UNIT II

Computation of Income under Various Heads

Q1. Explain the 5 main heads of income.

Ans. The 5 main heads of income are-

• Income from salary
• Income from home property
• Capital gains
• Profit and profit from business and profession
• Income from other sources

1. Income from salary

Section 15 of the law establishes the conditions under which income falls under the head of the “salary".’

• Compensation, whether paid or not, is paid by the employer to the former employee (assessor) during the previous year's employment period.
• Salary paid to the employee by the employer or former employer in the previous year, even though it was not due to him.
• Salaries paid to employees by the employer or former employer in the previous year that was not charged under Income Tax in other previous years.

An important element of this head is that it mandates the relationship between the employer and the employee. If there is no relationship between the employer and the employee, then the income is not accessible under the head of the salary.

2.     Income from home property

The assessor is the owner separately from the property that is used for business or profession, and the proceeds that are taxed under the Income Tax Act are divided into the range of income from residential property (section 22).)

Income from home property includes lease and accredited ownership.

Income from the property of the house is taxable after taking into account the deductions under Section 24 of the law. In the case of repair or maintenance of the property, thirty percent of the net annual value is deducted. This deduction is not allowed on self-occupied property.

For the purpose of calculating income from the property of the house, the property of the house is divided into three categories. House property :

• It was put out during the previous year.
• Let's go out partly, partly vacant.
• It is a servant when it is cut.

Deemed ownership-

Section 27 provides that a particular person is not the legal owner of the property, but under certain conditions is still considered to be the owner.

• Condition 1-handover of property to a child or partner, without consideration.
• Condition 2-the holder of the concessional property is considered the owner of the entire estate.
• Condition 3-a member of a cooperative or company or person's Association
• Condition 4-a person who owns a property on lease for 12 years or more in accordance with Section 269UA(f).

Property co-owners-Section 26

If there is more than one owner and the share of the co-owner is determined, the income arising from such property is calculated as income from one property, and the co-owner they are entitled to relief under Article 23.

Unrealized rent (rent not paid by the tenant for any reason)

Unrealized rent is not included in the calculation of the net annual value. If the rent is received in subsequent years, the amount is added to the income from the property of the house for that particular year.

Loss set-off and carryover

Under Section 70 of the Income Tax Act, if a person suffers losses from home property, he can set them off from the income of other home property.

Article 71 of the Act provides for a provision to offset losses from home property from the head of other income, but does not provide for casual income (income that may not occur again).)

Unadjusted losses can be carried forward for a maximum period of 8 years starting from the year following the year in which the loss occurred. In subsequent years, the set-off is allowed only from the head “income from the property of the House". 

The amount of loss that can be set off on the property of the house from the other income head is limited to Rs 2lakh if either the house is self-occupied or the property is sold.

3.           Income from capital gains

Profits or profits arising from the exchange of capital assets held as investments are charged under the head capital gains. The gain can be for short-term and long-term gains. Capital gains appear when capital assets are transferred. This means whether the moved asset is certainly not a capital asset. The profit or profit that appeared in the previous year, when the transfer was made, is considered the income of the previous year and, if applicable, is imposed on it under the head capital gain and indexation.

To fall into the range of income from capital gains, you need –

• Capital assets
• This is forwarded by the assessor
• The transfer took place in the final year
• Profit or loss is arising from it

Capital assets include all types of property owned by the assessor, whether tangible or intangible, movable or motionless, and may be used for business and professional purposes.

Capital assets do not include assets such as stocks in trade, used personal goods, agricultural land.

Capital gains are two types

1. Short-term capital assets-assets held by the assessor for up to 36 months immediately prior to the transfer date. 

ITO v. Narayana K Shah 2000 74 ITD 419 Mums. 

In this case, the court ruled that if the assessor held certain shares of the company that were granted ownership of the flat, these shares could not be treated as"shares"as set forth in Paragraph 2 (42A), and if sold after holding for less than 36 months, the resulting profits should be treated as short-term capital gains.

2. Long-term capital assets-assets held by the assessor for more than 36 months. Long-term capital gains are generally taxed at lower rates. 

Long-term capital assets may not require a period of 36 months, and assets held for 12 months or more are valid for long-term capital assets. These conditions are –

• Listed or preferred shares;
• Securities listed on recognized stock exchanges, such as bonds, stock exchanges;
• UTI units;
• Mutual fund units;
• Zero coupon bond;
• Unlisted or preferential shares;
• A unit of a stock-oriented fund.

The tax on long-term capital assets is 20 percent.

Exemptions under Section 54:

Exemptions on the transfer of long-term capital assets only if the assessor is an individual or a Hindu Undivided Family. Capital gains arise from the transfer of residential property in which the evaluator has purchased the property of another house within a year or two prior to the date of the transfer or transfer.

The amount of exemptions available is either less on capital gains and new home costs.

4.           Income from profits and profits from business and profession

Business and occupation are defined under Section 2 (13) and Section 2 (36), respectively.

Business. This includes trade, commerce or manufacturing, or adventure or concern in the nature of trade, commerce, or manufacturing.

Occupation. "Occupation" includes occupation.

Article 28 of the Income Tax Act covers "interests and interests of businesses or occupations “and has the following income imposed under the heading “interests and interests of businesses or occupations":” :

• Interests and interests of any business or profession;
• Any compensation or other payment by the person specified in Article 28 (II), by the Indian company or any person in charge of all operations other than the Indian company, or any compensation or other payment received shall be made at the end of his management.;
• Trade from Express services performed for its members, determined by experts or equivalent associations.;
• Benefits of sales of import qualification licenses, incentives by cash compensation support, disadvantages of Duty;
• Any benefits regarding the replacement of Duty qualified passbook scheme;
• Any benefits on the exchange of Duty Free replenishment certificate;
• Estimates of any profits or perks, whether coming out of business or professional activities and turning into money;
• Interest, payment, compensation, commission or compensation received by company partners from such companies;
• Any amount received under the key man insurance policy, including bonuses;
• Income from speculative transactions;
• If the exhaustive expenditure of such capital assets is allowed as a deduction under Section 35AD, the sum received in real money or in kind by which capital assets are destroyed, destroyed, disposed of or transferred.

5.           Income from other sources

All types of income not covered by the above head are covered under this head and are paid. Income from other sources is provided for in Section 56 of the act. Some of these are:

• Dividends in Section 2 (22));
• Win from lotteries, horse racing, crossword puzzles, and other games;
• Contributions received by the employer as evaluator from his work towards staff welfare schemes;
• Interest on corporate bonds, government bonds/bonds;
• If the assessor leaves to the contract apparatus, plants or furniture belonging to him and further buildings, then the payment from this can be assessed as a salary from other sources, if it is not taxable under the head of “interests and interests of business or profession”;
• Total received under the key man insurance policy, including compensation;
• Salary from hardware, factory or furniture belonging to the assessor.

Gift that cannot be charged:

• Gifts received from relatives
• Gifts received during marriage
• Gifts are given by local authorities
• Gifts received in the form of inheritance
• Gifts received from any funds, institutions, hospitals, etc.

Q2. How do we Compute income under the heads of “Profits & Gains of Business or Profession”?

Ans. The amount of net profit is Rs. 4, 00,000m/s D Ltd. And other information provided:

Prepayment income tax=Rs debited to the profit and loss account. 30000

Party brochure printing=Rs. 5000

Return=the amount of money not deposited until the date of submission of Rs. 50,000

What is M / s D Ltd's taxable income?

Q3. Mention the deduction under the head of" profits and profits from business or profession" was mentioned under Sections 30 to 37.

