TERM LOANS
The characteristic of term loans are
1. Time of maturity
2. Repayment schedule
3. Interest
4. Security
 FEATURES OF TERM LOAN
• Type of debt financing.
• Foreign investment provides rupee term loan and
foreign currency term loan.
• Mainly for investment in fixed assets.
• Also for getting technical know-how preliminary
expenses and margin money for working capital.
• Foreign currency term loan for import of plant and
machinery.
• Assets which are financial with term loan is the prime
security.
• Other assets of the firm can be collateral.
 BENEFITS OF TERM LOANS
• Fixed Interest Rate
• Variable Interest Rate
• Repayment Holidays
• Repayment Style
• Repayment Frequency
• Stage Drawdown
• Make one-off Repayments
 TYPES OF TERM LOAN
Long-Term Loan
• Long-term loans usually mature in one to seven
years, but can be longer for real estate or
equipment.
• These loans are used for major business
expenses such as vehicles, purchasing facilities
construction and furnishings.
• They also can be used to carry out business
through a depressed cycle.
 TYPES OF TERM LOAN
Intermediate Term Loans
• Intermediate term loans finance the purchase
of furniture, fixtures, vehicles, and plant and
office equipment.
• Maturity generally runs more than one year
but less than five. Consumer
 TYPES OF TERM LOAN
Short-Term Loans
• Short-term loans, typically line of credit
working capital, loans, or accounts receivable
loans, usually reach maturity within one year
or less.
• A short-term business loan is an option for an
establishment business that has a strong
support and patronage.
 CAPITAL STRUCTURE
• According to Gerstenberg, capital structure
refers to the make up of a firm's capitalization.
In other words, it represents the mix of
different sources of long-term funds (such as
equity shares, preference share long-term
loans, retained earnings, etc) in the total
capitalization of the company.
 CAPITAL STRUCTURE AND FINANCIAL
STRUCTURE
• The term capital structure differs from
financial structure.
• Financial structure refers to the way the firms
assets are financial. In other words, it includes
both long-term as well as short-term sources
of funds.
• Capital structure is the permanent financing of
the company represented primarily by long-
term debt and share holder.
 FEATURES OF AN APPROPRIATE CAPITAL
STRUCTURE
• Profitability
• Solvency
• Flexibility
• Conservation
• Control
 FACTORS DETERMINING CAPITAL
STRUCTURE
Trading on Equity
• A company may raise funds either by issue of
shares or by debentures. Debenture carry a fixed
rate of interest and their interest has to be paid
irrespective of profits.
Retaining Capital
• The capital structure of a company is also affected
by the extent to which the promoter/existing
management of the company desire to maintain
control over the affairs of the company.
 FACTORS DETERMINING CAPITAL
STRUCTURE
Nature of Enterprise
• The nature of enterprise also to a great extent
affects the capital structure of the company.
• Business enterprises which have stability in
their earnings or which enjoy monopoly
regarding their products may go for
debentures or preference shares since they
will have adequate profits to meet the
recurring cost of interest/fixed dividend. This
 FACTORS DETERMINING CAPITAL
STRUCTURE
Legal Requirements
• The promoters of the company have also to
keep in view the legal requirements while
deciding about the capital structure of the
company.
• This is particularly true in case of banking
companies which are not allowed to issue any
other type of security for raising funds except
equity share capital on account of the Banking
Regulation Act.
 FACTORS DETERMINING CAPITAL
STRUCTURE
Purpose of Financing
• The purpose of financing also to some extent
affects the capital structure of the company. In
cases funds are required for some directly
productive purpose, for example, purchase of
