TAXATION in INDIA The Government of India imposes an income tax on taxable income of Individuals, Hindu Undivided Families (HUFs),

Companies, Firms, Co-operative societies and Trusts (identified as body of individuals and association of persons) and any other Artificial Person. Levy of tax is separate on each of the Persons. India has a well developed tax structure with a three-tier federal structure, comprising the Central Government, the State Governments and the Urban/Rural Local Bodies. The power to levy taxes and duties is distributed among the three tiers of Governments, in accordance with the provisions of the Indian Constitution. The main taxes/duties that the Central Government is empowered to levy are Income Tax (except tax on agricultural income, which the State Governments can levy), Customs duties, Central Excise and Sales Tax and Service Tax. The principal taxes levied by the State Governments are Sales Tax (tax on intraState sale of goods), Stamp Duty (duty on transfer of property), State Excise (duty on manufacture of alcohol), Land Revenue (levy on land used for agricultural/nonagricultural purposes), Duty on Entertainment and Tax on Professions & Callings. The Local Bodies are empowered to levy tax on properties (buildings, etc.), Octroi (tax on entry of goods for use/consumption within areas of the Local Bodies), Tax on Markets and Tax/User Charges for utilities like water supply, drainage, etc. Since 1991 tax system in India has under gone a radical change, in line with liberal economic policy and WTO commitments of the country. Some of the changes are:

Reduction in customs and excise duties Lowering corporate Tax Widening of the tax base and toning up the tax administration

Income Tax In India A tax that is applicable on income that has been generated from any source is termed as Income tax. The central board of direct tax (CBDT) is the governing body that takes care of the Indian Income tax. Income tax is imposed by the government on an individual, company, business, Hindu undivided families (HUFs), co-operative organization and trusts. The tax structure is different on different commodities and products. Indian income tax is regularized under income tax act 1961. History of Income tax In India Income tax comes into existence in the year 1860. Initially at the time when it was imposed it had taken almost five years to regularize and implement the income tax however income tax act lapsed in the year 1865. Act of 1886 was again came into force it defines the full fledged law of income tax it includes the exemption in various agricultural professions, income tax rules on industries and corporation. In the year Act VII of 1918 was launched that reforms the income tax law in a new way. This new act tries to expand the horizon to generate large revenue for the country. In the year 1922 another income tax act came into existence as a result of recommendation by the all India income tax committee. With this act a new clause was introduced under which unlike earlier where the collection of income tax in the current assessment year depends on the estimated collection of income tax of previous year. The income tax act of 1922 existed till 1961 however government had handed over the income tax clause to the law commission to review and recast it in a logical way so that the tax amended in an easy way without changing the basic tax structure. There are various industries where government offers wavers in subsidies time to time. The present income tax act is same as of 1961 income tax act of India. As per the constitution of India every individual is bound to pay income tax for the progress of the nation. Any individual or an organization if earning any income in the country has to pay income tax. Although in the present day tax structure there is a different slab for man and women & senior citizens

Residential Status Taxation of individuals is determined by their residential status. An individual is 'resident' if he stays in India in the fiscal year (April 1 to March 31) either:

182 days or more, or 60 days or more (182 days or more for NRIs) and has been in India in aggregate for 365 days or more in the previous four years. An individual who does not satisfy either of these requirements is a 'non-resident'. A resident individual is considered to be 'ordinarily resident' in any fiscal year if he has been resident in India Nine out of the previous Ten years and, in addition, Has been in India for a total of 730 days or more in the previous seven years. Residents who do not satisfy these conditions are called individuals 'not ordinarily resident'. Taxability of individuals is summarized in the table below. ---------------------------------------------------------------------Status Indian Foreign Income Income ---------------------------------------------------------------------Resident and Ordinarily resident Taxable Taxable Resident but Not Ordinarily resident

Taxable

Not taxable

Non-Resident Taxable Not taxable ---------------------------------------------------------------------Remuneration for work done in India is taxable irrespective of the place of receipt. Remuneration includes salaries and wages, pension, fees, commissions, profits in lieu of or in addition to salary, advance salary and perquisites. Allowances, deferred compensation and tax equalization are also taxable. Perquisites are taxes beneficially.

Income from Salary Under this head, income received as salary under Employer-Employee relationship is taxed. If income exceeds minimum exemption limit, then Employers must withhold tax compulsorily as Tax Deducted at Source (TDS). The employees should also be provided with a Form 16 which shows the tax deductions and net paid income. Form 16 also contains any other deductions provided from salary as follows: o Medical reimbursement up to Rs. 15,000 per year is tax exempt provided bills are given o Conveyance allowance up to 9600 per year is tax free o Professional taxes which are usually a slab amount based on gross income are deductible from income tax. o House rent allowance: The minimum of the following is available as deduction The actual HRA received 50%/40 % (metro/non-metro) of 'salary' Rent paid minus 10% of 'salary' Income from House Property Income from House property is calculated by considering the Annual Value. The annual value (for a let out property) will be maximum of the following:

Actual Rent received Municipal Valuation Fair Rent (as determined by the I-T department) However if a house is not let out and not self-occupied, then annual value is assumed to have accrued to the owner i.e. Deemed Let Out Property In case of a self occupied house, annual value is to be taken as NIL. But if there is more than one self occupied house then the annual value of the other house/s is taxable. From this, Municipal Tax paid is deducted to arrive at the Net Annual Value. From this Net Annual Value, the following are deducted:

