INCOME TAX SCENARIO IN INDIA

MONEY MATTERS CLUB Presents… November 2019, Edition The Financial Bulletin

FROM THE EDITORS

The Financial Bulletin Money Matters Club IBS, Hyderabad Est..—2005

For Editorial Enquiries Contact: Newsletter Coordinators: Bhavesh Gandhi: 91-9773171667 Prathyusha Reddy: 91-9618099459 Mahima Kumari: 91-9319823939 Rajat Jain: 91-9589588258 Faculty Coordinator: Dr. M.V.Narasimha Chary For Advertising Contact: Srishti Choudhary: 91-9830823222

Dear Readers, It gives us immense pleasure to come up with the November 2019 issue of Finance Bulletin successfully.

In this issue, we endeavor to give you a lucid understanding of the different types of Income taxes in India.

Happy reading!!!

Can we help?

For further inquiries, subscription and advertisement :

E-mail us @ mmcnewsletter1@gmail.com You can login to: www.moneymattersclub.org All rights reserved.

Money Matters Club, The Official Finance Club of IBS Hyderabad.

Visit us at for further information.

Bhavesh Gandhi Prathyusha Reddy Rajat Jain Mahima Kumari Newsletter Coordinators

Income From Salary Income from salary is the remuneration received by a person for the services provided by him under the contract of employment. This amount of remuneration will be considered as income for the purposes of the Income Tax Act only if there is an Employer and employee relationship between the person who is making the payment and the person who is receiving the payment. The salary for the purpose of calculation of income from salary includes: Wages, Pension, Annuity, Gratuity, advance Salary, fees, commission, perquisites, leave encashment etc.

Calculation of Income from salary Particulars

Amount

Basic Salary

—

Add:

—

1. Fees, Commission and Bonus

—

2. Allowances

—

3. Perquisites

—

4. Retirement Benefits

—

5. Fees, Commission and Bonus

—

Gross Salary

—

Less: Deductions from Salary

—

Standard deduction u/s 16 Entertainment Allowance u/s 16

—

Professional Tax u/s 16

—

Net Salary

—

Allowances • Dearness Allowance: The allowance is paid to the employees to cope with inflation.

• Entertainment Allowance: This is an allowance that is provided to the employees to reimburse expenses which are incurred on the hospitality.

• House Rent Allowance: It is the allowance that an employer pays to his employee for accommodation.

Perquisites Perquisites are those non-monetary payments which are received by an employee from the employer over and above the salary.

Perquisites that are taxable for all the employees: • Rent free accommodation • Club fee payments Perquisites that are exempt from tax: • Health Insurance Premium • Leave travel concession Deductions from salary • Standard deduction: The deduction from the Gross Salary would be Rs. 50000 or the amount of the salary, whichever is less.

• Entertainment allowance: Claimed only by a Government employee up to a maximum of Rs.5000.

• The amount of professional tax collected should not exceed Rs.2500 per annum.

By Yohan Batliwala

Income from Capital Gains Capital Gain Any gain arising from the transfer of a capital asset in the preceding financial year (known as “previous year”) is chargeable to income tax under the head ‘Capital Gains’ in the current assessment year.

Capital Asset It can be any property held by the income tax assessee (a person who is liable to pay income tax to the government) except for paintings, jewellery, items bought for personal use, items like raw materials and finished goods held for the purpose of business or profession, and agricultural land in rural India.

Short-term capital gain Gain arising on account of transfer of a capital asset that is held for not more than 36 months (12 months in case of shares and securities).

Long-term capital gain Gain arising on account of transfer of a capital asset that is held for more than 36 months (12 months in case of shares and securities).

Calculation and taxability of short-term capital gain Short-term capital gain= Net sale consideration- Cost of acquisition- Cost of improvement .

Taxability

Short-term capital gains on which securities transaction tax is not applicable are added to the assesse’s income and are taxed according to his/her individual income tax slab. Short-term capital gains on which securities transaction tax is applicable are taxed at 15%.

