Accounting Examples
Accounting Examples
UNIT 1
Income From Business
Learning Objectives
After studying this unit, the student will be able to
Understand about admissible expenses and inadmissible expenses
Understand about admissible income and inadmissible income
Learn about actual profit or loss of the business
Learn about chargeble expenses under the head of business
Introduction
In the assessment of total income of an assessee, computations of
income from business become most important. Major part of income of an
assessee especially in the case of large organizations like firms and companies
comes from this head Income Tax Act has made elaborate arrangements for
the computation of income from business as there is a greater danger of
manipulating accounts by assessee.
Meaning (Section 2(13))
Business includes any trade, commerce or manufacture or any adventure
or concern in the nature of trade, commerce or manufacture. Trade implies
buying goods and selling them to make profit. If such transactions are carried
out on large scale, it is called commerce this business means rendering of
services to others, manufacturing, selling and purchasing goods.
Paper - III Taxation - II 219
If the asset is sold without having been used for other purposes, the sale
proceeds or deduction allowed whichever is less is treated as business income
if the previous year in which the sale took place. The excess of sale proceeds
over deduction allowed however is taxed as capital gain.
(v) Contribution of National Laboratory [Sec.35 (2AA)]: Any
amount paid to any national laboratory will get a weighted deduction of 175%.
National Laboratory means a scientific laboratory functioning at national level
under the ageis of the Indian Council of Agricultural Research, Indian Council of
Medical Research or Council of Industrial and Scientific Research, the Defense
Research and Development Organization, the Department of Electronics, the
Department of Bio-Technology, or the Department of Atomic Energy and which
is approved by the prescribed authority for this purpose.
(vi) Any amount of expenditure incurred upto 31-3-2012 on scientific
research by a company engaged in the business of bio-technology, drugs;
pharmaceutical, electronic equipments, computers, telecommunications etc. will
get a weighted deduction of 200% (sec. 35 2AA).
(vii) Contribution to research & Development: Sec. 35 2 AB
provides for weighted deduction at the rate of 125% in respect of contribution
made to IIT, approved university college etc., towards research activities. This
weighted deduction is in addition to the special benefit available to a person for
inhouse research. In case of Biotechnology, Drugs Pharmaceutical companies
a weighted deduction of 200% is allowed.
6. Expenditure incurred on acquisition of patent rights or copy
rights (sec. 35A): Where capital expenditure is incurred by the assessee (after
1966 but before 1-4-1998) on the acquisition of patent rights, copying for the
purpose of business, the whole amount is deductiable in 14 equal instalments.
Where the right became effective in any year prior to the previous year in which
expenditure is incurred, the number of completed years which have elapsed
since commencement of the patent shall be reduced from 14 years and the
deduction is allowed in remaining years. In the case of patent rights acquired on
or after 1-4-1998, the expenditure incurred on the acquisition of such rights
shall be capitalized and depreciation u/s 32 is allowed.
7. Expenditure incurred on Technical know-how (Sec.35 AB) : Any
sum paid before 1-4-1998 on the acquisition of technical know-how for use for
the purpose of his business will be allowed as deduction by spreading it equally
over six years, namely, the year in which the lump-sum consideration is paid and
the five immediately succeeding years. Where the knowhow is developed in a
government laboratory, or a laboratory owned by a public sector company or
Paper - III Taxation - II 225
university, the consideration will be spread over 3 years. But the know-how
acquired after 1-4-1998 will be treated as capital expenditure and will be
depreciated u/s 32.
8. Capital expenditure to obtain licence to operate
telecommunication services (Sec. 35 ABB) : Any capital expenditure incurred
and actually paid by an assessee on the acquisition of any right to operate
telecommunication services by obtaining licence will be allowed as deduction in
equal instalments over the period starting from the year in which such payment
has been made and ending in the year in which the licence comes to an end.
9. Expenditure on eligible project or scheme (Sec. 35 AC) : 100%
deduction will be allowed from business income in respect of expenditure incurred
for an eligible projector scheme. Eligible project or scheme means such project
or scheme which is meant for promoting social and economic welfare or uplift
of the public as may be certified by the Government of India on the
recommendation of National Committee Constituted by Central Government
consisting of persons of eminence in public life.\
10. Payment of Rural Development Fund ( Sec.35 CCA) : Any
sum paid to Rural Development Fund set up and notified by the central
Government is fully deductible. This section applies to the National Poverty
Eradication Fund also. But once this deduction is claimed and allowed u/s 35
CCA, the same is not allowed as a deduction under any other provision of this
Act.
11. Amortization of preliminary expense (Sec .35 AD) : Where
any Indian Company or resident non-corporate assessee incurs after 31st March
1998 any preliminary expenditure, the assessee shall be allowed a deduction of
an amount equal to one-fifth of such expenditure of each of the five successive
previous years beginning with the previous year in which the business commences.
Expenses incurred before 1-4-1998 are to be spread over 10 years preliminary
expenses include: expenditure in connection with the preparation of feasibility
report, project report conducting marketing survey, engineering services, legal
charges for drafting agreements, Memorandum of Association, Printing of
Memorandum of Association and registration expenses. The maximum amount
eligible for deduction under this section shall not exceed 5% of the cost of the
project. But in the case of Indian companies, it is at the option of the company,
whether 5% of cost of the project or 5% of the capital employed in the business
of the company.
12. Expenditure for amalgamation or demerger of an undertaking
(sec. 35 DD) : Where an Indian Company incurred expenditure after 31-3-
226 Accounting and Taxation
Under Valuation
100
Value of the stock given x
100 - Rate
Illustration:1
How will you deal with the following while computing profits and gains
of business ?
(a) Salary paid to proprietor A 15,000.
(b) Commission paid to X A 5,000 for securing business orders.
(c) Loss due to embezzlements by an employee A 10,000.
(d) Registration expenses of business asset A 20,000.
(e) Amount paid to keep the competitor away from the business
A 25,000.
Solution
(a) Salary paid to proprietor -- disallowed
(b) Commission paid to secure business order in the normal course of
business -- allowed.
(c) Loss due to embezzlement by an employee is incidental to the business
-- allowed.
(d) Registration expenses of a business asset is a capital expenditure
-- not allowed
(e) Amount paid to keep the competitor away is in order to increase
the earning capacity is a capital expenditure -- not allowed.
Illustration 2
State, with reasons, whether the following are allowed as deductions
under the Income Tax Act 1961.
(i) Re-roofing expenses of the factory in place of worn-out asbestos
sheets A 10,000.
(ii) Contribution paid to Government to repair to Government to repair
the approach road to factory A 40,000.
(iii) Amount deposited in staff welfare Fund A 10,000.
(iv) Legal expenses for drafting the deed of agreement A18,000.
(v) Commission paid on raising the loan A 12,000.
(vi) Goods stolen by pretended customer A 16000.
234 Accounting and Taxation
Solution
(i) Re-roofing expenditure in place of worn-out sheets is a non recurring
expenditure not resulting in current repairs -- not allowed.
(ii) Contribution paid to Government to repair the approach road to
factory -- allowable expenditure.
(iii) Deposit of staff welfare fund -- inadmissible.
(iv) Legal expenses for drafting deed of agreement is a capital expenditure
covered u/s 35 D -- not allowed in full.