30% of Net value as repair cost - mandatory deduction Interest paid or payable on a housing loan for the house

Income from Business or Profession: Income arising from profits and gains of any Business or Profession; Income derived by a Trade/ Professional/ similar Association by performing specific services for its members; Any benefit from business whether convertible into money or not, Incentives for Exporters; Any Salary, Interest, Bonus, Commission or Remuneration received by Partner of a firm; Income from Managing Agency and Speculative Transactions; are taxable. Income from Capital Gains Under section 2(14) of the I.T. Act, 1961, Capital asset is defined as property of any kind held by an assessee such as real estate, equity shares, bonds, jewellery, paintings, art etc. but does not consist of items like stock-in-trade for businesses or for personal effects. Capital gains arise by transfer of such capital assets. Long term and short term capital assets are considered for tax purposes. Long term assets are those assets which are held by a person for three years except in case of shares or mutual funds which becomes long term just after one year of holding. Sale of long term assets give rise to long term capital gains which are taxable as below:

As per Section 10(38) of Income Tax Act, 1961 long term capital gains on shares/securities/ mutual funds on which Securities Transaction Tax (STT) has been deducted and paid, no tax is payable. For all other long term capital gains, indexation benefit is available and tax rate is 20% Income from Other Sources There are some specific incomes which are to be taxed under this category such as income by way of dividends, horse races, winning of bull races, winning of lotteries, amount received from key man insurance policy. So as we can see the Indian Income Tax law is a subject which is filled with legal jargons and complexities that keep on changing every new financial year and the importance of this law in our routine life simply cannot be ignored. Whether it is filing of Income Returns on due dates or whether it's a financial investment

decision to be taken, every where the Income Tax provisions play a major role in driving of the cost factor.

Service Tax In India Dr. Manmohan Singh, the then Union Finance Minister, in his Budget speech for the year 1994-95 introduced the new concept of Service Tax and stated that '' There is no sound reason for exempting services from taxation, therefore, I propose to make a modest effort in this direction by imposing a tax on services of telephones, non-life insurance and stock brokers.'' Service Tax has been introduced in order to explore new avenues for taxation and to bring more people into the tax net. Service Tax generated revenue of Rs 2612 crores in 2000-2001. Bringing services under taxation is not simple as the services are intangible and are provided by large groups of organized as well as unorganized service providers including retailers who are scattered across the country. Further, there are several services, which are of intermediate nature. The low level of education of service providers also poses difficulties to both-tax administration and assessees. The Service Tax assessee is the person/firm who provides the service. Hence, the Service Tax must be paid by the person/firm providing the service. Chapter V of the Finance Act, 1994 (32 of 1994) (Sections 64 to 96) deals with imposition of Service Tax inter alia ona. Service rendered by the telegraph authorities to the subscribers in relation to telephone connections. b. Service provided by the insurer to the policy-holder in relation to general insurance business. c. Service provided by a stockbroker. The Finance Acts of 1996, 1997, 1998, 2001, 2002 and 2003 added more services to tax net by way of amendments to Finance Act, 1994. At present total number of services on which Service Tax is levied has gone upto 58 despite withdrawal of certain Services from the tax net or grant of exemptions (Goods Transport Operators, Outdoor Caterers, Pandal and Shamiana Contractors, and Mechanized Slaughter Houses).

Service tax Includes Service tax is a form of indirect tax that is applicable to the services that are taxable in nature. This tax came into existence as government wants an easy option that is transparent in nature that can generate revenue for the nation in an easy way. In past few years service tax is applied on various new services. Unlike value added tax that is applicable on goods and commodities, this tax is imposed on various services that is provided by the financial institutions such as banks, stock exchange, colleges, transaction providers, telecom providers. Banks are the first that charges service tax to its customer since inception often they termed service charges as processing fees. The responsibility of collecting the tax lies with the Central Board of Excise and Customs (CBEC) it is a body under the Ministry of Finance. This body formulates the tax structure in the country. Service tax was imposed first in India in July 1994. The service tax is applicable all over India however due to the national interest and for the betterment of the people of Jammu and Kashmir it is waved off. In 2006- 2007 service tax was increased from 10% to 12% however it was again reduced from 12% to 10% in the Union budget of 2009. It is often noticed that there is a lack of service tax information among the people. Government has gradually increased the list of taxable services to increase the revenue. Let us have a look at some of the major services that comes under the scanner of service tax: - Telecommunication - Traveling agencies (air, road and railway services) - Universities, colleges and schools - Broadcasting services (television and radio) - Banking and other financial services - Export import unit - Cargo and shipping - Hospitals and health care services - Airport services - Real estate agents - Consultants of different services - Insurance underwriting agencies - Stock broker - Share and stock transfer agents

Wealth Tax In India Wealth tax came into existence on 1st April 1957. Wealth tax is derived from the property owned by the proprietor. The proprietor needs to pay tax every year on property owned by them. The residential property that does not yield any income to its owner is also subjected to wealth tax. Wealth tax is termed as most significant direct tax. As per the wealth tax act, wealth tax is applicable to the following:

An individual person A group of people who own a property A company or organization A Hindu undivided family (HUF) A representative or heir of a dead person Non corporative tax payer

The chargeability of a wealth tax in India for its residence or foreign citizens are different. Any person who is resident of India has to pay wealth tax under his/her name. If a person owns a citizenship of a foreign country and he/she acquires a property in India as well as in foreign country, under those circumstances the property owned by the owner in India is taxable where as property located outside India is exempted from the list. The following assets are subjected to wealth tax: 1. Guesthouse, farm-house, commercial complex, shopping mall and residential complex are subjected to the wealth tax. 2. Valuable items like jewelry and any items made up of precious metals like gold, silver, platinum or any other precious metals. 3. Aircrafts, yachts, boats that is used for non-commercial purpose 4. Cash in hand that is more than 50,000, for individual and Hindu undivided families. 5. Any cash that is not recorded on the account log book is subjected to the wealth tax. 6. Motor car that is owned by an individual. 7. Any urban land situated in the jurisdiction where there is a total population of ten thousand as per last census is subjected to the wealth tax.