Calculation and taxability of long-term capital gain Long-term capital gain= Net sale consideration- Indexed cost of acquisitionIndexed cost of improvement of the asset

Indexed cost of acquisition/improvement= (Actual cost of acquisition/ improvement* CII of the year of sale of capital asset)/CII of the year of purchase of capital asset .

Taxability Long-term capital gains are taxed at 20% after indexation.

Illustration: Question- A house bought in 2014 for Rs. 30, 00,000 is being sold for Rs. 1, 00, 00,000 in 2019. Expenditure on repairs amounted to Rs 4,00,000. 1% brokerage is being charged for transacting the sale. Calculate the amount of tax to be paid by the assesses.

Solution- Holding Period= 5 years, Since the capital asset was held for 5 years from 2013-14 to 2018-19 (a period extending 3 years), the capital gain earned on selling the asset will be long-term in nature.

Sale price= Rs. 1,00,00,000 Cost of acquisition= Rs. 30,00,000 Cost of improvement= Rs. 4,00,000 Amount of tax to be paid=20% * Rs. 55,72,727 = Rs. 11,14,545 Particulars Sale Price

Amount (in Rs.) 1,00,00,000

Less: Brokerage paid

(1,00,000)

Net sale consideration

99,00,000

Less: Indexed cost of acquisition {30,00,000*280 (CII of 2019)/220 (CII of 2014)}

(38,18,182)

Less: Indexed cost of improvement {4,00,000*280 (CII of 2019)/220 (CII of 2014)}

(5,09,091)

Capital Gain

55,72,727

By Garima Suyal

Income from House Property What is house property?

A house property can be your home, office, shop, land, etc. All types of properties are taxed under the head ‘Income from House Property' under Income Tax. What is income from House Property?

Income from House Property covers the rent earned from the House property which is chargeable to tax.

The income from house property is added/ included in a person's (the assessee’s) gross total income only if it satisfies three essential conditions: • The assessee is the owner of that property.

• The property must consist of house, buildings and/or land.

• The property may be used for any purpose except used by the owner for the purpose of running his business or profession.

Types of House Property • Self occupied property: This is the property used for residential purposes.

• Let out property: This is the property given on rent or lease.

Calculation of Income from House Property

Note: As per the Income Tax Act if a person owns more than one property, only one of them will be self occupied property and the other will be treated as deemed let out property.

Illustration: Let us assume that we have a property and are charging Rs. 15,000 per month as rent. Let us also assume that you have paid Rs. 10,000 in municipal taxes for that year and have paid Rs. 50,000 as interest on borrowed capital.

Standard deduction (30% )

Income of House Property

Amounts (in Rs.)

Total annual rental income val- 15,000 x 12 = 1,80,000 ue Less: Municipal Taxes

10,000

>Net Annual Value (NAV)

1,70,000

Deductions under Section 24 (30%)

(51,000)

NAV

1,19,000

Interest on borrowed capital (if (50,000) applicable)

Income from House Property 69,000

By Aarushi Thakor

Profits and gains of business and profession According to the Income Tax Act 1961, the term business means any economic activity carried out for earning profits.

The term profession means those activities where the livelihood is earned by the people through their intellectual or manual skills.

The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession" under Section 28: •

The profits and gains of any business or profession which was carried out by the assessee (taxpayer) at any time during the current financial year popularly is known as the previous year.

•

Any compensation or other payment due to or received by any person.

•

Income derived by a trade, professional or similar association from specific services performed for its members.

•

The value of any non monetary benefit arising from business or profession.

•

Any interest, commission, salary, remuneration, or bonus due to, or received by, a partner of a firm from such firm.

Expenses allowed as deductions against profits and gains of business or profession are provided in section-30-37 which include the following: •

Rent, rates, taxes, repairs and insurance for building depreciation.

•

Expenditure on scientific research (deduction in respect of expenditure on specified business).

•

Amortization of incorporation expenses.

