Make your Dream an Aim. Don't make your Aim a Dream

227 Pages·2017·2.21 MB·English

by  Gaurav Rajaram

Make your Dream an Aim. Don't make your Aim a Dream
CA Gaurav Rajaram 9535145650

By CA Gaurav Rajaram

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Dear Samvitian,

With immense pleasure, we welcome you to IPCC. Samvit Academy, as
always, assures that you will receive the highest quality of training which
will enable you to clear this level of CA with ease.

CA is not all hard work but a lot of smart work too and we will equip you
with various skills, some of which will be useful for IPCC and some of it for
life.

You must remember that CA is simply a small part of your life and not your
life altogether. Be sure to enjoy the journey and you will reach your
destination safe, sound and in good spirits. A mix of commitment,
inquisitiveness and a dash of fun are a sure shot combination to achieve your
goals in the long-run.

As someone said "If you can't change the direction of the wind, you can
always adjust your sails to always reach your destination".

We wish you the very best! We are always there to help, support and guide
you.

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BASICS OF INCOME TAX

1. Important definitions in the Income tax Act, 1961 ('Act')

Section 2(7) – “Assessee”

 means a person who is required to pay tax and includes

Assessee includes Example
A person who is assessed in respect of own
A person who earns income above taxable limit
income, loss or refund
A person who is assessed in respect of another Agent of non-resident is the representative
person's income, loss or refund assessee of non resident
Guardian of a minor, Executor of a deceased
A deemed assessee
assessee
An assessee in default Person who fails to pay TDS

Section 2(9) – “Assessment Year” (AY)

 means the period of twelve months commencing on the 1st day of April every year

Section 3 – “Previous Year” (PY)

 means the financial year immediately preceding the assessment year
Provided that in the case of a business or profession newly set up, or a source of income newly
coming into existence, in the said financial year, the previous year shall be the period beginning
with the date of setting up of the business or profession

Section 2(22A) – “Domestic Company” means

 an Indian company or
 any other company which has made the prescribed arrangements for the declaration and payment
of dividend within India in respect of its income liable to tax under this Act

Section 2(31) – “Person” - includes

 an individual
 a Hindu undivided family
 a company
 a firm
 an association of persons or a body of individuals, whether incorporated or not,
 a local authority, and
 every artificial juridical person, not falling within any of the preceding sub-clauses
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Section 2(24) – “Income” - includes

 Profits or gains of business or profession.
 Dividend.
 Voluntary Contribution received by a charitable or religious trust or institution or an electoral
trust.
 The value of perquisite or profit in lieu of salary taxable u/s. 17 and special allowance or benefit
specifically granted either to meet personal expenses or for the performance of duties of an office
or an employment of profit.
 Export incentives (Duty Drawback etc).
 Interest, salary, bonus, commission or remuneration earned by a partner of a firm from such firm.
 Capital Gains chargeable u/s 45.
 Winnings from lotteries, cross word puzzles, races including horse races, card games and other
games of any sort or from gambling or betting of any form or nature whatsoever.
 Deemed income u/s 41 or 59.
 Sums received by an assessee from his employees towards welfare fund contributions such as
provident fund, superannuation fund etc.
 Amount received under Keyman Insurance Policy including bonus thereon.
 Amount received under agreement for
(a) not carrying out activity in relation to any business (Non Compete fee) or
(b) not sharing any know-how, patent, copyright etc.
 Benefit or perquisite received from a Company, by a Director or a person holding substantial
interest or a relative of the Director or such person.
 Any other income falling under Section 28
 Income referred in Section 56 (2) i.e., gifts in excess of Rs. 50,000.
 Consideration received for issue of shares in excess of the fair market value of shares referred to
in Section 56(2)(viib).
 Any sum of money received by way of advance or otherwise in the course of negotiations for
transfer of a capital asset if such sum is forfeited and the negotiations do not result in the transfer
of the capital asset
 assistance in the form of a subsidy or grant or cash incentive or duty drawback or wavier or
concession or reimbursement by the Central Government or a State Government or any authority
or body or agency in cash or kind to the assessee except the subsidy or grant or reimbursement
which is taken into account for determination of the actual cost of the asset in accordance to sec.
43(1)
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2. Rates of income tax for AY 2017-18

Rebate from Income tax to Resident Individual - Sec. 87 A
This provision does not apply to a resident individual aged 80 years and above since such individuals are
not liable to pay any income tax upto Rs. 5 lakhs.