1. Section 30. Deductions must be allowed in the case of leases, fees, taxes, amendments, and insurance for premises used for business or professional purposes.
2. Section 31.  Deductions must be allowed for repairs and insurance of equipment, plants or furniture used for business or professional purposes and must be paid for current repairs.
3. Section 32.  Deterioration of buildings, hardware, plants or furniture, being a tangible asset, know-how, license, copyright, trademark, patent, establishment or some other business or business right of a comparative nature, being an intangible asset that is wholly or somewhat owned by the assessor for business or professional purposes.
4. Section 32AC. Deductions for investments in new factories or hardware, or for investments in new factories or hardware, which are organizations occupied in the business Assembly or production of goods or objects since 31st March 2013.
5. Section 33AB. An assessor undertaking a tea or coffee or rubber development and assembly business in India should be kept on a Tea Board or Coffee Board or Rubber Board or in a record confirmed by the central government and audited by an accountant, six months from the end of the previous year or before the deadline for filing a return of income.
6. Section 33.  An amount or amount deposited in the State Bank of India by an assessor who is continuing a business consisting of exploration, or extraction or generation of oil or natural gas or both in India and agrees to an arrangement with the central government for such business and whose account must be audited by an accountant.
7. Section 33AC. Taking over the business of a vessel by a government organization or a public company, the deduction must be allowed not to exceed 50% of the profit derived from the business of the operation of the vessel.
8. Section 35. In the event of any expenditure on scientific research related to the project, the deduction shall be granted, but the applicant must agree to the prescribed authority for cooperation in the R & D facility and meet the conditions for supporting the maintenance of accounting and auditing.
9. Section 35ABB. Spending on obtaining licenses for media transmission services at any time of the previous year before or after the start of the business, since the instalment for obtaining licenses is actually made.
10. Section 35AC. If the assessor is a public sector company or local authority, or an alliance or establishment approved by the National Commission to implement a qualified venture or plan, the assessor will not be able to determine the status of the project.
11. Section 35AD. In the event that capital expenditures are incurred in whole or exclusively for the purpose of a particular business, a deduction shall be allowed.
12. Section 35CCA. Expenditure by means of instalment to accession and establishment to implement rural development programs.
13. Section 35CCC. Any expenditure incurred on agricultural expansion projects notified by the council shall be allowed to be deducted to a sum equal to half double the expenditure.
14. Section 35CCD. If an organization causes expenditure on a capacity building program advised by the board, that sum must be allowed for a deduction of the sum equivalent to half of the expenditure.
15. Section 35D.Write-off of certain preliminary costs.
16. Section 35E.Deductions of expenditure on exploration for,or extraction or production of certain minerals, the deduction shall be allowed to one-tenth of the amount of such expenditure
17. Section 36. Other deductions include-

• Under Section 36 (1) (I), the amount paid in respect of insurance against the risk of harm or disappearance of shares or stores utilized for business or professional purposes shall not be refunded.
• Under Section 36(1)(ib), the amount of premiums paid by non-cash payment methods by the assessor as an employer towards the health of the employee.
• The amount paid to an employee as a bonus or commission for the services rendered by him under Section 36 (1) (II);
• The amount of interest paid in respect of capital borrowed for business or professional purposes under Section 36(1)(iii).
• The proportional amount of the discount on the zero coupon bond with respect to the life of such bonds, calculated in the manner prescribed under Section 36(1)(iiia).
• Under Section 36(1)(iv)an employer's contribution to a certified Provident Fund is an approved superannuation fund.
• The employer's contribution to the Pension Scheme notified under Section 36 (1) (iva).
• Contributions to GRATUITY funds approved under Section 36(1)(v).
• Employee contributions towards staff welfare schemes under Section 36(1)(va).
• Under Section 36(1)(vi), there is no provision for animals that are used for business or professional purposes and have died or have been found to be worthless all the time.
• Under Section 36(1)(vii), The amount of nonperforming loans associated with the assessor's business or occupation must be written down in the assessor's account book.
• Provisions for bad and bad debt related to rural branches of commercial banks under Section 36 (1) (viia).
• Transfer to a special reserve under Section 36(1)(viii).
• Section 36(1) (ix) under family planning spending.
• Contributions to the exchange risk management fund under Section 36(1)(x).
• Revenue expenditure incurred by an entity established under any central, state or local law under Section 36 (1) (xii).
• Contributions to the Credit Guarantee Trust Fund under Section 36(1)(xiv).
• Section 36 (1) (xvi) under commodity transaction tax.

Section 37 (2B). Gifts, leaflets, regions, handouts or such published by political parties, and expenditures acquired by commercial assessor

Q4. How do we calculate of capital gains?

Ans. Long-term capital gains-The problem-Mr. Shah has a total gross income of Rs. It has invested 4, 00,000 and Rs. It is a tax saving product of 1, 50,000 yen. After applying all deductions, the total taxable income will be Rs. 2, 00,000. And the tax limit on exemption by income tax slab is Rs.2, 50,000. With the sale of gold, he has a long-term capital gain of Rs. 5, 00,000.

Solution-total taxable income=2, 00,000, less than 2, 50,000;

Long-term capital gain@20%=4,50,000 (difference between tax-free limit and actual taxable income)=10,000

This mass mount can save you from tax. The tax rate is the same for short-term capital gains.

Q5. What is the method of Calculating income from home property?

Ans.  Following is the method:

Step 1-subtract the city tax paid annually from the total annual value that will be the net annual value.

Step 2-deduct the amount under Section 24 (a) and Section 24 (b) where the deduction is provided.

For example –

An individual, let’s say Mr. X owns three properties and gives it to rent. What would be the total annual value of all properties? Please see the property details below.-

Ans: Step 1: high value of reasonable expected rent, municipal rent or fair rent.

Step 2: deduct unrealized rent (e.g. 8, 00,000-1,00,000)

Step 3: the higher value calculated from Step 1 and Step 2 will be the total annual income.

Q6. How to calculate of income tax on salaries? Explain it with example.

Ans. Let me give you an example. –

Individuals, for example, let Mr. A receive the following payments –

           Basic salary-rupees. 2, 50,000 per year;

           Dearness Allowance-Rs. 10,000 per year;

           Entertainment Allowance-Rs. 3,000 per year;

           Professional tax-Rs. 1,500 per year;

  After that, how much money will be taxable from his salary?

When examining the total salary = basic salary + attendance allowance + entertainment allowance, etc., 2, 50,000 + 10,000 + 3,000 =2, 63,000

  Under Section 16 (iii) =2, 63,000-1500=Rs per deduction. 2, 61,500

The rate of income tax on income Rs. 2, 61,500 is 5% and equals Rs. This amount of 13,075 is taxable.

Q7. Define salary and Perquisites.

Ans. Section 17 of the Act refers to the term “salary."-

1. Wages;
2. Any pension or pension;
3. Any gratuity;
4. Fees, benefits or benefits in lieu of compensation or wages, or nevertheless;
5. Any advance on salary;
6. Any payment received by the worker with respect to any time of leave not benefited by him;
7. In accordance with Rule 6 of Part A of the fourth schedule may be assessed to a certain extent on pay, the annual savings to the balance of employees participating in the perceived Provident Fund.;
8. To some extent it is billable to be assessed under Rule 2 of the Fourth Schedule Part A Rule 11 sub-rule 4 of the employees participating in the perceived Provident Fund.、
9. Contributions made by the central government or other employer in the previous year to the employee's account under the pension plan listed in Section 80CCD

Allowances 

The employer pays the allowance to his employee to meet his personal expenses. Allowances can be taxed in full or partially.  Some tax allowances include rent allowances and special allowances under Sections 10(14)(i)and(ii). The allowances that are fully taxed are:

• Dearness Allowance
• Overtime allowance
• Flat-rate medical allowance
• Tiffin allowance
• Servant allowance
• Non-internship allowance
• Hill allowance
• Warden and Warden allowance
• Request for refund of overpayment

Perquisites

In addition to their salary, employees are often given some other benefits that may not even be in the form of cash. For example, you can rent free accommodation or a car, which is given to the employee by the employer.

Reimbursement of invoices is not a perk. Perquisites are given only during the continuation of employment. The taxable conditions are

• Rent free accommodation
• Interest-free loans
• Movable property
• Education expenses
• Premiums paid on behalf of employees

The exempted benefits include:

• Medical benefits
• Leaving a travel concession
• Health insurance premiums
• Car, laptop etc. For personal use.
• Staff benefits system

Q8. How can we get a profit instead of a salary?

Ans. Section 17(3) gives a comprehensive sense of profit instead of salary. Payments or unpaid payments that should be paid to employees by the employer. There are two essential features for the payment to be valid under Section 17 (3- )

• There must be compensation received by the assessor from his employer or former employer;
• It is received or in connection with the termination of his employment or adjustment of conditions.

Payments from unrecognized provident or retirement funds are taxable as “benefits instead of salaries “if the balance is an employer contribution or interest on employer contributions.

Exceptions to Article 17 (3) (exemptions under Article 10)

• Death cum retirement gratuity;
• Rent allowance;
• Commuting value of pensions;
• Reduced revenue received by employees;
• Payments received from statutory or authorized reserves;
• Payment from the approved old age fund;
• Payment from the recognized Provident Fund.

Q9. What is CTC?

Ans. CTC is one of the generic names when people talk about salaries. CTC stands for Cost to Company. That's the company amount of spending on hiring and supporting employees.