(v) Any expenditure incurred on raising loans -- Allowed
(vi) Loss on theft during the normal business hours -- allowable
Illustration: 3
State the admissibility of the following items of expenditure in computing
business income of an assessee.
(a) Donations to PM National Relief Fund A 80,000.
(b) Amount spent on the construction of recreation club for the exclusive
use of employees A 1,20,000.
(c) Loss of stock by white ants A 6,000.
(d) While proceeding to deposit the daily proceeds of a business in the
bank by the cashier, the cash of A 80,000 was stolen by stranger.
(e) Compensation of A 50,000 was paid to a retrenched employee
whose continuation in service was detrimental to the interest of the
business.
(f) Lump sum consideration paid for acquiring technical know-how on
20-4-05 A 60,00,000.
(g) Legal charges paid to defend a criminal paid to defend a criminal suit
pending against the proprietor Rs,22,000.
Solution:
(a) Donations to PM National Relief Fund is inadmissible
(b) Amount spent on the construction of recreation hall is a capital
expenditure -- not allowed.
(c) Loss of stock by white ants is an allowable loss
Paper - III Taxation - II 235
Solution:
Computation of Business Income of
Raj kumar for the A.Y. 2013-14.
Rs. (A) Rs.(A)
Balance as per Profit and loss Account 3,56,000
Add : Inadmissible Expenses
Provision for bad debt 150,00
Life insurance premium 2,000
Interest on capital 5,000
Depreciation taken separately 25,000 47,000
4,03,000
Less : Inadmissible Income
Rent received 30,000
Expenses not charged to P&L A/c
Depreciation 30,000 60,000
Business Income 3,43,000
Illustration : 2
Mr. Ashaaz gives you the following particulars from his accounts for the
year ended 31-3-2013.
Rs. (A)
Net Profit as per P&L A/c 2,50,000
Various items debited to P&L A/c
Staff Salaries 40,000
Rent to proprietors house 10,000
Charity 8,000
Depreciation 40,000
Legal expenses 10,000
Paper - III Taxation - II 237
Notes:
1. Scientific research expenses paid to any approved institution deduction
at 125% of the payment.
2. Refund of sales tax, rent from staff quarters are considered as business
incomes.
3. Sales tax is deductible on payment basis.
Problem 1.
The profit and loss account of Sri. Prasad for the year ended 31.3.2013
showed the following particulars :
Rs.
(a) Profit as per P&L A/c 2,40,000
(b) Salary to Proprietor 60,000
(c) Advertisement expenses 14,000
(d) house hold expenses 16,000
Paper - III Taxation - II 239
Additional information:
1. Allowable depreciation A 40.000.
2. Gifts were given to relatives.
[Ans: A1,73,000]
Problem 3.
Sri Harsha is the proprietor of a general store and has prepared the
following profit and loss a/c. for the year ending 31st March, 2013. Compute
income from business for the A.Y.2013-14.
Other information:
1. Depreciation as per section 32 amounts to A 22,000.
2. Rent A 40,000 was paid to the building owned by the proprietor.
3.Donations are recognized u/s 80 G of the IT Act 1961.
4. Legal charges are in relation to a trade dispute.
5. General expenses include A10,000 not allowed u/s 37.
[Ans: A 2,01,000]
Problem. 4
Shri Ram Mohan is the proprietor of a business. His profit and loss
account for the year ending 31st March,2013 is as follows.
Dr. Cr.
To Salaries and wages 62,000 By Gross profit 5,62,800
To Rent, rates and taxes 28,000 By Rent from house
property 31,200
To General charges 10,000
By Interest on govt. 20,000
To Commission 2,000 securities
To Discount 3,000 By Interst on debtors
10,000
To Brokerage 5,000 By Bad debts recovered
26,000
To Legal expenses 15,000
To Advertising 18,000
To Gift and present 12,000
To Bad debt written off 10,000
To Provision of bad debts 15,000
To Loss on sale of machinery 10,000
To Depreciation 40,000
To Wealth tax 10,000
To Life insurance premium 8,000
To Net profit 4,02,000
6,50,000 6,50,000
Table on page no 296.
242 Accounting and Taxation
Other Information:
1. Allowable depreciation A 66,000.
2. Brokerage is paid for raising a commercial loan.
3. Commission was paid to finalize a commercial loan.
4. Bad debts recovered were disallowed earlier.
5. Advertising expenses incurred for insertions in a magazine released
by a political party.
Compute business income for the A.Y.2013-14.
[Ans: A 3,73,800]
Problem 5
From the Profit and Loss Account Mr. Samuel for the ending 31 st
March 2013. Find out his business income.
Dr. Cr.
To Office Expenses 40,000 By Gross profit 4,60,000
To General expenses 10,000 By Interest on B.deposit 40,000
To Interest on loan 5,000 By Discount 5,000
To Interest on capital 15,000 By Sundry receipts 15,000
To Audit fee 8,000 By Bad debt recovered 20,000
To Rent 20,000 By Refund of sales tax 5,000
To Income tax 6,000 By Dividend 10,000
To Charity 4,000
To Legal expenses 4,000
To Compensation to worker 12,000
To Wealth tax 10,000
To Sales tax 8,000
To Net Profit 4,13,000
5,55,000 5,55,000
Paper - III Taxation - II 243
Other information:
1. General expenses include the purchase of office equipment costing
A8,000.
2. Legal expenses are in relation to income tax proceedings.
3. Rent includes A 10,000 paid as rent of the house in which the
assessee lives.
4. Depreciation on all assets amount to A 14,000.
5. Sales tax paid was in relation to the year 2011-12
[Ans: A 4.02,000]
Problem 6 6
From the below given information compute business income of
Mr.Kishore for the A.Y. 2012-13.
Dr. Cr.
To Salaries 10,000 By Gross profit 1,72,000
To Household expenses 5,000 By Dividends 10,000
To Charity 10,000 By Interest on debtors 10,000
To Wealth tax 10,000 By Commission 15,000
To Donations 15,000 By Bad debts recovered 10,000
To Income tax 7,000
To Bad debts 3,000
To Provision for bad debt 2,000
To Discount 3,000
To Interest on capital 15,000
To Depreciation 12,000
To Fire insurance 1,000
To Life insurance premium 4,000
To Travelling 6,000
To General expenses 14,000
To Net Profit 1,00,000
2,17,000 2,17,000
244 Accounting and Taxation
Further information:
1. Allowable depreciation A16,000.
2. General expenses include A 4,000 spent on rectifying the defective
title of a business asset.
3. Travelling expenses include A 5000 spent on pleasure trip of the
proprietor.
4. Donations are paid to an approved institution.
5. Bad debts recovered were disallowed earlier.
[Ans: A1,53,000]
Short Answer Type Questions
1. Define business.
2. Mention any four disallowed expenses
3. Mention any four disallowed incomes.
4. Write any expenses allowed under the heads of Income from business.
UNIT 2
Income From Profession
Learning Objectives
After studying this unit, the student will be able to
Understand about professional incomes
Understand about profession expenses
Learn about non professional income and expenses
Learn about net professional income
Introduction
A profession is an occupation requiring either purely an intellectual skill
or manual skill controlled by the intellectual skill of the operator e.g. medicine,
law, engineering, auditing, painting, etc. All professions are business but all
businesses are not profession. Only those businesses or professions where the
profits are dependent mainly upon the personal qualifications and in which no
capital expenditure is required or only capital expenditure of a comparatively
small amount is required. Profession includes vocation also u/s 2 (36).
