Management
of
Direct Taxes
CA. Manish Dafria,
M.Com., M.A(Eco.)., F.C.A., DISA(ICAI).
[email protected] Know your faculty
Faculty
at Institute of Chartered Accountants of
India- teaching Tax and Business Law to C.A.s
Faculty
Income Tax Department Training CentreDelivering lectures on tax to Income Tax Officers.
Visiting
Faculty IIM Indore, conducting courses
on Taxation since 2001.
Managing
Partner- Chartered Accountancy Firm
M/s. V.K. Dafria & Co. Practicing in the area of
Tax Consultancy and Start Up Advisory Services.
Management Of Tax Overview
Why Tax ???
Cost of living in a society
Why Income Tax ???
. Equitable Distribution of
Burdon
Why Tax Management ??
Because
no body is under any
obligation to bear more then his
rightful share of societys burden.
Because
tax evasion is SIN.
Why Tax Management ??
Because
Tax
is
consideration
for
business decisions.
an
any
important
strategic
Because
Tax affects my profitability,
my cash flow, my competitive strength.
Because
in any of my venture, I have a
30% partnership with taxman.
Contours of Tax Management..
Understanding
process of Tax Calculation
It is not simply 30% of your income.
Understanding
various tax deductions/
reliefs/ differential tax treatment.
Analyzing
how these can be fitted into
ones
business/personal/investment
decisions - so as to minimise the impact
of adverse tax rules and to enhance the
benefits of positive ones.
Coverage
International
Taxation :
Avoidance of
Double
Taxation
Residential
Status and Tax
Incidence .
Tax Collection
Mechanism-TDS,
Advance Tax
Scheme of Tax
Calculation :
Rules for
Taxation of
Different Types
of Income
Tax treatment
of Different
Investment
AvenuesMutual
Fund/Equity
Market/Fixed
Income
Securities
Tax Aspects of
Employee
Compensation
Package, Tax
Deductions
Income Tax
Provisions To
Check
Avoidance Of
Tax
Scheme of Tax
Calculation
Basic Procedure of Income
Computation and Tax
Calculation
For computation of income tax, first of
all the total income of every person
is segregated under five different
heads of income viz.:
5 Heads Of Income
Income
from
House
Property
Income
from
Salary
Profits And
Gains Of
Business
And
Profession
Gross
Total
Income
(G.T.I.)
Capital
Gains
Income
From
Other
Sources.
Basic Procedure of Income
Computation and Tax Calculation
From
G.T.I.,
certain
deductions
(called
deductions
under Chap. VI-A) are
allowed and Taxable
Income is calculated.
This
the
Taxable Income is
called "Total Income"
in the Income-tax act.
G.T.I.
Tax
Deduction
s
Taxab
le
Incom
e
Basic Procedure of Income
Computation and Tax
Calculation
On the taxable income, rate of tax is applied and Gross Tax
Liability is determined.
On this Gross Tax Liability, Surcharge if any payable by the
taxpayer , is calculated.
In some cases, a tax rebate is available which is adjusted from
the Gross Tax Liability.
Above amount is further increased by - Education Cess @2% and
Higher Education Cess @1%.
This gives us the total tax amount payable by the person.
Tax Calculation
1
2
Basic
Tax
3
Surcharge/
(Rebate)
4
Cess
Tax
Payabl
e
Different Tax Entities
Following are different tax entities under Indian Tax Laws :
Previous
Year
Year in which income
is earned. Same as
accounting year
Assessm
ent Year
Year immediately
next to the previous
year. Year in which
income is taxed.
Concept of Year
Tax Calculation For
Individual
Basic Tax Rates
In case of individuals, Income tax
act prescribes three different slabs
of tax rates
Normal
rates
Rates
for
for Rates
Resident
Resident
Senior
Very Senior
Citizens
Citizens
Basic Tax Rates
TOTAL INCOME
Age < 60
Age 60 to 80
Age + 80
RATES
OF TAX
0%
Upto Rs. 2,50,000
Upto Rs.
3,00,000
Upto Rs.
5,00,000
10%
Rs. 2,50,001 to
5,00,000
Rs. 3,00,001
to 5,00,000
--
20%
Rs. 5,00,001 to
10,00,000
Rs. 5,00,001
to 10,00,000
Rs. 5,00,001
to 10,00,000
30%
More than Rs.