Assets that are exempted from the list of wealth tax are:

Air craft or boat used for business purpose provided by the company. Furniture, apparels and electronic items that is for personal use. Accommodation provided by the company or organization to its employee. The annual salary of the employee is less than Rs 500,000. Any land donated for the religious purpose or to charitable trust is not subjected to wealth tax.

There are few assets that are termed as deemed assets: 1. Assets transferred from one spouse to another 2. Assets held by a minor child. As per the income tax act such wealth is taxed individually and will not be termed as the net asset of the main owner/parents/guardian. 3. Assets transferred to the sons wife. 4. Assets transfer to the grandchildren. There are few exceptional assets that are exempted by the government: 1. The belongings such as residential building and palace belongs to rulers are considered as national heritage and wealth tax is exempted for it. 2. Former Ruler's jewellery is also excluded from the wealth tax. As per the government is termed as national asset. 3. Assets belonging to the Indian repatriate for 7 years on fulfillment of the conditions prescribed. Return File of wealth tax To file a wealth tax is same as like filing an income tax. A person is required to file a return of wealth in form A. If the net value of the asset comes under the bracket of wealth tax than person is bound to file the wealth tax. This should be noted that before filing a wealth tax all the essential documents should be attached with the form A.

Sales Tax In India Sales tax is levied on the sale of a commodity which is produced or imported and sold for the first time. If the product is sold subsequently without being processed further, it is exempt from sales tax. Sales tax can be levied by the Central or State Government, Central Sales tax department. Also, 4 per cent tax is generally levied on all inter-State sales. State sales tax, that apply on sales made within a State, have rates that range from 4 to 15 per cent. Sales tax is also charged on works contracts in most States and the value of contracts subject to tax and the tax rate vary from State to State. However, exports and services are exempt from sales tax. Sales tax is levied on the seller who recovers it from the customer at the time of sale. Apart from sales tax, certain states also impose extra charges such as works contracts tax, turnover tax & purchaser tax. Thus, sales tax plays a major role in acting as a major generator of revenue for the various State Governments. Under the sales tax which is an indirect form of tax, it is the responsibility of seller of the commodity to collect or recover the tax from the purchaser. Generally, the sale of imported items as well as sale by way of export is not included in the range of commodities that require payment of sales tax. Moreover, luxury items (such as cosmetics) are levied higher sales tax rates. The Central Sales Tax (CST) Act that comes under the direction of Central Government takes into consideration all the interstate sales of commodities.

VAT replaces Sales Tax However, most of the states in India, from April 01, 2005, have supplemented the sales tax with the new Value Added Tax (VAT). VAT in India is classified under the following tax slabs:

0% for the essential commodities 1% on gold ingots as well as expensive stones 4% on capital merchandise, industrial inputs, and commodities of mass consumption 12.5% on all other items Variable rates (depending on state) are applicable for tobacco, liquor, petroleum products, etc. A Central Sales Tax which is at the rate of 4% is also levied on inter-State sales but would be eliminated gradually. Municipal/Local Taxes

Octroi/entry tax: Certain municipal jurisdictions levy an Octroi/entry tax on the entry of goods Other State Taxes

Stamp duty on the transfer of assets Property/building tax that is levied by local bodies Agriculture income tax levied by the State Governments on the income from plantations Luxury tax that is levied by certain State Government on specified goods Budget 2009-2010 According to the budget 2009-2010, Central Sales tax is to be reduced to 2%

Salary and Perquisites in Indian Tax System Salary includes wages, fees, commissions, perquisites, profits in lieu of, or, in respect of encashment of leave etc. It also includes the annual accretion to the employee's account recognized provident fund in excess of 12% of the salary of the employee, along with interest applicable, shall be included in the income of the employee. Salary can be any of the following forms:

Wages; Any annuity or pension; Any gratuity; Any fees/commissions, profits/perquisites in lieu of any salary or wages; Any salary advance; Any payment that employee receives for a period of leave not taken by him; Any annual accreditation to provident fund balance at the credit of an employee The total of all sums that are comprised in the transferred balance

Tax on Pension U/s 9(1)(iii), the pension is taxable in India only if it is earned in India. Tax upon bonus, fees & commissions The bonus received in the gross salary in a year is taxable on receipt basis. Any fees/commission received/receivable by an employee is fully taxable & it's included in the gross salary. Tax on Gratuity Employee receives gratuity at the time of retirement or his legal heir receives gratuity incase the employee dies. The gratuity that employee receives on retirement and legal heir receives on death of employee; both are taxable under the heads "Salary" and "Income from other sources" respectively.