CTC provides employees with salaries, as well as meal coupons, office space rent, provident fund, medical insurance, rent allowance (HRA) and other elements that can cost the company.

It can be noted that unlike the actual income from the salary a person receives, the CTC also includes variables that exceed the actual salary a person is receiving.

Calculation of Income from salary

Particulars
Basic Salary	—
Add:	—
1. Fees, Commission and Bonus	—
2. Allowances	—
3. Perquisites	—
4. Retirement Benefits	—
5. Fees, Commission and Bonus	—
Gross Salary	—
Less: Deductions from Salary	—
1. Entertainment Allowance u/s 16	—
2. Professional Tax u/s 16	—
Net Salary	—

Q10. To whom will the gratuity is to be paid?

Ans. Gratuity is usually paid to the employee himself, but in case of the death of the employee, it had to be paid to his candidate, and the nomination was made to his heir. If the nominee is a minor, the share of the minor must be deposited with the controlling authority, which must invest the same for the benefit of the minor until he/she achieves a majority.

Maximum payment under the gratuity method, 1972:-

Gratuity paid to government employees will be completely exempt. For non-government employees covered under the gratuity Act payments, in 1972, the maximum limit of the exemption is Rs20lakhs, and for other employees, the maximum limit of the exemption is Rs10Lakhs [Section 4(3)][of course, employers can pay more. The employee also has the right to earn more if it is obtained under an award or contract with the employer, as revealed in Section 4 (5)].

Nomination facility: - Yes, by filling out the Form"F"at the time of the new joinee format, each employee must nominate one or more members of his family, as defined in the act of receiving a tip in the event of the death of the employee.

Tip confiscation: - tip of an employee, whose service has been terminated by wilful omission or negligence, causing damage or loss or destruction to property belonging to the employer, the tip shall be confiscated to the extent of the damage or loss caused. The right to forfeit is limited to the degree of damage.

Gratuity paid to employees shall be completely confiscated:

1. If the services of such an employee are terminated due to his noisy or disorderly conduct or other violent acts, or

2. If the services of such an employee are terminated for acts that constitute a crime involving moral turpitude, provided that such offenses are committed by him in the course of his employment.

Applicability to contract employees:-Yes, the only criterion is to provide the service at once for at least 5 years.

Q11. What are the Ways to calculate income from home property?

Ans. Here's how you calculate your income from a home property:

1. Determine the entire annual value of the property (GAV): the entire annual value of the self-occupied home is zero. For a let-out property, it is the rent collected for a rent home.
2. Reduce property tax: property tax, when paid, is allowed as a deduction from the Gav of property.
3. Determine internet annual value (NAV): net annual value=total annual value-property tax
4. Reduce the NAV 30%towards the quality deduction: 30% of the NAV is allowed as a deduction from the NAV under Section 24 of the tax Act. Other costs, like painting and repairs, can't be billed as tax breaks above the 30% cap under this section.
5. Reduce mortgage interest: deductions under Section 24 also are available for interest paid during the year of a useful mortgage.
6. Determine the income from the house property: the resulting value is your income from the house property. This is often taxed at a rate of slab applicable to you.
7. Loss from home property: when owning a self-occupied home, since there's no gav, claiming a mortgage interest deduction will end in a loss from the house property. During this case, the adjustment to the profit of others won't be.

Q12. Define Income tax on home property.

Ans. Income tax on home property: on owning a home one day–everyone dreams of this, saves towards this and wants to achieve this one day. But it is not without responsibility to own the property of the House. Paying property taxes on the house every year is one of them. If you want to learn how to save taxes on mortgage interest, this guide is for you. It's also talking about how to report home ownership with your income tax return1. Basic knowledge of housing property tax

A home property could be land attached to a building such as Your Home, Office, shop, building or parking lot. The income tax law does not distinguish between commercial and residential real estate. All types of property are taxed under the head of “income from home property “on an income tax return. The owner for income tax purposes is a person who is its legal owner and can exercise the rights of the owner in his own right, and not on behalf of someone else.

If you use property for business or professional purposes, or to perform freelance work, it is taxed under the head of “income from business or profession". The cost of its repair and maintenance is allowed as business expenditure.

1. Self-employed residential property

Self-occupied house properties are used for their own residential purposes. It can be occupied by the taxpayer's family–parents and/or spouses and children. Vacant house property is considered as self-occupied for income tax purposes.

Until 2019-20, if the taxpayer owns more than one self-occupied property, only one will be considered self-occupied property, and the rest will be put out. The choice of property to choose as self-occupied is up to the taxpayer.

From 2019-20, the number of self-employed workers will increase to 2 per cent. Now the homeowner can claim his 2 properties as self-occupied and remaining homes to be put out for income tax purposes.

b. Let the property in the House

A home property that is rented for the whole or part of the year is considered to let the home property for income tax purposes

C. Inherited properties

Inherited property, that is, property bequeathed again from parents, grandparents, etc., can be self-occupied property or released based on its usage as described above.

Q13. When is the deduction limited to Rs30, 000?

Ans. As already mentioned, if the development of the property isn't completed within 5 years, the deduction of interest on the mortgage should be limited to Rs. 30,000. The 5-year period is calculated from the top of the financial year during which the loan was taken. So if the loan was taken on 30th April 2015, construction on the property would need to be completed by 31st March 2021. (The period before the 2016-17 fiscal year was 3 years, but the budget increased to five years in 2016).

Note: the interest deduction can only be charged from the financial year when the development of the property is completed.

Q14. How do I claim a decrease for a loan taken before the development of the property is completed?

Ans. Mortgage interest deductions can't be claimed when the home is under construction. It is often argued only after the top of construction. The amount from borrowing money to the completion of the development of the home is called the amount before construction.

The interest paid during this era is often claimed as a decrease in equal instalments ranging from the year the development of the property is completed. During this example, better understand the pre-construction interest.

Q15. Give an example of the big budget changes and impacts of 2017

Ans. Here's an example of the big budget changes and impacts of 2017.

Until the 2016-17 fiscal years, losses under the main family property can be set off against other heads of income without any restrictions. However, in the 2017-18 financial years, it is limited to 2 million units. This amendment would not actually affect taxpayers with self-occupied house property. The move will affect taxpayers who are letting out/renting their property. There is no bar on the amount of interest on the mortgage, which can be claimed as a deduction under Section 24 for property in rental housing, but the losses that may arise for such interest payments can be set off only in the range of Rs2lakhs.

Here are some examples to help you understand the impact of the amendment:

Workings for Income from House Property

Q16. Define Capital assets.

Ans. Capital asset is any property held by the assessor of income tax except Jewellery, drawings, paintings. Items held for a person's business or profession (inventory, ready goods, raw materials) are taxed under the head of the interests and interests of the business or profession

Agricultural land means land on which agricultural income is obtained. Land that is outside the city, not the municipality, 8 kilometres, and whose population is less than 10,000, is eligible to be agricultural land

Q17. What are the two types of capital assets?

Ans. Two types are:

Short-term capital assets: this is an asset held for no more than 36 months immediately before the transfer date. This period of 36 months is replaced by 12 months in the case of certain assets such as shares held in the company or preferred shares, other security listed on the recognized stock exchange of India, certain stocks mutual funds and units of zero coupon bonds.

Long-term capital asset: this is an asset that is held for 36 or 12 months or more in some cases. A transfer is defined as the sale of an asset, the waiver of rights to the asset, the compulsory acquisition by law, or the maturity of the asset. Many transactions are not considered transfers, such as transferring capital assets under a will. If a unit of a stock or stock diversification mutual fund held for more than a year, it is subject to long-term capital gains. In the case of real estate, if it is held for more than two years, it is eligible for long-term capital gains. Earlier in the financial Act 2017, Real Estate was considered as a long-term capital asset only if it was held for more than three years.

Q18. Show the tax slab of Tax on Equity and Debt Mutual Funds.

Ans.Gains made on the sale of debt funds and equity funds are treated differently. Any fund that invests heavily in equities (more than 65% of their total portfolio) is called an equity fund.

Capital gains:

• The assessor must own capital assets
• The assessor must have transferred capital assets in the previous year.
• There must have been a profit or profit as a result of such a transfer

Q19. What kind of Tax liabilities are linked to fixed assets and not linked?

Ans.  For long-term capital gains, tax liability is lower than the amount arrived by two:

• 20% tax liability has arrived by the indexing act
• 10% tax liability arrived without using indexing method

In the above example, using indexing, the tax liability would be (20/100) x7, 20,000=Rs1, 44,000. Without indexing: capital gain=selling price of the asset-acquisition cost=60, 00,000-20, 00,000=Rs40, 00, 000. The capital gains tax on this is 10 per cent= (10/100) x40, 00,000=Rs4, 00, 000. This is an advantage to use indexation as it benefits in tax savings.