Computation of professional income
As has been discussed earlier, profession means all such human activities
which require human skill and technical expertise. A doctor or a lawyer or an
arhitect or a chartered accountant are the persons who, if not working with any
employer, practice independently to earn their living. These include many people
like beauticians, musicians, magicians, artists, etc.
246 Accounting and Taxation
Illustration: 1
Dr. Rama Swamy a medical practitioner gives you the receipts and
payment account for the year ending 31st March 2013.
Receipts and payments account
for the year ending 31-3-2013
Receipts Rs.(A) Payments Rs. (A)
To Opening balance 40,000 By Dispensary expenses 60,000
To Consultation fees 80,000 By Staff salaries 40,000
To Interest 20,000 By Books and journals 10,000
To Dividends 10,000 By Donations 10,000
To Rent 40,000 By Income tax 12,000
To Gifts from patients 20,000 By Surgical equipment 18,000
Paper - III Taxation - II 249
3,88,000 3,88,000
Other Information
1. Allowable depreciation (including on surgical equipment) A 18,000.
2. Gifts include A 12,000 received from his father.
3. Travelling expenses include A 8,000 incurred on his pilgrimage trip to
Tirupathi.
4. Salaries paid included an amount of A 10,000 paid to his domestic
servant.
5. Closing stock of medicines A 18,000.
Compute professional income of Mr. Rama swamy
for the A.Y 2013-14
Illustration : 2.
Below given is the Income and Expenditure A/c of Mr. Anuroop, an
advocate by profession, for the year ended 31-3-13
Income and Expenditure Account
Expenditure Rs.(A) Income Rs. (A)
To Office Expenses 60,000 By Legal fees 1,20,000
To Staff salaries 40,000 By Rent received 80,000
To Rent 30,000 By Dividends 20,000
To Printing & Stationery 10,000 By Bank interests 40,000
To Courtfee & Stamps 12,000 By Special commisison
fees 40,000
To Municipal taxes of the 4,000
property let By Gifts from clients 24,000
To Shares purchased 30,000 By Examiners fees 46,000
To Income tax paid 6,000 By Insurance claim 40,000
To Life Insurance Premium
paid (On own life) 8,000
To Books and Journals 12,000
Paper - III Taxation - II 251
4,10,000 4,10,000
Other Information :
1. Closing Stock of court stamps A 1,000
2. Rent paid includes A 10,000 in relation to his residence.
3. Stock of stationery A 2000.
Compute professional income of Mr. Anuroop for A.Y. 2013-14.
Solution : Computation of Professional Income of Mr. Anuroop
for the A.Y 2013-14
Illustration 3
From the following information computer professional income of
Mr. Pandit, a practicing chartered Accountant.
3,36,000 3,36,000
Other Information
1. Gifts include A18,000 received from his relatives on the occasion
of his birthday celebration.
2. Closing stock of stationery A 2,000
3. Travelling expenses include A 4,000 in relation to his pleasure trip to
Ooty.
Paper - III Taxation - II 253
Solution
Computation of Professional Income of Mr. X
for the A.Y. 2013-14
Professional Receipts Rs. (A) Rs. (A)
Exercise
Mr. A is a Medical practitioner. The following is the receipts and
payment account for the year ending 31-3-2013. Compute his professional
income.
Receipts and Payments Account
Dr. Cr.
To Opening balance 82,000 By Dispensary expenses 42,000
To Consultancy fees 88,000 By Staff salaries 40,000
3,42,000 3,42,000
Other information
1. Gifts include A 12,000 received from his father in-law.
2. Stock of medicines on 31-3-2013 A 6,000.
3. 25% of motor car use is for domestic purpose.
4. Depn. On Surgical equipment @ 15%
[Ans: A 63,000]
Problem 2. Murali, a practicing chartered accountant submits you the
following income and expenditure account for the year ended 31st march 2013.
Compute his professional income.
Dr. Income and Expenditure Account Cr.
Expenditure Rs.(A) Income Rs. (A)
To Office rent 40,000 By Audit fees 90,000
To Office expenses 20,000 By Accountancy works 40,000
To Staff salaries 30,000 By Rent from property 20,000
To Books and journals 6,000 By Dividends 10,000
To Insurance (let out house) 40,000 By Interest on bank
deposit 22,000
To General expenses 10,000
Paper - III Taxation - II 255
2,65,000
2,65,000
Additional information
1. Gifts worth A 6,000 received from relatives.
2. Closing stocks stationery A 2,000
3. Salaries include A 10,000 paid to domestic servant.
[Ans: A 67,000]
Problem 3
Shri Ajay is a leading layer in Hyderabad. He has prepared the following
Income and Expenditure Account for the year ending 31st March, 2013. Compute
his professional income.
Dr. Cr.
Expenditure Rs.(A) Income Rs. (A)
To Office rent 40,000 By Practicing fees 3,40,000
To Office salaries 30,000 By Special commission fee 60,000
To Telephone expenses 10,000 By Rent on house proprety 40,000
To household expenses 15,000 By Bank Interest 10,000
To Charity 10,000 By Dividends 20,000
To Income tax 6,000 By Examiners Fees 30,000
256 Accounting and Taxation
Other information:
1. 50 per cent of motor car use is towards domestic purpose.
2. Charity is given to Ramakrishna mutt, Hyderabad.
3. Half of the premises where profession is carried on is used for own
residence.
4. Gifts include A 6,000 from friend and well wishers.
[Ans: A 3,36,000]
Problem 4
X is a leading tax consultant, who maintain his books of account on
each basis furnishes the following particulars for the year ending 31st march,2013.
Receipts and Payments Accounts for the year ended 31-03-2013
Receipts Rs.(A) Payments Rs. (A)
Balance b/d 16,000 Purchase of computer 30,000
Fees from clients Car expenses 20,000
2010-11 40,000 Office expenses 10,000
2011-12 1,60,000 Salary to staff
Gifts from clients 20,000 2010-11 12,000
Paper - III Taxation - II 257
2,46,000 2,46,000
Notes:
1. Depreciation on computers 60 %
2. Depreciation on motor car A 10,000. Car is used partly for official
and partly for private purposes. The A.O. felt that 40 % of cars use
in attributable to private purpose. Compute professional income for
the Assessment Year 2013-14.
Problem 5
Mr.X a practicing Chartered Accountant submits you the following
information. Compute Professional Income.
Receipts and Payment A/c for the year 31-03-2013
7,50,000 7,50,000
Additional information:
1. Gifts include A 10,000 received from parents.
2. Closing stock of stationery A 5,000
3. Salaries include A 20,000 paid to domestic servants.
4. General expenses include A 8,000 as charity paid to poor students.
[Ans: A 68,000]
Short Answe rType Questions
1. Define profession.
2. Mention any four professional incomes to the dcotor.
3. Mention any four professional incomes to the chartered accountant.
4. Mention any four professional income to the lawyer.
5. Mention any four professional expenses.
6. Write briefly differences between business and profession.
UNIT 3
Income from Capital Gains
Learning Objectives
After studying this unit, the student will be able to
Understand about Capital gain
Understand about long term capital gain
Learn about cost of acquisition
Learn about taxable capital gain
Capital Gains is the fourth head of income. Under this head of income
we study the computation and taxability of gain arising from the sale or transfer
of capital assets. For the first time income was made chargeable to tax in
1947-48. This charge was abolished from 1-4-1948. But it was revived from
the assessment year 1957-58 and has continued since then. The taxability of
income under this head depends upon the following factors:
1. Capital asset
2. Nature of capital asset
3. Sale or transfer of capital asset.
Basis of charge [Section 45]
Any profit or gain arising on the transfer of a capital asset [ Sec.2 (14)]
is chargeable to tax under the head Capital Gains in the previous year in which
the transfer tool place (Sec. 45), if it is not eligible for exemption under Sections
54,54B,54D,54EC,54F,54G,54GA and 54H. Incidence of tax on capital gains,
260 Accounting and Taxation
e.g. Adding one more room to the existing structure in a building, betterment
charges paid to the Municipal Corporation etc.
