CMA Inter Direct Tax Summary Notes
CMA Inter Direct Tax Summary Notes
CMA Inter Direct Tax Summary Notes
Add: Surcharge
Tax payable
2. Rates of Tax:
The rates of tax are mentioned in the First Schedule of the Finance Act.
For example, Finance Act 2016 contains the normal rates of tax in three parts.
Part I of the First Schedule contains the normal rates of tax as applicable to the assessment
year 2016-17.
Part II of the First Schedule contains the normal rates of tax to be deducted at source on
certain incomes for the financial year 2016-2017.
Part III contains the rates of tax for deducting income tax from income under the head salaries
and computing advance tax.
The rates mentioned in part III will be same as the rate to be mentioned in Part I of the First
Schedule of the Finance Act 2017 and will be applicable for the assessment year 2017-18.
Part IV contains the rules for computation of net agricultural income.
3. Special Rates:
Special rates are the rates which are mentioned in the Income-tax Act itself. Chapter XII
(Sections 110- 115BBE) of the Income-tax Act contains the special rates of tax to be
applicable in certain cases.
For example, u/s 111A, short-term capital gains from securities is to be charged to tax @15%;
long-term capital gains are to be charged u/s 112 @20% and lottery income is to be charged
u/s 115BB @ 30%.
S N 5 : Residential status and Incidence of tax [section 6]
1. Introduction:
Different types of residential status: Based on their presence in India, Section 6 contemplates different types
of assessees as under:
A) Resident
i) Resident and ordinarily
ii) Resident but not ordinarily
B) Non-resident
2. Residential Status of an Individual [Section 6(1) and 6(6)(a)]:
Basic conditions [Section 6(1)]:
(a) is in India in that year for a period or periods amounting in all to 182 days or more [Section 6(1)(a)], or
(b) is in India for a period of 365 days or more during the four years preceding the previous year and is also
present in India for a period of 60 days or more during the relevant previous year.[Section 6(1)(c)].
Additional Conditions [Section 6(6)(a)]:
(a) the assessee has been a resident in India in at least 2 out of 10 previous years preceding the relevant
previous year;
(b) (b) he or she has been in India for a period or periods amounting in all to 730 days or more during the 7
years preceding the relevant previous year.
If any 1 basic condition is satisfied, he is resident
If none of the basic conditions are satisfied, he is non-resident
If at least 1 basic condition and both the conditions are satisfied, he is resident and
ordinarily resident.
If at least 1 basic condition and 1 or none of the conditions are satisfied, he is resident but
not ordinarily resident.
Exceptions: For the following, Only 182 days condition is applicable.
i) an Indian citizen who leaves India in any previous year as a member of the crew of an
Indian ship or for the purposes of employment outside India
ii) an Indian citizen or a person of Indian origin, who being outside India, comes on a visit
to India in any previous year
3. Residential Status of a HUF [Sections 6(2) and Sec 6(6)(b)]:
control and management of its affairs is wholly or partly situated in India- Resident
Karta needs to satisfy addl conditions for to classify as ordinary or not
4. Residential Status of Firm and AOP [Section 6(2)]:
control and management of affairs of the firm or association of persons is wholly or partly
situated in India- Resident
Other wise – Non Resident
5. Residential Status of a Company [Section 6(3)]:
(i) it is an Indian company; or, (ii) its place of effective management, in that
previous year, is in India (100%) - Resident
(ii) Other wise – Non Resident
6. Residential Status of Every other Person [Section 6(4)]:
control and management of his affairs is wholly or partly situated in India –
Resident
Otherwise – Non Resident
7. The Scope of Total Income or Incidence of Tax of Different Types of
Assessees [Section 5]:
Income Resident and Resident but not Non-Resident
ordinarily resident ordinarily resident
Income accruing or arising outside India from a business Taxable Not Taxable Not Taxable
controlled from outside India or a profession set up
outside India.
Income received outside India and subsequently Not Taxable Not Taxable Not Taxable
remitted to India — whether taxable at the time of
remittance.