10,00,000
More than Rs.
10,00,000
More than
Rs.
10,00,000
Basic Tax Rates Special
Rates of Tax
The basic tax is levied as per slab system of
taxation where there are different tax rates
for income in different slabs.
For certain special Income, Special rates of
Taxation are applicable like
Long Term
Capital Gains
20%
Lottery Income30%
Specified Short
Term Capital
Gains- 15%
Rebate of Income Tax
An
individual who
is resident in India
and
whose
Total
Income is upto Rs.
5,00,000, is given
a rebate from tax
upto
lower
following :
of
Surcharge
a
When Total Income of an
surcharg
individual
is more than Rs.
1 crore,
e is
payable
@ 10%
of Tax
Cess
Education Cess =
@2%
Apart from tax
and surcharge,
following 2 cess
are also payable
Secondary and
Higher Education
Cess (SHE Cess)=
@ 1%
Tax Calculation For
Partnership Firms
Education Cess = @2% of (tax + surcharge
amount )
Secondary and Higher Education Cess(SHE
Cess)= @1% of (tax + surcharge amount )
Cess
Rate of
Tax
30% flat
Surchar
ge
10% of tax if total income exceeds Rs. 1
Crore
Rates of Tax Partnership
Firms
Tax Calculation For
Companies
Rates of Tax for Companies
Exercise
Calculate the amount of Income tax
payable in following cases#
Tax Payer
Taxable Income
1 Mr. A, an individual resident in
India, aged 45 years
20,00,000
2 Mr. B, an individual resident in
India, aged 65 years
1,20,00,000
3 M/s. ABCL Ltd., a Indian
Company
5,00,00,000
4 M/s. MSFT Inc., a US company
12,00,00,000
Summary
of
Discussion
For tax calculation, all income are segregated into 5 heads o
Rules For Taxation Of
Different Heads
Of Income
Mr.
hasincome
earned
HowAmit
all these
shallfollowing
be subjected to
income
tax?
income during
the previous
year :
He is working as CFO of M/s. Info Ltd. where he gets Rs. 25,00
Income From
Salary
Income From Salary
Even
if some thing
is called salary but
there is no
employee
employer
relationship (e.g. in
case of salary of
partner in a
partnership firm),
this is not taxable
under the head
salary.
Income From Salary
Income From
House Property
Income from House
Property
Income From House
Property
Income From House
Property
Example
Solution
Self Occupied Property
Deduction of Interest
Profits And Gains Of
Business And
Profession
Profits And Gains Of Business
And Profession
Profits And Gains Of Business
And Profession
Deductions: Revenue
Expenditure
For calculating once business
income, any revenue expenditure
which has been incurred wholly
and
exclusively
for
the
purpose
of
business/profession
may be
claimed deduction.
Revenue Expenditure
Depreciation
Depreciation
Expenditure Not Allowed
As Deduction
Treatment of Loss
In case of loss in any business, it is treated as follows :
However, if carried forward loss is due to excess
depreciation (called unabsorbed depreciation), it
can be carried forward for any number of years
and in subsequent years, t can be adjusted with
any income.
Capital Gains
Capital Gains
Any profits or gains arising from
the transfer of a capital asset
are taxed under the head
"Capital Gains".
The capital gain is taxable in the
year in which the transfer took
place.
Transfer of following items is not liable for capital gains :
Types of Capital Assets
Types of Capital Assets
Exceptions
Computation Of Capital Gains
Computation of Capital
Gains: Concept Of
Indexation
Indexed cost of
acquisition
Cost Of
Acquisition/
Cost of
Improvement
Index of Year of
Transfer
X
Index of Year
of Purchase
Tax on long-term capital
gains:
Sec. 112
Treatment of Loss
A long term capital loss can be set off with any other long term
Income From
Other Sources
Income from Other
Sources
Taxability of Winnings from
Lottery etc.
Session complete
Taxability of Gifts in the
hands of receiver
For above purposes, specified
movable property means following
capital assets:
Shares
and securities,
Jewellery,
Archaeological collections,
Drawings,
Paintings,
Sculptures, or
Any work of art.
Bullion
Exclusions
Receipts from :
Any local authority as defined in the
Explanation to Sec. 10 clause (20).
Any educational or medical
institution or other entities referred
to in Sec. 10 clause (23C).
Any trust or institution registered
under section 12AA.