Expenses incurred by the assessee or previous owner before 1-4-81 is
to be ignored completely. If he assessee has not opted for F.M.V. on 1-4-81 as
the cost of acquisition then also the expenses are to be ignored.
Summary for calculating indexed cost of acquisition:
1. For all long tern assets except the debentures and Bonds indexed
cost of acquisition and indexed cost of improvement are to be calculated.
2. For Debentures and Bonds, even if they are long term capital assets
indexed cost of acquisition shall not to be calculated. It means to determine the
income from capital gain cost of acquisition is not to be considered.
3. For short term capital assets indexed cost of acquisition is not to be
calculated.
4. If assets are used by the assessee in the business, which are subject
tp depreciation even if the period of holding is more than 3 years then the gain
on transfer of such assets is always treated as short term capital gain.
Components for calculating Capital Gain The following are the
components to compute either long term of short term capital gain.
(1) Consideration (2) Transfer Expenses (3) cost of acquisition
(4) Cost of improvement.
Capital gain on Financial Assets:
According to Income Tax Act shares, debentures, Government
Securities, bonds and units of mutual funds are known as financial assets. These
financial assets may be listed or unlisted. If the financial assets are held by the
assessee for a minimum period of one year on the date of transfer then they are
considered as long term capital asset i.e. if they are held for less than one year
period then they are considered as short term capital assets.
Note: If bonds and debentures are long term capital assets even then
indexation is not made i.e. for ascertaining long term capital gain indexed cost of
acquisition is not to be calculated.
Long term capital gain- for Securities /shares etc. Sec 112
According to Sec 112 an assessee is having an option to pay tax @
20% (with indexation) or @ 10% without indexation.
Paper - III Taxation - II 263
1. If the Original shares are 1. The higher of the following two amounts
acquired before 1-4-1981. is the cost of acquisition.
(a) Actual cost of the share
(b) Fair Market Value on 1-4-1981.
2. If the original shares are 2. Actual amount paid for acquiring the
acquired after1-4-1981. shares is the cost of acquisition.
3. If the Bonus Shares are allotted 3. The Fair Market Value of the Shares on
before 1-4-1981. 1-4-1981 is the cost of acquisition.
(4) If the new asset is transferred before the stipulated period then the
exemption availed earlier gets cancelled. The same amount shall be reduced
from the cost of acquisition of the new asset to compute capital gain of the
newly purchased asset.
Date of transfer [Section 2 (47)]
A transfer does not take place merely because an agreement has been
entered into or consideration is paid there under in whole or in part. The word
effected in the previous year in section 45 denotes that the title in the property
has passed from the transferer to transferee. No transfer can be said to be
effected till all the formalities for transferring the title to the transferee are
completed.
Computation of Capital Gains [Section 48]
Computation of capital gain depends upon the nature of capital asset
transferred viz., short -term capital asset or long term capital gain while the
gain arising from the transfer of long-term capital asset is known as long-term
capital gain.
Short term capital gain or loss shall be computed by deducting the
following amounts from the full value of sale consideration.
(i) Expenses incurred in connection with the transfer or sale of asset
(i.e.,selling expenses)
(ii) Cost of acquisition of asset.
(iii) Cost of improvement of the asset.
Long term capital gain or loss shall be computed by deducting out of full
value of sale consideration the following amounts:
(i) Expenses included in connection with the transfer or sale of asset
(selling expenses)
(ii) Indexed cost of acquisition of the asset.
(iii) Indexed cost of improvement of the asset.
Method of computation of Income From Capital Gain is as follows:
266 Accounting and Taxation
Illustration 1.
Mr. Ranga Rao is holding the agricultural lands in Delhi since 1970.
The FMV on 1.4.81. is at A 50,000; on 3rd Jan 2013, he sold the lands for
A 6,00,000 and paid brokerage for selling the lands A 10,000. On Feb., 2013.
He entered into a agreement to buy agricultural lands in a village and paid
A 50,000 as advance, and on the same day he deposited A10,000 in a
nationalized bank under capital gain scheme. Compute capital gain for the current
assessment year (CII for the year 2012-13=852)
Solution Computation of Mr Ranga Rao Income from Capital gain
for the A.Y. 2013-14.
Illustration. 2
Mr X owns a building using for commercial purpose. He purchased
the building for A 2,00,000 in 1982-83. During the previous year relevant to
the current assessment year through an order the Government has acquired this
building and paid A 20,00,000 as compensation, Immediately he acquired a
piece of land for A 3,00,000 and spent A 2,00,000 on construction and deposited
A 1,00,000 in the public sector bank under capital gain scheme. Compute
capital gain, if cost inflation index for 1982-83 is 109 and for 2011-12 it is 785
Solution
Computation of Mr. Xs Income from Capital Gain
for the Assessment Year 2013-14
Illustration 3.
X purchased a building for A 3,00,000 on August 31, 1988. On 1st
October, 1992, he spent A 80,000 to add 3 more rooms. During the previous
year relevant to the current assessment year, building is sold out for A 25,00,000.
He invested A 2,00,000 in the specified bonds within 3 months from the date of
transfer. (CII for 1988-89 is 161; for 1992-93 is 223;for 2011-12 is 785).
Compute the income from capital gain.
268 Accounting and Taxation
Solution
Computation of Mr Xs Income from Capital Gain for the Assessment
Year 2013-14
Sales consideration 25,00,000
Less : Selling Expenses 50,000
Net Consideration 24,50,000
A 3,00,000 x 852
Less : Indexed cost of acquisition = 15,87,578
161
A 80,000 x 852
Less : Indexed cost of improvement = 3,05,650
223
Capital Gain 5,56,772
Less : Exempted u/s 54B (A 2,00,000 or LTCG w.e.l) 2,00,000
Taxable long term - Capital Gain 3,56,772
Illustration 4
Mr.Murali Manohar purchases 1000 equity shares of Tata Steels Ltd.
at A 1000 per share on 1st April 1975. He was allotted 200 bonus shares on
31st March 1980. During the previous year relevant to the current assessment
year. He sold 500 equity shares and 200 bonus shares at A 1500 per share.
FMV on 1-4-81 was A 160 per share. Compute capital gains.
Computation of Mr. Murali Manohars Income from Capital Gains
for the Assessment Year 2013-14
Original Shares
Sales consideration (500 x A 1500) 7,50,000
Less : Indexed cost of acquisition 500 x 160 x (852/100) 6,81,600 6,84,00
Bonus Shares
Sale consideration (200 x A 1500) 3,00,000
Less : Indexed cost of acquisition = 200 x 160 (852/100) 2,72,640 27,360
Long-term Capital Gain 95,760
Paper - III Taxation - II 269
Notes :
1. Bonus shares and rights shares are long term capital assets (period of
holding is more than 12 months)
2. Cost of acquisition of Bonus shares and rights shares: Both shares
were held by the assessee, before 1-4-81 hence cost of acquisition would be
actual cost of FMV whichever is higher.