Q20.What are the exemption on the sale of home property under section 54?

Ans. Section 54: exemption on the sale of home property within the purchase of other home property

• Exemption of capital gains under Section 54: however, capital gains on the sale of residential property shall not exceed Rs2crores, until the assessor has two House properties against the previous offer of one house property on the same terms.
• Exemptions under Section 54 are available when capital gains from the sale of residential property are reinvested in the purchase or construction of another residential property (prior to the 2019 budget, capital gains exemptions were limited to 1 residential property only).Exemptions for two-home properties are allowed once in a taxpayer's lifetime unless capital gains exceed Rs. Crowless 2-piece set taxpayers need to invest capital gains amounts rather than the entire sale proceeds. If the purchase price of the new property is higher than the amount of capital gains, the exemption shall be limited to the sum of capital gains at the time of sale.

Conditions for this benefit to be useful

1. The new property are often purchased either 1 year before the sale or
2. Years after the sale of the property.
3.   Profit can also be invested in the construction of the property, but the construction must be completed within three years from the date of sale.
4. The 2014-15 budgets reveal that only 1 House can be bought or built from capital gains to claim this exemption.
5. Please note that if this new property is sold within 3 years of the completion of its purchase/construction, you can regain this exemption.

Q21. When can I invest in a Capital Gains Account Scheme?

Ans. Finding a suitable seller, placing the necessary funds and getting documents in place for a new property is a time-consuming process. Fortunately, the Income Tax department agrees with these restrictions. If the capital gains are not invested until the filing date of return (usually 31July) for the fiscal year in which the property is sold, the profit is not required to pay taxes, the Capital Gains Account Scheme, 1988 this deposit can be claimed as an exemption from the capital gains. However, if the funds are not invested, the deposit shall be treated as a short-term capital gain for the years after the specified period has passed.

Q22.  What is Business?

Ans. Income from a business or occupation can only be taxed if the business or occupation is carried by the taxpayer at any time during the previous year. Let's first understand what business is.:

Business, in simple words, means a profession carried by a person with a view to profit. Business does not include profits from the profession or affiliated companies. In this business、 –

•Trade,

•Commerce,

•Manufacturing,

Think of things as rendering services and other businesses

For example: owning a store, running a hotel, transportation, travel agency, share broking, etc. a profession may be defined as a profession, or a job that requires thought, skill and special knowledge. Thus the profession refers to those activities whose livelihood is obtained by persons through their intellectual or manual skills such as:

•Legal

•Medical

•Engineer

•Certified Public Accountant

•Architecture, etc.

Q23. What are the allowable expenses from business and occupational income?

Ans. All expenses incurred in full and exclusively with respect to business and profession shall be allowed for income from such business and profession. Here's some of the spending:

• Building rent and insurance.
• Payment for legal and professional services.
• Salaries, bonuses, commissions, etc. to employees.
• Salary, interest and compensation for partners who work under certain conditions.
• Cost of travel and transmission.
• Admission fee and annual membership fee
• Payment of know-how, patents, copyrights, trademarks and licenses.
• Depreciation of fixed assets.
• Expenditure on scientific research for business purposes.
• Preliminary expenses in the case of the company.
• Communication costs
• Discounts are allowed to customers.
• Advertising costs for the promotion of business products.
• Financial expenses (eg. Interest on the loan).
• Bank fees/bank fees.
• Entertainment/business promotion costs.
• Staff benefits costs.
• Cost of printing and stationery.
• Cost of shipping cost.
• All other expenses related to business/occupation.

All these costs are allowed on the basis of actual payments and on the basis of accrual on the last day of the account. For example: an employee will receive a salary for the month of May 2020 in April 2020. However, since the salary is related to the 2019-20 financial year (ending on 31st March 2020), it is not necessary to charge for income from business/professional income for the 2019-20 financial year.

Q24. How do we calculate of taxable income from business and profession?

Ans. Taxable income from business and occupation is profit after deducting costs associated with business activities. Taxpayers can find profits from the books maintained during the year. Income obtained from business and occupation is taxable at the slab rate that applies to taxpayers. Slab charges applicable in 2019-20 / 2020-21 are as follows:

An additional 4% Health and Educational Cess will be applicable to the tax amount calculated.

Q25. How to set of losses from business and profession and carryover?

Ans.  The following are the ways:

• Non-speculative business losses can be set off against any income other than salary in the current year. Taxpayers can carry forward the remaining losses for 8 years and set off against business income in future years.
• Speculative business losses can be offset against speculative business income only. The taxpayer can carry forward the remaining loss for 4 years and offset it only for future speculative business income.
• Specify the business loss can be set against any income other than salary in the current year. Taxpayers can carry forward the remaining losses for 9 years and set off against business income in future years.

TDs / advance tax on income from business and occupation

The taxpayer is required to pay taxes on the income obtained from business or professional activities. Direct tax on income can be paid in 2 ways:

• TDS (withholding tax): TDS to pay while you earn the concept is deducted on payments made to taxpayers for goods and services sold. Hence business owners need to keep in mind the TDS that are deducted by their customers. You can claim deductible TDs while submitting an ITR for a business or occupation. And if there is any loss from B&P it will become your refund, and if you get any profit from B&P it will reduce your tax liability.
• Advance tax: if the tax liability is expected to exceed Rs. 10,000, the taxpayer must calculate and pay the advance tax. This is to avoid interest under sections 234B and 234C:

Q26. Explain Taxes for freelancers.

Ans. Freelancers are people who are self-employed. They have the freedom to choose their own projects and assignments. They do not earn salary income. The nature of their income is more professional income. Therefore, it is covered under the head" income from business and occupation "under the Income Tax Act.

The sum of all receipts received from different projects will be income. And all costs associated with freelancers will be deducted. Below are the taxable incomes of freelancers:

Net taxable income=gross receipts–freelance expenses

Q27. What is speculative business income filing your tax return?

Ans. First of all, to understand speculative business income, you need to understand what speculative trading is.

When a contract for the purchase and sale of goods (including stocks and shares) is regularly or eventually settled without the actual delivery or transfer of the goods, it is called a speculative transaction, and if it is to receive income from such transactions, it will be income from speculative transactions.

One example of a speculative business is a stock brokerage, where a broker earns money by buying and selling goods without taking delivery of the same. Income from ordinary business and speculative business is calculated and maintained separately.           

Q28. What are the basis of income charges under business and profession under Section 28?

Ans. The income imposed under" profit and profit of a business or profession" is as follows:

• Profits and profits from any business/profession carried by the assessor at any time during the previous year
• Any compensation/other payment received by or by,—any person, by any name, to cover the whole or significant whole of the affairs of the Indian company.
• Profit from the acquisition of trade from the Association of certain services performed by its members
• Value of any perk/profit from business or profession, whether it is converted into money
• Interest, fees, salaries, rewards, or bonuses received by or from company partners
• All sums received under the key man insurance policy, including the sum given as a bonus
• Income from any speculative transactions
• Any sum, whether received/Accounts Receivable, Cash/for type:

1. To not perform any acts related to any business, or
2. To not share know-how, patents, copyrights, trademarks, licenses, franchises or other business/commercial rights

• Profit incurred by transfer of Duty-Free replenishment certificate
• Any profits made by the transfer of Duty qualified passbook scheme
• Profits made from the sale of licenses made under the import (control) instruction, 1955, import and Export (Control) Act, 1947 (18 of 1947))
• Tax-free income under business and occupation

Q29. Mention the deduction [Section 57].

Ans. The following expenditures are allowed as deductions from taxable income under the top of “other sources income:

Q30. What expenses are not deductible under section 58?

Ans. Expenses not deductible [Section 58]:

Q31.How do we calculate Taxes?

Ans. Calculation of Taxes:

1. First, find income under various heads;

2. In accordance with the provisions of Section 70-78 of the Income Tax Act, 1961, the current losses as well as adjustments for previous years. We find the total income;

3. From gross income to deduct the deductions specified under via chapter, we find net income;

4. Net income application @ 30%

5. Added: surcharges@10% if net profit increases Rs. 1.0 crore;

6. Additional: education cess and special education cess;

7. Deduct rebates if under sections 86, 90,90A and 91;

8. Additional: if there is interest expense;

9. Deductible: deductible if there are taxes/TDs paid in advance;

10. The balance will be the amount of tax to be paid

UNIT II

UNIT II

Computation of Income under Various Heads

Q1. Explain the 5 main heads of income.