S N 6 : Income which do not form part of total Income [section 10, 11 to
13A]
1. Incomes Exempt from Tax:
Section Nature of Income Exemption limit
10(48) Income received by the notified foreign Fully exempt, if the receipt of money is the only activity carried out by
companies for selling crude oil in India such companies in India.
etc
2. Income of Trusts or Institutions from contributions [Sections 11-13]:
Subject to the provisions of sections 60 to 63, the following incomes of the trusts and charitable institutions shall be
exempt:
(a) Income from property held under trust wholly for charitable or religious purposes [Section 11(1)(a)]
(b) Income from property held under trust in part which is applied only for religious or charitable purposes [Section
11(1)(b)]
(c) Income from property held under trust which is applied for charitable purposes outside India [Section 11(1)(c)]
(d) Voluntary contribution forming part of the corpus [Section 11(1)(d)]
Conditions for exemption:
i) Property held under a trust
ii) property should be so held for charitable or religious purposes
iii) The funds of the trust should be invested or deposited in one or more of the forms and modes specified in Section
11(5).
3. Incomes of Political Parties [Section 13A]:
Under section 13A, the following incomes of a political party are exempt from tax:
a) Income from house property;
b) Income from other sources;
c) Capital gains;
d) Any income by way of voluntary contributions received by a political party from any person.
Conditions for exemption:
a) Maintains accounts, b) Vol contr 20000—name and address c) a/c’s audited by CA.
Section B: Heads of Income and Computation of total Income
and tax Liability
S N 7 : Income under the Head “salaries” [section 15 to 17]
1. Meaning of Salary:
i) Employer-employee relationship
ii) Salary from more than one source
iii) Foregoing or surrender of salary
iv) Voluntary payments and personal gifts
v) Place of accrual of salary
2. Elements of Salary [Section 17(1)]:
i) Pay and incentives
(a) Basic salary or basic pay
(b) Advance salary
(c) Arrears of salary
(d) Pensions
(e) Annuity
(f) Bonus, commission, fees, etc
ii) Retirement or terminal benefits: The benefits in this category usually include the following:
• Employer‘s contribution to provident funds
• Interest credited to the Provident Fund
• Receipt from provident fund
• Commutation of pensions
• Death-cum-retirement gratuity
• Profits in lieu of salary
• Leave salary
• Compensation for voluntary retirement.
iii) Allowances
iv) Perquisites
3. Computation of Pension [Section 10(10A)]
4. Death-Cum-Retirement Gratuity
5. Profits in Lieu of Salary
6. Leave Salary
7. Retrenchment Compensation
8. Allowances
9. Perquisites
10. Tax Treatment of Various Perquisites
11. Valuation of Perquisites which are taxable in the hands of specified
employees
12. Deductions from Gross salary
A standard pro forma for computation of income under the head ― “Salaries”
Basic salary
Advance salary
Arrears of salary
Bonus, commission or fees
Pension
Employer's contribution to RPF in excess of 12% of salary
Employer's contribution to pension fund specified u/s 80CCD
Interest credited to RPF in excess of 9-5% Commuted value of pension
Commuted value of pension
Less: Exemption u/s 10(10A)
Gratuity
Less: Exemption u/s 10(10A)
Leave salary
Less: Exemption u/s 10(10AA)
Any other receipts taxable as profits-in-lieu of salary u/s 17(3)
Add: Taxable allowances:
Add: Perquisites u/s 17(2):
A. Taxable in all cases
B. Taxable at the hands of specified employees
Gross Salary
Less: (i) Deduction for entertainment allowance
(ii) Deduction for professional tax
80E Deduction in respect of payment of interest on loan taken for higher Actual amount paid.
education.