Cost of Indexing
Financial Year C.I.I Financial Year C.I.I
1981-82 100 1997-98 331
Residential
house property 1-4-1979 1,25,000 FMV 30-06-12 15,40,000 40,000
A 1,60,000
Urban
Agricultural land 30-09-96 2,40,000 01-02-13 18,20,000 20,000
Shares of X Ltd. 31-12-08 1,20,000 01-07-12 4,80,000 5%
House hold
Furniture 30-09-92 2,40,000 01-06-12 60,000 --
272 Accounting and Taxation
3. Less-tax securities
Securities
Listed in Unlisted in
Stock Exchange Stock Exchange Listed in Unlisted in
Stock Exchange Stock Exchange
Securities Exempt from Tax
According to Section 10 (15) interest on these securities is fully exempt
from tax and does not form part of total income of an assessee. In other words,
it is not taken into account in computing total income. Under section 10 (15)(i)
the Central Government by notification specifies these securities, bonds etc.
The following are the securities which are exempt from tax:
1. 12 year National Savings Annuity Certificates
2. National Defense Gold Bonds 1980
3. Special Bearer Bonds 1991.
4. Treasury Savings Deposit Certificates
5. Post Office Cash Certificates (5years)
6. National Plan Certificates (10 years)
7. National Plan Savings Certificates (12 years)
8. Post Office National Savings Certificates (12 Years/7 years)
9. Post office Savings Bank (POSB) Account.
10. Public Accounts of Post Office Savings Account Rules
11. Post Office CTD (Interest upto A 5,000)
12. Fixed Deposit
278 Accounting and Taxation
Grossing up
Interest received by the assessee is net interest and the same is to be
converted into gross interest. This practice is known as grossing up.
When face value of securities and rate of interest is given for government
securities (tax free). Less tax government securities, less-tax commercial
securities no grossing up is required.
But incase of tax free commercial securities even if face value and rate
of interest is given compulsory grossing up shall be done.
When interest amount (net) is given in the problem, interest on all securities
(except tax free government securities) must be grossed up.
Grossing up is required in the case of the following securities.
(i) 8% saving (taxable) bonds, if the amount of interest payable exceeds
A 10,000
(ii) Tax free commercial securities
(iii) Less Tax commercial securities.
Grossing up Procedure (Tax free Commercial Securities)
a. If the tax free commercial securities are listed in the stock exchange
(same rate)
100
Gross interest = Net interest x
90
b. If the tax free commercial securities are unlisted in the stock exchange:
Gross interest= Net interest x 100
90
Illustration : 1
Mr. X invested A 1,00,000 in 8% tax-free debentures of a company.
What will be his taxable interest for the previous year 2012-13
i. If securities are listed in the stock exchange.
ii. If securities are not listed in the stock exchange.
Solution:
Net interest = Face Value of investment x Interest Rate
Paper - III Taxation - II 281
= 1,00,000 x 8% = A 8,000.
Grossing up
In case of listed tax-free commercial securities:
100
Gross interest = Net interest x
90
100
= 8,000 x = A 8,889.
90
Less-Tax Securities
This is the most common form of security. Out of the amount of interest
due to security-holder, tax has to be deducted by the issuing authority before
making payment of interest to the security holder. The interest received by the
assessee in net interest and the same is to be grossed up and is to be included in
the total income. These securities can be issued both by the government and
commercial Authorities.
There can be two types of problems. They are:
(a) When rate of interest and face value of security is given (both in
Government and Commercial securities)
Rate
Gross interest = Face value of security x
100.
Notes:
1. If the nature of the security is not mentioned in the problems, then the
general assumption is that the security is of less-tax and unlisted nature.
2. Grossing up should be done if the net interest is more than Rs.2500.
3. In the case of tax free Government security, interest need not be
grossed up.
Deductions (Sec.57)
The following deductions are allowed in computing the income from
other sources.
1. From interest on securities and dividends [Sec.57 (i)]
In respect of interest on securities and dividends any reasonable
expenditure incurred by way of commission on remuneration to broker or to
any other person for realization of such incomes is deductable and any interest
on loan taken for purchase of such investment is also allowed as deduction.
Broadly the amounts deductible can be classified into (a) collection
charges (b) Interest on loan taken to purchase the securities. Not only the
interest paid but also interest due is allowed as deduction.
Winning from lotteries, Crossword puzzles, Horse races and Card games
etc. [Sec 56 (2) (1b)]
Winning from lotteries, crossword puzzles, races including horse races,
card games and other games of any sort or from gambling or betting or any form
or nature whatsoever is taxable under section56 under the head Income from
other sources.
Income from lottery winning, crossword puzzle and horse race winning
in subject deduction of tax at source. Tax at source is to be deducted when
winning exceed A 10,000. Hover, in the case of winnings from horse races, tax
deducted at source when the amount of winning exceeds A 5000.
In computing the taxable income from winning by way of lottery,
crossword puzzle, races including horse races. Card games and other games.
Gambling and betting etc., no deduction is allowed in respect of any expenditure
Paper - III Taxation - II 283
Interest Rate
Face value of security x
100
Interest Rate
Net interest = Face value x
100
100
Gross interest = Net interest x
90
4. Interest on less-tax Government securities xxx
Illustration: 1
Sharma held the following investments:
(a) A 90,000 10 % (Tax-free ) debentures of listed company
(b) A 50,000 12% (Tax-free) Punjab Government Loan
(c) A Collection charges A 2000.
Compute his income from interest on securities for the year ending 31-3-2011.
Solution
Computation of Mr. Sharmas Income from Interest on Securities
for the Assessment Year 2013-14
(a) 90,000 - 10% (Tax free) Debentures (listed) 10,000
A 90,000 x 10
90,000 x 10% =
90
(b) 50,000 - 12% (Tax free) Punjab Government loan:
50,000 x 12 % = A 60,00 6,000
Gross Interest 16,000
Less : Deduction u/s 57
Collection charges 2,000
Income from interest on securities 14,000
Working Notes
1. Tax-free Commercial Securities must be grossed up.
2. Tax-free Government securities should not be grossed up become
there is no TDS on a security issued by the Central and State
Government securities.
Illustration : 2
Mr. Anil holds the following securities on April 1,2012:
A 1,00,000 5% Up Government Loan (Date of payment of interest
January 1)
Paper - III Taxation - II 285
Illustration 3
Mr. Maheshwar who draws a salary of A 20,000 p.m. received the
following gifts on or after 1/10/2012.
(i).Gifts of A 5,00,000 on 16-10-2012 from a friend.
(ii).Gift of a Jewellery fair market value of which value is A 3,00,000 in
17/10/2012 from his would be wife.
(iii).Gift of A 51,000 each received from his 4 friends on the occasion
of his marriage on 21-10-2012.
(iv). Gift of A 1,00,000 on 22-11-2012 from his mothers sister.
(v). Gift of A 60,000 on 25-11-2012 from his fathers brother.
(vi). Gift of A 50,000 from his wifes friend on 1-12-2012.
(vii). Gift of A 21,000 on 15-12-2012 from his mothers friend.