Tax on Annuity The annual grant that an employee receives from the employer is called annuity and comes under salary. It may be paid by the employer either voluntarily or on contractual agreement. Deferred annuity is not taxed unless right to receive it arises. Annuities given in a will or given by life insurance companies and annuities arising due to a contract come under "Income from other sources" and are taxable. Tax upon profits in lieu of or in addition to salary This includes any compensation received by an assessee from his employer/former employer on termination of employment or changes in terms & conditions relating thereto. Tax upon advance salary and perquisites This includes value of rent free accommodation given to assessee by employer, value of any amenity granted free of cost/at concessional rate to an employee being the director or an employee having substantial interest in Company and value of any other fringe benefits. PERQUISITES FOR SALARIED WILL BE TAXED FROM APRIL 2009 Perquisites given by employer like residential accommodation, conveyance facility as well as other benefits for employee's family could soon be added to the salary for income tax purposes and the Government may give a notification soon on valuation of such perks. Initially, tax on such perks was paid by employer in the form of the Fringe Benefit Tax (FBT) which was done away with in the Budget 2009-10 by Pranab Mukherjee, the Finance Minister. The perquisites that are included in taxable salary include residential accommodation given by the employer, motor car expenses for official/personal use, driver's salaries, salaries of gardener and sweeper if paid by employer and concessional education given to the employee's children. Under the FBT regime, tax burden of perquisites that was on the employer, will now be on the employee.

Tax Deduction At Source (TDS) Nothing is as tangled and knotty as the TDS provisons. While some TDS rates are specified in the individual section which deal with the tax treatment of the particular stream of income, some rates are included as part of a separate schedule. To make matters worse, these rates get tampered and modified every year. This result in so much chaos and confusion, that sometimes those who have to apply TDS, do not have a clue about what rate to use. Imagine the plight of tax payer. The genasis of the problem lies in the complicated nature of the tax laws. The authorities complain that less than 2% of our population actually pays taxes. However, simpliflying the provisions is not viewed as a possible solution. On the other hand, in an effort to bring more and more people into the tax net, the lawmakers simply endup complicating the law. And the rule is simple more the complexity more the room. TDS is final tax payable- at the time of filling his returns, the assessee pays the balance if any or asks for refund, as the case maybe. Ergo, it behooves the Department to have a standard uniform rate -convenient both for itself as well as the taxpayers. The most unfortunate part is that we could have easily done away with any TDS provided the deparrtment had good infrastructure to apprehend assessees avoiding tax only through TDS.

Gift Tax In India Gift tax is history, or rather, was history. Financial act 1998 had deleted gift tax act w.e.f.1.10.98. consequently, all gifts made on or after 1.10.98 are free from gift tax. Neither the donor nor the donee would have to pay any tax. Financial act 2004 has revived it partially, but it is in the form of donee-based income tax instead gift. The clubbing provisions in the Income Tax Act 1961 and Wealth Tax Act, 1957 are not deleted. Therefore, income and wealth from assets transferred directly or indirectly without adequate consideration to minor children, the spouse (otherwise than in connection with an agreement to live apart) or daughter-in-law will continue to be deemed income and wealth of the transferor. Same is the case when assets are held by a person or an Association Of Persons for benefit of assesses, the spouse, daughter-in-law and minor children. Gift tax was not applicable to gifts of movable property situated in Jammu and Kashmir. Now, that the Gift Tax Act, 1958 is abolished, the clubbingprovisions would be applicable to gifts of movable properties in J&K also. The Gift tax in India is regulated by Gift Tax Act that was constituted on April 1, 1958. It came into effect in nearly all parts of the country except Jammu and Kashmir. As per this Act 1958, all gifts exceeding Rs. 25,000, in the form of cash, draft, check or others, received from one who does not have blood relations with the recipient, were taxable. However from October1, 2009, individuals receiving shares or jewellery, valuable artifacts, valuable drawings, paintings or sculptures or even property valued over Rs 50,000 as gifts from non-relatives, shall have to start paying tax. Gifts are Taxable Only in the Case of Individuals and HUFs U/s 56(2) (vi) certain gifts are taxable according to income tax as "income from other sources". However, this provision applies only for individuals & Hindu Undivided Families (HUFs). Thus, if gift is received by any Trust or A.O.P., then it shall not be liable to income tax as "income from other sources". Minors The entire income that arises or accrues to a minor is to be included in the income

of that parent whose total income (excluding the income includible) is higher. When the marriage of the parent does not subsist, the income of the minor will be included in the income of that parent who maintains the minor child. Income arising in the succeeding year shall not be included in the other spouse unless the assessing officer is satisfied that it is necessary to do so. Where the income of the individual includes the income of his minor children, an exemption up to Rs. 1,500 in respect of each minor child can be claimed by the individual u/s 10(32). Where a minor is admitted to the benefits of the partnership firm, the value of the interest of such minor in the firm shall be included in the net income of the parent of the minor. All the income of physically or mentally handicapped minor child will be directly assessed in the hands of the child. Similarly, a minor earning income by way of manual work or an activity involving application of his skill, talent or specialized knowledge and experience, is directly assessed in the hands of the child. Unfortunately, the income arising from his investments will suffer clubbing.