new machinery, the company can afford to
raise the funds by issue of debentures.
 FACTORS DETERMINING CAPITAL
STRUCTURE
Period of Finance
• The period for which finance is required also
affects the determination of capital structure
of companies.
• In case funds are required, say for three to ten
years, it will be appropriate to raise them by
issue of debenture rather than by issue of
shares.
 FACTORS DETERMINING CAPITAL
STRUCTURE
Market Sentiments
• The market sentiments also decide the capital
structure of the company. There are periods
when people want to have absolute safety. In
such cases, it will be appropriate to raise funds
by issue of debentures.
 FACTORS DETERMINING CAPITAL
STRUCTURE
Requirement of Investors
• Different types of securities are to be issued
for different classes of investors. Equity shares
are best suited for bold or venturesome
investors. Debentures are suited for investors
who are very cautious.
 FACTORS DETERMINING CAPITAL
STRUCTURE
Size of the Company
• Companies which are of small size have to rely
considerably upon the owners funds for
financing. Such companies find it difficult to
obtain long term debt.
 FACTORS DETERMINING CAPITAL
STRUCTURE
Government Policy
• It is also an important factor in planning the
company capital structure. For example, a
change in the lending policy of financial
institution may mean a complete change in
the Financial pattern.
 FACTORS DETERMINING CAPITAL
STRUCTURE
Provision for the Future
• While planning capital structure, the provision
for the future should also be kept in view. It
will always be safe to keep the best security to
be issued in the last instead of issuing all types
of securities in one instalment.
 CAPITAL STRUCTURE THEORIES
• In order to achieve the goal of identifying an
optimum debt equity mix, it is necessary for
the finance manager to be convenient with
the basic theories underlying the capital
structure of corporate enterprises.
 CAPITAL STRUCTURE THEORIES
• There are four major theories of approaches
explaining the relationship among capital
structure, cost of capital and value of the firm.
• Net Income (NI) Approach
• Net Operating Income (NOI) Approach
• Modigiliant-Miller (MM) Approach
• Traditional Approach
 Net Income (NI) Approach
• This approach has been suggested by Durand.
According to this approach, capital structure
decision is relevant to the valuation of the
firm. In other words, a change in the capital
structure causes a corresponding change in
the overall cost of capital as well as the total
value of the firm.
 Net Operating Income (NOI) Approach
• The approach has also been suggested by
Durand. This is the opposite of Net Income
approach. According to this approach, the
market value of the firm is not at all affected
by the capital structure changes.
 Modigilian-Miller Approach
• The Modigilian-Miller (MM) Approach is similar to
the Net Operating Income (NOI) approach. In
other words, according to this approach, the value
of a firm is independent of its capital structure.
• However, there is a basic difference between the
two. The NOI approach is purely definitional or
conceptual. It does not provide operational
justification for irrelevance of the capital structure
in the valuation of the firm.
 Traditional Approach
• According to the NI approach, the debt
content in the capital structure affects both
the overall cost capital and total valuation of
the firm, while the NOI approach suggests that
capital structure is totally irrelevant so far as
total valuation of the firm is concerned.
 FINANCIAL INSTITUTIONS
• Finance is one of the essential requirements
of any enterprise before setting up their units
they need to know various type and extent of
their financial requirements.
• To provide financial assistance to an
entrepreneur, the government has set up a
number of special financial institutions
besides commercial banks.
 Financial Institution