286 Accounting and Taxation
Problems:
1. Vinayaka held the following investments.
(a) A 81,340 10 % (Tax free) Debentures of Limited Company.
(b) A 70,000 -12% (Tax-free Rajasthan Development Loan
(c) Collection charges A 2,000
Compute his income from interest on securities for the year ending
31-3-2012
[Ans: A 15,468]
2. Mr Naresh has the following investments as on 1st April.2012;
A 10,000 - 10% Municipal bonds
A 20,000 - 10% National Defense certificates
A 30,000 - 15% A.P. Government loan
A 40,000 - 13.5% Tax free Government securities.
288 Accounting and Taxation
UNIT 5
Deductions from Gross total
Income
Learning Objectives
After studying this unit, the student will be able to
Identify gross total income
Understand about qualifying savings u/s 80 C
Learn about deduction u/s 80 CCD, 80 CCF, 80 D, 80 E,80 GGA
Understand about taxable income
Introduction
While computing the total income of an assessee some deductions are
allowed from the gross total income, in addition to deductions that are allowed
from the gross total income, In addition to deductions that are allowed under
different heads of income. These deductions are allowed under section 80 C
to 80 U.
Note: These deductions are not allowed from (a) Long term capital
gains (b) winning from lotteries, horse races etc., (c) Short term capital gain on
transfer of equity shares. (d) Short term capital gain on transfer of equity oriented
units of mutual funds.
The aggregate of the deductions allowable under section 80 C to 80 U
is to be limited to the gross total income i.e., deductions allowable under this
section should not result in negative income i.e. loss.
The following are some of the important deductions available to an
assessee whose status is an individual.
Paper - III Taxation - II 291
Illustration:2
Seeta who is a resident in India, is a person with disability. He provides
the following particulars of his income for the year ending 31.3.2013.
Salary for working as a telephone operator in a company 5,000 p.m.
Honorarium from school for blind for giving his service 47,000
Interest on government securities (gross) 44,000
Income from Unit Trust of India (gross) 5,000
He has contributed A 2000 to Prime Ministers National Relief Fund
and donated A 1,000 to the school for blind. Which is approved as a charitable
institution. He has also paid A 3000 by cheque as premium for mediclaim
policy. His father is also a person with disability and is dependent on him for
medical treatment and rehabilitation. Seta spends A 8000 during the year on
him.
Compute his total income for the assessment year 2013-14, assuming
that he has deposited A 20,000 in Public Provident Fund Account.
Solution :
Computation of Total Income of Mrs. Seeta
for the Assessment Year 2013-14
U/s 80 DD 50,000
U/s 80 U 50,000
U/s 80 G
PMNRF (100% of A 2,000) 2,000
School for blind (50% of A 1,000) 500 1,25,500
Total Income
25,500
Exercises
1. Raghavas gross total income is A 50,000. He pays A 2000 by way
of contribution to Public provident fund. A 3,000 as life insurance premium
A 200 to Jawaharlal Nehru Memorial fund and A 500 to Prime Ministers
National Relief Fund. Compute his total income.
[Ans: A 44,400]
2. Mr A had a gross total income of A 4 lakhs, which included A 10,000
as 1/4th share from association of persons for the assessment year 2013-14.
During the year he has made the following donations:
(a) National Defense Fund A 60,000
(b) Prime Ministers National Relief Fund A 1,00,000
(c) Family Planning Association of India A 10,000
(d) All India Congress Committee A 1,00,000
(e) Notified charitable hospital A 50,000
In addition to the above, he paid a life insurance premium of A15,000
on a policy of A1,00,000. Compute the relief in respect of donations and life
insurance premium.
[Ans. Deductions u/s 80 G A 1,84,250]
3. Mr. Sujiya requests you to compute his total income and Tax liability
for the assessment year 2013-14 from the following:
Rs.(A)
Business profits 1,47,000
300 Accounting and Taxation
Illustration 1.
Mr. Sriram is a Senior Citizen gives you the following income particulars.
Compute his Tax Liability for the A.Y. 2013-14.
1. Pension from Government A 3,30,000
2. Long term capital Gain A 50,000
3. Short term capital Gain A 30.000
4. Interest on fixed deposit A 10,000
5. Winning from Lottery A 1,00,000
6. Deposited in NSC. VIII issue
A 15,000. Pension scheme u/s 80CCC
A 30,000.
Solution
Computation of Total Income
1. Salary- pension 3,30,000
2. Capital Gain
a. LTCG A 50,000
b. STCG A 30,000 80,000
3. Other Sources
a. Fixed Deposit Interest A 10,000
b.Winning from Lottery A1,00,000 1,10,000
Gross Total income 5,20,000
Less: Deduction u/s 80 C & 80 CCC to
the maximum extent of 1,00,000 45,000
Total Income 4,75,000
Computation of Tax Liability Rs.
Tax on total income 4,75,000
Senior citizen basic exemption Limit 2,50,000
Paper - III Taxation - II 307
Tax Liability
Tax on long term capital gain at 20 %
after allowing basic exemption
Limit(A 2,30,000- Rs.1,80,000 = 50,000) 10,000
Add : Education Cess at 2% + 1% additional cess 300
Tax Payable 10,300
308 Accounting and Taxation
Illustration 3
From the below given information compute total income of Mr.Rahul
for the Assessment year 2013-14.
(i) Interest on Government. Securities A 10,000 (gross).
(ii) Interest on Tax-freeGovt. Securities A15,000 (Net)
(iii) Interest on less-tax debenture of X Ltd A 9,000 (net)
(iv) Interest on less-tax debenture of Y Ltd A 9,000 (net) (unlisted)
(v) Interest on less-tax debenture of Z Ltd A 4,500(listed) (net)
(vi) Lottery winning received A 69,100 (net)
(vii) Interest on Bank Deposits A 16,000 (gross)
(viii) Rent from open lands A 46,000.
(ix) Medical insurance premium paid A 18,000
(x) Life insurance premium paid A 28,000
Solution
Computation of Total Income of Mr. Rahul
for the Assessment Year 2013-14
(i) Interest on Govt. Securities 10,000
(ii) Interest on tax-free Govt. Securities 15,000
(iii) Interest on Less-tax debentures of
100
X Ltd A 9,000 x 10,000
90
(iv) Interest on tax free debentures of Y Ltd.
100
A 9,000 x 10,000
90
Problems
1. Compute total income from the following information;
(i) Salary received 1,60,000
(ii) Rent received 1,20,000
Paper - III Taxation - II 311
[Ans: 4,34,600]
Short Answer Type Questions
1. What is Gross total income ?
2. Define total income.
3. Mention any four heads of incomes.
4. Compute the tax liability of Mr. Shekar.
Total Income A 5,25,000
314 Accounting and Taxation
UNIT 7
Service Tax
Learning Objectives
After studying this unit, the student will be able to
Understand about meaning of service tax
Understand about features of service tax
Learn about service provider and service receiver
Learn about procedure for registration
7.1 Introduction
Service Tax is a form of indirect tax imposed on specified services
called taxable services. Service tax is a part of Central Excise in India. It is a
tax levied on services provided in India, except the State of Jammu and Kashmir.
The responsibility of collecting the tax lies with the Central Board of Excise and
Customs(CBEC).