Capital Gain in Indian Tax system Section 45 to 55A of the Income-tax act, 1961 deal with the capital gains. Section 45 of the Act, provides that any profits or gains arising from the transferof a capital asset effected in the previous year shall, save otherwise provided in section 54, 54B, 54D, 54EA, 54EB, 54F 54G and 54H [with effect from 1-4-1991] be chargeable to income-tax under the head ''Capital Gains'' and shall be deemed to be the income of the previous year in which the transfer took place. Doubts may arise as to whether 'Capital Gains' being capital receipt cab be brought to tax as income. It may be noted that the ordinary accounting canons of distinctions between a capital receipt and a revenue receipt are not always followed under the Income-tax Act. Section 2(24) of the Income-tax Act specifically provides that ''income'' includes 'any capital gains chargeable under section 45'. The requisites of a charge to income tax, of capital gains under section 45 are :1. 2. 3. 4. There must be a capital asset. The capital asset must have been transferred. The transfer must have been effected in the previous year. There must be a gain arising on such transfer of a capital asset. Short-term and long-term capital gains: Gains on sale of capital assets held for more than three years (one year for listed securities or mutual fund units) are treated as long-term capital gains and are taxed at concessional rates compared short-term capital gains. While calculating taxable long-term capital gains, the cost of acquisition and the cost of improvement are linked to a cost inflation index. As a result, the indexed cost of acquisition is deducted from the sale consideration received, to arrive at the capital gain. Long-term capital gains are taxed at a flat rate of 20 per cent for individuals and foreign companies, and 30 per cent for domestic companies. Long-term capital gains on the transfer of shares/bonds issued in a foreign currency under a scheme notified by the Indian Government are taxed at 10 per cent.

Capital Gain An income that is derived from the sale of an investment is known as Capital gain. Capital investment can be in the form of a home, a farm, a ranch, a family business, or a work of art. When any kind of property is purchased at a lower price & then sold at a higher price, the seller makes a gain. Then this sale of a capital asset is known as capital gain. This type of gain is a one-time gain and not a regular income such as salary or house rent. Hence we can say that capital gain is is not recurring. Capital Gain Tax/ Tax Liability of Capital Gain Tax liability of capital gains arises when all of the following conditions are satisfied:

There is a capital asset The assessee must have transferred the capital asset during the previous year There is a profit or gain arising as a result of transfer known as capital gain Such capital gain should not be exempt u/s 54, 54B, 54D, 54EC, 54 ED, 54F, 54G or 54GA. What is a Capital Asset? Any kind of property (movable, immovable, tangible, intangible) held by an assessee, whether or not connected with his business or profession, is nothing but a "Capital Asset". The following assets are excluded from the definition of capital Asset:-

Stock-in-trade, consumable stores, raw materials held for the purpose of business/profession Items of personal effects, that is, personal use excluding jewellery, costly stones, silver, and gold Agricultural land in India Specified Gold Bonds and special Bearer Bonds Gold Deposit Bonds

Types of Capital Assets: Two types of Capital Assets are present as follows: Short Term Capital Assets [STCA]: An asset which is held by an assessee for less than 36 months, immediately before its transfer, is called Short Term Capital Asset. In other words, an asset, which is transferred within 36 months of its acquisition by assessee, is called Short Term Capital Asset. However, if the investment is in the form of mutual funds/company shares, the allowed time duration is one year Long Term Capital Assets [LTCA]: An asset, which is held by an assessee for 36 months or more, immediately before its transfer, is called Long Term Capital Asset. In other words, an asset which is transferred on or after 36 months of its acquisition by assessee, is Long Term Capital Asset. Selling mutual funds and company shares after one year also constitutes a long-term capital gain. Transfer of capital assets

Transfer of capital assets includes the following:Sale of asset Exchange of asset Relinquishment of asset (that is surrender of asset) Extinguishments of any right on asset Compulsory acquisition of asset Capital gain tax rates In case of short-term capital gains, you will be taxed depending on the tax slab relevant to you after you have added the capital gain to your annual income. However if the transaction was levied with Securities Transaction Tax (STT), your gain will be taxed 10%. In case of long term capital gains, you will be taxed 20%. When the transaction is levied with STT, you don't need to pay any tax on your gain. In this case, you can either calculate your capital gain using an indexed acquisition cost, or choose not to opt for indexing.

Calculation/Computation of Capital Gains Capital gain can be calculated as follows: Full Value of Consideration Less:

Cost of Acquisition Cost of Improvement Expenditure of Transfer

Capital gains Less:

Exemption u/s 54

Taxable Capital Gains

Retirement Benefits in Indian Tax system Every employee must know the quantum of the various retirement benefits he would be getting, as well as its tax implications. The employee may get more benefits if he chooses a good employer but he has no choice in respect of taxes. Retirement benefits received by an employee are taxable under the head Salary. Thus, the employer must take these benefits into account while computing the Tax Deducted at Source (TDS) at the time of retirement of an employee. Some retirement benefits are fully or partially exempt from tax. Some of the retirement benefits are: Pension Pension is the income received by an employee after his retirement. It is a periodical allowance, on account of past service, given by a former employer after the retirement of an employee. Periodical pension is called un-commuted pension. When a lump-sum payment is made in lieu of a periodical pension, it is termed as commuted pension. Pension of an employee is taxable under the head salary. Taxability of pension depends on whether it is periodic or lump-sum. Periodic payment (un-commuted pension) is fully taxable in case of both government and non-government employees. Lump-sum Payment (commuted pension) is tax-free in case of government employees. In case of other employees, if that employee is also receiving gratuity, then 1/3rd of the commuted pension would be exempt from tax. If gratuity is not received by an employee, half of the commuted pension will be exempt from tax. Gratuity Gratuity is a lump-sum payment made by an employer as a mark of gratitude for the services rendered by his employee. It is an important form of social security benefit. Gratuity is payable at the end of the employment (by way of retirement, death, termination or resignation). Every employer who has more than 10 salaried workers is allowed to grant gratuity to workers. The law which governs gratuity in India is the Payment of Gratuity Act, 1972. To receive gratuity, the employee should at least have completed 5 years of service. The payment of gratuity is made to the employee based on the duration of

his total service to that employer. The benefit is payable by taking the last drawn salary as the basis for calculation. For the purpose of Income Tax, gratuity received by an employee of the central government, state government or any local authority is completely exempt from tax. For other employees, the least of the following is exempt from tax