Commercial Bank Other Financial Institution

All India Financial Institution State Level Financial

• Industrial Development Bank of India (IDBI) Institution
• Finance Corporation of India Ltd. (IFCI) • State Financial
• Industrial Credit and Investment Corporation Corporation (SFC)
of India (ICICI) • State Industrial and
• Industrial Reconstruction Bank of India (IRBI) Investment
• Life Insurance Corporation of India (LIC) corporations
• Unit Trust of India (UTI)
• Small Industries Development Bank of India
(SIDBI)
• State Industrial Development Corporation
(SIDCO)
• Export-Import Bank of India (EXIM Bank)
 Commercial Bank
• The Scheduled Commercial Banks (SCBS) in
the country is299.
1. State Bank of India and its associate banks – 8
2. Nationalized Banks 19
3. Private Sector Banks 34
4. Regional Rural Banks 196
5.Foreign Banks 42
Industrial Development Bank of India (IDBI)

• IDBI was set up in July 1964 as an apex term

pending financial Institution in India. It has
restructured and designed in 1975 for
coordinating the activities of other
institutions, including banks, engaged in
financing, promoting or developing industry in
India
Industrial Financial Corporation of India Ltd
(IFCI)
• The Industrial Finance Corporation of India
(IFCI) was established in 1948 under an Act of
parliament with the object of providing
medium and long-term credit industrial
concerns in India.
 Industrial Credit and Investment
Corporation of India (ICICI)
• The industrial credit and investment
corporation of India Ltd (ICICI) was set up in
January 1955 under the Indian companies Act
with the primary objective of developing small
and medium industries in the private sector.
 Industrial Reconstructions Bank of India
(IRBI)
• Industrial Reconstruction corporation of India
Ltd. (IRCI), setup as a primary agency for
rehabilitation of sick industrial units which has
been reconstituted and renamed as the
Industrial Reconstruction Bank of India (IRBI)
by an Act of Parliament with effort from
March 20, 1985.
 Unit Trust of India (UTI)
• The Unit Trust of India (UTI), established under
an Act of parliament in 1964, mobilises
savings of small investors through sale of units
and channelises them in to corporate
investments.
Small Industries Development Bank of India
(SIDBI)
• The SIDBI was setup as a subsidiary of the IDBI
by a special Act in 1989 to function as the
principal financial institution for the
promotion, development and financial of
industry in the small scale sector and for
coordinating the functions of institutions
engaged in similar activities.
 State Industrial Development Corporation
(SIDCOs)
• The State Industrial Development Corporations
(SIDCOs) were established under the company
Act, 1956. In the sixities and early seventies as
wholly owned State Government undertaking
for promotion and development of medium
and large industries.
 Export-Import Banks of India
(EXIM Bank)
• The Export-Import Bank of India is commonly
known as the EXIM Bank. It was set up on
January 1, 1982 to take over the operation of
the international finance wing of the IDBI and
to provide financial assistance to exporters
and importers to promote India in Foreign
trade.
 State Financial Corporation (SFC)
• State Financial Corporation (SFC) operating at
the state level form an integral part or the
development financing system in the country.
• It functions with the objective of financing and
promoting small and medium enterprises for
achieving balanced regional socio-economic
growth, catalysing higher investment
generating greater employment opportunities
and widening the ownership base of industry.
 Tamil Nadu Industrial and Investment
Corporation
• Tamil Nadu Industrial Investment Corporation (TIIC)
is a pioneer among the state financial corporation in
the country.
• Incorporated in 1949. Under the companies Act to
foster industrial development of Tamil Nadu, it
provides financial assistance to Industrial Units and
service sector projects.
• TIICS focus is on catering to the needs of Micro,
Small and Medium Enterprises (MSMEs), especially
first generation entrepreneurs in the state.
 MANAGEMENT OF WORKING CAPITAL
• Working capital is the amount of capital that a
business has available to meet the day-to-day
cash requirements of its operations.
• Working capital is the difference between
resources in cash or readily convertiable into
cash (Current Assets)and organizational
commitments for which cash will soon be
required (current Liabilities).
 CLASSIFICATIONS OF WORKING CAPITAL
Working capital

On the Basis On the Basis of

of Concept time or need

Gross Working Net Working Permanent Temporary

Capital Capital Working Capital Working Capital
 Gross Working Capital
• Gross working capital refers to firm's
investment in current assets. Current assets
are the assets which can be converted into
cash within an accounting year and include
cash, short-term securities, debtors, bill
receivables and stock.
 Net Working Capital Concept
• Net working capital refers to the difference
between current assets and current liabilities
current liabilities are those claims of outsides
which are expected to nature of payment within
an accounting year and include creditors, bills
payables, and outstanding expanses.
• Net working capital can be positive or negative.
A positive net working capital will arise when
current assets exceed current liabilities.
 Permanent or Fixed Working Capital
• The need for working capital fluctuates from
time to time. However, to carry on day-to-day
operations of the business without any obstacles,
a certain minimum level of raw materials.
• Work-in-progress, finished goods and cash must
be maintained on a continuous basis. The
amount needed to maintain current assets on
this minimum level is called permanent or
regular working capital.
 Temporary or Variable or Fluctuating
Working Capital
• Depending upon the changes in production
and sales, the need working capital, over and
above the permanent level of working capital
is called temporary fluctuating or variable
working capital. It is of two types.
• (a) Seasonal
• (b) Speed
 ADEQUATE WORKING CAPITAL
• The firm should maintain a sound working
capital to run its business operations. Both
excessive as well as inadequate working
capital positions are dangerous from firm's
point of view.
 Importance/Need/Advantage of Adequate
Working Capital
• Availability of Raw Materials Regularly
• Full Utilization of Fixed Assets
• Cash Discount
• Increase in Credit Rating
• Exploitation of Favourable market Conditions
• Facility in Obtaining Bank Loans
• Increase in Efficiency of Management
• Ability to Face Crisis
• Solvency of the Business
• Good Will
 EXCESSIVE AND INADEQUATE WORKING
CAPITAL
• A business enterprise should maintain adequate
working capital according to the needs of its business
operations.
• The amount of working capital should neither be
excessive nor inadequate.
• If the working capital is in excess if its requirements it
means idle funds adding, to the cost of capital but
which earn no profits for the firm.
• On the contrary, if the working capital in short of its
requirements, it will result in production interruptions
and reduction of sales and, in turn will affect the
profitability of the business adversely.
Disadvantages of Excessive Working Capital