Service tax cannot be levied on any service which is not included in the
list of taxable services. Over the past few years, service tax been expanded to
cover new services. The objective behind levying service tax is to reduce the
degree of intensity of taxation on manufacturing and trade without forcing the
government to compromise on the revenue needs. The intention of the
government is to gradually increase the list of taxable services until most services
fall within the scope of service tax. For the purpose of levying service tax, the
value of any taxable service should be the gross amount charged by the service
provider for the service rendered by him.
Paper - III Taxation - II 315
Anypersonairtravelagent,architect,CA,CS,mandapkeeper,
C & F agent, courier, broker, tour operator, cargo, cable operator
etc.
Anycommercialconcernadvertising,aircraftoperator,business
auxiliary services, manpower recruitment, drycleaner, convention etc.
Anyagencybroadcasting,commissioning&installation,manpower
recruitment etc.
Anyestablishmentbeautyparlour,coachingcentre
Othersbankingcompany,port,AAI,financialinstitution,body
corporate etc.
Newservicesthetermusedisanypersoninallservices.
7.4.3 Service Receiver
Service receiver is a person who receives or avail the service provided
by the service provider. Service receiver has also not been defined and for
service receiver, various terms have been used such as any person, policy
holder, subscriber, customer, client, exhibitor, franchisee, shipping line etc.
However, Finance Act, 2008 has substituted any person in all the taxable
services in place of client or customer as service tax is levied on services and
status of service recipient should not determine the tax treatment.
Service tax is payable only when a taxable service is rendered or
provided to the service receiver. While generally, in case of sale, receiver is the
buyer or customer, in case of a service, service receiver is the client. There
should exist a relationship of service provider and service receiver between the
two parties to a service. Services are rendered to the client who can be called a
policy holder (as defined in Insurance laws) or a subscriber (as defined in
Telegraph Laws) or shipping line or franchisee or a customer or just a client, as
the case may be. Oxford English Dictionary defines client to mean a person or
organisation using the services of a lawyer or other professional person or
company. Clients collectively are clientele.
7.5 Registration Procedure
Section 69 of the Finance Act, 1994 read with Rule 4 of the Service
Tax Rules, 1994 prescribe the manner and form for registration as an assessee,
of any person liable to pay service taxin accordance with the provisions of Section
68 of the Finance Act, 1994. Below set, in brief is the procedure for registration:
Paper - III Taxation - II 319
8.Afreshregistrationisrequiredtobeobtainedincaseoftransferof
business to another person.
9. Any registered assessee when ceases to provide the taxable service
shall surrender the registration certificate immediately.
10. In case a registered assessee starts providing any new service
from the same premises, he need not apply for a fresh registration. He can
simply fill in the Form S.T.1 for necessary amendments he desires to make in his
existing information. The new form may be submitted to the jurisdictional
Superintendent for necessary endorsement of the new service category in his
Registration certificate.
Short Answer Type Questions
1. Define Service tax.
2. Define person as per service tax.
3. Who is Service provider.
4. Who is Service receiver.
5. What is meant by CENVAT credit.
Long Answer Type Questions
1. Explain the silent features to service tax.
2. Explain about registration procedure as per service tax rules 1994.
3. Write briefly about Service provider and Service receiver.
UNIT 8
Value Added Tax
Learning Objectives
After studying this unit, the student will be able to
Understand about VAT
Understand about history of VAT
Learn about objectives, advantages and disadvantages
Learn about list of goods tax rates.
8.1 Definition
VAT is a tax on consumer spending. It is collected by VAT-registered
traders on their supplies of goods and services effected within the State, for
consideration, to their customers. Generally, each such trader in the chain of
supply from manufacturer through to retailer charges VAT on his or her sales
and is entitled to deduct from this amount the VAT paid on his or her purchases.
Value added tax is not only a simple taxation system, but also is the
mostcommonmodelusedintheworldtoday..Fromeconomicpointofview,
the value added is the difference between the worth of outputs and inputs. But
in compilation of the law, it is defined according to the accounting standards
and by relaying on invoice method. By considering the above point, the value
added is defined as the difference between the value of the goods and services
supplied and value of the goods and services bought by a person in a specific
period of time.
322 Accounting and Taxation
they have opposing interests, the system is selfenforcing and that makes evasion
difficult.
3. Facilitating the entrance to regional protocols
Some of the regional protocols due to the reasons such as: The necessity
of unified model of taxation system in economical relations between the members
of protocols, creation of unified tax screw, motivating the members toward
efficiency, development of industries, using the benefit of neutralization and
increasing the internal competition, made the admission of the value added tax
as one of the criteria for acceptance of the members in protocol.
4. Restructuring and improving the taxation system
As the structure of economy growth and become more complicated,
the necessity of keeping accounts in different small and big size business units
increases. Thus, in value added tax system, each business unit required to keep
its account in a comprehensive manner, so the use of computers for record
keeping and processing data in order to produce timely information is more than
the traditional tax system models and thus it will result the renewal and deep
change in old and traditional taxation system and a dramatic improvement in
times and jobs of tax system personnel.
5. The ease of auditing control
Due to the fact that in value added tax system, the invoices of sales are
the base of tax calculation and the amount of sales of goods and services recorded
in the specified columns of invoice and according to that value added tax
calculated and collected and also because the invoices recorded in the general
journal and ledgers of the firms, so (especially in the case of unique tax rate) the
system of auditing is simple and effective.
6. The minimum negative effect on allocation of resources
From economical point of view, value added tax is a neutral tax; because
it has no effects on production factors ( investment, employment and etc..) and
also has the minimum negative effects on economical decisions of the business
units. The reason is because in value added tax system the tax calculated on
value added generated by production factors in production cycle and thus it
hasnt any bias to an any kind of production method. According to the above
mentioned points, It is said that the value added tax has not any distortion on
market forces in relation of optimized allocation of resources. The neutrality of
value added tax is one of the key reasons of acceptance of it by the central and
eastern European countries.
326 Accounting and Taxation
2. Most local enterprises pay Sales Tax at the time of importation. This
tax is then recovered, like any other business expense, through the prices fixed
by businesses for the goods and services they sell. At present, businesses are
not required to issue special invoices or to identify the sales tax paid or payable
on invoices or till slips. Enterprises engaged in manufacturing activities in Botswana
with a turnover above Rs. 75,000 per annum are required to register for sales
tax and must charge and account for 10% sales tax on all sales. These
manufacturing enterprises are exempt from Sales Tax on their main raw material
purchases.
5. Under Sales Tax, most imports are assessed for tax at the time of
importation and no further liability arises as the goods go through wholesalers
and retailers to final consumers. Under VAT, however, all imports will be assessed
for VAT at the time of importation and the VAT payable on imports will be
allowed as a deduction against the output tax charged on sales made by importers
who are registered for VAT purposes.
6. As the VAT will apply all the way through from importation/production
to the final sale to consumer, VAT will generally apply to the full price payable by
consumers. This should mean a significantly improved value base compared to
the Sales Tax which applies tax only to the value of imports or the ex-factory
value of goods.
328 Accounting and Taxation
Schedule III
List of goods taxable @ 1%
Schedule IV
List of goods taxable @ 4%
S.No Name of the Commodity
1. Agricultural implements not operated manually or not driven by animal
2. All intangible goods including copyright, patent, rep license, DEPB
3. All kinds of bricks including fly ash bricks, refractory bricks
4. Asphaltic roofing sheets
5. Earthen tiles other than ceramic and glazed tiles
6. All types of yarn and sewing thread other than cotton yarn in hank and
silk yarn in hank.