Ans. The 5 main heads of income are-

• Income from salary
• Income from home property
• Capital gains
• Profit and profit from business and profession
• Income from other sources

1. Income from salary

Section 15 of the law establishes the conditions under which income falls under the head of the “salary".’

• Compensation, whether paid or not, is paid by the employer to the former employee (assessor) during the previous year's employment period.
• Salary paid to the employee by the employer or former employer in the previous year, even though it was not due to him.
• Salaries paid to employees by the employer or former employer in the previous year that was not charged under Income Tax in other previous years.

An important element of this head is that it mandates the relationship between the employer and the employee. If there is no relationship between the employer and the employee, then the income is not accessible under the head of the salary.

2.     Income from home property

The assessor is the owner separately from the property that is used for business or profession, and the proceeds that are taxed under the Income Tax Act are divided into the range of income from residential property (section 22).)

Income from home property includes lease and accredited ownership.

Income from the property of the house is taxable after taking into account the deductions under Section 24 of the law. In the case of repair or maintenance of the property, thirty percent of the net annual value is deducted. This deduction is not allowed on self-occupied property.

For the purpose of calculating income from the property of the house, the property of the house is divided into three categories. House property :

• It was put out during the previous year.
• Let's go out partly, partly vacant.
• It is a servant when it is cut.

Deemed ownership-

Section 27 provides that a particular person is not the legal owner of the property, but under certain conditions is still considered to be the owner.

• Condition 1-handover of property to a child or partner, without consideration.
• Condition 2-the holder of the concessional property is considered the owner of the entire estate.
• Condition 3-a member of a cooperative or company or person's Association
• Condition 4-a person who owns a property on lease for 12 years or more in accordance with Section 269UA(f).

Property co-owners-Section 26

If there is more than one owner and the share of the co-owner is determined, the income arising from such property is calculated as income from one property, and the co-owner they are entitled to relief under Article 23.

Unrealized rent (rent not paid by the tenant for any reason)

Unrealized rent is not included in the calculation of the net annual value. If the rent is received in subsequent years, the amount is added to the income from the property of the house for that particular year.

Loss set-off and carryover

Under Section 70 of the Income Tax Act, if a person suffers losses from home property, he can set them off from the income of other home property.

Article 71 of the Act provides for a provision to offset losses from home property from the head of other income, but does not provide for casual income (income that may not occur again).)

Unadjusted losses can be carried forward for a maximum period of 8 years starting from the year following the year in which the loss occurred. In subsequent years, the set-off is allowed only from the head “income from the property of the House". 

The amount of loss that can be set off on the property of the house from the other income head is limited to Rs 2lakh if either the house is self-occupied or the property is sold.

3.           Income from capital gains

Profits or profits arising from the exchange of capital assets held as investments are charged under the head capital gains. The gain can be for short-term and long-term gains. Capital gains appear when capital assets are transferred. This means whether the moved asset is certainly not a capital asset. The profit or profit that appeared in the previous year, when the transfer was made, is considered the income of the previous year and, if applicable, is imposed on it under the head capital gain and indexation.

To fall into the range of income from capital gains, you need –

• Capital assets
• This is forwarded by the assessor
• The transfer took place in the final year
• Profit or loss is arising from it

Capital assets include all types of property owned by the assessor, whether tangible or intangible, movable or motionless, and may be used for business and professional purposes.

Capital assets do not include assets such as stocks in trade, used personal goods, agricultural land.

Capital gains are two types

1. Short-term capital assets-assets held by the assessor for up to 36 months immediately prior to the transfer date. 

ITO v. Narayana K Shah 2000 74 ITD 419 Mums. 

In this case, the court ruled that if the assessor held certain shares of the company that were granted ownership of the flat, these shares could not be treated as"shares"as set forth in Paragraph 2 (42A), and if sold after holding for less than 36 months, the resulting profits should be treated as short-term capital gains.

2. Long-term capital assets-assets held by the assessor for more than 36 months. Long-term capital gains are generally taxed at lower rates. 

Long-term capital assets may not require a period of 36 months, and assets held for 12 months or more are valid for long-term capital assets. These conditions are –

• Listed or preferred shares;
• Securities listed on recognized stock exchanges, such as bonds, stock exchanges;
• UTI units;
• Mutual fund units;
• Zero coupon bond;
• Unlisted or preferential shares;
• A unit of a stock-oriented fund.

The tax on long-term capital assets is 20 percent.

Exemptions under Section 54:

Exemptions on the transfer of long-term capital assets only if the assessor is an individual or a Hindu Undivided Family. Capital gains arise from the transfer of residential property in which the evaluator has purchased the property of another house within a year or two prior to the date of the transfer or transfer.

The amount of exemptions available is either less on capital gains and new home costs.

4.           Income from profits and profits from business and profession

Business and occupation are defined under Section 2 (13) and Section 2 (36), respectively.

Business. This includes trade, commerce or manufacturing, or adventure or concern in the nature of trade, commerce, or manufacturing.

Occupation. "Occupation" includes occupation.

Article 28 of the Income Tax Act covers "interests and interests of businesses or occupations “and has the following income imposed under the heading “interests and interests of businesses or occupations":” :

• Interests and interests of any business or profession;
• Any compensation or other payment by the person specified in Article 28 (II), by the Indian company or any person in charge of all operations other than the Indian company, or any compensation or other payment received shall be made at the end of his management.;
• Trade from Express services performed for its members, determined by experts or equivalent associations.;
• Benefits of sales of import qualification licenses, incentives by cash compensation support, disadvantages of Duty;
• Any benefits regarding the replacement of Duty qualified passbook scheme;
• Any benefits on the exchange of Duty Free replenishment certificate;
• Estimates of any profits or perks, whether coming out of business or professional activities and turning into money;
• Interest, payment, compensation, commission or compensation received by company partners from such companies;
• Any amount received under the key man insurance policy, including bonuses;
• Income from speculative transactions;
• If the exhaustive expenditure of such capital assets is allowed as a deduction under Section 35AD, the sum received in real money or in kind by which capital assets are destroyed, destroyed, disposed of or transferred.

5.           Income from other sources

All types of income not covered by the above head are covered under this head and are paid. Income from other sources is provided for in Section 56 of the act. Some of these are:

• Dividends in Section 2 (22));
• Win from lotteries, horse racing, crossword puzzles, and other games;
• Contributions received by the employer as evaluator from his work towards staff welfare schemes;
• Interest on corporate bonds, government bonds/bonds;
• If the assessor leaves to the contract apparatus, plants or furniture belonging to him and further buildings, then the payment from this can be assessed as a salary from other sources, if it is not taxable under the head of “interests and interests of business or profession”;
• Total received under the key man insurance policy, including compensation;
• Salary from hardware, factory or furniture belonging to the assessor.

Gift that cannot be charged:

• Gifts received from relatives
• Gifts received during marriage
• Gifts are given by local authorities
• Gifts received in the form of inheritance
• Gifts received from any funds, institutions, hospitals, etc.

Q2. How do we Compute income under the heads of “Profits & Gains of Business or Profession”?

Ans. The amount of net profit is Rs. 4, 00,000m/s D Ltd. And other information provided:

Prepayment income tax=Rs debited to the profit and loss account. 30000

Party brochure printing=Rs. 5000

Return=the amount of money not deposited until the date of submission of Rs. 50,000

What is M / s D Ltd's taxable income?

Q3. Mention the deduction under the head of" profits and profits from business or profession" was mentioned under Sections 30 to 37.

