TAX STRUCTURE IN INDIA

Govt. Of India Ministry of Finance

Economic Affairs Expenditure

Revenue

Financial Services

Disinvestment

Direct Tax

Indirect Tax

BASICS OF DIRECT TAXES

 Income

Tax

Wealth

Tax

Basic Concepts of Income Tax

Assessment Year [Sec 2 (9)] Previous Year [Sec 3] Person [Sec 2 (31)] Income[ Sec 2 (24)] Gross total Income[ Sec 14] Total Income & Tax Liability [ Sec 2(45)] Agricultural Income Exemption Vs Deduction

EXCEPTIONS TO ASSESSMENT YEAR

Shipping Business of Non Residents (Sec 172) Persons Leaving India (Sec 174)

Bodies Formed for Short Duration (Sec 174A)

Persons Likely to Transfer Property to Avoid Tax (Sec 175) Discontinued Business (Sec 176)

Person
Person

[Sec. 2(31)] Individual HUF Company Firm AOP/BOI Local Authority Artificial Juridical Persons

Income
Income

[Sec.2(24)] Income under sec 2 (24) is inclusive term. It includes Profit & Gains Dividend Voluntary Contributions received by a Trust Perquisites in the hands of employee Capital gains Insurance Profit etc..

Gross Total Income

Income

computed under following five

heads: Salaries Income from House Property Profits & Gains of the business or profession Capital Gain Income from other sources

Total Income & Tax Liability

SALARIES

As per Sec 15 of Income Tax Act,1961 salary consists of:Any salary due from an employer or a former to an assessee in the previous year, whether actually paid or not. Any salary paid or allowed to him in the previous year by or on behalf of an employer(or a former employer), though not due or before it became due; and, Any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer (or a former employer),if not charged to income tax for any earlier previous year.

EXEMPTIONS UNDER SALARY HEAD

Gratuity [Sec 10(10)] Pension [Sec 10(10A)] Leave Encashment [Sec 10(10AA)] Retrenchment Compensation [Sec 10(10B)]

Voluntary Retirement Compensation [Sec 10(10C)]

House Rent Allowance [Sec 10(13A)]

ALLOWANCES
City Compensatory Allowance Fixed Medical Allowance Tiffin/Lunch/Dinner/Refreshment Allowance Servant Allowance Dearness Allowance Project Allowance Overtime Allowance Any other Cash Allowance

PERQUISITES

Rent free unfurnished Accommodation (Rule 3) Rent free furnished Accommodation

Gas, Electricity or water supply

Free Domestic Servants Free or concessional Education Facility

DEDUCTIONS FROM SALARY(SECTION 16)

Entertainment Allowance [Sec 16 (ii)]

Tax on Employment [Sec 16 (iii)]

INCOME FROM HOUSE PROPERTY

Income Chargeable: Real & Notional Charging Section :Sec 22 Annual Value: Gross Annual Value (GAV) Net Annual Value (NAV) Deductions from NAV In case of let out properties: In case of self occupied residential house properties: Interest Deduction

INCOME FROM CAPITAL GAINS

Chargeable

Sec:45

Profits or Gains arising from the transfer of a capital asset is chargeable to tax in the year in which transfer take place under the head Capital Gain.

TRANSFER: SEC 2(47)

Transfer in relation to Capital Asset includes sale, Exchange or relinquishment of the asset or extinguishment of any rights therein or the compulsory acquisition thereof under any law or conversion of the asset by the owner in stock -intrade of a business carried on by him or the maturity or redemption of a zero coupon bond.

CAPITAL ASSET:

Capital Asset: Sec. 2(14): Capital Asset means property of any kind (Fixed, Circulating, movable, immovable, tangible or intangible) whether or not connected with business or profession. Exclusions (a) Stock-in- trade (b) Personal effects of the assessee (c) Agricultural land in a rural area (d) 6% Gold Bonds 1977 or 7% Gold Bonds 1980 or National Defence Bonds 1980 issued by the Central Government (e) Special Bearer Bonds 1991 issued by the Central Government. (f) Gold Deposit Bonds issued under Gold Deposit Scheme 1999

Short-term capital asset: Sec. 2(42A): means a capital asset held by an assessee for not more than thirty six months immediately preceding the date of its transfer. However, in the following cases, an asset, held for not more than twelve months, is treated as short-term capital asset Quoted or unquoted equity or preference shares in a company Quoted Securities Quoted or unquoted Units of UTI Quoted or unquoted Units of Mutual Funds specified u/s. 10(23D) Quoted or unquoted zero coupon bonds

Long-term capital asset: Sec. 2(29): means a capital asset which is not a short-term capital asset

YEAR OF CHARGEABILITY TO TAX

Capital gains are generally charged to tax in the year in which transfer takes place. Exceptions

(a) Sec. 45(1A) Insurance Claim In the year of receipt. (b) Sec. 45(2) Conversion of capital asset into Stock-in-trade In the year of actual sale of the stock. (c) Sec. 45(5) Compulsory acquisition When consideration or part thereof is first received.