Rs. 10,00,000 (as per amendment from march 2010) Gratuity actually received, or Half month's average salary (average of last 10 months salary) for each completed year of service. Leave Encashment Leave encashment is the encashment of unused leave of an employee. The employee surrenders the leave at the time of retirement and is paid for the same. Taxability of leave encashment received at the time of retirement is as follows

o o o o

In case of government employees, it is fully exempt from tax. In case of non-government employees, the least of the following is exempt Rs. 3,00,000/10 months average salary Leave encashment actually received Cash equivalent to the leaves surrendered Voluntary Retirement Compensation Many companies today provide its employee with the option of taking voluntary retirement under the Voluntary Retirement Scheme (VRS). This scheme is drawn to right-size the existing strength of employees within a company. The benefits derived by an employee by opting VRS can also be considered as retirement benefit. VRS is applicable to only those employees who have completed 10 years of service or are of the age of 40 years. Under VRS, the employees are offered a onetime lump-sum amount. For income tax purposes, this compensation amount received is exempt up to Rs. 5,00,000/- if all the conditions under the scheme are fulfilled.

Housing Property Tax In India Basic Concepts: Section 22 to 27 of the Income Tax Act deal with taxability of income in respect of house property. The following basic conditions must be satisfied for income to be taxed under this head:

The property consists of buildings or land adjacent thereto. The assessee must own property. The property must not be used for the purpose of business or profession of the assessee. It must be used only for renting out so as to derive rental income. Therefore any income from a property which is not owned by the assessee will not be treated as ''income from house property'' but as other income and other provisions of the Income Tax Act will apply in this connection. Deemed Owner In certain cases, the assessee, though not the owner of the property, is deemed to be the owner of the property i.e. he is treated as owner of the property and income from that property will be treated as income from house property. The following are such situations:-

1. The individual who transfer any property for inadequate consideration or who gifts that property of his spouse or to a minor child other than a married daughter will be treated as deemed owner of that property. ie though legally the owner of the property is spouse or minor child, the income from that property will be treated as income of this person who has transferred such property. 2. The holder of an impartable estate will be treated as the owner of that entire property for example where an HUF jointly holds property on behalf of all its members, then joint HUF will be treated as the owner though legally the property in the name of an individual member of family. 3. A member of co-op society, company or other association of persons to whom a building has been allotted under a house building scheme of society will also be treated as deemed owner of that property 4. A person who has satisfied the provisions of section 53A of the transfer of property act will be treated as deemed owner of that property. Section 53A of the Transfer of Property Act deals with situations where though the agreement for

buying of property has not been registered with the appropriate authority, the person who has purchased the property will be treated as the owner of the property. 5. A person who has acquired right by way of long term lease of property will be treated as the owner of that property and income from that property will be taxable in his hands as under house property income. For this purpose long term lease means lease for period of more than 12 years. Income from House Property The property for which the annual value consists of buildings/lands appurtenant thereto of which the assessee is the owner shall be chargeable to income tax under the head "Income from House Property". A person may occupy the property for the purpose of business or profession, the profits of which are taxable. Annual value of any property shall deemed to be:

The sum for which the property might reasonably be able to let/give from year to year Where any part of the property is let and the rent received by the owner is in excess of the sum Where any part of the property is let and was vacant during the whole or any part of the previous year and the actual rent received by the owner in respect thereof is less than the sum To know in detail about Income from House Property click here: Income From House Property in India Deductions Permitted Deductions from income from house property are:

A sum equal to thirty percent of the annual value towards repairs and maintenance Incase the property is acquired/constructed/repaired/renewed or even reconstructed with borrowed capital, then the amount of any interest payable on such capital. Self Occupied House Property: A property becomes a self occupied house property when it consists of a house or part of a house which:

Is in the owner's occupation as purpose of his own residence

Cannot be occupied by the owner because of his employment, business or profession carried on at any other place and has to reside at that other place in a building not belonging to him, the annual value of such house or part of the house shall be taken to be nil. The amount of deduction towards interest payable on borrowed capital will not exceed Rs. 1,50,000/Ownership of House property:

An individual who transfers any house property to his or her spouse and the transfer not being in connection with an agreement to live apart, or to a minor child not being a married daughter, shall be deemed to be the owner of the house property so transferred. An impartible estate holder is deemed to be the individual owner of all the properties comprised in the estate. Rent received from House Property Following are the special provisions for arrears of rent received from house property:

Where the assessee is the owner of any property consisting of any buildings or lands appurtenant thereto which has been let to a tenant; and Where the assessee has received any amount, by way of arrears of rent from such property, not charged to income-tax for any previous year To know in detail about Rent received from House Property click here: Taxable Rental Income of Property Property owned by Co-owners: If the property is owned by 2 or more co-owners, following are the important considerations

Where property consisting of buildings and/or land appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not be assessed as an association of persons. Share of each person in the income from property shall be included in his total income