1. Section 30. Deductions must be allowed in the case of leases, fees, taxes, amendments, and insurance for premises used for business or professional purposes.
2. Section 31.  Deductions must be allowed for repairs and insurance of equipment, plants or furniture used for business or professional purposes and must be paid for current repairs.
3. Section 32.  Deterioration of buildings, hardware, plants or furniture, being a tangible asset, know-how, license, copyright, trademark, patent, establishment or some other business or business right of a comparative nature, being an intangible asset that is wholly or somewhat owned by the assessor for business or professional purposes.
4. Section 32AC. Deductions for investments in new factories or hardware, or for investments in new factories or hardware, which are organizations occupied in the business Assembly or production of goods or objects since 31st March 2013.
5. Section 33AB. An assessor undertaking a tea or coffee or rubber development and assembly business in India should be kept on a Tea Board or Coffee Board or Rubber Board or in a record confirmed by the central government and audited by an accountant, six months from the end of the previous year or before the deadline for filing a return of income.
6. Section 33.  An amount or amount deposited in the State Bank of India by an assessor who is continuing a business consisting of exploration, or extraction or generation of oil or natural gas or both in India and agrees to an arrangement with the central government for such business and whose account must be audited by an accountant.
7. Section 33AC. Taking over the business of a vessel by a government organization or a public company, the deduction must be allowed not to exceed 50% of the profit derived from the business of the operation of the vessel.
8. Section 35. In the event of any expenditure on scientific research related to the project, the deduction shall be granted, but the applicant must agree to the prescribed authority for cooperation in the R & D facility and meet the conditions for supporting the maintenance of accounting and auditing.
9. Section 35ABB. Spending on obtaining licenses for media transmission services at any time of the previous year before or after the start of the business, since the instalment for obtaining licenses is actually made.
10. Section 35AC. If the assessor is a public sector company or local authority, or an alliance or establishment approved by the National Commission to implement a qualified venture or plan, the assessor will not be able to determine the status of the project.
11. Section 35AD. In the event that capital expenditures are incurred in whole or exclusively for the purpose of a particular business, a deduction shall be allowed.
12. Section 35CCA. Expenditure by means of instalment to accession and establishment to implement rural development programs.
13. Section 35CCC. Any expenditure incurred on agricultural expansion projects notified by the council shall be allowed to be deducted to a sum equal to half double the expenditure.
14. Section 35CCD. If an organization causes expenditure on a capacity building program advised by the board, that sum must be allowed for a deduction of the sum equivalent to half of the expenditure.
15. Section 35D.Write-off of certain preliminary costs.
16. Section 35E.Deductions of expenditure on exploration for,or extraction or production of certain minerals, the deduction shall be allowed to one-tenth of the amount of such expenditure
17. Section 36. Other deductions include-

• Under Section 36 (1) (I), the amount paid in respect of insurance against the risk of harm or disappearance of shares or stores utilized for business or professional purposes shall not be refunded.
• Under Section 36(1)(ib), the amount of premiums paid by non-cash payment methods by the assessor as an employer towards the health of the employee.
• The amount paid to an employee as a bonus or commission for the services rendered by him under Section 36 (1) (II);
• The amount of interest paid in respect of capital borrowed for business or professional purposes under Section 36(1)(iii).
• The proportional amount of the discount on the zero coupon bond with respect to the life of such bonds, calculated in the manner prescribed under Section 36(1)(iiia).
• Under Section 36(1)(iv)an employer's contribution to a certified Provident Fund is an approved superannuation fund.
• The employer's contribution to the Pension Scheme notified under Section 36 (1) (iva).
• Contributions to GRATUITY funds approved under Section 36(1)(v).
• Employee contributions towards staff welfare schemes under Section 36(1)(va).
• Under Section 36(1)(vi), there is no provision for animals that are used for business or professional purposes and have died or have been found to be worthless all the time.
• Under Section 36(1)(vii), The amount of nonperforming loans associated with the assessor's business or occupation must be written down in the assessor's account book.
• Provisions for bad and bad debt related to rural branches of commercial banks under Section 36 (1) (viia).
• Transfer to a special reserve under Section 36(1)(viii).
• Section 36(1) (ix) under family planning spending.
• Contributions to the exchange risk management fund under Section 36(1)(x).
• Revenue expenditure incurred by an entity established under any central, state or local law under Section 36 (1) (xii).
• Contributions to the Credit Guarantee Trust Fund under Section 36(1)(xiv).
• Section 36 (1) (xvi) under commodity transaction tax.

Section 37 (2B). Gifts, leaflets, regions, handouts or such published by political parties, and expenditures acquired by commercial assessor

Q4. How do we calculate of capital gains?

Ans. Long-term capital gains-The problem-Mr. Shah has a total gross income of Rs. It has invested 4, 00,000 and Rs. It is a tax saving product of 1, 50,000 yen. After applying all deductions, the total taxable income will be Rs. 2, 00,000. And the tax limit on exemption by income tax slab is Rs.2, 50,000. With the sale of gold, he has a long-term capital gain of Rs. 5, 00,000.

Solution-total taxable income=2, 00,000, less than 2, 50,000;

Long-term capital gain@20%=4,50,000 (difference between tax-free limit and actual taxable income)=10,000

This mass mount can save you from tax. The tax rate is the same for short-term capital gains.

Q5. What is the method of Calculating income from home property?

Ans.  Following is the method:

Step 1-subtract the city tax paid annually from the total annual value that will be the net annual value.

Step 2-deduct the amount under Section 24 (a) and Section 24 (b) where the deduction is provided.

For example –

An individual, let’s say Mr. X owns three properties and gives it to rent. What would be the total annual value of all properties? Please see the property details below.-

Ans: Step 1: high value of reasonable expected rent, municipal rent or fair rent.

Step 2: deduct unrealized rent (e.g. 8, 00,000-1,00,000)

Step 3: the higher value calculated from Step 1 and Step 2 will be the total annual income.

Q6. How to calculate of income tax on salaries? Explain it with example.

Ans. Let me give you an example. –

Individuals, for example, let Mr. A receive the following payments –

           Basic salary-rupees. 2, 50,000 per year;

           Dearness Allowance-Rs. 10,000 per year;

           Entertainment Allowance-Rs. 3,000 per year;

           Professional tax-Rs. 1,500 per year;

  After that, how much money will be taxable from his salary?

When examining the total salary = basic salary + attendance allowance + entertainment allowance, etc., 2, 50,000 + 10,000 + 3,000 =2, 63,000

  Under Section 16 (iii) =2, 63,000-1500=Rs per deduction. 2, 61,500

The rate of income tax on income Rs. 2, 61,500 is 5% and equals Rs. This amount of 13,075 is taxable.

Q7. Define salary and Perquisites.

Ans. Section 17 of the Act refers to the term “salary."-

1. Wages;
2. Any pension or pension;
3. Any gratuity;
4. Fees, benefits or benefits in lieu of compensation or wages, or nevertheless;
5. Any advance on salary;
6. Any payment received by the worker with respect to any time of leave not benefited by him;
7. In accordance with Rule 6 of Part A of the fourth schedule may be assessed to a certain extent on pay, the annual savings to the balance of employees participating in the perceived Provident Fund.;
8. To some extent it is billable to be assessed under Rule 2 of the Fourth Schedule Part A Rule 11 sub-rule 4 of the employees participating in the perceived Provident Fund.、
9. Contributions made by the central government or other employer in the previous year to the employee's account under the pension plan listed in Section 80CCD

Allowances 

The employer pays the allowance to his employee to meet his personal expenses. Allowances can be taxed in full or partially.  Some tax allowances include rent allowances and special allowances under Sections 10(14)(i)and(ii). The allowances that are fully taxed are:

• Dearness Allowance
• Overtime allowance
• Flat-rate medical allowance
• Tiffin allowance
• Servant allowance
• Non-internship allowance
• Hill allowance
• Warden and Warden allowance
• Request for refund of overpayment

Perquisites

In addition to their salary, employees are often given some other benefits that may not even be in the form of cash. For example, you can rent free accommodation or a car, which is given to the employee by the employer.

Reimbursement of invoices is not a perk. Perquisites are given only during the continuation of employment. The taxable conditions are

• Rent free accommodation
• Interest-free loans
• Movable property
• Education expenses
• Premiums paid on behalf of employees

The exempted benefits include:

• Medical benefits
• Leaving a travel concession
• Health insurance premiums
• Car, laptop etc. For personal use.
• Staff benefits system

Q8. How can we get a profit instead of a salary?

Ans. Section 17(3) gives a comprehensive sense of profit instead of salary. Payments or unpaid payments that should be paid to employees by the employer. There are two essential features for the payment to be valid under Section 17 (3- )

• There must be compensation received by the assessor from his employer or former employer;
• It is received or in connection with the termination of his employment or adjustment of conditions.

Payments from unrecognized provident or retirement funds are taxable as “benefits instead of salaries “if the balance is an employer contribution or interest on employer contributions.

Exceptions to Article 17 (3) (exemptions under Article 10)

• Death cum retirement gratuity;
• Rent allowance;
• Commuting value of pensions;
• Reduced revenue received by employees;
• Payments received from statutory or authorized reserves;
• Payment from the approved old age fund;
• Payment from the recognized Provident Fund.

Q9. What is CTC?

Ans. CTC is one of the generic names when people talk about salaries. CTC stands for Cost to Company. That's the company amount of spending on hiring and supporting employees.