EXEMPT CAPITAL GAINS UNDER SECTION 10

10 (33): Transfer of US 64 on or after April 1, 2002 10 (37): Compulsory acquisition of Urban Agriculture Land where consideration is received after March 31, 2004. 10 (38): Long-term capital gain arising on transfer on or after October 1, 2004 of equity shares or units of equity oriented mutual fund and the STT is paid at the time of transfer.

COMPUTATION OF CAPITAL GAINS (SEC. 48)

The method of computation depends on the nature of capital asset transferred. It is as follows:
Long-term Capital Gain

Short-term Capital Gain

A. Find out Full Value of Consideration B. Deduct: (i) expenditure incurred wholly and exclusively in connection with such Transfer. (ii) Cost of Acquisition (iii) Cost of Improvement (iv) Exemption provided by Ss. 54B, 54D, & 54G, 54GA C. (A-B) is short-term capital gain

A. Find out Full Value of Consideration B. Deduct: (i) expenditure incurred wholly and exclusively in connection with such Transfer. (ii) Indexed Cost of Acquisition (iii) Indexed Cost of Improvement (iv) Exemption provided by Ss. 54, 54B, 54D, 54EC, 54ED, 54F & 54G, 54GA C. (A-B) is a long-term capital gain

Indexed Cost of acquisition = Cost of acquisition * Cost inflation index for the financial year in which the asset is transferred/ Cost inflation index for the first financial year in which the asset was held by the assessee or the year beginning on 1.4.1981, whichever is later or the year of Improvement of the asset However, in case of Bonds, Debentures except capital indexed bonds depreciable assets, and for non residents even if they are long term capital assets the benefit of indexation is not available.

COST INFLATION INDEX

Financial Year 1981-82 1982-83 Cost Inflation Index 100 109 Financial Year 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-2001 Cost Inflation Index 223 244 259 281 305 331 351 389 406

1983-84
1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92

116
125 133 140 150 161 172 182 199

2001-2002
2002-2003

426
447

Financial Year 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Cost Inflation Index 463 480 497 519 551 582 632

2009-10

CAPITAL GAINS - VARIOUS EXEMPTIONS DETAILS

Section 54 54B (a) Kind of asset Long-Term Capital Asset being Land used for agricultural transferred House Property used for purposes residential purpose (b) Eligible Individual & HUF Individual & HUF Assessees (c) Condition of 3 Years 2 Years period of holding original Asset (d) Condition of Purchase of Residential House Purchase of Agricultural Land utilisation of within 2 years after or 1 year prior within 2 years from the date of consideration to date of transfer; or construction transfer of residential house within 3 years from the date of transfer (e) Exempt The amount of gain or, the cost of Lower of the Capital Gain or the Amount new asset, whichever is less Cost of acquisition of new agricultural land. (f) Other See Notes 1, 2 & 4 Assessee or his parents must requirements have used the land for preceding two years

CAPITAL GAINS - VARIOUS EXEMPTIONS DETAILS

Section (a) Kind of asset 54D 54EC

transferred

Land or Building or any right therein Any Long-Term Capital Asset used by an industrial undertaking compul- sorily acquired under any law) All All 1 Year for Shares, Listed Securities, Units of UTI/Mutual Fund specified u/s 10(23D), Zero coupon bonds. 3 years for any other capital asset Investment of whole or any Part of Capital Gain in specified assets as stipulated in the section. Investment should be made within 6 months from the date of transfer

(b) Eligible

Assessees (c) Condition of 2 Years period of holding original Asset (d) Condition of Purchase/construction of Land, utilisation of Building, or any right therein within 3 consideration years from the date of transfer by way of compulsory acquisition for the purposes of shifting/reestablishing/setting up another industrial undertaking
(e) Exempt

Lower of the Capital Gain or the Cost Lower of the Capital Gain or the cost of Amount of acquisition of new land and building investment in specified assets subject to a maximum of Rs. 50 lakhs (f) Other See Notes 1, 2 and 4 Must have been See notes 1, 2 & 4 Rebate u/s 88 or requirements used for business of industrial deduction u/s 80C not to be granted for undertaking for preceding 2 years the for . same investment. New Asset must be retained a period of 3 years