Partnership Firms In Indian Tax System A partnership is a common vehicle in India for carrying on business activities (particularly trading) on a small or medium scale. A profession is generally carried on through a partnership. There is no restriction on a company's participation in a partnership, but this is rate in practice. Under the general law a partnership is not a separate entity distinct from the partners, but for tax purposes a partnership is an entity. Partnership firm arises from a contract between two or more persons who contribute some tangible and some intangible assets together with an objective of earning profit therefrom which will be shared between them in predefined portion. Therefore1. The firm should be evidenced by an instrument [Section 184(1i)] 2. The individual shares of the partners in the asset of the firm and the profits (or losses) should be specified in the instrument [Section 184(1ii)] 3. A certified copy of the instrument of partnership shall acompany the return of income of the previous year in respect of which assesment of the firm is first soute [Section 184(2)] 4. Whenever Changes takes place in the constitution of the firm due to death or resignation of the partner or in the profit sharing ratio of the existing partners, a certified copy of the revised instrument of partner shall be submittd along with return of income of the related year. Where a minor is admitted to the benifit of the firm and the shares of the partners are unequal, it is necessary to specify how the shares of loss of the minor will be borne by the major partner. The provisions related to the taxation of partnership firms are included in Chapter XVI of the Income Tax Act, 1961.U/s 184(1) of the Act, with effect from April 1, 1993 a firm shall be assessed as a partnership firm (PFAS), if the given conditions are satisfied as follows:

Partnership is evidenced by a partnership deed and a certified copy thereof, which is duly signed by all partners, and is filed along with the Return of Income (ROI). Individual shares (profit/loss) of all the partners are also specified in the instrument i.e. in the partnership deed

Whenever there is some change in the constitution of the firm, then the firm requires to furnish along with the ROI, the certified copy of thepartnership deed that is duly signed by all the partners. A change in constitution of the firm has been defined under section 187 of the Act which includes admission of new partner(s), retirement of existing partner(s) as well as any change in the profit/loss-sharing-ratio and excludes dissolution of the firm incase of death of any of its partners. Income Tax Rates for Partnership Firms Assessment Year 2010-11 Flat rate of tax at 30% on the total income of the firm. Surcharge: Nil Education Cess: 2% of the amount of Income Tax Secondary & Higher Education Cess: 1% on the amount of Income Tax

Corporate Tax in India Corporate tax rate in India is at par with the tax rates of other nations of the world. The corporate tax rate in India is based on the origin of the company. If the company is domicile to India, then the tax rate is flat at 30%. But for a foreign company, then the tax rate depends on several other factors and considerations. For companies that are domicile to India, tax is charged on the global income whereas for the foreign companies present in India, tax is charged on their income within Indian Territory. Incomes that are taxable for foreign companies include income from the capital assets in India, interest gained, income from sale of equity shares of the company, royalties, dividends earned, etc. Domestic Corporate Income Taxes Rates: Incase of Domestic Corporations the effective tax rate as well the tax rate with surcharge as is 30%. It should be noted that if the taxable income is greater than Rs. 1 million then a surcharge of 10% of the tax on income is also levied.

It is important to note the fact that all the companies formed in India are considered as Indian domestic companies, even for ancillary units with mother companies in foreign countries Foreign Companies income tax rates:

For dividends: - 20% for non-treaty foreign companies and 15% incase of companies under the treaty based in the United States For interest gains: - 20% for non-treaty foreign companies and 15% for companies under the treaty based in the United States For royalties: - 30% for non-treaty foreign companies and 20% for companies under the treaty based in the United States For the technology based services in case of non-treaty foreign companies & 20% for companies under the treaty based in the United States For all other kinds of income and gains: - 55% in case of non-treaty foreign companies and 55% for the companies under the treaty based in the United States Attention should be given on levying inter corporate rates in case holding is minimum Attention should be given on the fact that sanctions of the tax authorities on tax withholding Attention should be given on several of the tax treaties that India signed with other countries and also on the various encouraging tax rates Some of the tax rebates under corporate tax rate in India:

Gains pertaining to long term capital are subject to low tax incidence Venture capital funds and venture capital companies have special tax provisions Specula tax provisions are applicable for non resident Indians involved in activities in India Under the Finance Bill 1996, the minimum alternative tax (MAT) is levied on the corporate sector

Religious And Charitable Trusts In India Social welfare is the basic resposibility of government. Charitable and Religious Trusts lessen this burden. Therefore, tax concessions are offered. Incomeapplied for predefined and declared charitable object is exempt from income tax. Wealth tax is also not charged on properties held. If eligible, donor are also given deduction from income tax u/s 80G or section 80GGA. Skillful and Intelligent tax planner tends to use trust for evasion of taxes. This result in a plethora of regulatory measures. Consequently, the legislation has become confused and complicated. More so because the term like 'income', 'capital', 'capitalgains', 'donations', etc., used innormal tax parlance or even in ordinary parlance have entirely different meanings and connotations in the case of trusts. Following are few instances:a. Normally, gifts are capital receipt and not charged to tax either in the hands of the donor or the donee. However, donations to trusts are their income. b. The income of trusts is real income. Normal statutory deduction and rebates are not available to trusts. c. Profit & Loss is meaningless. A charitable trust is not expected to earn any profit. Tax is based on Income & Expenditure.

