Direct & Indirect Taxation (A.Y ) Course: PGDM ( ) Semester : II Marks: Faculty: Prof. Akshay Damani FCA, MBA (UK), Mcom, SET.

DEATH & TAXES ARE UNAVOIDABLE

Classification of Taxes Direct and Indirect taxes Direct taxes – directly levied on source of income and wealth E.g. Income tax and Wealth tax Indirect taxes – indirectly levied on activity/transaction which generates income or wealth E.g. sales tax, service tax, etc.

KINDS OF TAXES Income-tax Sales tax Wealth tax Service tax Custom duties Securities transaction tax Excise duties…… and many more

INCOME TAX ACT, 1961 (will be replaced by Direct tax codes from )

Income tax INCOMETAXWHOWHEN

INCOME U/s 2 (24): Meaning and Characteristics A PERIODICAL MONETARY RETURN COMING IN WITH OR SOME SORT OF FROM A DEFINITE SOURCE REGULARITY REGULARITY

Characteristics of Income Legal or Illegal incomes are taxable Moral or Immoral incomes are taxable. Cash or kind Real and not imaginary. E.g. sales supported by invoice documents Examples: profits, gains, donations, perquisites, allowances, compensation, export cash assistance, lottery prize, kaun banega crorepati ?, etc…….

Tax The outflow from income paid to the Government.

Who is liable to pay TAX? PERSON – U/s 2 ( 31 ) INDIVIDUAL H U F COMPANY FIRM BOI / AOP LOCAL AUTHORITY ANY OTHER ARTIFICIAL JURIDICAL PERSON

What is the status of the following person Ms. Katrina Mr. Salman – a minor Ms. Ruby – a person of unsound mind Ram, his wife Sita and two sons M/s Chip and Dale – 2 CAs in partnership Tata limited Mumbai Municipal corporation Roha Gram Panchayat Joint venture between X ltd and Y ltd Joint venture between Mr. A and Mr. B Mumbai University Tirupathi Devasthanam

Assessee U/s 2 ( 7 ) a) every person in respect of whom any proceedings are taken under the act b) every person who is deemed to be an assesses under the act e.g. a trustee of a trust c) every person who is deemed to be as assessee in default. e.g. an employer who does not deduct TDS from employees salaries

When to pay tax ? PREVIOUS YEAR - U/S 3 ASSESSMENT YEAR U/S 2 ( 9 )

Previous year u/s 3 Year in which the income is received Always ends on 31st march E.g. P.Y begins on and ends on P.Y begins on and ends on

ASSESSMENT YEAR u/s 2(9) Year in which final tax is payable relating to the previous year. Always for 12 months. Example: PY AY PY AY (this is relevant or exam)

Assessment U/s 2(8) Assessment 2 (8): Process of determining and computing the amount of income and tax dues of a person.

Charge of Income tax u/s 4: Income tax shall be charged, At the rates laid down by the finance act, For that assessment year, In respect of the total income, Of the previous year, Of every person.

Residential status u/s 6 Tax liability is based on the residential status of a person. Citizenship is NOT the main criteria for tax purposes and is different from residential status Residential status may change from year to year depending upon the stay in India.

Kinds of Residential status: All Assesses Resident Individual & HUF R & OR R but not OR Non- resident

Conditions for determining residential status for an individual sec 6(1) BASIC ADDITIONAL Stay in India for At least 182 days in Current PY ( A ) OR Stay in India for at least 60* days in current PY. & Stay in India for at least 365 days in 4 PY preceding current PY. ( B ) AND Stay in India for 730 days in 7 PY preceding the current PY Resident in India for 2# out of 10 PY preceding current PY & ( C ) ( D ) If {a or b}+ {c & d} satisfied: ROR If only a or b satisfied: RNOR If a or b NOT satisfied: Non-resident * exceptions: a)A citizen of India/crew of Indian Ship leaving India for Employment or self-employment OR b) A citizen of India or a persons of Indian origin comes to a visit in India REPLACE 60 by 182 days

Counting of days a) the stay need be in the same place b) the stay need not be continuous c) the days of entry and exit are both counted d) a stay in a boat in territorial waters of India is treated as stay in India e) For February, where applicable 29 days are considered.

Solution:Mr. George Bush Foreign Citizen PY AY Days in India in P.Y Jan : 6 days Feb: 28 days Mar: 15 days Total: 49 days He does not satisfy any of the conditions. Therefore he is Non resident. E.g. Mr. George Bush comes for the first time to India on and leaves India on Determine his residential status for AY

Conditions for determining residential status BASIC ADDITIONAL Stay in India for At least 182 days in Current PY ( A ) OR Stay in India for at least 60 days in current PY. & Stay in India for at least 365 days in 4 PY preceding current PY. ( B ) AND Stay in India for 730 days in 7 PY preceding the current PY Resident in India for 9 out of 10 PY preceding current PY & ( C ) ( D ) If {a or b}+ {c & d} satisfied: ROR If only a or b satisfied: RNOR If a or b NOT satisfied: Non-resident