1. Excessive Inventory
2. Excessive Debtors
3. Adverse Effect on Profitability
4. Inefficiency of Management
 Disadvantages of Inadequate Working
Capital
1. Difficulty in Availability of Raw-Materials
2. Full Utilization of Fixed Assets not Possible
3. Difficulty in the Maintenance of Machinery
4. Decrease in Credit Rating
5. Non-Utilization of Favourable Opportunities
6. Decrease in Sales
7. Difficulty in the Distribution of Dividends
8. Decrease in the Efficiency of Management
 Working Capital Cycle
Debtors & Bills Sales
Receivables

Sales Finished
Products

Raw Materials Work in Process

 In case of trading
concerns, the operating
cycle will be
Cash Stock

Debtors

In case of financial
concerns, the operating
Cash Debtors cycle will be
DETERMINANTS OF WORKING CAPITAL
• Internal Factors
1. Nature and size of business
2. Firm's production policy
3. Firm's credit policy
4. Availability of credit
5. Growth and expansion of business
6. Profit margin and dividend policy
7. Operating efficiency of the firm
8. Co-ordinating activities in firm
DETERMINANTS OF WORKING CAPITAL
• External Factors
1. Business fluctuations
2. Changes in the technology
3. Import policy
4. Infrastructural facilities
5. Taxation policy
MEASURING OF WORKING CAPITAL
• Percent of sales method
• Regression Analysis method
• Operating Cycle method
 SOURCE OF WORKING CAPITAL
• Loans from commercial bank
• Public deposit
• Trade credit
• Factoring
• Discounting, bill of Exchange
• Bank overdraft and cash credit
• Advance from customers
• Accrual accounts.
 COSTING
• As compared to the financial accounting, the
focus of cost accounting in different. In the
modern days of cut throat competition, any
business organization has to pay attention
towards their cost of production.
• Computation of cost on scientific basis and
thereafter cost control and cost reduction is of
paramount important. Hence it has become
essential to study the basic principles and
concepts of cost accounting.
 COST
• Cost can be defined as the expenditure (actual
or national) incurred on or attributable to a
given thing.
• It can also be described as the resources that
have been sacrificed or must be sacrificed to
attain a particular objective.
• In other words, cost is the amount of
resources used for something which must be
measured in terms of money.
 COSTING DEFINITION
• Costing may be defined as the technique and
process of ascertaining costs;
• According to Wheldon, 'Costing is classifying
recording, allocation and appropriation of
expenses for the determination of cost of
products or services and for the presentation
of suitable arranged data for the purpose of
control and guidance of management.
 COST ACCOUNTING
• Cost accounting primarily deals with collection,
analysis of relevant cost data for interpretation
and presentation for solving various problems of
management.
• Cost accounting accounts for the cost of
products, service or an operation. It is defined as,
the establishment of budgets, standard costs and
actual costs of operation, processes, activities or
products and the analysis of variances,
profitability or the social use of funds'.
 CLASSIFICATION OF COSTS
• Classification according to elements
• According to nature
– Direct and Indirect Material
– Direct and Indirect Labour
– Direct and Indirect Expenses
• According to behaviour
– Fixed costs
– Variable costs
– Semi – variable costs
 CLASSIFICATION OF COSTS
• According to functions
– Production costs
– Administrative costs
– Selling and Distribution costs
– Research & development costs
• According to time
– Historical costs
– Predetermined costs
 CLASSIFICATION OF COSTS
• Costs for management decision making
– Marginal cost – Abnormal costs
– Differential cost – Controllable costs
– Opportunity cost – Shutdown costs
– Relevant costs – Capacity costs
– Replacement costs – Urgent costs
COSTING METHODS AND TECHNIQUES
• It is necessary to understand the difference
between the costing methods and techniques.
Costing methods and technique costing
methods are those which help a firm to
compute the cost of production or services
offered by it.
• Methods of costing
– Job costing
– Batch costing
– Process costing
– Operating costing
– Contract costing
• Technique of costing
– Marginal costing
– Standard costing
– Budgets and Budgetary control
 BREAK EVEN ANALYSIS