CAPITAL GAINS - VARIOUS EXEMPTIONS DETAILS

54F 54G Section (a) Kind of asset Any long-term capital asset other Land or Building or any right therein or transferred than residential house Plant or Machinery in Urban Area used for the business (b) Eligible Individual & HUF Industrial undertakings in urban area Assessees shifting to an area other than urban area. (c) Condition of 1 Year for Shares, Listed No period specified period of Securities, Units of UTI/Mutual holding of Fund specified u/s 10(23D), Zerooriginal asset coupon bonds, 3 years for other capital assets (d) Condition of Purchase of Residential House Acquire similar assets & incur expenses utilisation of within 2 years after or 1 year prior on shifting original asset, within 1 year consideration to date of transfer; or construction before, or 3 years from the date of of residential house within 3 years transfer from date of transfer (e) Exempt Refer Note No. 5 The amount of gain or the aggregate Amount cost of new asset, and shifting expenses, whichever is lower (f) Other Must not own more than 1 Must have been shifted to non-urban requirements residential house other than the area. See Notes 1 & 2 new asset on the date of transfer of original asset

CAPITAL GAINS - VARIOUS EXEMPTIONS DETAILS

54GA

Section (a) Kind of asset transferred (b) Eligible Assessees (c)

(d)

(e) (f)

Land or Building or any right therein or Plant or Machinery in Urban Area used for the business Industrial undertakings in urban area shifting to any Special Economic Zone. Condition of period of No period specified holding of original asset Condition of Acquire similar assets & incur expenses on shifting original utilisation of asset, within 1 year before, or 3 years from the date of consideration transfer Exempt Amount The amount of gain or the aggregate cost of new asset, and shifting expenses, whichever is lower Other requirements See Notes 1, 2, 3 and 4

TAX RATES FOR CAPITAL GAINS

for Individual, HUFs BOI, AOP, Firm LLPs Listed securities covered u/s. 10(36) Listed securities traded on recognized Stock Exchange not covered under 10(36) Listed securities not traded on recognized Stock Exchange without Indexation or with Indexation On any other asset Short-term Capital Gains On listed securities traded on recognized Stock Exchange or Unit of Equity Oriented Fund Others 15.45% 15.45% 16.61% NIL Corporates Income < 1 Crore NIL Corporates Income > 1 Crore NIL

NIL

NIL

NIL

10.30%

10.30%

11.07%

20.60% 20.60%

20.60% 20.60%

22.15% 22.15%

at applicable Slab Rates

at applicable Slab Rates

at applicable Slab Rates

NOTES

In case New Asset is transferred before 3 years from date of purchase/construction, the Capital Gains exempted earlier will be chargeable to tax in year of transfer of new asset. In order to avail the exemption, gains are to be reinvested, before the due date of return u/s 139(1). If the amount is not so reinvested, it is to be deposited on or before that date in account of specified bank/institution and it should be utilised within specified time limit for purchase/construction of New Asset.

NOTES

U/s 54F Capital Gains exempted earlier shall be chargeable to tax if a) If the assessee purchases within 2 years or constructs within 3 years any residential house other than the one in which reinvestment is made & b) If the new asset is transferred within a period of 3 years from the date of its purchase/construction. As per Section 54H, where the transfer is by way of compulsory acquisition, the period available for acquiring the new asset u/ss. 54, 54B, 54D, 54EC and 54F shall be computed from the date of receipt of compensation and not the date of transfer. If cost of new house is more than the net consideration of original asset, the whole of the gains is exempt. If cost of specified asset is less than net consideration, proportionate amount of the gains will be exempt i.e. Capital Gain X cost of New Asset/Net consideration on Sale of asset.

INCOME FROM OTHER SOURCES

TAX RATES (INCLUDES SURCHARGE AND EDUCATION CESS) FOR ASSESSMENT YEAR 2011-12

INDIVIDUALS/HUF/AOP/BOI

Income (Rs.) Up to 1,60,000 1,60,001-5,00,000 5,00,001- 8,00,000

Rate of Tax Nil 10.30 20.60

8,00,001 and above

30.90

FOR RESIDENT WOMEN (BELOW 65 YRS. OF AGE)

Income (Rs.)

Rate of Tax

Up to 1,90,000
1,90,001-5,00,000 5,00,001- 8,00,000 8,00,001 and above

Nil
10.30 20.60 30.90

FOR RESIDENT SENIOR CITIZEN (ABOVE 65 YRS. OF AGE)

Income (Rs.) Up to 2,40,000

Rate of Tax Nil

2,40,001-5,00,000
5,00,001- 8,00,000 8,00,001 and above

10.30
20.60 30.90

DEDUCTIONS FROM GROSS TOTAL INCOME & TAX LIABILITY