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Rates of Surcharge for different assesses

Type of Assessee If Total Income is If Total Income is in If the Total
up to Rs. 1 Crore the range of Rs. 1 Income is above
Crore Rs. 10 Crore Rs. 10 Crores
Individuals/HUF/AOP /BOI/ AJP Nil 15% 15%
Firm Nil 12% 12%
Co-operative Society Nil 12% 12%
Local Authority Nil 12% 12%
Domestic Company Nil 7% 12%
Foreign Company Nil 2% 5%

Marginal Relief
Compute tax payable by Mr A, a resident individual below 60 years who has a total income of

(i) Rs 1,03,00,000
Steps Amount

Compute tax and surcharge on total income --- (1)

Compute tax on Rs 1 Crore. Add to it, amount exceeding Rs 1 crore ---- (2)
Lower of (1) and (2) is tax payable. Add education cess at 3%

Marginal Relief = (1) Less (2)

(ii) Rs 1,04,00,000
Steps Amount

Compute tax and surcharge on total income --- (1)

Compute tax on Rs 1 Crore. Add to it, amount exceeding Rs 1 crore ---- (2)
Lower of (1) and (2) is tax payable. Add education cess at 3%

Marginal Relief = (1) Less (2)

(iii) Rs 1,08,00,000
Steps Amount

Compute tax and surcharge on total income --- (1)

Compute tax on Rs 1 Crore. Add to it, amount exceeding Rs 1 crore ---- (2)
Lower of (1) and (2) is tax payable. Add education cess at 3%

Marginal Relief = (1) Less (2)
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3. Scope of total income (Section 5)

Resident and Resident but not Non
Particulars
Ordinary Resident Ordinary Resident resident
Income received or deemed to be received
Taxable Taxable Taxable
in India
Income accruing or arising or deemed to
Taxable Taxable Taxable
accrue or arise in India
Income accruing or arising outside India

from

a) Business controlled in India Taxable Taxable Not Taxable

b) Profession set up in India Taxable Taxable Not Taxable

c) Any other source Taxable Not Taxable Not Taxable

4. Determination of residential status (Section 6)

Residential status of individuals

Conditions under Section 6(1) - Basic condition

An individual is said to be a resident in India in the previous year if

 He is in India in that previous year for 182 days or more

OR

 He is in India for 60 days or more in that previous year AND 365 days or more during the 4
previous years preceeding that previous year

Breaking the above section down, we can understand that

 If the person satisfies either of the above conditions, he is a RESIDENT

 If the person does not satisfy both the above conditions, he is a NON RESIDENT

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Conditions under Section 6(6)

An individual is said to be a Resident and Ordinary Resident in India in the previous year if

 He has been a resident in 2 or more years out of 10 preceeding previous years

AND

 He is in India for 730 days or more in the 7 previous years preceeding that previous year

Breaking the above section down, we can understand that

 If the person satisfies BOTH the above conditions, he is a RESIDENT AND ORDINARY
RESIDENT (R & OR)

 If the person does not satisfy both the above conditions, he is a RESIDENT BUT NOT
ORDINARY RESIDENT (RBNOR)

Residential status of other persons

Entity Condition for being Resident Conditions for R & OR
Hindu Undivided If its Control & Management (C&M)  Karta has been a resident in more
Family (HUF) is wholly or partly in India than 2 out of 10 preceeding
previous years
AND
 Karta is in India for 730 days or
more in the 7 previous years
preceeding that previous year
Firm, AOP and every If its C & M is wholly or partly in N.A
other person India
Company  An Indian company N.A
 Any other company whose Place of
Effective Management is in India

Place of Effective Management means a place where key management and commercial
decisions that are necessary for the conduct of the business of an entity as a whole, are in
substance made.

Note: If any of the above conditions for being a resident are not satisfied, such a person will
be a non resident

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