India Budget 2009-2010 The Acting Finance Minister, Pranab Mukherjee presented the budget revealing spending plans for year 2009-10 from April to July, taking care of essential spending during and in immediate after month of the general elections. Highlights of Budget 2009-2010:

Budget spells out the target for the UPA: To bring back the 9% growth Commodities Transaction Tax (CTT) to be scrapped 10% surcharge on personal Income tax scrapped Fringe Benefit Tax (FBT) to be scrapped IT exemption limit for Women hiked to Rs 190,000 IT exemption limit for Senior Citizens hiked to Rs 240,000 Rs 12000 crore earmarked for expenditure on rural roads in FY 2010 Drugs related to heart diseases to be cheaper Service Tax to be now applicable on law firms Bio-diesel custom duty lowered Customs Duty on import of Gold and Silver increased Branded women's jewellery to be cheaper Rs 16300 Crore to be set aside for the upcoming Commonwealth Games IITs and NITs to get Rs 2113 crore Corporate Tax unchanged One rank-one pension provision/scheme to be in place for Ex-Servicemen National Ganga Project allocation to go up to Rs 562 Crore Unique Identification (UID) project under Nandan M. Nilekani to be out in 12-18 months NRHM allocation to be raised by Rs 257 crore A national level action plan in place for climate change National Employment Exchanges to be modernized Interest subsidy for home loans up to 1 lakhs Indira Awaas Yojna bolstered up by 63% to Rs 8883 crore Saral 2 forms to simply tax filing process Emphasis on fertilizer subsidy reaching out directly to farmers Petroleum price expert panel to set petroleum prices which would be in sync with the global levels Rashtriya Krishi Vikas Yojna allocation increased by 30% IIFCL, being a new company shall look into the infrastructure needs Extension of farm loan waiver scheme by 6 months The allocation for National Highway Authority of India (NHAI) increased by 23%

Fiscal stimulus at 3.5% pf the GDP Small scale businesses to be exempted from advance tax 50% reduction in the Custom Duty on LCD panels Set top boxes to be costlier Goods and Services Tax (GST) to be in effect from April, 2010 Textile units to enjoy continued tax holidays Pranab praises the 3 stimulus packages which were rolled out by the UPA to fight the global economic meltdown Signals of revival in the domestic market: Pranab Mukherjee Proposed Changes in Budget 2010-2011 Budget Effects on Commodities Cheaper Gaming softwares Toys CDs CFLs Mobile Phones Costlier Jewelry Gold and Platinum Refrigerators Televisions Cement Air Conditioners Cigarettes SUVs

Fuel

Fuel prices likely to go up The fuel prices are likely to rise very soon. Finance minister Pranab Mukherjee announced in the parliament that excise duty on petrol and diesel will be increased to Rs 1/litre. An announcement was also made to restore 5% duty on crude petroleum and 7.5% duty on petrol and diesel. With this announcement there was uproar in the parliament and the opposition walkout in Lok Sabha Income Tax Slabs Relaxations and Slab Restructured Mr. Pranab Mukherjee announced the restructuring of Income tax slabs while presenting the budget for 2010-11. The new slabs include 30% tax on income over Rs 8 lacs, 20% tax on income between Rs 5 to 8 lacs and 10% tax on income between Rs1.6 to 5 lacs. The relaxation limit under section 80C has been increased to Rs. 2 lakhs. He also announced that exemption limit in Income Tax will be enhanced to Rs. 1.6 lakhs. Also, the surcharge has been withdrawn. Current surcharge on companies has been reduced to 7.5%. The presumptive tax limit has been raised to Rs 60 lacs. An announcement was also made for a deduction of Rs 20000 on investment in infra bonds. Direct Tax Code from April 1, 2011 Finance minister Pranab Mukherjee made an important announcement while presenting the budget 2010-11 that the Direct Tax Code will be implemented from April 1, 2011. Budget 2010-11 strives for infra sector

Finance minister of India, Mr. Pranab Mukherjee made many announcements that stressed to develop the infra sector of India. Funding of various schemes plus sectors seems to lay the imprint of an unmatched development. Mukherjee announced a sum of Rs. 10,000 crores towards Indira Awaas Yojna and Rs. 48000 crores towards the Bharat Nirman Yojna. 25% of planned allocation will be directed towards rural infrastructure. An interest subvention for housing loans up to Rs. 1 lac has also been announced. Also, the fund allocation towards NREGA scheme has been enhanced to Rs. 41000 crores. Another significant announcement stated the allocation of Rs. 5130 crores for the power sector. Rs 3000 Crores for agricultural impetus Union Finance minister Mr. Pranab Mukherjee announced that Rs 3000 Crs will be spent for impetus of agriculture sector in India. In addition to this, the farm loan payments have been extended for 6 months. Pranab Mukherjee also said that the subsidy on fertilizers is to be reduced. There is also an announcement of 2% subsidy on loans to farmers. Dis-investment target of Rs. 25,000 crores Pranab Mukherjee declared a target of Rs 25,000 crores through the disinvestment process. He said that the government aims at producing a total sum of Rs 25,000 by disinvesting the stake of government in some pre decided firms and organizations. Handicrafts get their dues Pranab Mukherjee in the parliament announced an interest subvention of 2% to be extended for handicrafts and SMEs. He also said that Rs 200 Crs will be spent for Tamil Nadu textile sector. Also, skill development programmes for textile sector have been announced. Rs. 2400 crores allotted for MSMEs Finance minister announced a fund of Rs. 2400 crores towards Micro Small and Medium Enterprises (MSMEs) in India. He stated that special attention was needed

for MSMEs and this is a sincere effort on part of the government. The allocation of fund is made with the one and only view of boosting the MSME sector.