7. Aluminium utensils and enameled utensils
8. Arecanut, betel nut and betel nut powder
9. Bamboos, Casuarina poles, eucalyptus logs and cut sizes thereof
10. Bearings of all kinds
11. Beedi leaves
12. Transmission rubber belts
13. Bicycles, tricycles, cycle rickshaws & parts and accessories thereof
Paper - III Taxation - II 331
14. Bitumen
15. Branded bread
16. Bulk Drugs
17. Centrifugal, monobloc and submersible pumps.
18. Coffee beans and seeds, cocoa pod, green tea leaf and chicory
19. Chemical fertilizers and Bone Meal including mixtures or Nurient
elements such as Iron, Zinc, Copper and biological derivatives such as
Enzymes, Co-enzymes and Aucines
20. Pesticides, Insecticides, fungicides, herbicides, weedicides and other
plant protection equipment and accessories thereof
21. Coir and Coir products excluding coir mattresses
22. Cotton waste and Cotton yarn waste
23. Crucibles
24. Electrodes including welding electrodes and welding rods
25. Exercise Note books including Graph books and laboratory note books,
Office stationery including computer stationery, writing pads and
Account Ledgers
26. Fibres of all types and fibre waste
27. Ferrous and non-ferrous metals and alloys and extrusions thereof
28. Flour, Atta, Maida, Suji, Besan and Ravva
29. Parched and fried grams or dhalls
30. Jaggery
31. Hand Pumps, parts and fittings thereof
32. Herb, bark, dry plant, dry root, commodity known as jari booti and
dry flower
33. Hose Pipes
34. Hosiery goods of all kinds
35. Rice bran including de-oiled rice bran
36. Ice
332 Accounting and Taxation
69. Coal Including coke in all its forms, but excluding charcoal
70. Iron and steel, that is to say:
(i) Pig Iron, Sponge Iron, and cast iron including ingot moulds, and
bottom plates.
(ii) Steel semis, ingots, slabs, blooms and billets of all qualities, shapes
and sizes.
(iii) Skelp bars, tin bars, sheet bars, hoe-bars and sleeper bars;
(iv) Steel bars, rounds, rods, squares, flats, octagons and hexagons;
plain and ribbed or twisted, in coil from as well as straight length
(v) Steel structurals, angles, joints, channels, tees, sheet piling sections,
Z sections or any other rolled sections
(vi) Sheets, hoops, strips and skelp, both black and galvanized, hot
and cold rolled, plain and corrugated in all qualities, in straight
lengths and in coil form as rolled and in revitted condition.
(vii) Plates, both plain and chequered in all qualities
(viii) Discs, rings, forgings and steel castings;
(ix) Tool, alloy and special steels of any of the above categories
(x) Steel tubes, both welded and seamless, of all diameters and lengths
including tube fittings
(xi) Tin-plates, both hot dipped and electrolytic and tin free plates
(xii) Fish plate bars, bearing plate bars, crossing sleeper bars, fish
plates, bearing plates, crossing sleepers and pressed steel sleepers,
rails heavy and light crane rails;
(xiii) Wheels, tyres, axies and wheel sets
(xiv) Wire rods and wires rolled, drawn, galvanized, aluminized, tinned
or coated such as by copper
71. Iron and Steel scrap, that is to say
(i) Iron scrap, cast-iron scrap, runner scrap and iron skull scrap
(ii) Steel melting scrap in all forms including steel skull, turnings and
borings
336 Accounting and Taxation
3. Aviation motor spirit and any othe At the point of first 32.55%
motor spirit. sale in the State
Explanation I
For the purpose of item (1) when any distillery or brewery or any dealer
sells liquor to the Andhra Pradesh Beverages Corporation Limited, or Canteen
Stores Department, the sale by the Andhra Pradesh Beverages Corporation
Limited or Canteen Stores Department shall be deemed to be the first sale.
Explanation II:-
For the purpose if item (1) sale of liquor by any distillery or brewery or
anydealer to Andhra Pradesh Beverages Corporation Limited or Canteen Stores.
Department shall be exempt from tax under this Act.
Explanation III
For the purpose of item(1) , a case means 12 number of 1000ml; 12
numbers of 750 ml; 24 numbers of 375ml; 48 numbers of 150ml; 90 numbers
of 100 ml bottles of IML/Wine and 12 number of bottles of Beer.
Explanation IV
For the purpose of items 2,3,4 and 5 a sale by one oil company to
another oil company shall not be deemed to be the first sale in the State.
Accordingly any sale by one oil company to any other person (not being an oil
company) shall be deemed to be the first sale in the State.
Note: The expression oil company in this explanation means:
(a)HindustanPetroleumCorporationLimited
(b)IndianOilCorporationLimited
(c)BharatPetroleumCorporationLimited
(d)Indo-BurmaPetroleumCompanyLimited
(e)ChennaiPetroleumCorporationLimitedand
(f)RelianceIndustries
(g)ReliancePetroMarketingPrivateLtd
(h)ReliancePetroleumPrivateLtd.,
(i)OilNaturalGasCommission
(j)SuchotheroilcompanyastheGovernmentmay,fromtimeto
time, by notification in the Gazette specify in this behalf.
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(h) every dealer liable to pay tax under sub-section (9) of section 4 of
the Act; (Clause (h) is inserted by Act No 10 of 2006, dated 4th January 2006,
w.e.f 1-12-2005.)
(6) (a) Any dealer effecting sale of goods liable to tax under the Act and
who is not otherwise liable to register may also opt for registration as a VAT
dealer and such registration shall be subject to such conditions as may be
prescribed
(b) Any dealer intending to effect sale of goods liable to tax under the
Act, and who is not otherwise liable to register, may also opt for registration as
a VAT dealer and such registration shall be subject to such conditions as may be
prescribed.
(7) Every dealer not registered or not liable for registration as VAT
dealer and who sells any goods and has a taxable turnover exceeding A 5,00,000/
- (Rupees five lakhs only) in a period of twelve consecutive months or has
reason to believe that his taxable turnover in a period of twelve consecutive
months will exceed A 5,00,000/- (Rupees five lakhs only), shall apply for
registration as TOT dealer in the manner prescribed.
(8) Subject to the provisions contained in sub-section (5), every dealer
who held a registration certificate under the Andhra Pradesh General Sales Tax
Act 1957 shall be deemed to be registered as TOT dealer under the Act provided
the dealer had a taxable turnover exceeding A 5,00,000/- (Rupees five lakhs
only ) but below A 40,00,000/- (Rupees forty lakhs only) during the period
from 1st January, 2004 to 31st December, 2004 and had not discontinued his
business or his Registration Certificate had not been cancelled during that period.
(9) Where a registered dealer dies or transfers or otherwise disposes of
his business in whole, the successor or the transferee, unless already in possession
of registration shall be liable to be registered under the Act.
(10) An application for registration shall be made to the authority
prescribed in such manner and within such time as may be prescribed.
(11) If the authority to whom an application is made under sub-section
(10) is satisfied that the application is bonafide and is in order and in conformity
with the provisions of the Act and the rules made thereunder, he shall register the
applicant and grant him a certificate of registration in the prescribed form.
18. (1) The authority prescribed shall issue a registration identification
number known as:
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