•

Discount on issue of zero-coupon bonds (no coupon is given).

•

Employer's contribution to National Pension Scheme.

•

Contribution towards approved gratuity fund (part of salary received by an employee as a retirement benefit for their work)

Method of Accounting for Computing Business Income has been specified under Section 145 which includes the following: •

Income is to be computed either based on cash system or accrual system of accounting regularly employed by the assessee (taxpayer).

•

The Central Government may notify in the Official Gazette from time to time, income computation and disclosure standards to be followed by any class of assessees or in respect to any class of income.

By Juhi Prasrampuria

Income from Other Sources Tax Income from Other Sources is one of the heads of income chargeable to tax under the Income Tax Act, 1961. Any income that is not covered as taxable in the other four heads of income is taxable under income from other sources’, because of this, it is known as the residuary heads of income.

All the incomes excluded from salary, capital gains, house property or business & profession (PGBP) are included in IFOS (Income from Other Sources), except those which are exempt under the Income Tax Act. The sections under the Income tax Act, 1961 are: Section 56- Incomes taxable only in Income from Other Sources are •

Dividend Income

•

Income earned from winning lotteries, crossword puzzles, races (including horse race), gambling or betting of any kind, it will be taxable at a flat rate of 30% which after adding cess will amount to 31.2%.

•

Money or movable/immovable property received with inadequate information or no consideration during the previous year.

•

Interest on compensation or enhanced compensation received.

•

Advance money received or money received in negotiation for the transfer of a capital asset.

Income Computation and Disclosure Standards:

Section 145 states that IFOS must be computed on the regular accounting methods followed by the assessee (taxpayer). It can be either a cash or mercantile system of accounting. The Central Government has notified Income Computation and Disclosure Standards to be followed while computing the income.

Section 57- Expenditures allowed as deductions •

Expenses incurred for the realisation of dividend or interest income.

•

Deductions to the extent amount remitted within the due date.

•

In the case of ‘Family Pension’, if the pension is collected on behalf of someone who is deceased, then it must be shown under IFOS and deduction is allowed to the extent of 33.33% of the pension or Rs. 15000 whichever is lower.

•

A deduction equal to 50% will be allowed for interest received on compensation or enhanced compensation.

Section 58- Deductions not allowed while computing taxable income •

Personal expenditure.

•

Interest or salary payable outside India without TDS deduction.

•

Wealth tax

•

Expenditures concerning winnings from lotteries, crossword puzzles, races, and gambling, etc.

Some other areas covered in IFOS are: Reporting Fixed and Recurring Deposit •

If a person has three FDs open, then all the interest incomes are added up and entered under ‘Other interest income’.

•

When interest income including recurring deposits, exceed Rs.10, 000 in a financial year, a 10% tax on interest earned will be deducted and shown under income from other sources.

Exempt Income and Income from savings account •

The PPF and EPF amount you withdraw after maturity is exempt from tax.

•

Interest that gets accumulated in a person’s savings bank account must be declared in his tax return under income from other sources.

By Tanuja Gupta

CBI Involvement CBI after filing the case against Vikram Kothari, his wife and son, and also on some bank officials started its investigation and carried a raid on the home and offices of Our monthly Newsletter– The Financial Vikram Kothari and then arrested Vikram Kothari.

Enforcement DirectorateBulletin (ED) has also filed criminal charges onisVikram Kothari under of Money Business Laundering circulated and readPrevention by all prestigious Act.

Schools, Corporates and Faculties since last 15

Analysis

years and our mission is to inter-nationalize it

Rotomac cheated the consortium soon. of banks by siphoning off bank loans. No genuine business transaction were being carried out. The company submitted false and forged documents.

If you wish to subscribe to our monthly Newsletter and Financial Bulletin, kindly visit our website and subscribe. www.moneymattersclub.org

THE FINANCIAL BULLETIN MONEY MATTERS CLUB OFFICIAL FINANCE CLUB OF IBS-HYDERABAD