• A break-even analysis is a financial calculation
that weighs the costs of a new business,
service or product against the unit sell price
to determine the point at which you will
break even.
• In other words, it reveals the point at which
you will have sold enough units to cover all of
your costs.
 BREAK EVEN POINT
• The break even point is a level of production
where the total costs are equal to the total
revenue, i.e., sales.
• Thus at the break-even level, there is neither
profit nor loss. Production level below the
break-even-point will result into loss while
production above break-even point will result
in profits.
 MARGIN OF SAFETY
• Margin of safety is the difference between the
actual sales and the break-even sales. As we
have discussed, at the break even point there is
neither any profit nor loss.
• Hence any firm will always be interested in being
as much above the break even level as possible.
• Margin of safety explains precisely this thing and
the higher the safety margin the better it is.
Margin of safety is computed as follows.
Margin of safety= Actual sales -Break-even sales
 TAXATION
• In most of the countries, the taxation policy
aims at the promotion of agriculture and
industry.
• Industrial development may, however, be
stimulated by means of a reduction in the
normally applicable tax liability in the form of
either an exemption from & income-tax on the
amount invested or a concession in the tax
rate.
 TYPES OF TAXATION
• Direct Tax
– Income Tax
– Wealth Tax
– Profit and gains from Business or Profession
• Indirect Tax
– Excise Duty
– Sales Tax
 Income Tax
• In India, tax was introduced for the first time in
1860 by Sin James Wilson in order to meet the
losses sustained by the government on account
of the military muting 1857.
• Over a period of time innumerable amendments
took place, In consultation with the ministry of
law finally the Income Tax Act 1961, was passed.
• The Income Tax Act, 1961 has been in force with
effect from 1st April 1962.
 Income Tax
• Every person, whose taxable income for the previous
financial year exceeds the minimum taxable limit is
liable to the central government income tax during
the current financial year on the income of the
previous financial year at the rate in force during the
current financial year.
• Income less permissible expenses from all sources
(other than long-term capital gains) of each
taxpayers aggregated and subject to tax at a flat rate
in the case of companies and partnership firms and
at progressive rates in the case of other tax payers.
 Basis of charges of Income Tax
• Income tax is an annual tax in income.
• Income of previous year is taxable in the next
following assessment year.
• Tax rate are fixed by the annual finance act.
• Tax changes on total income of every persons.
 Income from salaries
• Salary includes the following amounts
received by an employee from his employer,
during the previous year.
✓ Wages
✓ Encashment of earned leave
✓ Any annuity or pension
✓ Provident fund
✓ Compensation for Retirement
 Allowances
• As per Oxford dictionary the word allowance
means "any amount or sum allowed regularly"
as such allowances are given in cash along
with salary by the employer.
• It can be classified into three categories
(i) Fully Exempted Allowance
(ii) Fully Taxable Allowance
(iii) Partly Taxable Allowance
 Provident Funds
• The employee contributes a fixed percentage
of his salary towards these funds and in many
cases employer also contributes the whole
contribution along with interest credited to
employees account.
• The employee may get the amount on the way
of loans on PF or at the time of retirement.
 Kinds of Provident Funds
• Statutory Provident Fund
• Recognised Provident Fund
• Unrecognised Provident Fund
• Public Provident Fund
 Deduction
• The deductions are
1. Standard Deduction
2. Entertainment Allowance
3. Tax on Employment
(Basic Salary + Allowances + Prerequisite's + Profit
in lieu of salary + Other forms of salary) –
(Deduction U/S 16 Standard deduction (16 i) +
Entertainment allowance (16 ii) + Tax on
employment (16 iii) ) = Income From Salary
 Wealth Tax
• Annual value i.e. rent or revenue received
from any building or land which is attached to
the building (i.e. parking place, garden etc) of
which assessee is the owner and which is not
used for the purpose of assessee's own