Class exercises (1) Mr. Sanjay, an Indian citizen went to USA for the first time for the purpose of employment on 10 th May, He came back to India on 19 th November, Determine his residential status for Assessment year Ans: Non resident No. of days in India – 173( ) Employment so replace 60 by 182

Class exercise 2: Ishant sharma, an Indian cricketer submits the following information of stay outside India for the year ending He made his debut in international cricket on 10 th march, Then in a match against the West Indies, he suffered a major injury needing two years of hospitalization in USA. He recovered and returned back to India on Thereafter, he was employed by China Cricket board as Manager of the team. Determine his residential status For A.Y

Solution Total no. of days in PY Less: stay out of India: 12.4 to to to to to Therefore, stay in India = = 162 He has not stayed in India for 182 days from employment condition, therefore he is Non-resident.

Class exercise Mr. Bond an Indian citizen leaves India for honeymoon with his wife for the first time on Determine his residential status? Mr. Khiladi an Indian citizen leaves India for employment purposes for the first time on Determine his residential status?

Residential Status for a Company Depends on the management and control of affaires, i.e. where is the majority decision making taking place. Irrespective of the type of company. For HUF – the residential status of Karta is considered as residential status of HUF.

Assignment sums: Please see hand out.

Scope of total income: Section 5 Nature of IncomeROR RNORN R Income received in IndiaTaxable Income accruing in IndiaTaxable Foreign Income: a)From business / profession controlled or set up IN India Taxable Not-Taxable b) From business/profession controlled or set up OUTSIDE in India TaxableNot TaxableNot-Taxable

Items of IncomeNatureRORRNORN R Salary received in IndiaReceived in India TTT Salary earned in India but received in Sri Lanka Accruing in India TTT Foreign Income: Income from business in Nepal controlled form Delhi Foreign Income controlled from India TTNT Income from business in Sri Lanka received there. Foreign Income NOT controlled from India TNT E.g.: T- Taxable NT - Not Taxable

Mr. Tom, a British citizen had the following income during the year ended on 31 st March, Income from house property in India Income from property in Rome Interest from bank account in India Income from business in Bangladesh, being controlled from India Interest on Bank account in USA Salary earned and received in Tokyo Income earned and received in London Dividend from British company received in India Compute his total income for AY in 3 different cases: A) ROR, b) RNOR and C) NR.

NON- TAXABLE INCOMES: (EXEMPTIONS) - Section 10 Section 10 (1) - Agricultural Incomes from land situated in India Section 10 (2) - Sums received by a member of the HUF from a Family income Section 10 (2A) -Share of partner in profits out of the partnership firm Section 10 (16) -Scholarships granted to meet the cost of education – like tuition fees. Section 10 (32) - Minors income upto Rs.1500 per child. See notes for other exemptions

Heads of Income Income from Salaries Income from profits and Gains of business or profession Income from House property Income from capital gains Income from other sources

Computation of Total Income PY AY ParticularsRs. Income from SalariesXX Income from House propertyXX Income from P & G of Business or professionXX Income from capital gains (short term)XX Income from Other sourcesXXX Add: Clubbed incomesX GROSS total IncomeXX Less: deductions u/s 80- X Net taxable incomeYY Add: Long term capital gains GG Net taxable income MM

Net taxable incomeYY Rates of tax (10 % 20% 30%) or as relevant Net tax payable1 Add: Surcharge (tax on tax)2 Tax payable [ ]3 Add: {education cess 3%} [1 x 3 %]4 FINAL tax payable5 Less: Tax already paid (T.D.S. / Advance tax) [5-6]6 Assessed tax payable/refund7 Computation of Final tax payable :

Income tax slab for ay Income Tax Slabs for ay for Resident Senior Citizens (FY ) S. No. Income Range Tax percentage 1 Up to Rs 2,40,000 No tax / exempt 2 2,40,001 to 3,00,000 10% 3 3,00,001 to 5,00,000 20% 4 Above 5,00,000 30% Income Tax Slabs for ay for Resident Women (below 65 years) (FY ) 1 Up to Rs 1,90,000 No tax / exempt 2 1,90,001 to 3,00,000 10% 3 3,00,001 to 5,00,00 20% 4 Above 5,00,000 30% Income Tax Slabs for ay Others & Men (FY ) 1 Up to Rs 1,60,000 No tax / exempt 2 1,60,001 to 3,00,000 10% 3 3,00,001 to 5,00,000 20% 4 Above 5,00,000 30%

Levy of surcharge has been withdrawn for personal income tax payers “Education Cess on Income-tax” and “Secondary and Higher Education Cess on income-tax” shall continue to be levied at the rate of two per cent and one per cent respectively of income-tax.

For the next class…. Assignment 1 to be submitted – Residential status and Scope of total income Presentation: A) Group formation B) List of topics next slide

Session no. Group no.Topic

To do…. Income tax is the price one pays for Civilization……..