CTC provides employees with salaries, as well as meal coupons, office space rent, provident fund, medical insurance, rent allowance (HRA) and other elements that can cost the company.

It can be noted that unlike the actual income from the salary a person receives, the CTC also includes variables that exceed the actual salary a person is receiving.

Calculation of Income from salary

Particulars
Basic Salary	—
Add:	—
1. Fees, Commission and Bonus	—
2. Allowances	—
3. Perquisites	—
4. Retirement Benefits	—
5. Fees, Commission and Bonus	—
Gross Salary	—
Less: Deductions from Salary	—
1. Entertainment Allowance u/s 16	—
2. Professional Tax u/s 16	—
Net Salary	—

Q10. To whom will the gratuity is to be paid?

Ans. Gratuity is usually paid to the employee himself, but in case of the death of the employee, it had to be paid to his candidate, and the nomination was made to his heir. If the nominee is a minor, the share of the minor must be deposited with the controlling authority, which must invest the same for the benefit of the minor until he/she achieves a majority.

Maximum payment under the gratuity method, 1972:-

Gratuity paid to government employees will be completely exempt. For non-government employees covered under the gratuity Act payments, in 1972, the maximum limit of the exemption is Rs20lakhs, and for other employees, the maximum limit of the exemption is Rs10Lakhs [Section 4(3)][of course, employers can pay more. The employee also has the right to earn more if it is obtained under an award or contract with the employer, as revealed in Section 4 (5)].

Nomination facility: - Yes, by filling out the Form"F"at the time of the new joinee format, each employee must nominate one or more members of his family, as defined in the act of receiving a tip in the event of the death of the employee.

Tip confiscation: - tip of an employee, whose service has been terminated by wilful omission or negligence, causing damage or loss or destruction to property belonging to the employer, the tip shall be confiscated to the extent of the damage or loss caused. The right to forfeit is limited to the degree of damage.

Gratuity paid to employees shall be completely confiscated:

1. If the services of such an employee are terminated due to his noisy or disorderly conduct or other violent acts, or

2. If the services of such an employee are terminated for acts that constitute a crime involving moral turpitude, provided that such offenses are committed by him in the course of his employment.

Applicability to contract employees:-Yes, the only criterion is to provide the service at once for at least 5 years.

Q11. What are the Ways to calculate income from home property?

Ans. Here's how you calculate your income from a home property:

1. Determine the entire annual value of the property (GAV): the entire annual value of the self-occupied home is zero. For a let-out property, it is the rent collected for a rent home.
2. Reduce property tax: property tax, when paid, is allowed as a deduction from the Gav of property.
3. Determine internet annual value (NAV): net annual value=total annual value-property tax
4. Reduce the NAV 30%towards the quality deduction: 30% of the NAV is allowed as a deduction from the NAV under Section 24 of the tax Act. Other costs, like painting and repairs, can't be billed as tax breaks above the 30% cap under this section.
5. Reduce mortgage interest: deductions under Section 24 also are available for interest paid during the year of a useful mortgage.
6. Determine the income from the house property: the resulting value is your income from the house property. This is often taxed at a rate of slab applicable to you.
7. Loss from home property: when owning a self-occupied home, since there's no gav, claiming a mortgage interest deduction will end in a loss from the house property. During this case, the adjustment to the profit of others won't be.

Q12. Define Income tax on home property.

Ans. Income tax on home property: on owning a home one day–everyone dreams of this, saves towards this and wants to achieve this one day. But it is not without responsibility to own the property of the House. Paying property taxes on the house every year is one of them. If you want to learn how to save taxes on mortgage interest, this guide is for you. It's also talking about how to report home ownership with your income tax return1. Basic knowledge of housing property tax

A home property could be land attached to a building such as Your Home, Office, shop, building or parking lot. The income tax law does not distinguish between commercial and residential real estate. All types of property are taxed under the head of “income from home property “on an income tax return. The owner for income tax purposes is a person who is its legal owner and can exercise the rights of the owner in his own right, and not on behalf of someone else.

If you use property for business or professional purposes, or to perform freelance work, it is taxed under the head of “income from business or profession". The cost of its repair and maintenance is allowed as business expenditure.

1. Self-employed residential property

Self-occupied house properties are used for their own residential purposes. It can be occupied by the taxpayer's family–parents and/or spouses and children. Vacant house property is considered as self-occupied for income tax purposes.

Until 2019-20, if the taxpayer owns more than one self-occupied property, only one will be considered self-occupied property, and the rest will be put out. The choice of property to choose as self-occupied is up to the taxpayer.

From 2019-20, the number of self-employed workers will increase to 2 per cent. Now the homeowner can claim his 2 properties as self-occupied and remaining homes to be put out for income tax purposes.

b. Let the property in the House

A home property that is rented for the whole or part of the year is considered to let the home property for income tax purposes

C. Inherited properties

Inherited property, that is, property bequeathed again from parents, grandparents, etc., can be self-occupied property or released based on its usage as described above.

Q13. When is the deduction limited to Rs30, 000?

Ans. As already mentioned, if the development of the property isn't completed within 5 years, the deduction of interest on the mortgage should be limited to Rs. 30,000. The 5-year period is calculated from the top of the financial year during which the loan was taken. So if the loan was taken on 30th April 2015, construction on the property would need to be completed by 31st March 2021. (The period before the 2016-17 fiscal year was 3 years, but the budget increased to five years in 2016).

Note: the interest deduction can only be charged from the financial year when the development of the property is completed.

Q14. How do I claim a decrease for a loan taken before the development of the property is completed?

Ans. Mortgage interest deductions can't be claimed when the home is under construction. It is often argued only after the top of construction. The amount from borrowing money to the completion of the development of the home is called the amount before construction.

The interest paid during this era is often claimed as a decrease in equal instalments ranging from the year the development of the property is completed. During this example, better understand the pre-construction interest.

Q15. Give an example of the big budget changes and impacts of 2017

Ans. Here's an example of the big budget changes and impacts of 2017.

Until the 2016-17 fiscal years, losses under the main family property can be set off against other heads of income without any restrictions. However, in the 2017-18 financial years, it is limited to 2 million units. This amendment would not actually affect taxpayers with self-occupied house property. The move will affect taxpayers who are letting out/renting their property. There is no bar on the amount of interest on the mortgage, which can be claimed as a deduction under Section 24 for property in rental housing, but the losses that may arise for such interest payments can be set off only in the range of Rs2lakhs.

Here are some examples to help you understand the impact of the amendment:

Workings for Income from House Property

Q16. Define Capital assets.

Ans. Capital asset is any property held by the assessor of income tax except Jewellery, drawings, paintings. Items held for a person's business or profession (inventory, ready goods, raw materials) are taxed under the head of the interests and interests of the business or profession

Agricultural land means land on which agricultural income is obtained. Land that is outside the city, not the municipality, 8 kilometres, and whose population is less than 10,000, is eligible to be agricultural land

Q17. What are the two types of capital assets?

Ans. Two types are:

Short-term capital assets: this is an asset held for no more than 36 months immediately before the transfer date. This period of 36 months is replaced by 12 months in the case of certain assets such as shares held in the company or preferred shares, other security listed on the recognized stock exchange of India, certain stocks mutual funds and units of zero coupon bonds.

Long-term capital asset: this is an asset that is held for 36 or 12 months or more in some cases. A transfer is defined as the sale of an asset, the waiver of rights to the asset, the compulsory acquisition by law, or the maturity of the asset. Many transactions are not considered transfers, such as transferring capital assets under a will. If a unit of a stock or stock diversification mutual fund held for more than a year, it is subject to long-term capital gains. In the case of real estate, if it is held for more than two years, it is eligible for long-term capital gains. Earlier in the financial Act 2017, Real Estate was considered as a long-term capital asset only if it was held for more than three years.

Q18. Show the tax slab of Tax on Equity and Debt Mutual Funds.

Ans.Gains made on the sale of debt funds and equity funds are treated differently. Any fund that invests heavily in equities (more than 65% of their total portfolio) is called an equity fund.

Capital gains:

• The assessor must own capital assets
• The assessor must have transferred capital assets in the previous year.
• There must have been a profit or profit as a result of such a transfer

Q19. What kind of Tax liabilities are linked to fixed assets and not linked?

Ans.  For long-term capital gains, tax liability is lower than the amount arrived by two:

• 20% tax liability has arrived by the indexing act
• 10% tax liability arrived without using indexing method

In the above example, using indexing, the tax liability would be (20/100) x7, 20,000=Rs1, 44,000. Without indexing: capital gain=selling price of the asset-acquisition cost=60, 00,000-20, 00,000=Rs40, 00, 000. The capital gains tax on this is 10 per cent= (10/100) x40, 00,000=Rs4, 00, 000. This is an advantage to use indexation as it benefits in tax savings.