business or profession is charged to tax under
income from house property.
Profits and Gains of Business / Profession
• Section 29 states that profits and gains of
business or profession chargeable to income tax,
shall be computed in accordance with the
provisions contained in section 30 to 43D.
• The following incomes shall be chargeable to
income - tax under the head "profits and gains of
business or profession".
– The profits and gains of any business which was
carried on by the assessee at any time during the
previous year.
– Income derived by a trade, professionals or similar
association from specific services performed for the
member.
 Capital Gains
• The tax is to be levied on any profit or gain
occurring on the transfer of a capital assets. Capital
assets refer to property of any kind held by the
assessee.
• Some of the exception to capital assets.
• Any Stock in trade
• Gold deposit bonds issued under gold
scheme
• Special bearer bonds
• Any profit earned from the transfer of a capital
assets is called capital gain.
 Other Sources
• The other source of income which are deducted to
income tax are
 Casual Income
 Insurance Commission
 Family Pension
 Interest on loan
 Income from undisclosed source
 Agricultural Income
 Interest received on delayed refund
 Indirect Tax
Excise Duties
• Excise duties may be defined as "a tax or duty
on home produced goods either at some stage
of production or before their sale to domestic
consumers.
• Excise duty is any duty or tax levied upon the
manufacturer sale or consumption of
commodities within the country.
 KINDS OF EXCISE DUTIES
• The Central Excise and Salt Act 1944 which
deals with basis excise duties in a large
number of items. This is amended from time
to time by the Finance Act each year.
• The Additional Duties of Excise / Goods of
special Importance) Act 1957 and 1985. This
Act levies additional duties of excise in piece
of sales tax on sugar, tobacco and textile
imposed by some state Government.
 KINDS OF EXCISE DUTIES
• The mineral oils (Additional Duties of Excise
and Customs) Act 1958. The Act levies
additional duties of excise on motor spirit,
kerosene, refined diesel oil, etc.
• Cess or excise duties levied on certain
commodities under special Acts like coal and
coke, iron ore, tea, etc.
 Sales Tax
• Sales tax is an indirect tax. It is levied on purchase
and sale of goods in India.
• Sales tax is levied under authority of both central
legislation and state Governments i.e. Central sales
tax and local sales tax.
• Central sales tax is governed by the Central Sales
Tax Act 1956 which covers inter-state transactions
of sale of goods as well as transactions of sale of
goods as well as instruction of import of goods and
export of goods act of India.
 Sales Tax
• The local sales tax is governed by the respective
state sales tax acts under which tax is levied on
Intra-state transaction of sales.
• Sales tax is payable by the seller to the
Government ordinarily. Sales tax is recovered from
the buyer as a part of consideration for sales of
goods.
• Sales tax constitutes major sources of tax revenue
to the State Governments, it is enforced in all the
state in India.
 Sales Tax
• But in order to encourage proper growth of
small-scale industries, both Government i.e.
Central and State Government provides
various facilities like subsidy, concession or
exemption from tax etc.
 TYPES OF SALES TAX
• Selective Sales Tax
Selective Sales Tax is imposed on the sale of a few
selected commodities singled out for the purpose
of taxation. Sale Tax is imposed on high priced and
luxury articles like television, motor vehicles etc.
• General Sales Tax
A general sales tax is imposed by the Government
on the sale of all commodities except those which
may be specially exempted by the Government.
Under the general sales tax, a common rate of tax
is applied on all taxable commodities.
 TYPES OF SALES TAX
• Single point sales taxation
Single point sales tax means tax that is imposed at
only one point between production of goods and
their sales to a customer. Single point sales tax
may be imposed at two stages at first point or at
zonal point.
• Multiple Point Sales Taxation
Multiple point sales tax means that sales tax is
levied at all stages of the sales of a commodity i.e.
tax will be levied and collected, whenever goods
are sold or purchased at every point of sale.