8OEE Interest on loan taken from financial institutions for acquisition of residential Fixed at Rs.50,000 during the assessment years
house property for assessees who do not own any residential house property 2017-18 and subsequent assessment years. Amount
on the date of sanction of the loan of loan should not exceed Rs.35 lakhs and value of
the property should not exceed Rs.50 lakhs
80G Deduction in respect of donation to certain funds and charitable institutions. 100%. of donations to specified funds and 50% in
other cases.
80GG Deduction in respect of rent paid. 25% of total income subject to a maximum of
Rs.5,000 p.m.
80GGA Deduction in respect of certain donations for scientific research or rural Actual amount paid.
development.
80GGB Deduction in respect of contributions given by an Indian company to political Actual amount contributed (other than cash) during
parties. the previous year.
80GGC Deduction tor contributions to political parties by any person, except local Actual amount contributed (other than cash) during
authority and an artificial juridical authority wholly and partly funded by the the previous year.
Government.
B. Deductions in respect of certain incomes
80IA Deduction in respect of profits and gains from industrial undertakings or 100% of profits.
enterprise engaged in infrastructure development.
80-IAB Profits and gains of an undertaking engaged in the development of Special 100% of profit for 10
Economic Zone. assessment years.
80IB Deduction in respect of profits and gains from certain industrial undertakings 100% of profits for industries in
other than infrastructure development under-takings. backward states; in other cases
25% of profit (30% for
corporate assessee).
80IC Deduction for undertakings in special category states. 100% of profits.
80JJA Deduction in respect of profits from the business of collecting and processing of 100% of profits.
biodegradable waste.
80JJAA Deduction in respect of Employment of new workman in the case of a company 30% of the wages paid to new
assesse having business income from manufacture of goods in factory workmen for three years
including the year in which
employment is provided.
80LA Deduction in respect of income of offshore banking units. 100% of income for the first fire
consecutive years and 50% of
the income for the next five
years.
80QQB Deduction in respect of royalty income of authors of certain books other than In case of lump sum payment
text books. amount actually received or
Rs.3,00,000, whichever is lower;
in other cases 15% of the value of
books sold or Rs.3,00,000,
whichever is lower.
80RRB Deduction in respect of royalty on patent. 100% of royalty or Rs.3,00,000,
whichever is lower.
80U Deduction in the case of a person with disability. Rs.75,000; Rs.1,25,000 in case of
severe disability.
S N 15 : Rates of tax and tax Liability, Rebates and Reliefs
1. Normal rates of Income Tax
A
In the case of every Individual (Upto age of 60 Years) or HUF or AOP/BOI (other than a co-operative society or any other
(I)
AOP or BOI which is taxable at maximum marginal rate) whether incorporated or not, or every artificial judicial person
Upto Rs.2,50,000 - Nil ; Rs. 2,50,010 to Rs. 5,00,000 - 10% ; Rs. 5,00,010 to Rs. 10,00,000 - 20% ; Above Rs.
10,00,000 - 30%
In the case of every individual, being a resident in India, who is of the age of 60 years or more but less than 80 years at
(II)
any time during the previous year.
Upto Rs.3,00,000 - Nil ; Rs. 3,00,010 to Rs. 5,00,000 - 10% ; Rs. 5,00,010 to Rs. 10,00,000 - 20% ; Above Rs.
10,00,000 - 30%
In the case of every individual, being a resident in India, who is of the age of 80 years or more at any time during the
(III)
previous year.
Upto Rs.5,00,000 - Nil ; Rs. 5,00,010 to Rs. 10,00,000 - 20% ; Above Rs. 10,00,000 - 30%
Note:-
1. Special rates of income tax: Besides the normal rates, special rates of tax are applicable in case of certain incomes in
the hands of various persons. These rates are given in Chapter XII of the Income Tax Act which are covered under
sections 111A to 115BBE.
2. Rebate of income tax under section 87A: This rebate is allowed to an individual who is resident in India
and whose total income (including the income taxable at special rates) does not exceed Rs. 5,00,000. The
rebate available shall be 100% of income tax payable (before cess) or Rs.2,000, whichever is less.