Q20.What are the exemption on the sale of home property under section 54?

Ans. Section 54: exemption on the sale of home property within the purchase of other home property

• Exemption of capital gains under Section 54: however, capital gains on the sale of residential property shall not exceed Rs2crores, until the assessor has two House properties against the previous offer of one house property on the same terms.
• Exemptions under Section 54 are available when capital gains from the sale of residential property are reinvested in the purchase or construction of another residential property (prior to the 2019 budget, capital gains exemptions were limited to 1 residential property only).Exemptions for two-home properties are allowed once in a taxpayer's lifetime unless capital gains exceed Rs. Crowless 2-piece set taxpayers need to invest capital gains amounts rather than the entire sale proceeds. If the purchase price of the new property is higher than the amount of capital gains, the exemption shall be limited to the sum of capital gains at the time of sale.

Conditions for this benefit to be useful

1. The new property are often purchased either 1 year before the sale or
2. Years after the sale of the property.
3.   Profit can also be invested in the construction of the property, but the construction must be completed within three years from the date of sale.
4. The 2014-15 budgets reveal that only 1 House can be bought or built from capital gains to claim this exemption.
5. Please note that if this new property is sold within 3 years of the completion of its purchase/construction, you can regain this exemption.

Q21. When can I invest in a Capital Gains Account Scheme?

Ans. Finding a suitable seller, placing the necessary funds and getting documents in place for a new property is a time-consuming process. Fortunately, the Income Tax department agrees with these restrictions. If the capital gains are not invested until the filing date of return (usually 31July) for the fiscal year in which the property is sold, the profit is not required to pay taxes, the Capital Gains Account Scheme, 1988 this deposit can be claimed as an exemption from the capital gains. However, if the funds are not invested, the deposit shall be treated as a short-term capital gain for the years after the specified period has passed.

Q22.  What is Business?

Ans. Income from a business or occupation can only be taxed if the business or occupation is carried by the taxpayer at any time during the previous year. Let's first understand what business is.:

Business, in simple words, means a profession carried by a person with a view to profit. Business does not include profits from the profession or affiliated companies. In this business、 –

•Trade,

•Commerce,

•Manufacturing,

Think of things as rendering services and other businesses

For example: owning a store, running a hotel, transportation, travel agency, share broking, etc. a profession may be defined as a profession, or a job that requires thought, skill and special knowledge. Thus the profession refers to those activities whose livelihood is obtained by persons through their intellectual or manual skills such as:

•Legal

•Medical

•Engineer

•Certified Public Accountant

•Architecture, etc.

Q23. What are the allowable expenses from business and occupational income?

Ans. All expenses incurred in full and exclusively with respect to business and profession shall be allowed for income from such business and profession. Here's some of the spending:

• Building rent and insurance.
• Payment for legal and professional services.
• Salaries, bonuses, commissions, etc. to employees.
• Salary, interest and compensation for partners who work under certain conditions.
• Cost of travel and transmission.
• Admission fee and annual membership fee
• Payment of know-how, patents, copyrights, trademarks and licenses.
• Depreciation of fixed assets.
• Expenditure on scientific research for business purposes.
• Preliminary expenses in the case of the company.
• Communication costs
• Discounts are allowed to customers.
• Advertising costs for the promotion of business products.
• Financial expenses (eg. Interest on the loan).
• Bank fees/bank fees.
• Entertainment/business promotion costs.
• Staff benefits costs.
• Cost of printing and stationery.
• Cost of shipping cost.
• All other expenses related to business/occupation.

All these costs are allowed on the basis of actual payments and on the basis of accrual on the last day of the account. For example: an employee will receive a salary for the month of May 2020 in April 2020. However, since the salary is related to the 2019-20 financial year (ending on 31st March 2020), it is not necessary to charge for income from business/professional income for the 2019-20 financial year.

Q24. How do we calculate of taxable income from business and profession?

Ans. Taxable income from business and occupation is profit after deducting costs associated with business activities. Taxpayers can find profits from the books maintained during the year. Income obtained from business and occupation is taxable at the slab rate that applies to taxpayers. Slab charges applicable in 2019-20 / 2020-21 are as follows:

An additional 4% Health and Educational Cess will be applicable to the tax amount calculated.

Q25. How to set of losses from business and profession and carryover?

Ans.  The following are the ways:

• Non-speculative business losses can be set off against any income other than salary in the current year. Taxpayers can carry forward the remaining losses for 8 years and set off against business income in future years.
• Speculative business losses can be offset against speculative business income only. The taxpayer can carry forward the remaining loss for 4 years and offset it only for future speculative business income.
• Specify the business loss can be set against any income other than salary in the current year. Taxpayers can carry forward the remaining losses for 9 years and set off against business income in future years.

TDs / advance tax on income from business and occupation

The taxpayer is required to pay taxes on the income obtained from business or professional activities. Direct tax on income can be paid in 2 ways:

• TDS (withholding tax): TDS to pay while you earn the concept is deducted on payments made to taxpayers for goods and services sold. Hence business owners need to keep in mind the TDS that are deducted by their customers. You can claim deductible TDs while submitting an ITR for a business or occupation. And if there is any loss from B&P it will become your refund, and if you get any profit from B&P it will reduce your tax liability.
• Advance tax: if the tax liability is expected to exceed Rs. 10,000, the taxpayer must calculate and pay the advance tax. This is to avoid interest under sections 234B and 234C:

Q26. Explain Taxes for freelancers.

Ans. Freelancers are people who are self-employed. They have the freedom to choose their own projects and assignments. They do not earn salary income. The nature of their income is more professional income. Therefore, it is covered under the head" income from business and occupation "under the Income Tax Act.

The sum of all receipts received from different projects will be income. And all costs associated with freelancers will be deducted. Below are the taxable incomes of freelancers:

Net taxable income=gross receipts–freelance expenses

Q27. What is speculative business income filing your tax return?

Ans. First of all, to understand speculative business income, you need to understand what speculative trading is.

When a contract for the purchase and sale of goods (including stocks and shares) is regularly or eventually settled without the actual delivery or transfer of the goods, it is called a speculative transaction, and if it is to receive income from such transactions, it will be income from speculative transactions.

One example of a speculative business is a stock brokerage, where a broker earns money by buying and selling goods without taking delivery of the same. Income from ordinary business and speculative business is calculated and maintained separately.           

Q28. What are the basis of income charges under business and profession under Section 28?

Ans. The income imposed under" profit and profit of a business or profession" is as follows:

• Profits and profits from any business/profession carried by the assessor at any time during the previous year
• Any compensation/other payment received by or by,—any person, by any name, to cover the whole or significant whole of the affairs of the Indian company.
• Profit from the acquisition of trade from the Association of certain services performed by its members
• Value of any perk/profit from business or profession, whether it is converted into money
• Interest, fees, salaries, rewards, or bonuses received by or from company partners
• All sums received under the key man insurance policy, including the sum given as a bonus
• Income from any speculative transactions
• Any sum, whether received/Accounts Receivable, Cash/for type:

1. To not perform any acts related to any business, or
2. To not share know-how, patents, copyrights, trademarks, licenses, franchises or other business/commercial rights

• Profit incurred by transfer of Duty-Free replenishment certificate
• Any profits made by the transfer of Duty qualified passbook scheme
• Profits made from the sale of licenses made under the import (control) instruction, 1955, import and Export (Control) Act, 1947 (18 of 1947))
• Tax-free income under business and occupation

Q29. Mention the deduction [Section 57].

Ans. The following expenditures are allowed as deductions from taxable income under the top of “other sources income:

Q30. What expenses are not deductible under section 58?

Ans. Expenses not deductible [Section 58]:

Q31.How do we calculate Taxes?

Ans. Calculation of Taxes:

1. First, find income under various heads;

2. In accordance with the provisions of Section 70-78 of the Income Tax Act, 1961, the current losses as well as adjustments for previous years. We find the total income;

3. From gross income to deduct the deductions specified under via chapter, we find net income;

4. Net income application @ 30%

5. Added: surcharges@10% if net profit increases Rs. 1.0 crore;

6. Additional: education cess and special education cess;

7. Deduct rebates if under sections 86, 90,90A and 91;

8. Additional: if there is interest expense;

9. Deductible: deductible if there are taxes/TDs paid in advance;

10. The balance will be the amount of tax to be paid