Surcharge: The amount of income-tax computed in accordance with the above normal and special rates
shall be increased by a surcharge at the rate of 12% of such income-tax in case of a person referred to in
clause (A) above having a total income exceeding Rs. 1 crore.
Marginal relief: The total amount payable as income-tax and surcharge on total income exceeding Rs. 1
crore shall not exceed the total amount payable as income-tax on a total income of Rs. 1 crore by more than
the amount of income that exceeds Rs. 1 crore.
Cess: ‘Education Cess’ @ 2%, and ‘Secondary and Higher Education Cess (SHEC)’ @ 1% on income tax
(inclusive of surcharge if applicable) shall be chargeable.
>> Marginal relief: The total amount payable as income-tax and surcharge on total income exceeding Rs. 1 crore shall not exceed the
total amount payable as income-tax on a total income of Rs. 1 crore by more than the amount of income that exceeds Rs. 1 crore.
>> Cess: ‘Education Cess’ @ 2% and SHEC @ 1% on income tax (inclusive of surcharge if applicable) shall be chargeable.
C) In case of any firm (including limited liability partnership) — 30%.
>> Surcharge: The amount of income-tax computed as per the normal and special rates shall be increased by a surcharge at the rate
of 12% of such income-tax in case of a firm having a total income exceeding Rs. 1 crore.
>> Marginal relief: The total amount payable as income-tax and surcharge on total income exceeding Rs. 1 crore shall not exceed the
total amount payable as income-tax on a total income of Rs. 1 crore by more than the amount of income that exceeds Rs. 1 crore.
>> Cess: ‘Education Cess’ @ 2% and SHEC @ 1% on income tax (inclusive of surcharge if applicable) shall be chargeable.
D) In the case of a company
i) For domestic companies: 30%.
>> Surcharge: The surcharge @ 7% of income tax computed as per the normal and special rates shall be levied if the total income of
the domestic company exceeds Rs. 1 crore but does not exceed Rs. 10 crore.
>> The surcharge at the rate of 12% of income tax computed as per the normal and special rates shall be levied if the total income of
the domestic company exceeds Rs. 10 crore.
>> Marginal relief: However, the total amount payable as income-tax and surcharge on total income exceeding Rs. 1
crore but not exceeding Rs. 10 crore, shall not exceed the total amount payable as income- tax on a total income of `Rs
1 crore, by more than the amount of income that exceeds Rs. 1 crore. The total amount payable as income-tax and
surcharge on total income exceeding Rs. 10 crore, shall not exceed the total amount payable as income-tax and
surcharge on a total income of Rs. 10 crore, by more than the amount of income that exceeds Rs. 10 crore.
>> Cess: ‘Education Cess’ @ 2% and SHEC @ 1% on income tax (inclusive of surcharge if applicable) shall be
chargeable.
ii) For foreign company: 40%.
>> Surcharge: In case of companies other than domestic companies, the surcharge of 2% of income tax computed as
per the normal and special rates shall be levied if the total income of such company exceeds Rs.1 crore but does not
exceed Rs. 10 crore.
>> The surcharge at the rate of 5% of income tax computed as per the normal and special rates shall be levied if the
total income of the company other than domestic company exceeds Rs.10 crore.
>> Marginal relief: However, the total amount payable as income-tax and surcharge on total income exceeding Rs. 1
crore but not exceeding Rs. 10 crore, shall not exceed the total amount payable as income- tax on a total income of `Rs
1 crore, by more than the amount of income that exceeds Rs. 1 crore. The total amount payable as income-tax and
surcharge on total income exceeding Rs. 10 crore, shall not exceed the total amount payable as income-tax and
surcharge on a total income of Rs. 10 crore, by more than the amount of income that exceeds Rs. 10 crore.
>> Cess: ‘Education Cess’ @ 2% and SHEC @ 1% on income tax (inclusive of surcharge if applicable) shall be
chargeable.
S N 16 : Assessment of Individuals (Including non-residents) and Computation of
tax Liability